Ms GAMBARO (12:42 PM) —I would also like to speak to the report of the House of Representatives Standing Committee on Economics, Finance and Public Administration entitled Review of the Australian Prudential Regulation Authority: who will guard the guardians? APRA came into effect on 1 July 1998 as a result of combining 11 separate regulatory organisations into one body. It was created as a result of a change in the focus of financial regulation from sector based regulation to risk based regulation. The establishment of a new regulatory entity to undertake prudential regulation of the financial system was a recommendation of the Wallis committee. At the time of inception, APRA was provided with comprehensive powers in its area of responsibility, including the licensing of financial institutions and making standards on prudential matters in relation to approved deposit taking institutions, superannuation funds and insurance companies. It is not responsible for policing competition in financial markets, standards of disclosure regarding products and services or how banks and other customer complaints and disputes are handled—as the member for Chisholm alluded to in her speech.

In gauging the success of APRA as part of its annual review by the Standing Committee on Economics, Finance and Public Administration, its performance, on the whole, has been very good. As per the first aim of the Wallis committee's recommendation for a new prudential regulator, APRA has reduced supervisory costs for regulated industries through administrative economies from $56 million in 1997-98 to an estimated $51 million in 2000-01. It was achieved at a time when financial institutions had increased in size by 35 per cent. In addressing the second and third aims of the Wallis committee's recommendations for a harmonised approach to supervising risk, and a flexible approach to dealing with structural change in the financial system, the committee found that APRA had encountered some difficulties. These included changes in the structure of the finance system, such as the growth in the number and complexity of conglomerate institutions, with different risk profiles; restrictions on the classes of debt and equity that may be issued by mutual institutions, such as credit unions; and changes in the supervision of the superannuation industry.

As a risk based prudential regulator, APRA's focus is how financial institutions control the risk in their activities in order to maximise the likelihood that they will be able to honour their obligations to their depositors and shareholders. Two areas of focus for APRA in the last year have been substantially completing a review of prudential standards for conglomerate entities and the harmonising of prudential standards for approved deposit taking institutions such as banks, building societies, credit unions and friendly societies. The principal problem for APRA is how to measure and manage risk across a diverse set of activities. It is currently in the second stage of a review of the regulatory framework for conglomerates. New prudential standards across ADIs came into effect on 1 October 2000 and APRA intends to undertake a second stage investigation to ensure that they address all significant risks facing ADIs.

Prior to APRA becoming a supervisor for the superannuation industry, the Insurance and Superannuation Commission handled all regulatory activities in this area. Under the current situation, prudential supervision resides with APRA, disclosure and market conduct with ASIC, and the development of new legislation with the Department of the Treasury. Evidence provided during the review indicated that the separation of responsibilities with other financial regulatory bodies still requires a great deal of work. APRA recognises the need to work closely with other regulatory agencies to minimise duplication and inconsistency and to promote much greater cooperation. This is the key to the success of the current regulatory structure and the committee will monitor these relationships.

From the perspective of superannuation funds, APRA's risk based approach is considered far too intrusive and the committee's recommendations and investigations into APRA's supervision of the superannuation industry found that there was a need for APRA to take on a more educative role and that far more resources should be allocated here. As part of its restructure, previous members had mentioned that a number of inexperienced staff have left the organisation and there appears to be a noticeable impact, particularly in the superannuation and insurance industries. In turn, a number of internal management and organisational issues have arisen. However, following some investment in learning and development activities, APRA now believes it has adequate staff numbers with professional people and that morale is high. The report demonstrates that APRA'S transition to a new regulatory framework has been smooth and its performance good. There is scope for improvement and APRA is pursuing measures to enact these. It is fortunate that APRA was born in a favourable economic environment. However, the committee will continue to review APRA's progress with regard to regulatory reform of the financial services sector.