As the Morrison government attempts to beef up the powers of one financial regulator, a parliamentary committee has heard another was prepared to work in secret with the banks to gain their co-operation.
Graeme Samuel, who chaired the capability review into the Australian Prudential Regulation Authority in the wake of the banking royal commission, said there was a culture of secrecy that didn’t “make much sense”.
“This goes a bit to the culture of the way APRA operated in the past,” the ex-head of the national consumer watchdog told a federal parliamentary committee in Canberra on Wednesday.
Banks were ordered to self-assess their operations in terms of their governance and culture in the wake of the royal commission which were then presented to APRA.
APRA had decided to keep the findings secret because it felt a bank in distress was best kept under wraps for fear of creating a run on the financial institution.
But Mr Samuel said a fundamental problem was that APRA also operated in this way because it felt this would lead to greater co-operation from an organisation.
“Interestingly, when we sit down with the chairs and the CEOs of the four major banks they almost had a rehearsed line,” Mr Samuel said.
They told him he had to understand their co-operation with the regulator was dependent upon APRA “not being transparent”.
Mr Samuel paraphrased the banks as telling him: “If we felt that disclosing things to APRA would lead to a referral to ASIC for potential prosecution, well then we would not be co-operative”.
He said APRA and its chairman Wayne Byres have now acknowledged that secrecy and a behind closed doors approach “may not be appropriate”.
APRA and Mr Byres recently appeared before the House of Representatives standing committee of economics.
“The committee was underwhelmed by the evidence, it would be fair to say … consequently, we will recall APRA for further scrutiny later this year,” committee chair, Liberal MP Tim Wilson said.
The Morrison government has set out a “roadmap” to restoring trust in Australia’s financial system after the sometimes disturbing revelations that came out of the royal commission.
As part of this effort, Treasurer Josh Frydenberg released draft laws on Wednesday to beef up the Australian Securities and Investment Commission’s enforcement and supervision powers.
It includes strengthening the standards of licensing required of an Australian financial services entity, extending the powers to ban a person from the sector and harmonising ASIC’s search warrant powers to that of the Crimes Act.
Separately, laws to end the grandfathering of conflicted remuneration to financial advisers were passed by the lower house on Tuesday.
Such remuneration can entrench clients in older products even when newer, better and more affordable products are available on the market.
“Ending the payment of grandfathered conflicted remuneration will remove this inherent conflict and restore trust in the financial advice industry,” Mr Frydenberg and Finance Services Minister Jane Hume said in a statement.