APRA’s capability found wanting

The APRA capability review revealed a number of challenges. The review was framed against a new acronym, GCA – Governance, Culture and Accountability.

Chairman Wayne Byres in his 9 August statement to the House of Representatives Economics Committee, confirmed the need to lift capabilities, grouping the organisation’s challenges into four key outcomes:

1 . Maintaining financial system safety and resilience;

2 . Improving outcomes for superannuation members;

3 . Improving cyber resilience across the financial system; and

4 . Overhauling governance, culture, remuneration and accountability within the financial sector.

The Government released a statement in response to the recommendations (see HERE) agreeing to all recommendations.

This article touches on some of the key issues in the review under two broad headings below.

Part 1 – Culture, workforce capability and resourcing.

APRA culture shares the same challenges as the institutions it regulates.

The theme is that there is a strong level of technical expertise in APRA (though lacking management capability) with a culture of internal consultation and consensus building before a decision or action is taken.

APRA is slow to come to a decision and respond to external change. Staff are reluctant to challenge, raise issues or concerns along the way the view being that it would have a negative impact on their career.

APRA’s capability to supervise CGA is seen as a challenging new area rather than is not core. It is under-resourced and hard to staff given the scarcity of expertise to fill the roles.  The expertise required is in the areas of behavioural science, organisational culture and remuneration.

“When a resource-constrained institution is confronted with a difficult challenge that it does not believe is a core threat to its mandate then that challenge is less likely to be taken up. The Panel believes that this is part of the problem with GCA in APRA.”

And again…“APRA does not consistently give enough weight to the view that GCA risks are genuine drivers of financial risk for an institution that should be a core part of a prudential regulator’s work.”

The key recommendations are:

  • Develop a cultural change program
  • Address leadership capability at all levels with a focus on leading change, execution and accountability creating distinct people leader and technical-specialist career pathways.
  • Revise management structures and levels – the goals being to widen spans of control, deliver empowerment, efficiencies and speed of decision-making.
  • Remove remuneration constraints by removing APRA from the APS Workplace Bargaining Policy.

Part 2 – Delivery, organisational capability and design.

APRA’S divisional structure around supervision has been in place for almost 2 decades and there has been criticism of its oversight if the superannuation industry.

The key recommendations are:

  • APRA chair to adopt a broader organisation-wide role rather than be bank-specific.
  • Restructure supervision divisions along industry lines (banking, insurance and superannuation).
  • A new Superannuation Division, its focus being the performance of the system for members. The member outcome mandate will be legislated to be more specific.
  • Learn to play well with others – not only ASIC now that the lines are blurred between the two but also international regulators, existing relationships not being fit for purpose.
  • Technology tools must play a role, and collaboration with public and private sector experts is a necessity if it is to support the development of the financial sector’s cyber defences.

The review is blunt – APRA needs a cultural and regulatory reset – with better accountability, transparency, enforcement communication and engagement.

See the review HERE .

© Guerdon Associates 2024
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