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Australian Prudential Regulation Authority Reports 2000-01


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CONFIDENTIAL EMBARGOED until tabled (Thursday, 11 October 2001 to be confirmed)

in either House of Australian Parliament

Australian Prudential Regulation Authority

V A b ou t APRA

The Australian Prudential Regulation Authority (APRA) was established on

1 July 1998, We are responsible for the prudential regulation of banks, life

insurers, general insurers, superannuation, building societies, credit unions and

friendly societies, APRA is fully funded by the industries that it supervises.

© Australian Prudential Regulation Authority 2001 This work is copyright. You may use and copy any material in this publication in an unaltered form for your personal or non-commercial use, or for use w ithin your organisation, provided that the copyright notice appears in each copy. Apart from any other use permitted under the Copyright Act 1968, all other rights are reserved. Requests for any other type of use should be directed to APRA Public Affairs Unit, GPO Box 9836, Sydney NSW 2001, Australia. ISSN 1442-7885

CapraJeffrey Carmichael AO Australian Prudential Regulation AuthorityCHAIRMAN Level 26, 400 George Street, Sydney NSW 2001GPO Box 9836, Sydney NSW 2001 Tel: 61 2 9210 3000 Fax: 61 2 9210 3411 11 October 2001

The Hon. Peter Costello, MP

Treasurer

Parliament House

CANBERRA ACT 2600

Dear Treasurer

I have much pleasure in submitting the Annual Report and Financial

Statements o f the Australian Prudential Regulation Authority for the

year ended 30 June 2001.

Yours sincerely

is to be a world-class integrated prudential supervisor recognised for its

fi adership, professionalism and innovation.

is to establish and enforce prudential standards and practices designed to

nsure that, under all reasonable circumstances, financial promises made by institutions we

jiupervise are met within a stable, efficient and competitive financial system.

are underpinned by the highest standards of individual and corporate

I integrity, as well as by flexibility, openness and accountability.

pur Supervisory approach is forward-looking, primarily risk-based, consultative, consistent and in line w ith international best practice. This approach also recognises that

.management and boards of supervised institutions are primarily responsible for financial

roundness.

Torn the Chair and CEO 3

Supervision 7

Enforcement 13

-olicy development 17

APRA statistics 24

Cooperation and liaison 27

Corporate governance 31

The cost of prudential 36

supervision and APRA's finances

t h e C h a i r

The vast majority o f entities in Australia’s financial system remained healthy throughout 2000/01 despite slower economic growth. Even so, the past year has been the most difficult in APRA’s short history as a prudential supervisor.

The collapse o f H IH , Australia’s second largest general insurer, was a major blow to policyholders, shareholders and APRA alike.

The Royal Commission announced by the Government in June should provide a comprehensive and objective account o f events, including APRA's handling o f the matter and we welcome the opportunity this provides.

While a full analysis o f H IH ’s failure must await the outcome of the Commission, a number of lessons are already evident. First and foremost, it underscored fundamental weaknesses in the existing regulatory framework for general insurance. It also highlighted a gap between community expectations about prudential regulation and APRA’s capacity to meet those expectations. These lessons have relevance beyond the immediate problems associated with HIH.

The regulatory framework

for general insurance

over two years; by historical and international standards, this was exceptionally expeditious. For many policyholders with HIH, however, it was not soon enough.

Given the liquidator’s preliminary assessment that HIH’s problems may date back several years, it is moot whether APRA could have accomplished these reforms quickly enough to have prevented HIH’s failure. Nevertheless, the legislative and policy changes now in train will go a long way towards creating the secure environment that policyholders deserve. Not only is this new policy framework more closely aligned with the risks faced by the industry, it brings the culture of the whole supervisory process into line with the advances made in other areas of regulation over the past decade.

Relative to the inherited framework, the new legislation and standards:

• provide more flexible powers for establishing and enforcing standards of prudential behaviour;

• improve the consistency and transparency of provisioning for insurance liabilities;

• relate the capital required by insurers to the residual risks after provisioning;

When APRA was established three years ago, we

inherited a series of regulatory frameworks,

including both policies and practices, from our

predecessor agencies. These varied greatly in terms

of quality and approach. Among other early

priorities, we identified the need for a sweeping

overhaul of the Insurance Act 1973, which was overly

legalistic, too inflexible and insufficiently risk based.

Reforming the regulatory framework for general insurance began immediately after completion of APRA’s establishment phase. Since the reforms

involved a complete overhaul, they required the development of new concepts, testing o f those concepts with industry, and consultation rounds with both industry and Government.

The resulting reforms, both o f legislation and prudential standards, which are scheduled to come into force on 1 July 2002, were completed in just

• require higher levels of capital to be held where risks are greater;

• require additional capital to cover asset risks, including those arising from possible default and movements in market prices;

• take a more consistent and realistic approach to the measurement o f capital;

• require insurance companies to have risk management systems and procedures in place; and

• give more responsibility and authority to valuation actuaries and external auditors, including for reporting to APRA.

3

Superannuation

Much has been said and written about the superannuation industry over the past year. While the financial losses from superannuation funds in difficulty have been much smaller in scale than HIH, the outcomes have been equally painful for those most affected.

The Australian superannuation industry is, by and large, well managed and does an excellent job o f helping Australians to prepare for retirement. The industry is nonetheless extremely large and, with many small and inexperienced participants, some problems are inevitable. W ith responsibility for around 11,500 funds, APRA cannot, with its existing resources and regulatory powers, supervise all o f them to the same level that it does other financial institutions.

While APRA has upgraded supervision of superannuation funds in several respects over the past year, more extensive changes are needed in the framework, including both legislation and prudential policy, if small and medium-sized funds are to be supervised as effectively as the community rightly expects. We are working closely with the Government to establish priorities for reform in this area.

Public expectations about

prudential regulation

Prudential regulation, in Australia and elsewhere, involves developing standards o f prudential behaviour for regulated institutions, monitoring compliance with those policies, and enforcing remedial action to protect the interests of customers where there are concerns about either compliance or financial sustainability. There are two

characteristics of this process that are not well understood by the community.

First, supervisory intervention is usually graduated. Unlike other forms of regulation, where a breach of legislation is a legal offence, thereby warranting a legal response, breaches o f prudential standards are primarily warning signals. The usual response to a prudential breach includes a period of cooperation between the regulator and the financial institution,

during which a remedy is sought that is capable of returning the institution to full prudential compliance. Only when the problem becomes intractable, or the institution recalcitrant, does the regulator need to resort to more extreme measures.

This approach has worked successfully in a range of cases in the past and, in doing so, has protected rather than damaged the interests of the institution's customers.

Second, prudential regulators are not infallible. Indeed, the process o f working with an institution to overcome regulatory breaches or concerns can, ini some cases, increase the extent of the losses associated with failure by prolonging the period of operation o f an institution that turns out, with the benefit of hindsight, to have been beyond rescue.

The probability of such an adverse outcome is greatly increased where the regulatory framework off warning signals is itself flawed or where the information provided to the regulator is deficient (or misleading).

No regulator can promise a complete absence of failures; in particular, no prudential regulator has the capacity to eliminate fraud. Nevertheless, in any given situation, the likelihood of failure can be decreased by a range o f factors.

Central among these is the development of stronger policies and practices. In this respect, APRA remains committed to its ongoing program of reforms. This program — which encompasses important changes affecting deposit-takers, as well as; insurers and superannuation — is described later in this report.

Beyond this, the likelihood of failures may be decreased by requiring regulators to be more intrusive or by giving them stronger enforcement powers. Moving in this direction has implications for the resourcing level o f the regulator, the extent of the regulators legal powers over regulated institutions and the efficiency of the industry. These are fundamental social and political decisions and are correctly the province of the Government, not o f the regulator, although the regulator’s views are a j relevant force in informing Government’s decisions, j

APRA was established in 1998 following the recommendations o f the Wallis Inquiry. The Wallis Report envisaged a financial system in which regulation would seek a balance between regulatory effectiveness and market efficiency. The possibility of institutional failure was not only contemplated in this balance, it was viewed as an inevitable price for maintaining a competitive and innovative financial sector. APRA was constituted and resourced accordingly. With responsibility for more than 12,000 entities, APRA is required to allocate

resources between policy development, monitoring and enforcement on the basis of assessed risks.

The experiences of the past year indicate a marked divergence between public expectations about the outcomes of prudential regulation and those proposed by the Wallis Report. The community’s tolerance for risk appears to be lower than previously thought, which suggests that it may be timely to reconsider the balance between regulatory eficiency and effectiveness.

Finally, the community’s tolerance for risk can be increased by reducing the elements of uncertainty surrounding financial failures. Australia is one of the few developed countries that does not have a formal structure of deposit insurance or support for insurance policyholders in the event of failure.

While poorly designed support schemes have been validly criticised for contributing to imprudent Ibehaviour, well-designed schemes can provide a :framework for dealing with failure and provide Iboth certainty and continuity to those affected. The importance of careful design cannot be overstated. 'Support schemes should take full account of the mature of the risks involved in the different kinds of ifinancial entities and should not override the proper -allocation of risks among the various parties potentially affected. Design is particularly important in the case o f defined-contribution superannuation, where the risk of losses resulting Ifrom unwise investments or regular market fluctuations is borne by the investor.

APRA has set a high priority in the coming year

Jeffrey Carmichael, Chair

Looking to the future

APRA has come under intense criticism over the past year. Much work needs to be done to rebuild public confidence in prudential regulation. We are committed to absorbing whatever lessons may

emanate from the HIH Royal Commission and to emerging as a stronger and more effective regulator. We believe that the policy reforms of the past few years have helped lay a stronger foundation for regulation of some o f the industries under our

charge, but there is much still to be done.

We wish to express our appreciation to APRA’s staff who have laboured long and hard this year, often against an unaccustomed intensity of public scrutiny and criticism.

We also acknowledge the work of Alan Cameron and David Knott who served as Board members during parts of the year.

Finally, we wish to acknowledge the enormous contribution made to APRA over the past three years by Brian Gray, Executive General Manager of Policy, Research and Consulting Division, and to

put on record our great sadness at his unexpected death on 24 August 2001. Brian was a true friend and colleague. His sharp intellect, dry sense of humour and genuine concern for others will be greatly missed, although his legacy lives on.

Graeme Thompson, CEO

S u p e r v i s i o n

: General approach

The community relies heavily on superannuation funds, insurance companies and deposit-taking I institutions meeting their financial commitments i as they fall due. The objective of prudential I supervision is to increase the probability that

I these commitments will be honoured.

I Prudential supervision is not intended to usurp the I roles and responsibilities o f either the boards or management of financial institutions, but to |J supplement their activity by moderating risk where

the interests of fund members, policyholders and j depositors would otherwise be jeopardised.

, Forward-looking supervision relies not only on comprehensive and accurate information about the present, but on predictions about whether the ■ j present or proposed activities o f a financial

institution are likely to lead to problems in meeting ^ commitments in the future.

In Australia, like all other countries, the presence of , a system of prudential supervision has not been jj sufficient to prevent the failure o f some financial institutions. In most countries there are constant

endeavours to strengthen and improve financial T supervision in the wake o f financial crises that have . affected many parts of the world over the last i decade.

1 APRA is similarly committed to improving and I strengthening its supervision practices. We believe jiff that a key element in achieving that improvement is If an ability to devise a prudential supervision strategy

| for each regulated institution based on its risk I profile.

I APRA inherited differing supervision methods from I its several predecessor organisations and, consistent i| with the Government’s intentions in establishing APRA following recommendations of the Wallis

Committee in 1997, our objective has been to | develop these into consistent and best-practice supervision applied to all of the more than 12,000 1 . _ . . .

w entities we supervise. Our approach is risk-based, | With resources being concentrated where they are II judged to be most needed. That is, more resources | are allocated to higher-risk or more problematic

institutions and fewer resources allocated to lower- risk or well-managed institutions.

The risk-based approach involves an overall evaluation of the risks encountered by an institution in its business and consideration of how the institution manages those risks. Such assessments need to be based on a detailed knowledge of the institution’s circumstances and its risk profile. This knowledge is gained from off-site analysis of key prudential and statistical data resulting from frequent

and comprehensive reporting, as well as on-site visits concentrating on particular risk areas such as credit risk, balance sheet and market risk, and operational risk. Once an assessment of an institution has been undertaken, a supervision strategy is determined, tailored to the risk profile of the institution. The strategy includes the plan for future supervision, such as frequency and extent of on-site visits and the level of off-site scrutiny. The strategy will ensure supervisory actions are directly linked to specific areas of concern that require further scrutiny.

This objective is being achieved in stages, initially with authorised deposit-taking institutions (ADIs) and friendly societies because they submit frequent and comprehensive information to APRA and have in the past been subject to on-site inspections at intervals of about 18 months. This has provided an

extensive information base from which individual supervisory requirements can be determined.

The insurance sector has also reported quite comprehensively, but before APRA’s formation it lacked the same history o f structured on-site visits. Nevertheless, APRA now believes it has sufficient information to devise a tailor-made supervision strategy for each institution in the life insurance and general insurance industries.

Applying a tailor-made approach to superannuation entities poses a much greater challenge. This is not only because of the number of funds we supervise

but also, in the case of many smaller employer- sponsored funds, because such a risk assessment can be based on inadequate information. This is partly a consequence of the present statistical returns required of superannuation funds, which provide little information about risk profiles and, in most

7

APRA. Annual Report 2001

cases, are only annual. It is therefore necessary to gather further information or undertake on-site visits to all funds before individual risk-based supervisory strategies can be fully developed.

The result of this major endeavour will certainly be worthwhile. Perhaps most important, it will provide a basis for making informed judgements about which institutions (we believe the great majority) are well managed and do not require an intrusive supervisory approach, and those which warrant a more aggressive and prescriptive regulatory approach because they disregard the spirit of prudential requirements, are imprudent with investors’ funds or have ineffective risk-management systems.

While it is not practicable to define and measure every aspect of the supervisory process, the table below provides an overview of on-site supervisory activities in 2000/01.

Diversified Institutions Division supervises financial conglomerates and those entities with an international aspect to their business. These include the largest financial groups with activities spanning banking, insurance and superannuation. While the number of licensed entities accounts for fewer than

10 per cent of the entities supervised by APRA, their assets account for more than 80 per cent of those under APRA's supervision. Specialised Institutions Division supervises the other 90 per cent of entities, accounting for about 20 per cent of total assets.

Specialised Institutions Division conducts formal consultations with some entities but, as internal risk management systems of the entities it supervises tend not to be as well developed as in the larger

financial institutions, its primary supervision tool is j more detailed on-site review (supplemented by off­ site analysis). The Division conducted 908 such on­ site reviews in 2000/01, with over 600 of these to superannuation entities. In addition, there were more than 400 off-site reviews, of which around 200 were of superannuation funds. This is an efficient method of determining whether the risk profile o f the entity is such that priority should be given to doing an on-site review.

Supervisory issues

Supervision of the banking industry includes

quarterly desk reviews, a detailed annual review

including consultations with senior management,

and less formal contacts and information-gathering

to maintain current knowledge of banks’ changing

risk profiles and risk-management practices. APRA

specialists also make on-site visits to check

institutions’ management of asset quality, credit risk,

balance sheet and market risk, and operational risk.

Particular attention in 2000/01 was paid to risks involved with outsourcing, and formal meetings were held jointly with bank managements and their auditors to review the outcome of audit reviews of their outsourcing arrangements. We have been monitoring the ecommerce operations of banks.

No significant prudential issues have emerged. The main risks arising from ecommerce are those associated with IT systems, security and outsourcing. This being an evolving area, APRA will continue to monitor developments.

Our supervision of banks did not reveal any major concerns during the year, although it was notable that banks’ impaired assets began to rise (from a very)

Number o f visits to institutions

Specialised Institutions Division

Diversified Institutions Division

BillMBiMlljjpWiMBMIll Consultations On-site visits Tripartites Authorised deposit-taking institutions 243 12 31 25

Friendly societies 19 0 0 0

General insurers 32 28 7 o

Life insurers 2 5 2 0

Approved Trustees 47 5 2 0

Superannuation funds 565 1 2 0

C onglom erates 0 28 10 0

Total 908 79 54 25

8

low base) from late in 2000. This trend is being monitored closely and discussions held with individual banks about the appropriateness of their provisioning levels.

The profits reported by Australian banks, combined with their interest in more active capital management, led to several proposals for capital buybacks. Such proposals must, of course, permit

continued compliance with capital requirements. At June 2001, the average risk-weighted capital ratio of Australian banks was 10.4 per cent.

After detailed evaluation to ensure that their policies and systems conformed with Australian requirements, APRA issued licences to three new banks: subsidiaries of Bank of Cyprus and Laiki Bank and a branch of Taiwan Business Bank. In July 2001, APRA licensed Members Equity Pty Ltd

as a new domestic bank.

The same trend of an increase in impaired assets was

true for building societies, but was not evident for

credit unions.There was very little change in

either the capital or liquidity ratios of building

societies or credit unions over the financial year. We

have been paying close attention to the moves by

some of these ADIs to increase the commercial

proportion of their lending portfolios, where the

risks involved are different to those in housing and

other personal lending. We have emphasised to all

the entities concerned the importance o f having

adequate expertise both to assess such lending

propositions adequately and to monitor the business

borrower over the life of the loan. In some cases we

requested the entity to curtail business lending until

it had established appropriate management systems.

In supervising ADIs in 2000/01, there was a good deal of focus on implemention o f the Prudential Standards issued by APRA in October 2000. These harmonised the standards previously required of banks (by the Reserve Bank of Australia) and of the other deposit-taking institutions (by the state agencies which supervised them until June 1999). These new standards required, inter alia, ADIs to formulate capital management and liquidity management plans, and to have more formal systems of internal audit.

Supervision of superannuation funds involves reviewing such matters as the conduct of trustee meetings, quality of records, processes for election of

trustees, arrangements with service providers, disaster recovery plans, internal controls and quality of the audit, all of which are important indicators of good governance.

For members of a fund, however, satisfactory governance is futile if the performance of its investment portfolio is poor; experience over the past two years has demonstrated that asset quality

should be as much a focus of prudential interest in superannuation as it is for deposit-takers and insurers. In its reviews of funds, APRA is therefore placing greater emphasis on asset quality, including

examining the process by which trustees select assets and monitor any assets of poor quality before they result in significant losses.

Among smaller employer-sponsored funds, we continue to find investment strategies that do not appear to have been designed in the best interests of fund members. The legislation requires trustees to have regard to diversification and liquidity in fund portfolios. While the legislation does not permit APRA to direct the individual portfolio choices of trustees, we have begun pursuing trustees more vigorously where we find portfolios that do not

appear to have adequate consideration to these key elements of good investment practice. Problems found were not only confined to small superannuation funds. The revocation of the Approved Trustee status of Commercial Nominees of Australia is noted in the Enforcement chapter of this report.

Measured in terms of volume of assets covered, reviews o f smaller funds are resource intensive for APRA. Nevertheless, the trustees of the smaller funds are more likely to lack knowledge of the relevant legislative requirements. Consequently, we are devoting the resources necessary to obtain, over time, an individual risk profile for each of these small employer-sponsored superannuation funds.

The program of on-site visits to superannuation funds enables supervisory staff to better assess asset quality. Although APRA must principally rely on

the assurances regarding asset impairment given by trustees, management, auditors and actuaries, we have found that on-site visits are the most effective way of finding asset issues that require closer investigation.

15 3 C C <

ΑΡΚΑ has responsibilities for superannuation funds in the area o f retirement income policy; in addition to monitoring them for safety and soundness, it also ensures that they are complying with various standards covering such issues as preservation of benefits, contributions and benefit payments.

APRA continued to be involved through 2000/01 with the transfer of 187,000 self-managed funds (ie those funds with fewer than five members and no Approved Trustee) to the Australian Taxation Office. The transfer followed a notice issued to all 202,500 such funds in the previous financial year requiring them to identify whether or not they had an Approved Trustee.

In July 2000, APRA issued letters to 22,000 funds that had not identified themselves as self-managed funds or did not have an Approved Trustee, asking them to show cause why the trustee should not be suspended. After an extensive telephone campaign, there remained only 1,627 funds not identified. APRA sought and received the Minister s approval

to appoint Special Approved Trustees (SATs) drawn from insolvency practices to bring these funds into a trustee structure consistent with the Superannuation Industry (Supervision) Act 1993 (SIS Act). Ultimately the status o f every fund was identified or the trustees replaced. APRA retained supervisory responsibility for some 7,700 small funds which have engaged an Approved Trustee.

The collapse of HIH, Australia’s second largest insurance company, overshadowed the general insurance sector in the past year. This is covered in the Enforcement chapter.

There has been an increased concentration in the market over the last few months through the combined effects of the redistribution of HIH business and a couple of significant restructures.

This process may continue as larger companies tend to be better placed to secure an adequate return on capital.

Although concentration has risen, the number of licensed entities has continued to grow. There are 33 reinsurers, up from 31 a year ago - and some 107 direct companies (excluding the 7 HIH

companies), up from 101 a year ago.

For the industry as a whole, return on equity continued to be low compared to other parts of the finance sector. This is despite a firming of premium rates over the past 12 months. Our statistics show

10

APRA-regulated institutions (as at 30 June 2000)

Number Assets

($ billion)

ADIs 279 843.8

Banks 51 806.8

Building societies 18 13.1

Credit unions 205 23.9

Other ADIs 5 NA

Representative offices of foreign banks 27 NA

General insurers" 162 59.8

Life insurers' 42 182.7

Friendly societies 42 6.1

Approved Trustees 159 NA

Superannuation entities6" 11,537 300

Public offer funds 391 156.8

Non public offer funds 2,862 136.2

Small APRA funds 7,699 2.3

Approved deposit funds 398 2.5

Eligible rollover funds 10 2.5

Pooled superannuation trusts 177 NA

Total 12,248 1,392.4 “

As at 31 March 2001 :

Assets for superannuation entities reflect assets on the most recent annual return (2000 or 1999) :

Excludes unregulated public sector funds and self-managed superannuation funds, which are regulated by the Australian Taxation Office. Total superannuation assets, including the balance of life office statutory funds, is estimated to be around $500 billion.

Total assets adjusted to take into account $109 billion invested in life office statutory funds via superannuation entities ;

that the ratio of net claims incurred to net premiums earned for the year to December 2000 was of the order o f 79 per cent, a level that is the lowest since 1994 and that should translate to solid profitability in the industry. However, many companies showed return on equity in single figures.

As previously noted, general insurance companies were not subject to intensive on-site reviews prior to the establishment of APRA. Many of these entities are quite small, with net assets not far above the $2 million minimum required under the present Act. The issues that have arisen in the course of the on-site reviews are typical of the issues with entities ot similar size in industries where on-site review has a longer history. Entities with smaller numbers of staff and senior executives rely more on individuals than on documented risk management systems. However, if APRA is to have confidence that the

entity will be well managed over the long term, it needs to be assured that sound risk measurement and control practices are embedded in the operations of the company.

A major overhaul of the flawed and outdated supervision arrangements we inherited for general insurance companies was almost completed during the financial year. The new regime required changes to legislation, which were passed by Parliament in August 2001, for implementation on 1 July 2002. Planning for this stage has begun, including transitional arrangements for those insurers that would not meet new solvency requirements on the implementation date.

We are working closely with industry to prepare for the new regime. This is discussed more fully in the chapter on Policy development.

There are currently 42 life insurance

companies supervised by APRA. This

number is expected to decline as a result of consolidation of licences within

conglomerate groups and as strategies are

reassessed in the light of recent changes to

the taxation of life insurance. As more of the

business is associated with funds

management, there is a continued focus on

containing and reducing expenses, with

larger companies looking to compete with

global funds managers.

Disability income insurance products remain of concern to APRA. Many life insurers are taking significant losses on this line of business: claim costs and claim durations continue to rise; and product pricing has not matched risk experience. APRA is working with life insurers to promote improvements in product design and claims management procedures.

The friendly society sector is contracting, with numbers declining from 54 to 47 over the financial year and a dozen of those are in various stages of merging or winding up their benefit funds. Only

scholarship societies are still expanding.

The requirement for APRA to approve changes in benefit fund rules means that we had extensive detailed contact with friendly societies in 2000/01.

ο fN t Ο

Q. α> DC

15 3 C C <

Self-assessment

The international standard against which the quality of banking supervision systems is assessed is the Core Principles for Effective Banking Supervision, issued by the Basel Committee on Banking Supervision (BCBS). Compliance with the Core Principles is not mandatory, but they provide a useful performance benchmark and APRA is working to improve Australia’s compliance with them.

During the financial year, APRA undertook a self­ assessment of Australia’s system of banking supervision against the Core Principles, which have two essential elements. The first establishes what are termed "preconditions for effective banking supervision", such as sound and sustainable economic policies, a well-developed public infrastructure, effective market discipline and mechanisms for protecting systemic stability.

Without these preconditions, no system o f banking supervision is likely to be able to achieve its objective of institutional safety. The second element is 25 high-level core principles against which prudential supervision can be measured and assessed, supplemented by 227 detailed criteria.

APRA’s assessment was that Australia met all o f the preconditions, and that the compliance of Australia’s supervisory system with the Core Principles was high but, as with any rapidly evolving system, not total. Australia was viewed as fully compliant with

11 of the principles, and largely compliant with a further 12. The two areas where Australia materially failed to comply were:

• the absence of a formal "fit and proper" test for bank directors and management. However, APRA had already recognised the need for such a test, and had flagged plans to introduce a more formal approach to fit and proper in all sectors. This is expected to be achieved in amendments to the Banking Act.

• the lack of supervisory oversight of the small number of foreign banks operating as merchant banks in Australia. This is a relic of the era when bank entry in Australia was less open, and foreign banks were permitted to conduct largely wholesale business without a banking authority or on-going prudential supervision. APRA is discussing with the Federal Treasury whether changes are required in this area.

While the assessment did identify some areas where improvements could be made, the overall picture was of a supervision system that stands up very well against world standards, and one that is well placed to protect the safety of Australia’s strong and dynamic banking system without unduly interfering with competition, innovation and efficiency.

The International Association o f Insurance Supervisors (IAIS) has developed a similar set of Core Principles for insurance supervision. These are less developed than the banking version, although they will still serve as a useful guide to the on-going development of Australia’s supervisory regime.

Once the revised set of prudential arrangements for general insurance is in place, APRA will undertake a similar self-assessment for the insurance sector.

We expect this to show that the new regime displays a high level of compliance with the international standards.

Performance audit

The Australian National Audit Office also undertook a performance audit during the year of APRA’s prudential supervision of banks. The audit

confirmed that APRA conforms with most aspects of international best practice as set out in the 25 Basel Core Principles, but identified a few areas where A PRA’s practices could usefully be brought more closely into line with them.

These included the stringency of limits on banks’ large credit exposures, formal arrangements for sharing information with regulators in other countries, and a more structured scheduling of on­ site visits to banks both domestically and abroad. APRA accepted the recommendations on these issues, some of which were already being addressed.

12

One o f the main aims of APRA’s supervision of financial entities is to identify risks and ensure that action is taken by the entity to control or mitigate them. Sometimes APRA’s enforcement powers must be used to achieve this.

Nevertheless, institutional failures, and exits from business for other reasons, are natural features of competitive markets, and APRA also needs clearly defined and adequate powers to manage such events to minimise their adverse effects.

APRA’s Specialised Institutions Division, which supervises a large number of mostly small institutions, has a specialist team to handle cases where enforcement action or very intensive

monitoring of an entity is required. The team also manages the steady flow of mergers among authorised deposit-taking institutions (ADIs) and friendly societies and has responsibility for ensuring that the large number of superannuation funds which inform APRA each year they intend to wind up, observe the correct procedures.

Larger and more complex institutions, including those with overseas parents, are supervised by the Diversified Institutions Division. Experience has shown that there is not generally a need for a similar specialised enforcement team - problems

usually can be solved in other ways because of the significant emphasis larger institutions have to place on reputational risk. They also tend to have more ready access to capital which is ultimately the last line of protection for policyholders/depositors/fund members against fraud, misrepresentation, operational failures or other areas of non-compliance.

The table below indicates the types of actions undertaken across the various industries. The actions include the replacement of trustees of superannuation entities and appointment of an inspector or investigator to undertake detailed examinations o f institutions. Also included are various types of referrals to other regulatory bodies and industry or professional bodies. Some actions relate to parties associated with APRA-regulated institutions, such as disqualification or referrals of external auditors to professional bodies.

The table on page 14 shows the number of institutions monitored by the rehabilitation and enforcement team during the year and those transferred back to the regional supervision teams when issues were effectively resolved.

Enforcement actions undertaken during the year

ADIs Superannuation General insurers Friendly societies

S66

Banking Act* Total

Refer to police/ASIC/ DPP 0 8 0 0 1 9

Refer to ATO 0 5 0 0 0 5

Show cause letter issued 0 3 11 0 0 14

Replace trustees 0 4 0

0

0 0 4

Follow-up delayed contributions 0 11 0 0 11

Investigator/liquidator/ inspector appointed 0 2 8 0 0 10

Disqualify auditor/ refer to industry body 0 2 0 0 0 2

Other** 4 10 9 0 18 41

* Companies or individuals suspected of conducting banking business without proper authorisation ** Includes actions such as notices issued, directions made to institutions, and undertakings obtained from institutions

While the great majority of enforcement actions relate to the smaller institutions and are handled in Specialised Institutions Division, there have also

been some actions involving large institutions and handled within the Diversified Institutions Division. By far the most significant such case in 2000/01 was HIH Insurance. This is discussed in the following section, followed by accounts o f other notable enforcement cases.

HIH Insurance Group

When APRA was formed in mid-1998, it inherited the supervision and enforcement practices of its predecessor agencies, initially the Reserve Bank of Australia and the Insurance and Superannuation Commission. Until it had determined its own preferred regulatory approach in insurance, which was implemented in the second half of 1999, the previous practices had to be continued, namely, focusing on scrutinising regular statistical returns rather than on-site reviews of insurers’ operations.

Weaknesses in the Insurance Act 1973 (recently overhauled at APRA’s initiative) meant the regulator had inadequate supervisory and enforcement powers when concerned about the soundness of a general insurer. For example, unlike other finance industries, general insurers could not be made subject to more stringent requirements

(such as greater capital) when they engage in higher-risk business, and there were problems with the consistency of reported provisions for liabilities.

APRA’s first annual prudential consultation with

the HIH Insurance Group — a complex group of more than 200 subsidiaries, including seven Australian-authorised insurers/reinsurers and others overseas — took place in March 2000, followed by a credit-risk visit in July. These identified a number of matters o f concern, which we pursued with the company while pressing it to improve its risk- management arrangements.

The Group’s externally audited accounts for the year to June 2000 showed net assets of nearly $1 billion and solvency for statutory purposes about double the required level. The unaudited accounts for the September quarter continued to show clearly adequate solvency when we received them in January. In the light of these figures, APRA concluded that it lacked adequate grounds under the existing Insurance Act for appointment of an inspector.

A further consideration was that such an appointment is usually a precursor to closure of a company, which causes substantial negative changes to its balance sheet and therefore worsens the position o f policyholders, who are APRA’s concern.

Their best interests are served if their policies can be transferred in an orderly fashion to other insurers.

The situation changed early in 2001, when HIH admitted experiencing difficulties in finalising its financial results for the six months to 31 December. APRA impressed on the company’s management that it was essential to provide these data on time. When it failed to do so, we considered we had

institutions supervised by reh

Industry

abilitation anc

Number as at 30 June 2000

enforcement

Institutions added during the year

Institutions returned to regional supervision

teams

Institutions transferred/ wound up

Number as at 30 June 2001

Authorised deposit-taking institutions 27 14 9 7 25

SIS institutions 32 27 8 16 35

Friendly societies 12 9 1 5 15

General insurers 5 3 0 2 6

SIS institutions winding up 0 78 0 13 65

Other* 16 13 0 20 9

TOTAL 92 144 18 63 155

* Includes non-APRA regulated groups suspected of conducting unauthorised financial activity

k

grounds to act and at the beginning of March issued a notice to HIH to show cause why an inspector should not be appointed to investigate its financial affairs. On the eve of the expiry of the notice, HIH entered voluntary provisional liquidation; APRA appointed an inspector on the following day, the first legal opportunity to do so.

Whereas the provisional liquidator is responsible for the interests of all creditors, APRA is responsible for the interests of policyholders. To protect their rights as far as possible, we issued directions to the authorised insurers in the HIH Group not to undertake new insurance business, reconstruct the insurance operations, sell major assets or alter reinsurance arrangements without our approval.

APRA actively facilitated arrangements with other insurers to take over many of H IH ’s policies, resulting in more than one million policyholders retaining their insurance coverage and some $1.3 billion in outstanding claims being covered in full. Subsequently, builders’ warranty insurance policies written by HIH were also taken over by other insurers.

Six of the seven authorised general insurance companies in the HIH group were placed into liquidation on 27 August 2001 and are consequently no longer subject to the requirements of the Insurance Act 1973 or supervision by APRA.

All the issues surrounding the HIH collapse are to be examined by a Royal Commission, to which we will make a comprehensive submission.

Commercial Nominees

In April 2000, an investigator was appointed to three superannuation funds of which Commercial Nominees o f Australia Ltd (CNA) was the Approved Trustee. Following receipt o f the investigator’s report in November 2000, CNA was replaced as trustee of these three superannuation funds in December 2000. At the same time APRA asked

CNA to show cause as to why its status as an Approved Trustee should not be revoked. The revocation took place in February 2001, at which time Acting Trustees were appointed to 475 small funds of which CNA had been the trustee and another four public offer funds. APRA then appointed an inspector to these small funds that had an exposure to the Enhanced Cash Management Trust, an investment vehicle associated with CNA.

In addition to acting as trustee of the superannuation funds, CNA had been the trustee of the Enhanced Cash Management Trust, which had incurred an estimated loss of 80 per cent. Also in February 2001, the Australian Securities and Investments Commission (ASIC) announced that CNA was being replaced as trustee o f the Enhanced Cash Management Trust and the Enhanced Equity Fund.

APRA has been working closely with the inspector and the replacement trustees to determine the causes for the substantial losses suffered by the superannuation funds of which CNA was the trustee and to determine the scope for legal remedies.

Other actions

In May 2000, APRA appointed an inspector to Reinsurance Australia Corporation (ReAC) after it suffered substantial losses and its capital fell below the minimum statutory solvency requirements of the Insurance Act. The inspector remained in place throughout 2000/01 as ReAC continued to run down its insurance liabilities.

In June 2000, a trustee of a Western Australian superannuation fund confessed to defrauding the fund over a five-year period. APRA appointed an Acting Trustee to take control of the fund, including reconstructing the accounts of members and identifying all recovery options. The reconciliation of members’ records has been a lengthy process.

The Acting Trustee has lodged with the Minister for Financial Services and Regulation an application for compensation under Section 229 of the Superannuation Industry (Supervision) Act 1993 (SIS Act) which provides a mechanism whereby

superannuation fund members may apply for compensation when they have lost money due to fraud or theft. This legislative provision has not

previously been activated.

In June 2001, APRA replaced the trustee of a small Victorian superannuation fund where the assets of the fund had been used to purchase illiquid assets related to the employer’s business. APRA and the Acting Trustee are exploring ways of recovering value for the fund members.

In May 2000, APRA became concerned that a small general insurer, while remaining commercially solvent, may have breached its minimum statutory

APRA Annual Report 2001 16

solvency requirements. In July, APRA appointed an inspector to investigate the financial position of the company, and later issued directions requiring it to write down a major asset, increase its provisioning for claims and reduce its exposure to related parties. The company has met its obligations under the directions, and is at present soundly placed to meet its foreseeable liabilities.

In April 2001, Jakob Hans Jost was sentenced to 54 months imprisonment and fined $7,000 after being convicted for operating an unauthorised bank in Australia, and related matters. He had operated a deposit-taking business known as Eagle Bank in the

1990s and used the proceeds for a property development.

In June 2001, the Federal Court, on APRA's application, ordered Global Monetary Corporation Pty Ltd and two individuals not to use the name Global Monetary Bank or carry out banking activities, pending further hearing of the matters. The company was also required to publish notices on Internet sites stating that it was not authorised to carry on banking business, including acceptance of money on deposit.

During the year, APRA referred the conduct of Ross Zagari, a Melbourne accountant, to ASIC for extensive breaches o f the superannuation legislation. Zagari was later convicted in the Victorian Supreme

Court and sentenced to 3 *4 years’ imprisonment for fraudulently obtaining the payment of $2.5 million in superannuation benefits on behalf of 114 clients between August 1996 and October 1999 and other offences. A further 64 offences involving almost $1 million were taken into account. He had lodged false documents with APRA, and our small funds unit identified these offences.

Superannuation powers

The SIS Act was amended with effect from January 2001 to give APRA an array of more effective enforcement options. Various "fault liability" offence provisions, where the prosecution needed to prove that an act or omission was reckless or deliberate, were changed to “strict liability”, where it has to be proven only that the act or omission has occurred.

Prior to these changes, persons were disqualified from being the trustee or investment manager of a superannuation entity only if they had been

convicted of an offence of dishonesty, or if they were a bankrupt under administration. APRA now has the power to declare persons to be disqualified if they have been associated with breaches o f the superannuation legislation of such seriousness or frequency that APRA considers they should be disqualified, or if APRA determines that they are otherwise not a fit and proper person to fulfill such roles.

In addition, APRA now has the power to accept an enforceable undertaking under the SIS Act. Other changes introduced at the same time improved the capacity o f a replacement trustee appointed by APRA to take control of the affairs o f a superannuation fund, and created an offence for persons without the requisite qualifications to hold themselves out as an approved auditor or actuary.

As the offence provisions are not retrospective, APRA has not yet used these powers directly. However, we believe the changes to legislation have made industry participants much more willing to address matters of serious concern to us in a prompt and effective manner. APRA will not hesitate to use the new powers when necessary.

P o l i c y D e v e l o p m e n t

In a constantly and rapidly changing financial sector, policy development necessarily has a very high priority. In APRA’s case it is also quite complex, since we are responsible for seven industry sectors that, until three years ago, were

supervised under quite separate regimes.

Many current regulatory challenges, such as the trend to financial conglomerates, the emergence of new types o f financial services firms (including via electronic commerce) and the development of new

techniques for dealing with risk, are transnational. APRA’s vision to be a world-class integrated prudential supervisor is an appropriate response to these challenges. There are many other important

issues with largely domestic relevance.

Our policy reform program deals with the most important current matters in both categories: reform of prudential supervision of general insurance; development of harmonised standards for authorised deposit-taking institutions (ADIs); strengthened supervision of small and medium-sized

superannuation funds; conclusion o f work on a new regulatory framework for financial conglomerates; and work with the Basel Committee on Banking Supervision (BCBS) on a revised international accord on capital adequacy for banks.

APRA’s long-range goal is a common three-tiered framework for the prudential supervision o f all financial institutions and entities: generic legislation setting out broad objectives, flexible prudential standards written in plain English, and explanatory

guidelines amplifying the standards. Such a framework would recognise genuine differences between industries, but would treat similar risks in all industries in a similar way.

General insurance

Finalising the development of a new prudential framework for the general insurance sector - the current one is 28 years old, despite the profound industry changes that have taken place over that

period - has been one of APRA’s key objectives since our establishment. During the past year, considerable progress was made towards finalising the new regime that will become effective during 2002 .

The objective o f the new framework is to provide more effective protection for policyholders through regulation that is more rigorous and more closely tailored to the business profile of different insurers. This will be achieved by, among other things, risk- based capital requirements, increased emphasis on sound corporate governance and greater transparency.

While the intensity of supervision under the regime will undoubtedly increase - for example, all insurers will be subject to on-site reviews in the future - it is intended that this be undertaken in an open and cooperative manner wherever possible. In this way greater supervisory scrutiny should be able to occur without unnecessary interference in the day-to-day commercial decision-making that is the domain of an insurer’s board and management.

APRA issued an initial discussion paper giving an outline of the proposed prudential framework in September 1999. This was followed by extensive industry consultations and a second discussion paper with draft prudential standards for the industry.

An impact study was conducted on a representative sample of general insurers late in 2000.

In November, the Federal Government announced that it would proceed with amendments to the Insurance Act 1973 necessary to implement APRA’s proposed standards.

The test results and responses to the second discussion paper were taken into account in a final discussion paper issued in March 2001. Following an industry seminar on the proposals in May, insurers were given

until 30 June to comment. At the same time, Treasury consulted industry regarding amendments to the Act. Near-final versions of the new prudential standards and supporting guidance notes are expected to be issued in the next couple of months.

17

APRa Annual Report 2001

The prudential standards will deal with four principal matters:

• capital adequacy requirements that are appropriate to the risk profile of each insurer, including sufficient capital to cover risks that cannot be mitigated effectively and efficiently. The new requirements will increase minimum capital by about 50 per cent, on average, across the industry, and raise the minimum requirement from $2 million to $5 million.

• liability valuations that are rigorous, consistent and supported by actuarial advice. Currently, accounting standards give considerable discretion in the valuation of insurance liabilities; these might be valued at a “central estimate” (ie most likely outcome), or might include an additional risk margin. Under the new standards, insurers will be required to value their liabilities to a 75 per cent probability of sufficiency, unless a board decides on a different figure and discloses this, and the reasons for it, to APRA and the market.

• reinsurance arrangements that are suitable to the scale, complexity and business mix of the company and give a high likelihood that it will be able to meet its obligations to policyholders.

Insurers will be required to develop a reinsurance management statement, have it approved by APRA, and regularly self-assess and certify their compliance with it.

• risk-management procedures and internal control systems to manage risks that could potentially undermine the insurer’s financial soundness. Insurers will have to develop a risk management standard and regularly certify their compliance with it.

Two other standards will also be required as a result of the new legislation; these are technical in nature. One deals with the definition of assets inside Australia for the purposes of meeting the revised requirements of the Insurance Act; the second deals with the procedures for transfers of business between one insurer and another.

Some of these standards are derived from banking and life insurance regulations and are thus a step towards a common prudential regime.

A central pillar of the new regime is that the board and senior executives of an insurer have ultimate responsibility for, and are accountable for, its sound and prudent management. The board will be

required to appoint an approved actuary to provide it with independent, expert advice on the value of insurance liabilities. The actuary will also have statutory reporting obligations to APRA.

Overall, this new framework will promote a stronger insurance industry in Australia — one that provides its policyholders with much better protection than in the past. However, it is by no means the end of the reform process. Once these standards are in place, APRA will examine how its framework for supervising conglomerates can be applied to the insurance sector.

Superannuation

Exploring ways to strengthen the prudential supervision of the superannuation industry and protect the retirement savings of Australians was another o f APRA’s objectives during the year. There has been some progress in this area in recent years but further change is needed.

The superannuation industry is distinguished by a number o f characteristics, not least the number of funds involved: some 200,000 overall, including about 11,500 that are prudentially regulated and which have some $300 billion in funds under management. There are $109 billion of superannuation assets in life insurers, which are also prudentially regulated by APRA. Their diversity, both in size and sophistication, adds to the

complexity of the supervision task. O ur experience shows problems are more frequent among smaller employer-sponsored funds.

These problems include poor investment decisions (sometimes not at arm’s length); concentration of assets; delays in remitting contributions; and inadequate management systems. The consequences of such problems can be very damaging for fund

members.

The challenge for APRA is to devise effective prudential arrangements to deal with weaknesses in a small proportion of funds without adding undue regulatory costs on members o f the well-run majority.

Some issues can be dealt with by modifying APRA’ procedures, while others will require more far- reaching reforms involving legislative change. We outlined our preliminary thinking on these issues in: June 2001 in a submission to the Productivity

Commission’s National Competition Policy review of superannuation legislation.

18

One such issue is that of prudential reporting, which is less stringent in the superannuation industry than in the other industries that APRA supervises. The information received by APRA is often neither timely nor comprehensive; indeed, persistent late reporting by some funds has become a significant supervisory problem. We have therefore introduced more rigorous processes to reduce the incidence of late reporting, and we are developing new data returns and collection techniques that will improve the quality and detail of information provided.

Another issue is the very limited requirement at present for licensing in the industry — the only part of the prudentially regulated sector of the Australian financial system where unlicensed entities or persons may accept funds from consumers. A system of licensing is essential for effective prudential

supervision; APRA is examining the most efficient means for establishing licensing requirements and will make recommendations as necessary to the Government.

Consistent with the framework now in place for deposit-takers and general insurance companies, we favour the introduction of a specific standards- making power for superannuation.

If such a power were available we would move quickly to introduce a standard covering the investment activities of superannuation funds. The addition of a prudent investment strategy by trustees

is an important matter in safeguarding the financial interests of fund members. Trustees are required by legislation to consider specific prudential issues in constructing an investment portfolio but the spirit of these requirements is not always observed.

It is clearly not APRA's role to dictate portfolio choices, but it is our responsibility to ensure that ! reasonable prudential safeguards minimise the risk of large losses for members, rather than respond after

the event. Additional prudential guidelines would cover portfolio strategy, asset selection and risk concentration in superannuation funds. Such a I j standard would amend existing advice to trustees on j;: asset and portfolio selection to emphasise the need

for diversified strategies, and we will act more forcefully in those cases where trustees have not observed the spirit of the relevant legislative requirements.

We will also explore in greater detail the issue of i1 capital adequacy for superannuation funds.

APRA Annual Report 2001

At present, a minimum capital requirement of $5 million applies only to Approved Trustees - and even then the requirement can be avoided — and there is no requirement for employer-sponsored funds. We will be considering both whether the present requirement is adequate and how it might be applied more broadly throughout the

superannuation sector. These issues will, of course, need to be fully discussed with both Government and the industry.

Finally, we have also started work on the broad question of governance standards in superannuation. Poor governance standards are the most fundamental single failing in superannuation funds, and the largest cause of losses to members. We will be strengthening our advice to trustees on current best practice in relation to governance, but we also believe there is a strong case for strengthening the current legislative requirements

Life insurance

In April 2001, APRA began a review of the Life Insurance Act 1995 (LIA), expected to take 12 to 18 months, which will incorporate a fuller harmonisation and integration of regulation of friendly societies.

Friendly societies became subject to this legislation in 1999, at which time the Life Insurance Actuarial Standards Board (LIASB) announced transitional actuarial standards for them. These were intended to be replaced by harmonised standards for all life companies and friendly societies by about the middle of 2001. In April 2000, the LIASB issued a discussion paper proposing a policy approach to harmonisation.

APRA worked closely with the LIASB and the life insurance and friendly society industries to identify issues raised by harmonisation, and this process demonstrated that a more comprehensive approach was needed, which would involve changes to the LI A. To cover the review period, the LIASB has issued discussion drafts of harmonised standards that maintain the current distinction between the structures of life companies and friendly societies.

The intention is not to change the LIA fundamentally — it was substantially modified in 1995 and is still regarded internationally as among the best legislation o f its kind — but rather to integrate friendly societies as easily as possible and to harmonise the structure of the LIA with APRA’s

other legislative regimes. It is intended that the revised Act will also comply with the International Association of Insurance Supervisors’ principles for

effective supervision and will use flexible standards rather than prescription.

APRA will consult fully with the industry on proposed changes.

Standards for ADIs

Consistent supervisory standards for all ADIs was a key recommendation of the Financial System (Wallis) Inquiry, and APRA began a program to implement it as soon as it assumed responsibility for all such institutions in July 1999. The program came to fruition on 1 October 2000, when a set of 10 prudential standards for all ADIs, and associated guidance notes, took effect.

These harmonised standards replaced two different regulatory regimes that had applied to banks, on the one hand, and building societies and credit unions, on the other. Whereas the banks were subject to broad prudential guidelines, the smaller ADIs were required to complv with a lengthy and complex set of standards, guidance notes and interpretative notes.

Development of the new standards included extensive consultation with industry, comprising many meetings with industry groups and individual institutions and exposure of the proposals for comment. Although some aspects of the changes were controversial, the final set of standards was well received. The majority of the new standards do not impose new requirements on institutions, but in those cases where changes are necessary, APRA has agreed on transition periods with individual institutions.

The standards cover the following matters:

• capital adequacy: outlining the framework within which APRA will assess the capital adequacy of locally incorporated ADIs.

• measurement of capital: stipulating the qualifying criteria for including various types of capital in an ADIs capital base.

• credit risk: prescribing how credit exposures, both on and off-balance sheet, are risk-weighted for capital adequacy purposes.

• market risk: dealing with managing and measuring the risks associated with potential movements in market prices. Institutions have the option o f using an internal model (approved by

20

APRA) or a specified standard method to calculate capital required to cover market risks.

• funds management and securitisation: the prudential requirements for ADIs involved in funds management and securitisation activities to manage the risks involved.

• liquidity: providing two alternative approaches to monitoring and controlling liquidity risk — either having strategies to manage liquidity under different scenarios or maintaining minimum holdings of high-quality liquid assets.

• credit quality: the requirements for measuring and reporting credit risk and making provisions for impaired assets.

• large exposures: maintains the former requirements for managing large single exposures.

• equity associations: prudential requirements for equity associations and dealings with subsidiaries or associates.

• audit and prudential reporting: establishing the tripartite arrangements among APRA, an ADI and its external auditor.

Two additional standards, covering board composition and outsourcing, were in the drafting stage at the end of the financial year. A draft standard on board composition has since been released for industry comment, and a standard addressing the risks in outsourcing for ADIs and other APRA-regulated entities will be issued soon.

Conglomerates

Developing regulatory policy for financial conglomerates that include ADIs is one of the most complex issues with which APRA has had to deal, particularly in striking an appropriate balance

between ensuring depositor protection and acknowledging the commercial realities of how conglomerate groups operate.

We issued a discussion paper on conglomerate policy in November 1999. A followup paper in April 2000 provided more detail on the introduction o f a fit and proper requirement for

directors and senior management of financial institutions, rules governing the inclusion of commercial activities within regulated financial conglomerates and rules governing supervision of

non-operating holding companies.

This left two substantial matters to be dealt with: capital adequacy, and intra-group and external large

exposures. The original proposals in the discussion paper on these two issues have now been modified after further consideration and consultations and study of overseas developments. New proposals in these areas were reworked during the second half of the financial year, and will be issued for industry comments in the next few months.

Basel Capital Accord

The global criteria for capital adequacy of banks, applied by APRA to all ADIs, are set out in the 1988 Basel Capital Accord. In June 1999, the Basel Committee on Banking Supervision (BCBS)

announced detailed proposals for the reform of these guidelines, in response to significant changes in financial markets and in risk-management methods, to which APRA and many other national regulators responded with comments.

BCBS issued a revised and more extensive consultative paper in January 2001. The detailed proposals are more complex than existing requirements, but APRA immediately welcomed them overall as giving depositors better protection against the risks in banking and being flexible enough to apply to a wide range of financial

institutions. After a full assessment of the impact of the changes on Australian ADIs, APRA responded in May with a detailed submission (available on the APRA website).

The proposed new Accord is based on three “pillars”.

The first pillar deals with capital adequacy, retaining the existing benchmark ratio of capital (eight per cent of risk-weighted assets) but permitting a range of calculation methods for principal risk classes,

from simple and standardised to more complex models based on a bank’s internal systems. APRA supports the more risk-sensitive approach to capital- adequacy regulation, including the use of internal

credit ratings in allocating credit-risk capital and a separate charge for operational risk.

21

APRA Annual Report 2001

We have suggested, however, that modifications to these proposals are still required. In particular, we are concerned about the calibration of the alternative calculation approaches; in the case of Australian institutions, for example, minimum capital requirements would rise substantially under one approach and fall substantially under another. APRA would therefore find it difficult to implement the proposals as currently structured.

The second pillar deals with the supervisory review process needed to complement the minimum capital adequacy requirements. Although this proposal may require greater intensity of supervision in some areas, with consequent implications for APRA’s resources and funding requirements, we believe the proposals should be supported.

The third pillar covers disclosure requirements, acknowledging that market discipline, as well as regulation, helps to constrain excessive risk-taking. The requirements would increase as institutions make use o f their own risk-measurement techniques in calculating capital adequacy, because they are less transparent than a standardised approach. While supporting the broad thrust of the proposals, APRA believes they need further consideration to establish whether the additional cost o f the extensive disclosure requirements is reasonably justified by the materiality and relevance of the additional information obtained.

Research

APRA has a small research unit that contributes to research on and debate about issues relevant to its supervisory role. During the year, research papers covered a wide range of topics including the use of extreme-value theory to measure market risk, the impact of legal systems on the development of insurance markets, the development of the Australian securitisation market, and the use of internal credit ratings by Australian banks.

At the end of the financial year, prompted by high valuation levels on many world share markets, the research unit was also examining the impact of asset-price bubbles on the conduct of prudential regulation.

The Australian Research Council (ARC) has agreed to fund a long-term research project undertaken by the University o f Queensland on the prudential

regulation o f mutual financial institutions. APRA is also contributing to the project with funding, data and research advice. Over the next three years, the project will survey credit unions to determine the impact of regulatory change on their mutual form

of organisation. APRA has also submitted a joint proposal to the ARC with academics from The University of New South Wales and the University ofTechnology, Sydney, to examine the development of statistical early-warning systems to detect problem financial institutions.

The development of such external research links will be a major focus of APRA s research unit during 2001/02.

22

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APRA Annual Report 2001

A P R A S t a t i s t i c s

One of the critical tasks that APRA faced on its formation in 1998 was to improve and integrate inherited collections of statistical information about the financial institutions it supervises. This is not only fundamental for APRA’s own

analysis and m onitoring o f their condition, and ultimately the safety and efficiency o f the sector, but also affects determination o f monetary policy by the Reserve Bank o f Australia (RBA) and production o f economic data by the Australian Bureau o f Statistics (ABS). Indeed,

these data are among the most im portant that economists and policymakers rely upon.

The task was far from simple, since APRA inherited six very different systems (of widely varying quality and user-friendliness) that were previously used by the prudential supervisors of banks, non-bank deposit-takers, friendly societies, life companies, general insurers and superannuation entities.

Essential improvements to these legacy systems were undertaken immediately, but it was clear that optimum efficiency required the creation o f a single high-quality reporting system covering all the institutions that APRA supervises. This would also provide the data required from these institutions by the RBA and the ABS, eliminating the burden for institutions of separate reporting requirements. Because of its multi-agency impact, the Statistics

Project was established to tackle these challenges with input from a tripartite committee representing the three organisations.

The Project has two main elements: the development o f a new computer system to collect, analyse and store data from supervised institutions, and a longer-term process of improving and simplifying the data forms used by each supervised industry for financial and statistical reporting to APRA.

Direct to APRA

The new computer system is known as Direct to APRA (D2A), and provides a flexible, secure and

user-friendly means of data collection. With development virtually complete, the system was provided to an initial group o f authorised deposit- . taking institutions (ADIs) in June 2001 for open testing, in order to to obtain feedback from users so as to maximise ease of use and to enable final implementation to occur as smoothly as possible.

D2A has been designed to operate on any computer system and to transmit data to APRA using a direct Internet connection or email (or even, as a fallback, on floppy disk or as hard copy). It presents the user with a set of regulatory returns and forms specific to

that financial institution, which can be completed by typing in the relevant data, by cutting and pasting from an Excel spreadsheet or by importing data from another application. Whenever calculations or formulas need to be applied to the data, D2A does so automatically.

The system has built-in quality checks that review the validity of the data entered. When these are satisfactory, the completed documents are saved and (assuming a direct Internet connection) are electronically signed, encrypted using public-key encryption to ensure data security, and transmitted to APRA.

The information will be stored in a purpose-built data warehouse, linked to electronic tools enabling APRA analysts to study data within and between institutions much more effectively than before. Data required by the RBA and the ABS will be sent to those institutions, again using secure electronic connections.

A further benefit of D2A is that users of financial- sector statistics will have access to, and be able to manipulate, aggregate non-protected data through APRA’s website. This will also provide a range of user-friendly analytical tools.

Reporting requirements

Beginning in parallel with D2A, but extending over a longer period, the second part of the Statistics Project deals with the forms used by regulated

24

entities.The objectives here are to ensure that the information collected is relevant and useful for prudential analysis and, as far as possible, to integrate the requirements of APRA, the RBA and the ABS in the same form.

In designing the new forms, APRA has taken the view that the information it collects for prudential purposes should, wherever possible and where prudential interests are not impaired, reflect the way

the institutions themselves examine their businesses and be consistent with accounting standards, rather than being a set of unique requirements.

In some cases, however, where industry practice diverges but use o f the data for macroeconomic purposes requires consistency, standard deflnitions still will be prescribed across all sectors. This will enable APRA to become the central data recipient, forwarding information required by the RBA and

the ABS to those agencies.

The new returns for ADIs were the subject of an intensive consultation process with the institutions during 2000/01, and at the end o f the year were ready for implementation. For building societies and

credit unions, the new returns and D2A will be used for the first quarter of the new financial year; banks will have a staged implementation between

September 2001 and March 2002.

The general insurance sector will be next to change, with consultation on the proposed new returns taking place through the second half of 2001. The

new reporting arrangements will then be introduced for the September 2002 quarter. Reviews of returns for other industries will follow, generally in conjunction with policy reviews for these industries.

APRA will also take over from the RBA responsibility for collecting data from a range o f financial institutions that are not regulated by

APRA, such as finance companies and money market corporations.

The new reporting requirements are designed to be flexible, not static. In particular, they will be changed to incorporate industry and international standards to make it easier for institutions to extract required data automatically from their own systems. Future requests for changes to reporting requirements will be dealt with in a predictable annual cycle, under the direction of the APRA/RBA/ABS committee.

Insight statistics

APRA made a significant advance in publishing information on the financial performance and standing of regulated financial institutions early in 2001 with the first edition of Insight, a quarterly publication with extensive statistical tables and

articles.

The information in these tables is a function of the data reported by institutions, and will therefore become more and more useful as the various phases of the Statistics Project are implemented. In

particular, since the project’s focus is on acquiring data bearing on the prudential soundness of institutions, the tables presented will increasingly

provide an insight into their financial performance and standing.

Even in their initial form, based on traditional data collections, the available statistics are organised and presented in a way that emphasises prudential considerations. Tables focus on point-in-time, rather

than time-series, data to give a snapshot of financial condition and circumstances, while accompanying graphs give historical perspective. Peer-group comparisons are provided, as well as average institutional behaviour and its range.

The current data presented in Insight are supplemented on APILA’s website by historical data, enabling changes and trends to be identified.

\

C o o p e r a t i o n a n d L i a i s o n

Cooperation w ith other regulatory agencies at both a national and an international level, along with regular liaison with relevant industry bodies, is a very important part o f A PRA ’s role.

Although APRA took over the responsibilities of 11 previous regulators, it continues to share the role of financial regulation in Australia with two other major regulatory agencies, the Reserve Bank of Australia (RBA) and the Australian Securities and

Investments Commission (ASIC), while several other state and federal bodies have responsibilities that intersect with APRA’s. There are also several ) peak organisations representing institutions that

APRA regulates, whose views APRA needs to take into consideration.

Internationally, reflecting the globalisation o f the financial sector, many organisations have been established to facilitate cooperation, information I exchanges and joint research. Furthermore, since

many of the largest financial institutions have substantial overseas relationships or international operations, our area of interest inevitably overlaps with those o f counterparts in other countries and we need to have close relationships with them. This l| is facilitated through our membership of

I international regulatory bodies and regional groups.

Australia

Domestically, the overarching body for cooperation in financial regulation is the Council of Financial Regulators, which brings together the RBA, ASIC and APRA. The Council has no regulatory functions of its own, but operates as a forum for sharing information and views and discussing regulatory issues; should the need arise, it would also

coordinate responses to any potential threat to financial stability. This high-level forum is complemented by an overlap in Board membership among the three bodies and by regular bilateral meetings.

Coordination at an operational level takes place under memorandums of understanding (MOUs), which APRA has entered into, not only with the RBA and ASIC, but also with the Australian

Competition and Consumer Commission, the

■

Australian Taxation Office, the Private Health Insurance Administration Council and the Motor Accidents Authority of NSW In each case the

MOUs are aimed at achieving cost-effectiveness and efficiency and at addressing any gaps or overlaps in regulatory coverage.

In August 2000, APRA and ASIC held a joint workshop to discuss the enforcement approaches of the two agencies, identify issues of common interest and encourage closer working relationships. The importance of close cooperation between APRA

and ASIC is likely to increase when the Financial Services Reform Bill passes through Parliament. Although the final form of the Bill was not settled at the end o f the financial year, it will impose a

uniform licensing regime administered by ASIC in addition to prudential regulations administered by APRA; however, a number of its general obligations will not apply to those providers of financial services that are already supervised by APRA.

Because it has law-enforcement obligations, APRA is one of 11 agencies comprising a group called Heads of Commonwealth Operational Law Enforcement Agencies. We hosted a half-yearly meeting o f the group in November 2000.

APRA also has regular high-level liaison meetings with industry bodies such as the Australian Bankers’ Association, the International Banks and Securities Association, the Investment and Financial Services Association, the Association of Superannuation

Funds of Australia, the Insurance Council of Australia, the Institute of Actuaries o f Australia and the professional accounting bodies to discuss issues o f current interest or concern.

International - supervision policy

APRA is a member of several significant international bodies concerned with its areas of operation, and participates actively in their functions. We are also increasing our liaison with overseas regulators to improve our knowledge of the

offshore operations of Australian institutions and of the home-country operations of overseas institutions represented in Australia.

27

I

ο ο fM

t; ο Ol Φ oe

ω D C C <

APRA and the Financial Services Authority in the United Kingdom jointly hosted a conference on conglomerate and group supervision in London in December 2000, which was attended by prudential supervisors from seven other countries.

In the insurance sector, the peak international bod) is the International Association of Insurance Supervisors (IAIS). Our Executive General Manager, Diversified Institutions Division, was elected vice-chairman of the organisation in January 2001. We also chair the Solvency, Solvency Assessment and Actuarial Issues Subcommittee, which has developed a set of principles on capital

adequacy and solvency regulation internationally. These will be put to the membership for adoption late in 2001. In addition, we took part in

development of core principles and an assessment methodology for insurance supervision, which were adopted by the membership in September 2000.

The OECD also has an insurance committee, of which APRA is again a member. The committee’s work during the financial year covered a wide range of issues, including a proposed new international accounting standard for insurance, ecommerce in insurance, financial convergence and investment regulation.

A new international group to facilitate cooperation between regulators of private pensions was formed under O ECD auspices during the year — the International Network of Pensions Regulators and

Supervisors. APRA became a member and was elected to the technical committee, and one of APRA’s staff co-chaired the group s first conference.

Although not a member of the Basel Committee on Banking Supervision (which is largely confined to G10 countries), APRA continues to be an active contributor to the work of the BCBS, particularly on issues associated with the new Basel Capital Accord. APRA made a detailed submission to the BCBS in May 2001, and has been a member of the Capital Sub-Group of the Core Principles Liaison Group, the main vehicle for discussions between the BCBS and non-G10 bank supervisors.

APRA participated in the work of the Multidisciplinary Working Group on Enhanced Disclosure, which brought together representatives of IAIS, BCBS, the International Organization of Securities Commissions (IOSCO) and the Committee on Global Finance of the G-10 Central

28

Banks. The group reported in April 2001, recommending how public-disclosure practices of financial institutions might be improved, based on a pilot study of data collected from 44 financial institutions in nine countries (including two Australian insurers).

IAIS, BCBS and IOSCO have also established a Joint Forum dealing with financial supervision of conglomerates and other supervisory issues that cross sectoral boundaries. APRA is a member and

we also participated during the year in its working group on risk assessment and capital, which investigated and reported on risk-management practices and regulatory-capital frameworks for banks, insurance companies and securities firms.

BCBS has formed a group to examine issues raised by electronic banking, of which APRA is an observer. BCBS and the Bank for International Settlements arranged a conference of regulators,

industry participants and academics to discuss ecommerce issues in June 2001, at which APRA made a presentation.

Integrated supervisory agencies (that is, covering both deposit-takers and insurers) from 10 nations, including APRA, meet annually to discuss issues of mutual interest. At the third such conference, in June 2001, APRA particularly addressed the issue of

supervision of conglomerates, which is o f growing importance.

In November 2000, APRA gave presentations to the annual meeting of South Pacific Central Bank Governors, which was held in Sydney. We also participated in the Working Group on Banking Supervision of the Executives’ Meeting o f East Asia-Pacific Central Banks (EMEAP), a broader grouping of regional central banks and monetary authorities.

APRA participated in a joint International Monetary Fund and World Bank team that conducted a review and assessment of Israel’s financial system in September 2000, focusing

particularly on how its banking supervision rated against the Core Principles of the BCBS.

International - information sharing

APRA regularly hosts visits from overseas finance- sector regulators wishing to learn more about Australia’s approach and to share their own experiences. In July 2000, a delegation from the

Bank of Indonesia came to Sydney for discussions on our approach to bank supervision, and provided a valuable assessment of the problems of the Indonesian banking sector. Indonesia is considering setting up an integrated financial services supervisor similar to APRA, and our Chair held a workshop for the officials involved in Jakarta to examine the steps required.

APRA actively supports the APEC Financial Regulators Training Initiative through its membership of the Bank Supervisor Advisory Group. The APRA representative was a member of the Bank Curriculum Development Committee which put together the Foundation and

Intermediate Training Programs. APRA also participated in the Policy Dialogue on Bank Failure Management and the Policy Dialogue on Banking

Supervision in June 2001. Eighteen of the 21 APEC countries were represented in the policy dialogues.

Regionally, we continued our involvement in the Asia-Pacific Economic Cooperation (APEC) training program on managing regulatory change in life insurance and pension funds. The aim of the

four-week long program is to enhance the supervisory capabilities in APEC member countries in the areas o f life insurance and pension fund supervision. APRA's involvement includes providing access to key personnel to discuss our

supervisory approach and resource material.

A number of these courses have been held in Melbourne — in March 2000, March 2001 and July 2001. Attendees included life insurance and pension fund regulators from most of the Southeast Asian countries, including Taiwan, Singapore, Malaysia, Hong Kong, Indonesia, India, Fiji and Thailand.

APRA staff also presented at the Symposium of Asian Life/Pension Regulators in Manila in November 2000.

APRA provided a commentator and moderator at the M il second International Conference for Emerging Markets in a Globalising Economy and the second OECD/IAIS Conference on Insurance Regulation and Supervision in Asia. The conferences were held back-to-back with IAIS

Committee meetings and a meeting o f actuarial leaders and actuarial educators in Asia and the Pacific in January 2001 in Kuala Lumpur.

An APRA representative presented at the IMF

APRA Annual Report 2001

Conference on Financial Stability and Development: The Case of the Pacific Island Countries in Samoa in February 2001. Under a technical assistance program arranged by the Monetary and Exchange Affairs Department of the IMF, APRA provided a senior staff member as Bank Supervision Advisor to the Reserve Bank of Vanuatu.

A senior APRA staff member conducted a two-day session on Enhancing Bank Supervision in Fiji in 2000.

APRA is heavily involved in the AUSAID-funded project to strengthen the supervisory framework in Thailand. Since 1999, APRA has:

• conducted two one-week training courses in Thailand (one on capital markets and one on market risk);

• hosted a one-week visit by senior Bank of Thailand officers to APRA;

• run a two-week program on risk-based supervision for a group of Bank of Thailand managers; and

• taken on a range of Bank of Thailand staff for six-month secondments to APRA.

In April 2000, two APRA staff participated in an IMF team to review the extent of problem loans in the Thai banking system.

In February 2001, a senior APRA manager visited Bank of Thailand for five days to provide training and assistance to the Bank’s Data Management Group. The session concentrated on the design and deployment o f a data warehouse for use by the bank to collect data for prudential, macroeconomic and exchange control purposes.

APRA is in close liaison with all the central banks and regulatory agencies in the Asia-Pacific Region. We are regularly responding to requests for information and advice from China, Korea, Hong Kong, Singapore, India, the Philippines and Papua New Guinea.

In 2000/01, we received and assisted several delegations from China interested in management of problem assets ofADIs, regulation of credit unions and in current and proposed arrangements for insurance supervision, as well as providing presentations on superannuation to delegations from

Chinese pension agencies.

We also hosted a high-level delegation from Argentina that was interested in learning how APRA was structured as part of that country’s consideration of implementing a Wallis-style reform program in its financial sector.

APRA call centre

APRA’s national call centre in Canberra continues to meet world’s best practice in answering 90 per cent of calls from the general public within 10 seconds, and has taken significant steps forward on training and staff development. The team achieved an overall rating of 92 per cent on the quality of its calls during this financial year (calls where there was no need for improvement identified).

In February, the staff involved in the early release of superannuation benefits and the call centre team combined under one manager to improve customer focus and achieve efficiencies.

The volume of applications for the early release of preserved superannuation benefits has continued at around 1,000 per month. Under new arrangements, the assessors are determining applications well within the target turnaround time of 48 hours.

By June, the improved processes in the early release of benefits had resulted in a 10 per cent reduction in the number of enquiries to the call centre about pending applications. The feedback received from

customers confirms that the current level of service exceeds expectations.

30

Board responsibilities

The responsibilities o f APRA Board mem bers stem from statute and common law. T he m ost relevant statutes are the Australian Prudential Regulation Authority Act 1998 (APRA Act) and the Commonwealth Authorities and Companies Act 1997 (CAC Act).

APRA's purpose, as set out in section 8 o f the APRA Act, is to regulate bodies in the Australian financial sector in accordance with apphcable laws and to develop the policy to be applied in performing that regulatory role. In doing this, APRA must balance the objectives of financial

safety and efficiency, competition, contestability and competitive neutrality.

The Board's functions, as set out in section 17 of the APRA Act, are:

• to determine APRA's policies (including goals, priorities, strategies and administrative policies);

• to ensure that APRA performs its functions properly, efficiently and effectively; and

• to ensure that APRA's operations are conducted having regard to its purpose as stated in section 8.

In addition, other sections of the APRA Act refer to the obligations of the Board to inform the Government of APRA’s policies (section 12) and to hold meetings.

Board members, other than representative members, are appointed by the Treasurer for a term of up to five years. Two representative members are appointed by the Governor of the Reserve Bank of Australia and one by the Chairman of the Australian

Securities and Investments Commission.

Under the APRA Act, the Board may delegate some of its functions to the Chief Executive Officer, to a Board member or to a member o f staff.

understanding of the risks facing the organisation and the implementation of strategies to control those risks.

Risk assessment and internal audit staff provide the Boards Risk Management and Audit Committee with a summary of the high and significant risks at

the organisational level. These risks had been identified using the ongoing risk assessment process, which follows the Australian/New Zealand standard

on risk management (AS/NZS 4360:1999). Management provided an overview o f the strategies it has in place to mitigate each of these risks. The organisation’s risk profile is reassessed every six months.

A further important outcome is the provision of regular risk assessment and audit reports to senior management and the Board Risk Management and Audit Committee. These reports cover risk identification and analysis, and associated risk management strategies and action plans. They also provide independent assurance that internal controls are in place and operating effectively.

During the year, APRA participated in a survey conducted by the Attorney-General’s Department on fraud training provided by Commonwealth agencies. Fraud risk management also has been encompassed within APRA’s overall strategic risk and is included in the 2001/02 strategic internal audit plan.

Risk assessment and internal audit

A key element in APRA’s corporate governance framework is the Board and senior management’s

3 1

Board members

From left to right:

Dr Jeffrey Carmichael Mr G raem e Thompson

From left to right:

Dr David Knox Dr John Laker

Below:

Mr Ian Macfarlane Mr Don Mercer Mrs Marian Micalizzi

Members' attendance at meetings

Board

(a)

meetings

(b)

Risk Mana and Audit C

(a)

gement ommittee

(b)

Dr Jeffrey Carmichael 11 11 4 4

Mr Graeme Thompson 11 11

Mr Alan Cameron ' 4 3 -

Dr David Knox 11 11 4 4

Dr John Laker 11 11

Mr Ian Macfarlane ! 11 8

Mr Don Mercer 11 8 4 4

Mrs Marian Micalizzi 11 11 4 4

Mr David K n o tt3 5 5

(a) n u m b e r o f m e e t i n g s h e l d w h i l e a m e m b e r ( b ) n u m b e r o f m e e t i n g s a t t e n d e d

’ A lan C a m e r o n 's a l t e r n a t e , D a v id K n o t t , a t t e n d e d t h e 2 7 J u ly 2 0 0 0 m e e t i n g . M r C a m e r o n 's t e r m e n d e d o n 1 7 N o v e m b e r 2 0 0 0 .

‘ Ian M a c f a r l a n e 's a l t e r n a t e , D r S t e p h e n G r e n v il l e , a t t e n d e d t h e 1 2 O c t o b e r a n d 1 6 N o v e m b e r 2 0 0 0 m e e t i n g s .

D avid K n o t t w a s a p p o i n t e d o n 3 0 N o v e m b e r 2 0 0 0 a n d r e s i g n e d o n 2 2 M a y 2 0 0 1 .

Dr Jeffrey C arm ichael AO Chair (non-executive)

B C om ( H o n s 1 ) M C o m ( H o n s ) ( U N S W ) , M A , P h D

( P r i n c e t o n ) , A IB F , A IF S

|| Dr Carmichael was a member of the Financial I., System Inquiry and is now a financial consultant tod company director. He brings to his i chairmanship of APRA considerable experience and

li knowledge of the financial system from his 20 years with the Reserve Bank of Australia (RBA), from his j extensive academic career, where he specialised in ϊ the field o f banking and finance, and, more directly,

I in prudentially regulating financial institutions. Dr ί I Carmichael has previously held positions as Chair of « the Australian Financial Institutions Commission (AFIC) and Chair of the Queensland Office of

j Financial Supervision. Both institutions were I involved in the supervision of building societies, I credit unions and friendly societies, which was transferred to APRA’s jurisdiction on 1 July 1999.

Mr G raem e T h om p son C h ief E xecutive Officer (executive)

B E c ( F 1 o n s ) ( S y d )

Mr Thompson is the Chief Executive Officer of APRA. From 1993 until his present appointment, he was a Deputy Governor of the RBA with responsibilities including banking supervision,

surveillance of the financial system as a whole and the payments system. From 1995 to 1998 he was also Chair of the Australian Payments Clearing Association Ltd. Mr Thompson previously held

other senior positions in the BJ3A. He is currently APRA’s representative member on the RBA’s Payments System Board. He is also Chair of the boards of Note Printing Australia Ltd and Securency

Pty Ltd.

APRA

m 3 C C <

Dr D avid K nox (non executive)

B A , P h D ( M a c q u a r i e ) , F IA , F IA A

Dr Knox is a Director with PricewaterhouseCoopers Actuarial. From 1992 to 1999 he was the Foundation Professor o f Actuarial Studies at The University of Melbourne. From

1979 to 1992 he was a Lecturer and then Associate Professor of Macquarie University. Prior to his two decades in academia, he worked for National Mutual Life. Dr Knox has acted as a consultant to a range of financial organisations, in both the private and public sectors, specialising in the superannuation area. Dr Knox was President of the Institute of Actuaries of Australia in 2000 and was named Actuary of the Year in 1996. Fie is a member of APRA’s Risk Management and Audit Committee.

D r John Laker (non executive)

B E c ( F i o n s 1 ) ( S y d ) , M S c P h D ( L o n d o n )

Dr Laker was appointed Assistant Governor (Financial System) of the RBA in March 1998. He worked in the Commonwealth Treasury and International Monetary Fund before joining the RBA’s International Department in 1982. Dr Laker held senior positions in the economic, bank supervision and international areas before becoming the RBA’s Chief Representative in Europe, based in London, from 1991 to 1993. Prior to his current appointment he was Assistant Governor (Corporate Services). Dr Laker is also Deputy Chair of the Payments System Board of the RBA and an RBA representative on the Council of Financial Regulators.

Mr Ian M acfarlane (non executive) B E c ( H o n s ) , M E c ( M o n a s h ) , F A S S A

Mr Macfarlane is Governor and Chairman of the Board of the RBA. He is also Chairman of the RBA’s Payments System Board and of the Council

of Financial Regulators.

Mr D on M ercer (non executive) B S c ( H o n s 1 ) ( S t A n d r e w s ) , D i p P u b A d m i n , M A

( E c o n ) ( M a n c h e s t e r )

Mr Mercer is Chancellor of RM IT University, Chair of Orica Ltd and Chair of Australia Pacific Airports Corporation. He is a Director of CSIRO. After graduating, he spent 19 years with Shell

International Petroleum Co. Ltd, with postings in the United Kingdom, the Netherlands, Canada, Indonesia and Australia. He joined ANZ in March 1984 as General Manager, Strategic Planning and Economics, and in 1988 was appointed Chief

General Manager, Australian Retail Services. In June 1992, M r Mercer was named Group Managim Director and Chief Executive Officer. He retired on 30 September 1997. He was President of the

Victorian Institute of Company Directors from 1994 to 1996, and is currently a national Vice­ President of AICD. He was President of the Australian Coalition of Service Industries from 199

to 1998. He is the Chair of APRA’s Risk Management and Audit Committee.

Mrs M arian M icalizzi (non executive)

B B u s ( Q U T ) , F C A , M A IC D

Mrs Micalizzi’s expertise is in financial advisory areas and she is a current member of several advisory boards and panels including the Corporations and Securities Panel and the Companies and Securities Advisory Committee, as well as the boards of Enertrade and Queensland Investment Corporation. She was a director of the Queensland Office of Financial Supervision from

1992 to August 1999 and AFIC from 1996 until October 1999, which were responsible for the regulation and supervision of non-bank financial institutions. Mrs Micalizzi is a former partner of PricewaterhouseCoopers Financial Advisory Services division, having previously been admitted as a partner o f a predecessor firm in 1986. She is also a member of APRA's Risk Management and Audit Committee.

Mr R o d A tfield (non executive)

F IA , F I A A , FAN

M r Atfield was appointed to the Board as an independent member for the term of five years froi I 1 September 2001. He was previously Managing Director of the Mercantile Mutual Group, with extensive experience in the general insurance industry. In addition to M r Atfield’s more than 40 years experience in the insurance field, he has madt a significant contribution to the industry and professional associations of which he has been a member during his career. Mr Atfield is a former director o f the Insurance Council o f Australia, the

34

Life Insurance Federation of Australia and a past President o f the Institute of Actuaries of Australia.

Mr Alan Cameron, AM (non executive)

BA, LLM ( H o n s ) ( S y d )

Mr Cameron was the Chair of the Australian Securities and Investments Commission (ASIC, formerly Australian Securities Commission) until 17 November 2000. After varied experience in the legal and financial sectors in Australia and overseas, he practised as a partner with law firm Blake Dawson Waldron for 12 years, becoming the National Managing Partner in 1989. He was also a director of various listed and unlisted companies.

He was Chair of the Business Law Section o f the Law Council of Australia and a part-time judicial member of the NSW Equal Opportunity Tribunal. Prior to his appointment to the ASC on 1 January

1993, he held the position of Commonwealth Ombudsman from April 1991 until December 1992. He is now self employed as a consultant and company director.

Mr David K nott (non executive) LLB ( M e l b )

Mr Knott was appointed as Chairman of ASIC on 18 November 2000 and is based in ASIC’s Melbourne office. He first joined ASIC as its Deputy Chairman on 5 July 1999. His career spans

more than 30 years of experience in both the private and public sectors. After graduating in law in 1970, he spent 13 years in private legal practice, specialising in company and commercial law before

assuming senior roles in investment banking for a further 10 years and, since 1992, public administration. Positions held include partnership at Arthur Robinson and Co (now Allens Arthur Robinson), Senior Executive Director Capel Court; Chief Executive o f AFIC, CEO of Commonwealth Funds Management and Chief Operating Officer of APRA.

T h e C o s t o f P r u d e n t i a l

S u p e r v i s i o n a n d A P R A ' s F i n a n c e s

A PRA ’s income comes mostly from annual levies on regulated financial institutions. Its expenditure is devoted, directly or indirectly, to prudential supervision, regulation and enforcement activities in relation to those entities.

APRA's expenditure

APRA’s operating expenditure in 2000/01 was $52.5 million. This was above the budgeted figure of $51.1 million because of costs associated with APRA’s inspection of HIH Insurance and higher depreciation of fixed assets.

The table below shows the trend in operating expenditure on prudential regulation, and staff engaged directly or indirectly on this, in Australia over recent years.

Expenditure Staff at $m 30 June

1997/98 (estimate) 56.4 559

1998/99 (estimate) 59.9 482

1999/00 52.8 397

2000/01' 52.5 396

2001/02 (budgeted)' 53.1 417

In contrast to these data, the figures in the financial accounts accompanying this report show a more substantial fall in spending (including employee expenses) in 2000/01. This is because new accounting standards require abnormal expenditure to be reported as part of operating transactions.

The expenditure figure for 1999/00 includes g abnormal items o f $6 million that were part of

^ APRA’s total establishment expenditure of t $19.8 million, which had been reported separately Q.

in the 1999/00 financial accounts.

These figures’ show that, following APRA’s creation and absorption of functions previously carried out in 11 separate agencies, the running costs of prudential supervision fell significantly in nominal terms, more so if adjusted for inflation. This has been achieved through a combination of integration! savings, shared facilities, more flexible work practice*! and investment in infrastructure.

The estimated percentage distribution o f APRA’s operating expenditure across its main activities in 2000/01 is:

• supervision, rehabilitation and enforcement, 57 per cent;

• development of prudential policies and standards, 9 per cent;

• liaison with industry, 7 per cent; and

• administrative support and corporate governance, .· 27 per cent.

While total spending on prudential supervision has ! come down over recent years (as expected and foreshadowed by the Government when it decided ; to establish APRA) this trend cannot be expected tcj continue if APRA is to carry out its responsibilities j effectively. This is true even though the number of 1 regulated entities is declining with industry rationalisation in most sectors.

Several factors will mean increased spending on prudential supervision in the future. Our resources are already spread thin and the community clearly expects a more intensive scrutiny of financial institutions, particularly where institutional failure would hit the household sector.

0£ ω 3 C C <

The expenditure figure for 2000/01 is lower than reported in the financial statements by $0.7 million due to sublease rental income on

properties leased being offset.

The figures for 2001/02 are from APRA ’s Agency Budget Statement in the Commonwealth Budget Papers.

The figure for 1997/98 is the aggregate of prudential supervision costs incurred by APRA ’s predecessor agencies - the Insurance and

Superannuation Commission, the Reserve Bank’s Bank Supervision Department and the various agencies under the state-based Financial

Institutions Scheme. APRA was established on 1 July 1998 but did not acquire responsibility for institutions under the latter scheme until

1 July 1999. Consequently, the figure for 1998/99 is an amalgam o f APRA and state agency costs.

Further demands are stemming from APRA’s ambitious policy reform program, the increasing complexity of financial instruments and services, the growing impact of international prudential standards and the pace of institutional restructuring - all of which mean more work for the prudential supervisor.

Another factor of note is the trend toward recognition of financial institutions’ internal risk systems for calculating regulatory capital. This is in the interests of the better-run companies because it is likely to result in a lower regulatory capital charge, but it puts a lot of new pressures on the

resources of supervisory agencies.

APRA's income

APRA is funded primarily from levies collected from regulated financial institutions, with subsidiary- sources being interest on funds invested and revenue from sale of publications.

Levies are raised according to the Financial Institutions Supervisory Levies Collection Act 1998 and six other Acts applying to the main industry sectors. In each case it is provided that levies will be applied as a rate on assets, subject to a minimum and maximum amount per institution, except for non­ operating holding companies that are levied a flat rate. The levies collected by APRA also cover some costs of the Australian Securities and Investments Commission (ASIC) and the Australian Taxation Office (ATO).

The process leading to the determination of levy rates by the Treasurer each year, and the way which costs are allocated to industry sectors by APRA, was described in detail in APRA’s annual report for

1999/00. The process includes a detailed round of consultation with the main industry groups and with Commonwealth Treasury.

One important point is worth reiterating: while the levies are based on industry sectors, APRA’s organisation structure, and its supervisory approach

as an integrated whole-of-system agency, do not lend themselves to exact allocation of spending on this basis. Much of APRA’s policy development work and its frontline supervision cut across

traditional, and increasingly outmoded, industry boundaries.

In 2000/01, APRA planned to collect $61 million ifrom industry including $12.6 million on behalf of -ASIC and $2.4 million for the ATO. Over- icollection from authorised deposit-taking

sinstitutions of $0.5 million and under-collections

from superannuation ($0.9 million) and life insurance ($0.2 million) were factored into levy determinations for 2001/02.

Reserves

APRA’s statement of financial performance shows a deficit of $1.1 million for 2000/01 which, when added to the accumulated surplus at the beginning of the year, results in an accumulated surplus carried

forward of $0.6 million. The accumulated reserves are now only 1.1 per cent of levy income and below the target level - 5 per cent to 10 per cent of annual levies - set by the Board. APRA will be seeking to build up its reserves in future years.

Accounting policies

APRA has adopted accounting policies that match levy income to the cost of supervision during the levy year on an accrual basis. This policy has been

endorsed by a senior independent expert on public sector accounting. The Austrahan National Audit Office’s (ANAO) report qualifies the financial statements on the basis that, in its opinion, section

50 of the Australian Prudential Regulation Authority Act 1998 entitles APRA to recognise only the cash collected as levies. This position is not supported by the independent opinion obtained by APRA.

The ANAO also considers that the recognition by APRA of levies invoiced but not yet collected is a departure from Australian Accounting Standard A A S 15 - Revenue. In the opinion of the ANAO, APRA

does not have control of the invoiced, but not yet received, levies. Changes have been drafted to section 50 o f the APRA Act. When enacted, these changes will clarify the basis on which APRA receives levies revenue and permit levies invoiced, but unpaid at the year-end, to be recognised as revenue.

APRA has changed its policy on revenue recognition when levies collected vary from the planned levies that APRA has agreed, during consultation with industry, as necessary to cover its operating costs. This policy had been to recognise a liability to industry (or an asset) for the over­ collection (or under-collection) of levies against the plan. The ANAO has indicated that, in its opinion,

there is no obligation in law for APRA to return over-collections of levies or to pursue under­ collections and, therefore, there is no basis on which to establish an asset or liability for this purpose. APRA has accepted this view and altered its policy accordingly in this year’s accounts.

jj

' S I S Έ m m m Hk H§. k * 1 | ■ Up Bfc. B|. ■ H r mmsuk*.

A U S T R A L I A N P R U D E N T I A L R E G U L A T I O N A U T H O R I T Y

STATEMENT BY BOARD MEMBERS

In our opinion, the attached financial statements give a true and fair view of the

matters required by Schedule 1 of the Commonwealth Authorities and Companies

(Financial Statements 2000/01) Orders.

D r J e f f r e y C a r m i c h a e l

C h a i r o f t h e B o a r d

1 3 S e p t e m b e r 2 0 0 1

G r a e m e T h o m p s o n

C h i e f E x e c u t i v e O f f i c e r

1 3 S e p t e m b e r 2 0 0 1

STATEMENT OF FINANCIAL PERFORMANCE for the year ended 30 June 2001

R e v e n u e s f r o m o r d i n a r y a c t i v i t i e s

R e v e n u e s f r o m g o v e r n m e n t

S a l e s o f g o o d s a n d s e r v i c e s

I n t e r e s t

P r o c e e d s f r o m d i s p o s a l o f a s s e t s

Total re ve n u es fro m ordinary activities

E x p e n s e s f r o m o r d i n a r y a c t i v i t i e s

E m p l o y e e s

S u p p l i e r s

D e p r e c i a t i o n a n d a m o r t i s a t i o n

A s s e t t h r e s h o l d c h a n g e

R e v a l u a t i o n a n d w r i t e - d o w n o f a s s e t s

D i s p o s a l s o f a s s e t s

Total ex p en ses fro m ordinary activities

B orrow ing cost e x p e n se s

N e t o p e r a t i n g s u r p l u s ( d e f i c i t )

f r o m o r d i n a r y a c t i v i t i e s a t t r i b u t a b l e

t o t h e C o m m o n w e a l t h

N e t c r e d i t t o a s s e t r e v a l u a t i o n r e s e r v e

R e s t r u c t u r i n g a d j u s t m e n t

2 0 0 1 2 0 0 0

N o t e s S ' 0 0 0 $ ' 0 0 0

6 A 49,367 6 0 , 5 8 6

6 B 1,265 1 , 6 6 3

6 C 1,439 2 , 0 2 1

6 D 4 2 8

52,075 6 4 , 2 9 8

7 A 33,347 3 7 , 2 2 1

7 B 15,523 1 7 , 4 6 9

7 C 2,833 2 , 5 2 7

7 D 649 -

7 E 839 1 8

7 F 22 1 , 2 0 4

53,213 5 8 , 4 3 9

8 2 8

1 4 (1,140) 5 , 8 5 1

1 4 558

1 4 , 1 5 - 2 2 0

T o t a l r e v e n u e s , e x p e n s e s a n d v a l u a t i o n

a d j u s t m e n t s r e c o g n i s e d d i r e c t l y i n e q u i t y 558 2 2 0

T o t a l c h a n g e s i n e q u i t y o t h e r t h a n t h o s e

r e s u l t i n g f r o m t r a n s a c t i o n s w i t h

o w n e r s a s o w n e r s (582) 6 , 0 7 1

T h e a b o v e s t a t e m e n t s h o u l d b e r e a d i n c o n j u n c t i o n w i t h t h e a c c o m p a n y i n g n o t e s .

N o t e t h a t t h e c o m p a r a t i v e f i g u r e s f o r 1 9 9 9 / 0 0 h a v e b e e n r e s t a t e d t o r e f l e c t t h e c h a n g e s t o

A u s tra lia n A c c o u n tin g S ta n d a rd AA S 7 - S ta te m e n t o f F inancial P e rform ance. A s a r e s u l t ,

t r a n s a c t i o n s p r e v i o u s l y r e p o r t e d a s a b n o r m a l a n d t o t a l l i n g $ 6 , 2 0 2 m illio n a r e n o w i n c o r p o r a t e d

i n t o " E x p e n s e s f r o m o r d i n a r y a c ti v it ie s " ( s e e N o t e s 7 A , 7 B a n d 7F). 4 1

STATEMENT OF FINANCIAL POSITION

as at 30 June 2001

2001 2 0 0 0

N o t e s S'000 $ ' 0 0 0

ASSETS Financial assets C a s h 9 A 13,796 2 3 , 5 7 4

R e c e i v a b l e s 9 B 1,529 6 , 4 0 1

A c c r u e d r e v e n u e s 9 C 522 7 1 5

Total financial assets 15,847 3 0 , 6 9 0

Non-financial assets I n f r a s t r u c t u r e , p l a n t a n d e q u i p m e n t 1 0 A , C 6,568 7 , 5 3 5

I n t a n g i b l e s 1 0 B , C 7,311 2 , 1 0 3

O t h e r 1 0 D 134 7 1

Total non-financial assets 14,013 9 , 7 0 9

Total assets 29,860 4 0 , 3 9 9

LIABILITIES Interest-b ea rin g liabilities L e a s e s 1 1 24 3 4

Total interest-b ea rin g liabilities 24 3 4

Payables S u p p l i e r s 1 2 A5,120 5 , 6 1 5

R e v e n u e i n a d v a n c e 1 2 B 51 3 , 1 4 0

L o a n s 1 2 C5,439 1 0 , 8 7 8

Total payables 10,610 1 9 , 6 3 3

Provisions E m p l o y e e s1 3 A 10,110 1 1 , 0 1 9

O t h e r 1 3 B 2,751 2 , 7 6 6

Total provisions 12,861 1 3 , 7 8 5

Total liabilities 23,495 3 3 , 4 5 2

EQUITY C a p i t a l 1 4 5,255 5 , 2 5 5

R e s e r v e s 1 4 558 -

A c c u m u l a t e d s u r p l u s e s 1 4 552 1 , 6 9 2

Total equity 6,365 6 , 9 4 7

Current assets 15,982 3 0 , 7 6 1

Non-current assets 13,878 9 , 6 3 8

Total assets 29,860 4 0 , 3 9 9

Current liabilities 17,254 2 0 , 9 4 2

Non-current liabilities 6,241 1 2 , 5 1 0

Total liabilities 23,495 3 3 , 4 5 2

T h e a b o v e s t a t e m e n t s h o u l d b e r e a d i n c o n j u n c t i o n w i t h t h e a c c o m p a n y i n g n o t e s .

STATEMENT OF CASH FLOWS for the year ended 30 June 2001

2001 2 0 0 0

Notes $'000 $ ' 0 0 0

OPERATING ACTIVITIES Cash received A p p r o p r i a t i o n s 51,591 56,960

S a l e s o f g o o d s a n d s e r v i c e s 650 1,224

I n t e r e s t 1,362 1,938

G S T r e c o v e r e d f r o m t a x a t i o n a u t h o r i t y 1,566 -

O t h e r 760 969

Total cash received 55,929 61,091

Cash used E m p l o y e e s (34,256) (43,010)

S u p p l i e r s (18,170) (13,414)

B o r r o w i n g c o s t s (2) ( 8 )

O t h e r (123) (174)

Total cash u sed (52,551) (56,606)

Net cash from operating activities 16 3,378 4,485

INVESTING ACTIVITIES Cash received P r o c e e d s f r o m s a l e o f p l a n t a n d e q u i p m e n t 4 28

Total cash received 4 28

Cash used P u r c h a s e o f p l a n t a n d e q u i p m e n t (2,460) (4,140)

P u r c h a s e o f i n t a n g i b l e s (5,261) -

Total cash u sed (7,721) (4,140)

Net cash used by investing activities (7,717) (4,112)

FINANCING ACTIVITIES Cash received P r o c e e d s f r o m d e b t - 3,998

O t h e r - -

Total cash received - 3,998

Cash used R e p a y m e n t s o f d e b t (5,439) (5,439)

Total cash u sed (5,439) (5,439)

Net cash used by financing activities (5,439) (1,441)

N e t decrease in cash h eld (9,778) (1,068)

C a s h a t t h e b e g i n n i n g o f t h e r e p o r t i n g p e r i o d 23,574 24,642 Cash a t th e e n d o f th e reporting p e r io d 9 A 13,796 23,574

T h e a b o v e s t a t e m e n t s h o u l d b e r e a d i n c o n j u n c t i o n w i t h t h e a c c o m p a n y i n g n o t e s .

SCHEDULE OF COMMITMENTS

as at 30 June 2001

BY TYPE’2 C O M M I T M E N T S P A Y A B L E

2001 S'000

2 0 0 0

$'000

O p e r a t i n g l e a s e s 3 33,846 3 9 , 1 4 5

Total commitments payable 33,846 3 9 , 1 4 5

C O M M I T M E N T S R E C E I V A B L E

O p e r a t i n g s u b l e a s e s 4 (7,217) ( 8 , 4 5 1 )

Total commitments receivable (7,217) ( 8 , 4 5 1 )

Net commitments 26,629 3 0 , 6 9 4

BY MATURITY Net commitments O n e y e a r o r l e s s 3,727 4 , 0 6 7

F r o m o n e t o f i v e y e a r s 14,986 1 4 , 5 7 0

O v e r f i v e y e a r s 7,916 1 2 , 0 5 7

Total net commitments 26,629 3 0 , 6 9 4

T h e a b o v e s c h e d u l e s h o u l d b e r e a d i n c o n j u n c t i o n w i t h t h e a c c o m p a n y i n g n o t e s .

C o m m i t m e n t s a r e G S T i n c l u s i v e w h e r e r e l e v a n t .

A P R A h a s n o c a p i t a l c o m m i t m e n t s .

O p e r a t i n g l e a s e s a r e e f f e c t i v e l y n o n - c a n c e l l a b i e a n d c o m p r i s e :

- l e a s e s f o r o f f i c e a c c o m m o d a t i o n ;

- p h o t o c o p i e r l e a s e a n d c o p y c h a r g e s ; a n d

- l e a s e s f o r m o t o r v e h i c l e s .

O p e r a t i n g s u b l e a s e s c o m m i t m e n t s r e c e i v a b l e c o m p r i s e a m o u n t s r e c e i v a b l e f r o m o t h e r b o d i e s f o r

s u b l e a s i n g o f o f f i c e a c c o m m o d a t i o n .

SCHEDULE OF CONTINGENCIES as at 30 June 2001

CONTINGENT LOSSES

C l a i m s f o r d a m a g e s / c o s t s

Total contingent losses

2001 2 0 0 0

$'000 $ ' 0 0 0

60 5 0

60 5 0

T h e c l a i m f o r c o s t s a t 3 0 J u n e 2 0 0 1 r e p r e s e n t s A P R A ' s e s t i m a t e o f c o s t s p a y a b l e

s h o u l d a m a t t e r a w a i t i n g d e c i s i o n b e d e t e r m i n e d i n t h e d e f e n d a n t ' s f a v o u r .

T h e a m o u n t a l l o w e d f o r c o n t i n g e n t l o s s e s a t 3 0 J u n e 2 0 0 0 w a s f o r e s t i m a t e d l e g a l

c o s t s p a y a b l e i n a l e g a l m a t t e r t h a t h a d n o t b e e n d e t e r m i n e d . T h a t m a t t e r h a s s i n c e

b e e n r e s o l v e d .

E s t i m a t e d c o s t s i n c u r r e d d u r i n g t h e y e a r a s s o c i a t e d w i t h o t h e r l e g a l a c t i o n , c u r r e n t l y

u n d e r w a y , a r e r e f l e c t e d i n t h e S t a t e m e n t o f f i n a n c i a l p e r f o r m a n c e .

SCHEDULE OF UNQUANTIFIABLE CONTINGENCIES

A t 3 0 J u n e 2 0 0 1 , A P R A h a d a n u m b e r o f l e g a l m a t t e r s o u t s t a n d i n g t h a t A P R A i s

d e f e n d i n g . I t i s n o t p o s s i b l e t o e s t i m a t e t h e a m o u n t s o f a n y e v e n t u a l p a y m e n t s t h a t

m a y b e r e q u i r e d i n r e l a t i o n t o t h e s e c l a i m s .

E s t i m a t e d c o s t s i n c u r r e d d u r i n g t h e y e a r a s s o c i a t e d w i t h o t h e r l e g a l a c t i o n , c u r r e n t l y

u n d e r w a y , a r e r e f l e c t e d i n t h e S t a t e m e n t o f f i n a n c i a l p e r f o r m a n c e .

T h e a b o v e s c h e d u l e s s h o u l d b e r e a d i n c o n j u n c t i o n w i t h t h e a c c o m p a n y i n g n o t e s .

4 5

SCHEDULE OF ADMINISTERED REVENUES AN D EXPENSES for the year ended 30 June 2001

2001 2 0 0 0

Notes $'000 $'000

Revenues from ordinary activities Taxation F i n a n c i a l i n s t i t u t i o n s s u p e r v i s o r y l e v i e s 2 2 A 62,027 Total taxation 62,027 -

Non-taxation R e f u n d s b y A P R A o f o v e r p a y m e n t s

b y i n s t i t u t i o n s 2 2 B 639

Total n o n -ta xa tio n 639 -

Total revenues from ordinary activities 62,666 -

Less: expenses from ordinary activities N e t w r i t e - d o w n o f a s s e t s 2 3 A (1,228) -

Total expenses from ordinary activities (1,228)

Less: cash tra n s fe rr e d to Official Public A c c o u n t (68,460) -

Net decrease in administered net assets 2 7 (7,022) -

T h e a b o v e s c h e d u l e s h o u l d b e r e a d i n c o n j u n c t i o n w i t h t h e a c c o m p a n y i n g n o t e s .

Note that comparative figures are not provided for 1999/00 as the Department of the Treasury previously reported these transactions at a highly summarised level, including transactions for both ARRA-regulated institutions and self-managed superannuation funds.

SCHEDULE OF ADMINISTERED A SSETS A N D LIABILITIES as at 30 June 2001

2001 2000’

Notes $'000 $'000

ASSETS Financial assets R e c e i v a b l e s 2 4 A 493 -

A c c r u e d r e v e n u e 2 4 8 306 -

Total fin a n cia l assets 799

Total assets 799 -

LIABILITIES Payables R e v e n u e i n a d v a n c e 2 5 4,461 -

Total p a ya b les 4,461 . . . . . . . . . -

Total liabilities 4,461 8

EQUITY A c c u m u l a t e d r e s u l t s 2 6 (3,662) -

Total equity (3,662) -

T h e a b o v e s c h e d u l e s h o u l d b e r e a d i n c o n j u n c t i o n w i t h t h e a c c o m p a n y i n g n o t e s .

Note that comparative figures are not provided for 1999/00 as the Department of the Treasury previously reported these transactions at a highly summarised level, including transactions for both APRA-regulated institutions and self-managed superannuation funds. 4 7

SCHEDULE OF ADMINISTERED CASH FLOWS for the year ended 30 June 2001

2001 2 0 0 0 ’

Notes S'000 $ ' 0 0 0

OPERATING ACTIVITIES Cash received F i n a n c i a l i n s t i t u t i o n s s u p e r v i s o r y l e v i e s 68,460 -

Total cash re ce ive d 68,460 "

Cash used C a s h t o o f f i c i a l p u b l i c a c c o u n t (68,460) -

Total cash u se d (68,460)

Net cash from operating activities 27 - -

Net increase (decrease) in cash held C a s h a t t h e b e g i n n i n g o f t h e r e p o r t i n g p e r i o d - - j

Cash at the end of the reporting period - -

T h e a b o v e s c h e d u l e s h o u l d b e r e a d i n c o n j u n c t i o n w i t h t h e a c c o m p a n y i n g n o t e s .

SCHEDULE OF ADMINISTERED COMMITMENTS A s a t 3 0 J u n e 2 0 0 1

T h e r e w e r e n o a d m i n i s t e r e d c o m m i t m e n t s a s a t 3 0 J u n e 2 0 0 1 .

SCHEDULE OF ADMINISTERED CONTINGENCIES A s a t 3 0 J u n e 2 0 0 1

T h e r e w e r e n o a d m i n i s t e r e d c o n t i n g e n c i e s a s a t 3 0 J u n e 2 0 0 1 .

Note that comparative figures are not provided for 1999/00 as the Department of the Treasury previously reported these transactions at a highly summarised level, including transactions for both APRA-regulated institutions and self-managed superannuation funds.

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

for the year ended 30 June 2001

Note Description

1 Summary of significant accounting policies

2 Reporting by segments and outcomes

3 Economic dependency

4 Subsequent events

5 Financial institutions supervisory levies

6 Operating revenues

7 Operating expenses

8 Borrowing cost expenses

9 Financial assets

10 Non-financial assets

11 Interest-bearing liabilities

12 Payables

13 Provisions

14 Equity

15 Non-cash financing and investing activities

16 Cash-flow reconciliation

17 Remuneration of Board members

18 Related-party disclosures

19 Remuneration of officers

20 Remuneration of auditors

21 Financial instruments

22 Administered revenues

23 Administered expenses

24 Administered financial assets

25 Administered revenue in advance

26 Administered equity

27 Administered cash-flow reconciliation

28 Administered financial instruments

29 Moneys held in trust

49

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended 30 June 2001

r e t a i n e d i n t h e C o n s o l i d a t e d R e v e n u e F u n d t o f u n d t h e A u s t r a l i a n S e c u r i t i e s a n d

I n v e s t m e n t s C o m m i s s i o n f o r c o n s u m e r p r o t e c t i o n a n d m a r k e t i n t e g r i t y f u n c t i o n s ,

a n d t h e A u s t r a l i a n T a x a t i o n O f f i c e , f o r u n c l a i m e d m o n e y s a n d l o s t m e m b e r

f u n c t i o n s . T h e b a l a n c e i s d r a w n d o w n b y A P R A u n d e r a s p e c i a l a p p r o p r i a t i o n .

1.2 Changes in accounting policy T h e r e h a v e b e e n c h a n g e s t o t w o a c c o u n t i n g p o l i c i e s d u r i n g t h e f i n a n c i a l y e a r .

(a) R evenue re c o g n itio n

A P R A r e c o g n i s e s a p p r o p r i a t i o n r e v e n u e o n t h e b a s i s o f l e v i e s i n v o i c e d d u r i n g t h e

y e a r , l e s s t h e a m o u n t t o b e r e t a i n e d i n t h e C o n s o l i d a t e d R e v e n u e F u n d . I n 1 9 9 9 / 0 0 ,

t h i s a m o u n t w a s f u r t h e r a d j u s t e d f o r c o l l e c t i o n s o f l e v i e s i n e x c e s s o f t h e a m o u n t

r e q u i r e d t o s u p p o r t f u n d i n g n e e d s , a s p r e s e n t e d t o i n d u s t r y d u r i n g l e v y c o n s u l t a t i o n .

A P R A h a s b e e n a d v i s e d b y t h e A u s t r a l i a n N a t i o n a l A u d i t O f f i c e t h a t , i n i t s o p i n i o n ,

A P R A h a s n o p r e s e n t o b l i g a t i o n t o r e t u r n o v e r - c o l l e c t i o n s t o i n d u s t r y . T o r e c o g n i s e

s u c h a l i a b i l i t y f o r o v e r - c o l l e c t i o n s w o u l d b e i n b r e a c h o f A u s tra lia n A c c o u n tin g S ta n d a rd A A S 15 - Revenue. C o n s e q u e n t l y , A P R A n o l o n g e r a p p l i e s t h i s p o l i c y . I f t h i s

h a d n o t b e e n a p p l i e d i n t h e p r i o r y e a r , r e v e n u e s f o r 1 9 9 9 / 0 0 w o u l d h a v e b e e n

$ 2 , 9 5 4 m i l l i o n h i g h e r , a s d e t a i l e d b e l o w . A s a c o n s e q u e n c e , t h e r e v e n u e s f o r

2 0 0 0 / 0 1 w o u l d h a v e b e e n $ 2 , 9 5 4 m i l l i o n l o w e r .

Original Revised 1999/00 1999/00

S t a t e m e n t o f f i n a n c i a l n e r f o r m a n r e

$'000 $'000

R e v e n u e f r o m g o v e r n m e n t 6 0 , 5 8 6 6 3 , 5 4 0

T o t a l r e v e n u e6 4 , 2 9 8 6 7 , 2 5 2

N e t s u r p l u s ( d e f i c i t ) 5 , 8 5 1 8 , 8 0 5

S t a t e m e n t o f f i n a n c i a l p o s i t i o n

R e v e n u e i n a d v a n c e 3 , 1 4 0 1 8 6

T o t a l p a y a b l e s 1 9 , 6 3 3 1 6 , 6 7 9

T o t a l l i a b i l i t i e s 3 3 , 4 5 2 3 0 , 4 9 8

A c c u m u l a t e d s u r p l u s e s 1 , 6 9 2 4 , 6 4 6

T o t a l e q u i t y 6 , 9 4 7 9 , 9 0 1

(b) A s s e t th re s h o ld

A P R A h a s c h a n g e d t h e t h r e s h o l d t o b e a p p l i e d f o r t h e c a p i t a l i s a t i o n o f f i x e d a s s e t s .

T h e p o l i c y n o w a p p l i e d i s o u t l i n e d i n N o t e 1 . 1 1 ( b ) a n d t h e f i n a n c i a l i m p a c t i s

p r o v i d e d i n N o t e 7 D .

1.3 Reporting by outcomes A c o m p a r i s o n o f b u d g e t a n d a c t u a l f i g u r e s b y o u t c o m e s p e c i f i e d i n t h e

a p p r o p r i a t i o n a c t s r e l e v a n t t o A P R A i s p r e s e n t e d i n N o t e 2 ( b ) . A n y i n t r a - g o v e r n m e n t

c o s t s i n c l u d e d i n t h e f i g u r e " n e t c o s t t o b u d g e t o u t c o m e s " a r e e l i m i n a t e d i n

c a l c u l a t i n g t h e a c t u a l b u d g e t o u t c o m e f o r t h e G o v e r n m e n t o v e r a l l .

1.4 Revenue (a) Revenues fro m G o v e rn m e n t - APRA a p p ro p ria tio n s

A P R A i s f u n d e d p r i m a r i l y t h r o u g h l e v i e s p a i d b y t h e i n d u s t r i e s i t r e g u l a t e s . T h e l e v i e s I i

r a i s e d a r e t r a n s f e r r e d t o A P R A v i a a S p e c i a l A p p r o p r i a t i o n , t h e a m o u n t t r a n s f e r r e d

b e i n g n e t o f t h e a m o u n t s p e c i f i e d i n t h e T r e a s u r e r ' s D e t e r m i n a t i o n t o b e r e t a i n e d i n |

t h e C o n s o l i d a t e d R e v e n u e F u n d ( C R F ) t o f u n d c o n s u m e r p r o t e c t i o n , m a r k e t i n t e g r i t y , '

u n c l a i m e d m o n e y s a n d l o s t m e m b e r f u n c t i o n s .

A P R A r e v e n u e r e f l e c t s i t s p e r f o r m a n c e i n m a n a g i n g t h e l e v y p r o c e s s , b e i n g r e d u c e d

b y a n y w a i v e r s o r w r i t e - o f f s o f d e b t .

(b) Resources re c e iv e d fre e o f cha rg e

S e r v i c e s r e c e i v e d f r e e o f c h a r g e a r e r e c o g n i s e d a s r e v e n u e w h e n a n d o n l y w h e n a r

f a i r v a l u e c a n b e r e l i a b l y d e t e r m i n e d a n d t h e s e r v i c e s w o u l d h a v e b e e n p u r c h a s e d i f

t h e y h a d n o t b e e n d o n a t e d . U s e o f t h o s e r e s o u r c e s i s r e c o g n i s e d a s a n e x p e n s e .

C o n t r i b u t i o n s o f a s s e t s a t n o c o s t o f a c q u i s i t i o n o r f o r n o m i n a l c o n s i d e r a t i o n a r e i r e c o g n i s e d a t t h e i r f a i r v a l u e w h e n t h e a s s e t q u a l i f i e s f o r r e c o g n i t i o n , u n l e s s r e c e i v e d

f r o m a n o t h e r g o v e r n m e n t a g e n c y a s a c o n s e q u e n c e o f a r e s t r u c t u r i n g o f

a d m i n i s t r a t i v e a r r a n g e m e n t s .

(c) O th e r re ve n u e

R e v e n u e f r o m t h e s a l e o f g o o d s i s r e c o g n i s e d u p o n t h e d e l i v e r y o f g o o d s t o

c u s t o m e r s .

I n t e r e s t r e v e n u e i s r e c o g n i s e d o n a p r o p o r t i o n a l b a s i s t a k i n g i n t o a c c o u n t t h e i n t e r e s t I

r a t e s a p p l i c a b l e t o t h e f i n a n c i a l a s s e t s .

R e v e n u e f r o m d i s p o s a l o f n o n - c u r r e n t a s s e t s i s r e c o g n i s e d w h e n c o n t r o l o f t h e a s s e t

h a s p a s s e d t o t h e b u y e r .

R e v e n u e f r o m t h e r e n d e r i n g o f a s e r v i c e i s r e c o g n i s e d b y r e f e r e n c e t o t h e s t a g e o f

c o m p l e t i o n o f c o n t r a c t s o r o t h e r a g r e e m e n t s t o p r o v i d e s e r v i c e s t o C o m m o n w e a l t h I

b o d i e s . T h e s t a g e o f c o m p l e t i o n i s d e t e r m i n e d a c c o r d i n g t o t h e p r o p o r t i o n t h a t c o s t s

i n c u r r e d t o d a t e b e a r t o t h e e s t i m a t e d t o t a l c o s t s o f t h e t r a n s a c t i o n .

1.5 Transactions by the Government as owner A p p r o p r i a t i o n s t o A P R A d e s i g n a t e d a s " c a p i t a l - e q u i t y i n j e c t i o n s " a r e r e c o g n i s e d

d i r e c t l y i n e q u i t y t o t h e e x t e n t d r a w n d o w n a s a t t h e r e p o r t i n g d a t e .

1.6 Employee entitlements (a) Leave

T h e l i a b i l i t y f o r e m p l o y e e e n t i t l e m e n t s i n c l u d e s p r o v i s i o n f o r a n n u a l l e a v e a n d l o n g i

s e r v i c e l e a v e . N o p r o v i s i o n h a s b e e n m a d e f o r s i c k l e a v e a s a l l s i c k l e a v e i s n o n ­

v e s t i n g a n d t h e a v e r a g e s i c k l e a v e t a k e n i n f u t u r e y e a r s b y e m p l o y e e s o f A P R A i s

e s t i m a t e d t o b e l e s s t h a n t h e a n n u a l e n t i t l e m e n t f o r s i c k l e a v e .

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

for the year ended 30 June 2001

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended 30 June 2001

T h e l i a b i l i t y f o r a n n u a l l e a v e r e f l e c t s t h e v a l u e o f t o t a l a n n u a l l e a v e e n t i t l e m e n t s o f

a l l e m p l o y e e s a t t h e e n d o f t h e f i n a n c i a l y e a r a n d i s r e c o g n i s e d a t i t s n o m i n a l

a m o u n t .

T h e n o n - c u r r e n t p o r t i o n o f t h e l i a b i l i t y f o r l o n g s e r v i c e l e a v e i s r e c o g n i s e d a n d

m e a s u r e d a t t h e p r e s e n t v a l u e o f t h e e s t i m a t e d f u t u r e c a s h f l o w s t o b e m a d e i n

r e s p e c t o f a l l e m p l o y e e s a t t h e e n d o f t h e f i n a n c i a l y e a r . I n d e t e r m i n i n g t h e p r e s e n t

v a l u e o f t h e l i a b i l i t y , A P R A h a s t a k e n i n t o a c c o u n t a t t r i t i o n r a t e s a n d p a y i n c r e a s e s

t h r o u g h p r o m o t i o n a n d i n f l a t i o n .

(b) S e p a ra tio n a n d re d u n d a n c y

P r o v i s i o n i s m a d e f o r s e p a r a t i o n a n d r e d u n d a n c y p a y m e n t s i n c a s e s w h e r e A P R A h a s

f o r m a l l y i d e n t i f i e d p o s i t i o n s a s e x c e s s t o r e q u i r e m e n t s a n d a r e l i a b l e e s t i m a t e o f t h e

a m o u n t p a y a b l e c a n b e d e t e r m i n e d ( s e e N o t e 1 3 A ) .

(c) S u p e ra n n u a tio n

A P R A e m p l o y e e s c o n t r i b u t e t o t h e C o m m o n w e a l t h S u p e r a n n u a t i o n S c h e m e , t h e

P u b l i c S e c t o r S u p e r a n n u a t i o n S c h e m e , a n d t h e R e s e r v e B a n k O f f i c e r s '

S u p e r a n n u a t i o n F u n d . I n a d d i t i o n , e m p l o y e r c o n t r i b u t i o n s a r e m a d e t o o t h e r

s u p e r a n n u a t i o n f u n d s , a s n o m i n a t e d b y t h e e m p l o y e e ( s e e N o t e 7 A ) .

N o l i a b i l i t y f o r s u p e r a n n u a t i o n b e n e f i t s i s r e c o g n i s e d a s a t 3 0 J u n e a s t h e e m p l o y e r

c o n t r i b u t i o n s f u l l y e x t i n g u i s h t h e a c c r u i n g l i a b i l i t y t h a t i s a s s u m e d b y t h e

C o m m o n w e a l t h , o r b y t h e o t h e r f u n d s , a s a p p r o p r i a t e .

1.7 Leases A d i s t i n c t i o n i s m a d e b e t w e e n f i n a n c e l e a s e s , w h i c h e f f e c t i v e l y t r a n s f e r f r o m t h e

l e s s o r t o t h e l e s s e e s u b s t a n t i a l l y a l l t h e r i s k s a n d b e n e f i t s i n c i d e n t a l t o o w n e r s h i p o f

l e a s e d n o n - c u r r e n t a s s e t s , a n d o p e r a t i n g l e a s e s u n d e r w h i c h t h e l e s s o r e f f e c t i v e l y

r e t a i n s a l l s u c h r i s k s a n d b e n e f i t s .

W h e r e a n o n - c u r r e n t a s s e t i s a c q u i r e d b y m e a n s o f a f i n a n c e l e a s e , t h e a s s e t i s

c a p i t a l i s e d a t t h e p r e s e n t v a l u e o f m i n i m u m l e a s e p a y m e n t s a t t h e i n c e p t i o n o f t h e

l e a s e a n d a l i a b i l i t y r e c o g n i s e d f o r t h e s a m e a m o u n t . L e a s e d a s s e t s a r e a m o r t i s e d

o v e r t h e p e r i o d o f t h e l e a s e . L e a s e p a y m e n t s a r e a l l o c a t e d b e t w e e n t h e p r i n c i p a l

c o m p o n e n t a n d t h e i n t e r e s t e x p e n s e .

O p e r a t i n g l e a s e p a y m e n t s a r e e x p e n s e d o n a b a s i s w h i c h i s r e p r e s e n t a t i v e o f t h e

p a t t e r n o f b e n e f i t s d e r i v e d f r o m t h e l e a s e d a s s e t s . T h e n e t p r e s e n t v a l u e o f f u t u r e

n e t o u t l a y s i n r e s p e c t o f s u r p l u s s p a c e u n d e r n o n - c a n c e l l a b l e l e a s e a g r e e m e n t s i s

e x p e n s e d i n t h e p e r i o d i n w h i c h t h e s p a c e b e c o m e s s u r p l u s .

L e a s e i n c e n t i v e s t a k i n g t h e f o r m o f " f r e e " l e a s e h o l d i m p r o v e m e n t s a n d r e n t h o l i d a y s

a r e r e c o g n i s e d a s l i a b i l i t i e s . T h e s e l i a b i l i t i e s a r e r e d u c e d , b y a l l o c a t i n g l e a s e p a y m e n t s

b e t w e e n r e n t a l e x p e n s e a n d t h e r e d u c t i o n o f t h e l i a b i l i t y .

1.8 Borrowing costs A l l b o r r o w i n g c o s t s a r e e x p e n s e d a s i n c u r r e d e x c e p t t o t h e e x t e n t t h a t t h e y a r e

d i r e c t l y a t t r i b u t a b l e t o q u a l i f y i n g a s s e t s , i n w h i c h c a s e t h e y a r e c a p i t a l i s e d . T h e

a m o u n t c a p i t a l i s e d i n a r e p o r t i n g p e r i o d d o e s n o t e x c e e d t h e a m o u n t s o f c o s t s

i n c u r r e d i n t h a t p e r i o d .

A P R A h a s n o q u a l i f y i n g a s s e t s f o r w h i c h f u n d s w e r e b o r r o w e d s p e c i f i c a l l y i n 2 0 0 0 / 0 1

( 1 9 9 9 / 0 0 : n i l ) .

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

for the year ended 30 June 2001

1.9 Cash C a s h i n c l u d e s :

- c a s h a t b a n k ;

- p e t t y c a s h ; a n d

- C o m m o n w e a l t h a n d s t a t e g o v e r n m e n t s e c u r i t i e s

( h e l d f o r a m a x i m u m o f 9 0 d a y s ) .

1.10 Financial instruments A c c o u n t i n g p o l i c i e s i n r e l a t i o n t o f i n a n c i a l i n s t r u m e n t s a r e s t a t e d a t N o t e 2 1 .

Accounting policies in relation to administered financial instruments are stated at Note 28.

1.11 Infrastructure, plant and equipment (a) A c q u is itio n o f assets

A s s e t s a r e r e c o r d e d a t c o s t o f a c q u i s i t i o n e x c e p t a s s t a t e d b e l o w . T h e c o s t o f

a c q u i s i t i o n i n c l u d e s t h e f a i r v a l u e o f a s s e t s t r a n s f e r r e d i n e x c h a n g e a n d l i a b i l i t i e s

u n d e r t a k e n .

A s s e t s a c q u i r e d a t n o c o s t , o r f o r n o m i n a l c o n s i d e r a t i o n , a r e i n i t i a l l y r e c o g n i s e d a s

a s s e t s a n d r e v e n u e s a t t h e i r f a i r v a l u e a t t h e d a t e o f a c q u i s i t i o n .

(b) A sse t r e c o g n itio n th re s h o ld

P u r c h a s e s o f p l a n t a n d e q u i p m e n t a r e r e c o g n i s e d i n i t i a l l y a t c o s t i n t h e s t a t e m e n t o f

f i n a n c i a l p o s i t i o n , e x c e p t f o r p u r c h a s e s c o s t i n g l e s s t h a n $ 3 , 0 0 0 a n d a l l d e s k t o p

c o m p u t e r s , w h i c h a r e e x p e n s e d i n t h e y e a r o f a c q u i s i t i o n . I n 1 9 9 9 / 0 0 , a

c a p i t a l i s a t i o n t h r e s h o l d o f $ 2 , 0 0 0 w a s a p p l i e d . T h e f u l l e f f e c t o f t h e c h a n g e i n

a c c o u n t i n g p o l i c y h a s b e e n r e c o g n i s e d i n 2 0 0 0 / 0 1 ( s e e N o t e 7 D ) .

(c) R evaluations

I n f r a s t r u c t u r e , p l a n t a n d e q u i p m e n t a n d l e a s e h o l d i m p r o v e m e n t s a r e r e v a l u e d

p r o g r e s s i v e l y i n a c c o r d a n c e w i t h t h e " d e p r i v a l " m e t h o d o f v a l u a t i o n e v e r y t h r e e

y e a r s , s o t h a t n o a s s e t h a s a v a l u e g r e a t e r t h a n t h r e e y e a r s o l d . A l l a s s e t s o n h a n d a t

t h e e n d o f A p r i l , e x c l u d i n g i n t a n g i b l e a s s e t s , w e r e r e v a l u e d a s a t 3 0 J u n e 2 0 0 1 .

A s s e t s p u r c h a s e d a f t e r 3 0 A p r i l 2 0 0 1 a r e r e p o r t e d a t c o s t .

W h e r e a s s e t s a r e h e l d w h i c h w o u l d n o t b e r e p l a c e d o r a r e s u r p l u s t o r e q u i r e m e n t s ,

m e a s u r e m e n t i s a t n e t r e a l i s a b l e v a l u e . A t 3 0 J u n e 2 0 0 1 , A P R A h a d n o a s s e t s i n t h i s

s i t u a t i o n .

A l l v a l u a t i o n s a r e i n d e p e n d e n t .

(d) R ecoverable a m o u n t te s t

S c h e d u l e 1 r e q u i r e s t h e a p p l i c a t i o n o f t h e r e c o v e r a b l e a m o u n t t e s t t o A P R A ' s

n o n - c u r r e n t a s s e t s i n a c c o r d a n c e w i t h A u s tra lia n A c c o u n tin g S ta n d a rd A A S 1 0 - R ecoverable A m o u n t o f N o n -C u rre n t Assets. T h e c a r r y i n g a m o u n t s o f t h e s e n o n ­

c u r r e n t a s s e t s h a v e b e e n r e v i e w e d t o d e t e r m i n e w h e t h e r t h e y a r e i n e x c e s s o f t h e i r

r e c o v e r a b l e a m o u n t s . I n a s s e s s i n g r e c o v e r a b l e a m o u n t s , t h e r e l e v a n t c a s h f l o w s h a v e

b e e n d i s c o u n t e d t o t h e i r p r e s e n t v a l u e .

(e) D e p re c ia tio n a n d a m o rtis a tio n

D e p r e c i a b l e e q u i p m e n t a s s e t s a r e w r i t t e n - o f f t o t h e i r e s t i m a t e d r e s i d u a l v a l u e s o v e r

t h e i r e s t i m a t e d u s e f u l l i v e s t o A P R A u s i n g , i n a l l c a s e s , t h e s t r a i g h t - l i n e m e t h o d o f

d e p r e c i a t i o n . L e a s e h o l d i m p r o v e m e n t s a r e a m o r t i s e d o n a s t r a i g h t - l i n e b a s i s o v e r t h e

l e s s e r o f t h e e s t i m a t e d u s e f u l l i f e o f t h e i m p r o v e m e n t s o r t h e u n e x p i r e d p e r i o d o f t h e

l e a s e .

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

for the year ended 30 June 2001

1.16 Rounding A m o u n t s h a v e b e e n r o u n d e d t o t h e n e a r e s t $ 1 , 0 0 0 , e x c e p t i n r e l a t i o n t o t h e

f o l l o w i n g :

- r e m u n e r a t i o n o f B o a r d m e m b e r s ;

- r e m u n e r a t i o n o f o f f i c e r s ( o t h e r t h a n B o a r d m e m b e r s ) ; a n d

- r e m u n e r a t i o n o f a u d i t o r s .

1.17 Restructuring A P R A w i l l c o n t i n u e t o r e v i e w i t s b u s i n e s s f u n c t i o n s . T o t h e e x t e n t t h a t p o s i t i o n s a r e

i d e n t i f i e d a s r e d u n d a n t , o r f a c i l i t i e s o v e r w h i c h l e a s e s a r e h e l d a r e i d e n t i f i e d a s

e x c e s s t o n e e d s , p r o v i s i o n i s m a d e f o r r e d u n d a n c i e s , s u r p l u s l e a s e d s p a c e a n d a

r e d u c t i o n i n t h e u s e f u l l i f e f o r l e a s e h o l d i m p r o v e m e n t s .

Note 2. Reporting by segments and outcomes

(a) R e p o rtin g b y s e g m e n ts

A P R A o p e r a t e s i n a s i n g l e i n d u s t r y a n d g e o g r a p h i c s e g m e n t , b e i n g p r o v i s i o n o f

g o v e r n m e n t p r u d e n t i a l r e g u l a t i o n o f t h e f i n a n c e i n d u s t r y i n A u s t r a l i a .

(b) R e p o rtin g b y o u tc o m e f o r 2 0 0 0 /0 1

A P R A i s s t r u c t u r e d t o m e e t t h e f o l l o w i n g o u t c o m e :

To enh an ce p u b lic c o n fid e n c e in A u s tra lia 's fin a n c ia l in s titu tio n s th ro u g h a

fra m e w o rk o f p ru d e n tia l re g u la tio n w h ic h b a la n ce s fin a n c ia l s a fe ty a n d e fficiency,

c o m p e titio n , c o n te s ta b ility a n d c o m p e titiv e n e u tra lity .

Outcome 1

Budget Actual

$000 $000

A d m i n i s t e r e d e x p e n s e s - 1,228

N e t c o s t o f A P R A o u t p u t s 49,805 50,507

N e t c o s t t o b u d g e t o u t c o m e 1 49,805 51,735

O u t c o m e - s p e c i f i c a s s e t s 22,170 29,860

Note 3. Economic dependency

A P R A w a s e s t a b l i s h e d p u r s u a n t t o t h e A u s tra lia n P ru d e n tia l R e g u la tio n A u th o r ity Act 1 9 9 8 a s a s e p a r a t e l e g a l e n t i t y o f t h e C o m m o n w e a l t h o f A u s t r a l i a . A P R A i s

d e p e n d e n t o n G o v e r n m e n t p o l i c y , a n d o n c o n t i n u i n g a p p r o p r i a t i o n s b y P a r l i a m e n t

f o r A P R A ' s a d m i n i s t r a t i o n a n d p r o g r a m s . T h e s e a p p r o p r i a t i o n a r e p r i m a r i l y d e r i v e d

f r o m l e v i e s o n i n s t i t u t i o n s t h a t A P R A r e g u l a t e s ( s e e N o t e 1 . 4 ) .

Note 4. Subsequent events

N o e v e n t s o c c u r r i n g a f t e r b a l a n c e d a t e w e r e n o t e d .

The net cost to budget outcome shown includes intra-government costs that would be eliminated in calculating the actual budget outcome.

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended 30 June 2001

Note 5. Financial institutions supervisory levies

This note provides details on APRA's management of levies collected under the F ina n cia l In s titu tio n s S upervisory Levies C o lle c tio n A c t 7 99 8 .

2001 2000

S'000 $'000

N o t e 5 A . S u m m a r y

A n n u a l l e v i e s o n A P R A - r e g u l a t e d

i n s t i t u t i o n s ( s e e N o t e 5 B ) 61,295 -

A d d : l a t e p a y m e n t p e n a l t i e s ( s e e N o t e 5 C ) 459 -

A d d : l a t e l o d g e m e n t p e n a l t i e s ( s e e N o t e 5 D ) 273

Levy re ve n u e to th e C o m m o n w e a lth ( s e e N o t e 5 E ) 62,027 -

L e s s : w a i v e r s a n d w r i t e - o f f s ( s e e N o t e s 5 F a n d 5 G ) (1,228) -

Levy re ve n u e n e t o f waivers a n d w rite -o ffs ( s e e N o t e 5 H ) 60,799 -

L e s s : a m o u n t s r e t a i n e d i n t h e C o n s o l i d a t e d

R e v e n u e F u n d ( s e e N o t e 5 I ) (14,919) -

F u n d in g o fA P R A b y S pecial A p p ro p ria tio n ( s e e N o t e 5 J ) 45,880 -

N o t e 5 B . A n n u a l l e v i e s o n A P R A - r e a u l a t e r i i n s t i t u t i o n s

S u p e r a n n u a t i o n f u n d s 24,969 -

A u t h o r i s e d d e p o s i t - t a k i n g i n s t i t u t i o n s 22,632 -

L i f e i n s u r e r s a n d f r i e n d l y s o c i e t i e s 8,453 -

G e n e r a l i n s u r e r s 5,147 -

R e t i r e m e n t s a v i n g s a c c o u n t p r o v i d e r s 94 -

T o t a l a n n u a l l e v i e s 61,295 -

N o t e 5 C . L a t e p a v m e n t p e n a l t i e s

S u p e r a n n u a t i o n f u n d s 432 -

A u t h o r i s e d d e p o s i t - t a k i n g i n s t i t u t i o n s 22 -

G e n e r a l i n s u r e r s 5 -

T o t a l l a t e p a y m e n t p e n a l t i e s 459 -

N o t e 5 D . L a t e l o d a e m e n t p e n a l t i e s

S u p e r a n n u a t i o n f u n d s 273 -

T o t a l l a t e l o d g e m e n t p e n a l t i e s 273 -

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

for the year ended 30 June 2001

Note 5. Financial institutions supervisory levies (continued)

2001 2 0 0 0

$'000 $ ' 0 0 0

N o t e 5 E . T o t a l l e w r e v e n u e t o t h e C o m m o n w e a l t h

S u p e r a n n u a t i o n f u n d s 25,674 -

A u t h o r i s e d d e p o s i t - t a k i n g i n s t i t u t i o n s 22,654 -

L i f e i n s u r e r s a n d f r i e n d l y s o c i e t i e s 8,453 -

G e n e r a l i n s u r e r s 5,152 -

R e t i r e m e n t s a v i n g s a c c o u n t p r o v i d e r s 94 -

T o t a l l e v y r e v e n u e t o t h e C o m m o n w e a l t h 62,027

N o t e 5 F . L e v i e s w a i v e d b v A P R A o n b e h a l f

o f t h e C o m m o n w e a l t h

S u p e r a n n u a t i o n f u n d s (517) -

L i f e i n s u r e r s a n d f r i e n d l y s o c i e t i e s (142) -

T o t a l l e v i e s w a i v e d (659)

N o t e 5 G . L e v i e s w r i t t e n o f f b v A P R A o n b e h a l f

o f t h e C o m m o n w e a l t h

S u p e r a n n u a t i o n f u n d s (567) -

A u t h o r i s e d d e p o s i t - t a k i n g i n s t i t u t i o n s (2) -

T o t a l l e v i e s w r i t t e n - o f f (569) -

N o t e 5 H . L e w r e v e n u e n e t o f w a i v e r s a n d w r i t e - o f f s

S u p e r a n n u a t i o n f u n d s 24,590 -

A u t h o r i s e d d e p o s i t - t a k i n g i n s t i t u t i o n s 22,652 -

L i f e i n s u r e r s a n d f r i e n d l y s o c i e t i e s 8,311 -

G e n e r a l i n s u r e r s 5,152 -

R e t i r e m e n t s a v i n g s a c c o u n t p r o v i d e r s 94 -

T o t a l l e v y r e v e n u e n e t o f w a i v e r s a n d w r i t e - o f f s 60,799 -

N o t e 5 I . A m o u n t s r e t a i n e d i n t h e

C o n s o l i d a t e d R e v e n u e F u n d ( s e e N o t e 1 . 1 ) S u p e r a n n u a t i o n f u n d s (8,599) -

A u t h o r i s e d d e p o s i t - t a k i n g i n s t i t u t i o n s (2,560) -

L i f e i n s u r e r s a n d f r i e n d l y s o c i e t i e s (2,040) -

G e n e r a l i n s u r e r s (1,720) -

T o t a l l e v y a m o u n t r e t a i n e d i n C R F (14,919) -

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended 30 June 2001

Note 5. Financial institutions supervisory levies (continued)

2001 2 0 0 0

$-000 $ ' 0 0 0

N o t e 5 J . A P R A s o e c i a l a D D r o o r i a t i o n f o r 2 0 0 0 / 0 1 l e v i e s

S u p e r a n n u a t i o n f u n d s 15,991

A u t h o r i s e d d e p o s i t - t a k i n g i n s t i t u t i o n s 20,092 -

L i f e i n s u r e r s a n d f r i e n d l y s o c i e t i e s 6,271 -

G e n e r a l i n s u r e r s 3,432 -

R e t i r e m e n t s a v i n g a c c o u n t p r o v i d e r s 94 -

T o t a l A P R A s p e c i a l a p p r o p r i a t i o n f o r 2 0 0 0 / 0 1 l e v i e s 45,880 -

N o t e 5 K - L e v i e s r e c e i v a b l e a t v e a r e n d

S u p e r a n n u a t i o n f u n d s - l e v i e s r e c e i v a b l e 1,050

P r o v i s i o n f o r d o u b t f u l d e b t s (557) -

N e t l e v i e s r e c e i v a b l e 493 -

Note 6. Operating revenues

N o t e 6 A . R e v e n u e s f r o m G o v e r n m e n t

(a) Appropriations for outputs

A n n u a l a p p r o p r i a t i o n ’ 1 , 5 0 0

S p e c i a l a p p r o p r i a t i o n l e v i e s

( s e e N o t e s 5 A a n d 5 J ) 45,880 5 8 , 8 1 4

S p e c i a l a p p r o p r i a t i o n - n e t i n c r e a s e

i n o p e n i n g d e b t - r e l a t e d S A P l e v i e s 2 263 „

P r i o r y e a r o v e r - c o l l e c t i o n s ( s e e N o t e 1 . 2 ( a ) ) 2,954 -

T o t a l a p p r o p r i a t i o n s f o r o u t p u t s 49,097 6 0 , 3 1 4

(b) Resources received free o f charge

C o m c o v e r i n s u r a n c e p r e m i u m 270 2 7 2

T o t a l r e s o u r c e s r e c e i v e d f r e e o f c h a r g e 270 2 7 2

T o t a l r e v e n u e s f r o m G o v e r n m e n t 49,367 6 0 , 5 8 6

T h e $ 1 . 5 m il li o n a n n u a l a p p r o p r i a t i o n in 1 9 9 9 / 0 0 is f u n d i n g f o r t h e a d m i n i s t r a t i o n o f s e lf -

m a n a g e d s u p e r a n n u a t i o n f u n d s (S M S F s ). R e s p o n s i b i l i t y f o r a d m i n i s t r a t i o n o f t h e s e f u n d s

t r a n s f e r r e d t o t h e A u s t r a l i a n T a x a ti o n O f f ic e o n 1 J u ly 2 0 0 0 .

T h e 1 9 9 9 / 0 0 c l o s i n g v a l u e o f d e b t w a s c a l c u l a t e d b y r e f e r e n c e t o o u t s t a n d i n g d e b t f o r n o n -

e x c l u d e d s u p e r a n n u a t i o n f u n d s o n ly . A P R A w a s a l s o e n t i t l e d t o le v y c o l l e c t i o n s o n s u p e r a n n u a t i o n

f u n d s r e g u l a t e d b y A P R A w h i c h w e r e p r e v i o u s l y c l a s s i f i e d a s e x c l u d e d s u p e r a n n u a t i o n f u n d s .

A P R A 's e n t i t l e m e n t t o o u t s t a n d i n g l e v i e s w a s t h e r e f o r e u n d e r s t a t e d b y t h e a b o v e a m o u n t . T h e

a b o v e f i g u r e h a s b e e n r e d u c e d b y a n a m o u n t t o r e f l e c t t h e a s s e s s e d l o w le v e l o f c o ll e c ti b il it y o f

t h i s o u t s t a n d i n g d e b t .

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

for the year ended 30 June 2001

Note 6. Operating revenues (continued) 2001 2 0 0 0

$'000 $ ' 0 0 0

N o t e 6 B . S a l e s o f a o o d s a n d s e r v i c e s

G o o d s 74 2 9

S e r v i c e s 442 1 , 6 3 4

P r o p e r t y s u b - l e a s e s 749

T o t a l s a l e s o f g o o d s a n d s e r v i c e s 1,265 1 , 6 6 3

N o t e 6 C . I n t e r e s t

D e p o s i t s 829 5 0 4

C o m m o n w e a l t h a n d s t a t e g o v e r n m e n t s e c u r i t i e s 610 1 , 5 1 7

T o t a l i n t e r e s t 1,439 2 , 0 2 1

N o t e 6 D . P r o c e e d s f r o m d i s p o s a l o f a s s e t s

(a) Proceeds from disposal o f assets

I n f r a s t r u c t u r e , p l a n t a n d e q u i p m e n t 4 2 8

T o t a l p r o c e e d s f r o m d i s p o s a l o f a s s e t s 4 2 8

(b) N et loss on sale o f assets

P r o c e e d s f r o m d i s p o s a l o f a s s e t s 4 2 8

L e s s : d i s p o s a l s o f a s s e t s ( s e e N o t e 7 F ) (22) ( 1 , 2 0 4 ) ’

N e t l o s s o n s a l e o f a s s e t s (18) ( 1 , 1 7 6 )

T h e c o m p a r a t i v e f i g u r e i n c l u d e s $ 1 , 1 0 8 m il li o n d i s c l o s e d in 1 9 9 9 / 0 0 a s a n a b n o r m a l i t e m .

T h is w a s e x p e n d i t u r e t h a t w a s d i r e c tl y a t t r i b u t e d t o t h e r e s t r u c t u r i n g o f A P R A s u b s e q u e n t t o its

e s t a b l i s h m e n t . T h e e x p e n d i t u r e h a s b e e n r e c l a s s i f i e d d u e t o a c h a n g e in A u s tra lia n A c c o u n tin g

S tandard A A S 1 - S ta te m e n t o f Financial P erform ance.

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended 30 June 2001

Note 7. Operating expenses

2001 2 0 0 0

N o t e 7 A . E m o l o v e e e x p e n s e s

$'000 $ ' 0 0 0

R e m u n e r a t i o n ( f o r s e r v i c e s p r o v i d e d ) 30,862 3 3 , 1 4 1

S e p a r a t i o n a n d r e d u n d a n c y 767 2 , 7 0 8

T o t a l r e m u n e r a t i o n 31,629 3 5 , 8 4 9

O t h e r e m p l o y e e e x p e n s e s 1,718 1 , 3 7 2

T o t a l e m p l o y e e e x p e n s e s 33,347 3 7 , 2 2 1

Superannuation

A P R A c o n t r i b u t e s t o t h e C o m m o n w e a l t h S u p e r a n n u a t i o n ( C S S ) a n d t h e P u b l i c S e c t o r

( P S S ) S u p e r a n n u a t i o n s c h e m e s , w h i c h p r o v i d e r e t i r e m e n t , d e a t h a n d d i s a b i l i t y

b e n e f i t s t o 2 3 p e r c e n t o f i t s e m p l o y e e s , p r e v i o u s l y e m p l o y e d b y A P R A ' s a n t e c e d e n t

b o d i e s . C o n t r i b u t i o n s t o t h e s c h e m e s a r e a t r a t e s c a l c u l a t e d t o c o v e r e x i s t i n g a n d

e m e r g i n g o b l i g a t i o n s . C u r r e n t c o n t r i b u t i o n r a t e s a r e 1 9 . 2 p e r c e n t o f s a l a r y ( C S S )

a n d 1 0 . 3 p e r c e n t o f s a l a r y ( P S S ) . A n a d d i t i o n a l 3 p e r c e n t i s c o n t r i b u t e d f o r

e m p l o y e r p r o d u c t i v i t y b e n e f i t s . B o t h o f t h e s e s c h e m e s a r e c l o s e d t o n e w A P R A

c o n t r i b u t o r s . E m p l o y e r c o n t r i b u t i o n s a m o u n t i n g t o $ 9 8 3 , 0 0 9 ( 1 9 9 9 / 0 0 : $ 1 , 2 3 7 , 6 4 9 )

i n r e l a t i o n t o t h e s e s c h e m e s h a v e b e e n e x p e n s e d i n t h e s e f i n a n c i a l s t a t e m e n t s .

C o n t r i b u t i o n s o n b e h a l f o f t h e b a l a n c e o f s t a f f a r e m a d e t o v a r i o u s c o m p l y i n g

s u p e r a n n u a t i o n f u n d s i n a c c o r d a n c e w i t h t h e Superannuation Guarantee (Administration) A c t 1992. E m p l o y e r s u p e r a n n u a t i o n p r o d u c t i v i t y b e n e f i t

c o n t r i b u t i o n s t o t a l l e d $ 1 5 3 , 9 3 1 ( 1 9 9 9 / 0 0 : $ 3 3 2 , 2 5 0 ) .

N o t e 7 B . S u p p l i e r s e x p e n s e s

S u p p l y o f g o o d s a n d s e r v i c e s

O p e r a t i n g l e a s e r e n t a l s

T o t a l s u p p l i e r s e x p e n s e s

11,380 1 2 , 3 8 5 2

4,143 5 , 0 8 4

15,523 1 7 , 4 6 9

' T h e c o m p a r a t i v e f i g u r e in c l u d e s $ 2 , 7 0 8 m illio n d i s c l o s e d in 1 9 9 9 / 0 0 a s a n a b n o r m a l i te m . T h is

w a s e x p e n d i t u r e t h a t w a s d i r e c tl y a t t r i b u t a b l e t o t h e r e s t r u c t u r i n g o f A P R A s u b s e q u e n t t o its

e s t a b l i s h m e n t . T h e e x p e n d i t u r e h a s b e e n r e c l a s s i f i e d d u e t o a c h a n g e in A u s tra lia n A c c o u n tin g

S tanda rd A A S 1 - S tatem e nt o f Financial Perform ance.

T h e c o m p a r a t i v e f i g u r e in c l u d e s $ 2 , 3 8 6 m illio n d i s c l o s e d in 1 9 9 9 / 0 0 a s a n a b n o r m a l i te m . T h is

w a s e x p e n d i t u r e t h a t w a s d ir e c tl y a t t r i b u t a b l e t o t h e r e s t r u c t u r i n g o f A P R A s u b s e q u e n t t o its

e s t a b l i s h m e n t . T h e e x p e n d i t u r e h a s b e e n r e c l a s s i f i e d d u e t o a c h a n g e in A u stra lia n A c c o u n tin g __________

S tanda rd A A S 1 - S tatem e nt o f Financial P e rform ance. 61

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended 30 June 2001

Note 7. Operating expenses (continued) 2 0 0 1 2 0 0 0

S ' O O O $ ' 0 0 0

N o t e 7 C . D e p r e c i a t i o n a n d a m o r t i s a t i o n

D e p r e c i a t i o n o f n o n - l e a s e d i n f r a s t r u c t u r e ,

p l a n t a n d e q u i p m e n t 1,796 1 , 5 9 3

A m o r t i s a t i o n o f l e a s e d a s s e t s 14 1 4

A m o r t i s a t i o n o f i n t a n g i b l e s 1,023 9 2 0

T o t a l d e p r e c i a t i o n a n d a m o r t i s a t i o n 2,833 2 , 5 2 7

T h e a g g r e g a t e a m o u n t s o f d e p r e c i a t i o n o r a m o r t i s a t i o n

e x p e n s e d d u r i n g t h e r e p o r t i n g p e r i o d , f o r e a c h c l a s s o f

d e p r e c i a b l e a s s e t , a r e a s f o l l o w s :

I n f r a s t r u c t u r e , p l a n t a n d e q u i p m e n t 840 9 6 9

L e a s e h o l d i m p r o v e m e n t s 970 6 3 8

I n t a n g i b l e s 1,023 9 2 0

T o t a l d e p r e c i a t i o n a n d a m o r t i s a t i o n 2,833 2 , 5 2 7

N o t e 7 D . A s s e t t h r e s h o l d r h a n a e ( s e e N o t e Ί . 1 1 ( b ) )

I m p a c t o n i n f r a s t r u c t u r e , p l a n t a n d e q u i p m e n t 649 -

T o t a l i m p a c t o f a s s e t t h r e s h o l d c h a n g e 649 -

N o t e 7 E . R e v a l u a t i o n a n d w r i t e - d o w n o f a s s e t s

(a) Financial assets

R e c e i v a b l e s f o r g o o d s a n d s e r v i c e s 41 1 8

T o t a l i m p a c t o n f i n a n c i a l a s s e t s 41 1 8

(b) Non-financial assets

I n f r a s t r u c t u r e , p l a n t a n d e q u i p m e n t -

r e v a l u a t i o n d e c r e m e n t 615 -

I n f r a s t r u c t u r e , p l a n t a n d e q u i p m e n t - w r i t e - o f f 183 -

T o t a l i m p a c t o n n o n - f i n a n c i a l a s s e t s 798 -

T o t a l r e v a l u a t i o n a n d w r i t e - d o w n o f a s s e t s 839 1 8

N o t e 7 F . D i s p o s a l o f a s s e t s

Non-financial assets

C o s t o f i n f r a s t r u c t u r e , p l a n t

a n d e q u i p m e n t d i s p o s e d 22 1 , 2 0 4 '

N e t b o o k v a l u e o f a s s e t s d i s p o s e d 22 1 , 2 0 4

T h e c o m p a r a t i v e f i g u r e i n c l u d e s S 1 . 1 0 8 m il li o n d i s c l o s e d in 1 9 9 9 / 0 0 a s a n a b n o r m a l i t e m .

T h is w a s e x p e n d i t u r e t h a t w a s d i r e c t l y a t t r i b u t e d t o t h e r e s t r u c t u r i n g o f A R R A s u b s e q u e n t t o its '

e s t a b l i s h m e n t . T h e e x p e n d i t u r e h a s b e e n r e c l a s s i f i e d d u e t o a c h a n g e in A u s tra lia n A c c o u n tin g

S ta n d a rd A A S 1 - S ta te m e n t o f Financial P erform ance.

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended 30 June 2001

Note 8. Borrowing cost expenses

2001 2 0 0 0

S'000 $ ' 0 0 0

F i n a n c e c h a r g e s o n l e a s e l i a b i l i t i e s 2 8

T o t a l b o r r o w i n g c o s t e x p e n s e s 2 8

Note 9. Financial assets

N o t e 9 A . C a s h

C a s h a t b a n k a n d o n h a n d 3,743 1 1 , 7 3 7

D e p o s i t s a t c a l l 10,053 1 1 , 8 3 7

T o t a l c a s h 13,796 2 3 , 5 7 4

N o t e 9 B . R e c e i v a b l e s

(a) R eceiva b les fo r g o o d s a n d services

R e c e i v a b l e f o r g o o d s a n d s e r v i c e s 345 1 9 1

L e s s : p r o v i s i o n f o r d o u b t f u l d e b t s (41) -

N e t r e c e i v a b l e s f o r g o o d s a n d s e r v i c e s 304 1 9 1

(b) A p p r o p r ia tio n receivable

A p p r o p r i a t i o n s t o b e t r a n s f e r r e d a f t e r y e a r e n d 219 3 , 5 9 2

A p p r o p r i a t i o n r e c e i v a b l e r e l a t e d t o o u t s t a n d i n g

l e v y d e b t 1,050 2 , 6 1 9

L e s s : p r o v i s i o n f o r d o u b t f u l d e b t r e l a t e d t o o u t s t a n d i n g

l e v y d e b t (557) ( 2 0 )

N e t a p p r o p r i a t i o n r e c e i v a b l e 712 6 , 1 9 1

(c) G ST rec eiva b le

G S T r e c e i v a b l e 513 1 9

T o t a l G S T r e c e i v a b l e 513 1 9

(d) Total receiva b les

G r o s s v a l u e o f r e c e i v a b l e s 2,127 6 , 4 2 1

L e s s : p r o v i s i o n f o r d o u b t f u l d e b t (598) ( 2 0 )

N e t r e c e i v a b l e s 1,529 6 , 4 0 1

R e c e i v a b l e s ( g r o s s ) w h i c h a r e o v e r d u e a r e a g e d a s f o l l o w s :

N o t o v e r d u e 1,268 4 , 2 7 6

O v e r d u e b y :

- l e s s t h a n 3 0 d a y s 233 2 2 2

- 3 0 t o 6 0 d a y s 19 5 3

- 6 0 t o 9 0 d a y s 14 1 , 0 4 3

- m o r e t h a n 9 0 d a y s 593 8 2 7

T o t a l r e c e i v a b l e s ( g r o s s ) 2,127 6 , 4 2 1

63

Note 10. Non-financial assets (continued)

N o t e 1 0 C . A n a l y s i s o f i n f r a s t r u c t u r e , p l a n t a n d e q u i p m e n t a n d i n t a n g i b l e s ( ’ c o n t i n u e d ·

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended 30 June 2001

Table D Summary of assets under construction as at 30 June 2001

Item

Computer software intangibles $'000

Total $'000

As at 30 June 2001 G r o s s v a l u e 5,415 5,415

A c c u m u l a t e d d e p r e c i a t i o n / a m o r t i s a t i o n - - J

N e t b o o k v a l u e 5,415 5,415

As at 30 June 2000 G r o s s v a l u e - -

A c c u m u l a t e d d e p r e c i a t i o n / a m o r t i s a t i o n - - j

N e t b o o k v a l u e- -

NOTES TO AN D FORMING PART OF THE FINANCIAL STATEMENTS

for the year ended 30 June 2001

Note 12. Payables (continued)

2001 2 0 0 0

$'000 $ ' 0 0 0

N p t e 1 2 C . L o a n s

L o a n s f r o m G o v e r n m e n t 5,439 1 0 , 8 7 8

M a t u r i t y s c h e d u l e f o r l o a n s :

P a y a b l e : w i t h i n o n e y e a r 5,439 5 , 4 3 9

I n o n e t o t w o y e a r s 5 , 4 3 9

T o t a l l o a n s 5,439 1 0 , 8 7 8

A P R A w a s a p p r o p r i a t e d $ 1 6 , 1 4 4 , 0 0 0 i n 1 9 9 8 / 9 9 a n d a f u r t h e r $ 3 , 9 9 8 , 0 0 0 i n

1 9 9 9 / 0 0 t o f u n d e s t a b l i s h m e n t a n d t r a n s i t i o n c o s t s , i n c l u d i n g t h e c o s t s a s s o c i a t e d t

w i t h t h e t r a n s f e r o f m o s t o f t h e f u n c t i o n s o f t h e A u s t r a l i a n F i n a n c i a l I n s t i t u t i o n s l C o m m i s s i o n a n d t h e s t a t e s u p e r v i s o r y a u t h o r i t i e s . T h e b a l a n c e c u r r e n t l y o u t s t a n d i n g ;

i s t o b e r e p a i d o n o r b e f o r e 3 0 J u n e 2 0 0 2 .

Note 13. Provisions

N o t e 1 3 A . E m p l o y e e p r o v i s i o n s

S a l a r i e s a n d w a g e s 2,217 2 , 5 0 6

L e a v e 7,229 7 , 4 1 2

S e p a r a t i o n a n d r e d u n d a n c y 554 7 8 4

O t h e r 110 3 1 7

A g g r e g a t e e m p l o y e e e n t i t l e m e n t s l i a b i l i t y 10,110 1 1 , 0 1 9

C u r r e n t 5,632 6 , 6 7 8

N o n - c u r r e n t 4,478 4 , 3 4 1

10,110 1 1 , 0 1 9

N o t e 1 3 B . O t h e r o r o v i s i o n s

S u r p l u s l e a s e d s p a c e 605 6 4 8

M a k e g o o d p r e m i s e s a t l e a s e e n d 289 "

L e a s e i n c e n t i v e s 1,857 2 , 1 1 8

T o t a l o t h e r p r o v i s i o n s 2,751 2 , 7 6 6

NOTES TO AN D FORMING PART OF THE FINANCIAL STATEMENTS

for the year ended 30 June 2001

Note 16. Cash-flow reconciliation

2001 2000

S ' 0 0 0 $ ' 0 0 0

Reconciliation of operating surplus to net cash provided by operating activities:

O p e r a t i n g s u r p l u s Z ( d e f i c i t ) b e f o r e e x t r a o r d i n a r y i t e m s (1,140) 5 , 8 5 1

D e p r e c i a t i o n a n d a m o r t i s a t i o n o f I n f r a s t r u c t u r e ,

p l a n t a n d e q u i p m e n t 1,810 1 , 6 0 7

A m o r t i s a t i o n o f i n t a n g i b l e s 1,023 9 2 0

I n f r a s t r u c t u r e , p l a n t a n d e q u i p m e n t w r i t t e n o f f 183 -

I n f r a s t r u c t u r e , p l a n t a n d e q u i p m e n t t h r e s h o l d c h a n g e 649 -

I n f r a s t r u c t u r e , p l a n t a n d e q u i p m e n t r e v a l u a t i o n d e c r e m e n t 615 -L o s s o n d i s p o s a l o f i n f r a s t r u c t u r e , p l a n t a n d e q u i p m e n t 18 1 , 1 7 6

A d j u s t m e n t t o a c c u m u l a t e d r e s u l t s : e m p l o y e e s - ( 3 0 )

C h a n g e s i n a s s e t s a n d l i a b i l i t i e s :

( l n c r e a s e ) / d e c r e a s e i n r e c e i v a b l e s 4,872 ( 6 , 0 2 0 )

( I n c r e a s e ) Z d e c r e a s e i n a c c r u e d r e v e n u e 193 ( 6 0 9 )

( I n c r e a s e ) Z d e c r e a s e i n o t h e r n o n - f i n a n c i a l a s s e t s (63) 6 0 3

l n c r e a s e Z ( d e c r e a s e ) i n r e v e n u e i n a d v a n c e (3,089) 3 , 1 4 0

I n c r e a s e Z ( d e c r e a s e ) i n l e a s e s (11) -

l n c r e a s e Z ( d e c r e a s e ) i n e m p l o y e e s l i a b i l i t i e s (909) ( 5 , 7 3 6 )

I n c r e a s e Z ( d e c r e a s e ) i n s u p p l i e r s l i a b i l i t i e s (758) 4 , 1 7 5

l n c r e a s e Z ( d e c r e a s e ) i n o t h e r p r o v i s i o n s a n d p a y a b l e s (15) ( 5 9 2 )

Net cash provided by operating activities 3,378 4 , 4 8 5

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

for the year ended 30 June 2001

Note 17, Remuneration of Board members

2 0 0 1 2 0 0 0

A g g r e g a t e a m o u n t o f s u p e r a n n u a t i o n p a y m e n t s

i n c o n n e c t i o n w i t h t h e r e t i r e m e n t o f B o a r d m e m b e r s

O t h e r r e m u n e r a t i o n r e c e i v e d o r d u e a n d r e c e i v a b l e

32,279 2 9 , 3 0 8

b y B o a r d m e m b e r s 683,735 6 2 1 , 4 3 8

T o t a l r e m u n e r a t i o n r e c e i v e d o r d u e a n d r e c e i v a b l e

b y B o a r d m e m b e r s 716,014 6 5 0 , 7 4 6

T h e n u m b e r o f B o a r d m e m b e r s o f A P R A i n c l u d e d

i n t h e s e f i g u r e s a r e s h o w n b e l o w i n t h e r e l e v a n t

r e m u n e r a t i o n b a n d s : Number N u m b e r

$ N i l - $ 1 0 , 0 0 0 4 4

$ 3 0 , 0 0 1 - $ 4 0 , 0 0 0 - 1

$ 4 0 , 0 0 1 - $ 5 0 , 0 0 0 3 1

$ 1 1 0 , 0 0 1 - $ 1 2 0 , 0 0 0 1 1

$ 4 5 0 , 0 0 1 - $ 4 6 0 , 0 0 0 - 1

$ 4 6 0 , 0 0 1 - $ 4 7 0 , 0 0 0 1 -

9 8

T o t a l r e m u n e r a t i o n f o r e a c h B o a r d m e m b e r i n c l u d e s , w h e r e a p p l i c a b l e , c h a n g e s i n

a c c u m u l a t e d r e c r e a t i o n a n d l o n g s e r v i c e l e a v e v a l u e d i n a c c o r d a n c e w i t h

C o m m o n w e a l t h p o l i c y g u i d e l i n e s . A s a r e s u l t , r e p o r t e d r e m u n e r a t i o n w i l l i n c r e a s e

w h e r e l e a v e t a k e n i s l e s s t h a n t h e l e a v e e n t i t l e m e n t s a c c r u e d d u r i n g t h e y e a r .

Note 18. Related-party disclosures

B oard m e m b ers o f APRA

T h e B o a r d m e m b e r s o f A P R A d u r i n g t h e y e a r w e r e :

D r J e f f r e y C a r m i c h a e l ( C h a i r )

D r D a v i d K n o x

D r J o h n L a k e r

M r I a n M a c f a r l a n e

M r D o n a l d M e r c e r

M s M a r i a n M i c a l i z z i

M r G r a e m e T h o m p s o n ( C h i e f E x e c u t i v e O f f i c e r )

M r A l a n C a m e r o n ( t e r m e n d e d 1 7 / 1 1 / 0 0 )

M r D a v i d K n o t t ( a p p o i n t e d 3 0 / 1 1 / 0 0 ; r e s i g n e d 2 2 / 5 / 0 1 )

B o a r d m e m b e r s o f A P R A a r e d e t e r m i n e d i n a c c o r d a n c e w i t h s e c t i o n 1 9 o f t h e

Australian Prudential Regulation Authority A c t 1998. T h e T r e a s u r e r o f t h e

C o m m o n w e a l t h h a s t h e p o w e r t o a p p o i n t o r d i n a r y m e m b e r s t o t h e B o a r d . T h e

a g g r e g a t e r e m u n e r a t i o n o f B o a r d m e m b e r s i s d i s c l o s e d i n N o t e 1 7 - R e m u n e r a t i o n o f

B o a r d m e m b e r s .

Transactions with Board member-related entities T h e r e w e r e t r a n s a c t i o n s b e t w e e n A P R A a n d t h e f o l l o w i n g B o a r d m e m b e r - r e l a t e d

e n t i t i e s : t h e R e s e r v e B a n k o f A u s t r a l i a ; P r i c e w a t e r h o u s e C o o p e r s ; a n d t h e A u s t r a l i a n

S e c u r i t i e s a n d I n v e s t m e n t s C o m m i s s i o n .

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended 30 June 2001

Note 19. Remuneration of officers (continued)

T h e r e m u n e r a t i o n o f o f f i c e r s t a b l e i n c l u d e s a l l o f f i c e r s c o n c e r n e d w i t h o r t a k i n g p a r t

i n t h e m a n a g e m e n t o f A P R A d u r i n g 2 0 0 0 / 0 1 , w h o s e t o t a l r e m u n e r a t i o n e x c e e d e d

$ 1 0 0 , 0 0 0 , e x c e p t t h e C h i e f E x e c u t i v e O f f i c e r . T h e a p p l i c a t i o n o f t h e C o m m o n w e a l t h

r e p o r t i n g p o l i c y f o r v a l u a t i o n o f e m p l o y e e s ' r e m u n e r a t i o n r e s u l t s i n a r e p o r t e d

i n c r e a s e i n r e m u n e r a t i o n w h e r e a n e m p l o y e e d o e s n o t t a k e a l l l e a v e t h a t a c c r u e d

d u r i n g t h e y e a r . D e t a i l s i n r e l a t i o n t o t h e C h i e f E x e c u t i v e O f f i c e r h a v e b e e n

i n c o r p o r a t e d i n t o N o t e 1 7 - R e m u n e r a t i o n o f B o a r d m e m b e r s .

2001 $

2000 $

Note 20. Remuneration of auditors

R e m u n e r a t i o n t o A u s t r a l i a n N a t i o n a l A u d i t O f f i c e

f o r a u d i t i n g t h e f i n a n c i a l s t a t e m e n t s f o r t h e

r e p o r t i n g p e r i o d ( e x c l u s i v e o f G S T ) 66,000 5 2 , 0 0 0

T h e A u s t r a l i a n N a t i o n a l A u d i t O f f i c e p r o v i d e d n o o t h e r s e r v i c e s d u r i n g t h e r e p o r t i n g

p e r i o d .

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended 30 June 2001

Note 21. Financial instruments

(a) Terms, conditions and accounting policies

Accounting policies and methods (including recognition criteria and measurement basis)

F i n a n c i a l a s s e t s a r e r e c o g n i s e d w h e n c o n t r o l o v e r f u t u r e

e c o n o m i c b e n e f i t s i s e s t a b l i s h e d a n d t h e a m o u n t o f t h e

b e n e f i t c a n b e r e l i a b l y m e a s u r e d .

D e p o s i t s a r e r e c o g n i s e d a t t h e i r n o m i n a l a m o u n t s .

I n t e r e s t i s c r e d i t e d t o r e v e n u e a s i t a c c r u e s .

Nature of underlying instrument (including significant terms and conditions affecting the amount, timing and certainty of cash flows)

S u r p l u s f u n d s a r e t e m p o r a r i l y p l a c e d i n t h e o p e r a t i n g b a n k a c c o u n t w i t h

A P R A ' s b a n k e r . I n t e r e s t i s e a r n e d o n t h e d a i l y b a l a n c e a t t h e p r e v a i l i n g d a i l y

r a t e a n d i s p a i d o n t h e f i r s t d a y o f t h e f o l l o w i n g m o n t h .

C o m m o n w e a l t h 9 A ,

a n d s t a t e 2 1 ( b )

g o v e r n m e n t

s e c u r i t i e s

C o m m o n w e a l t h a n d s t a t e g o v e r n m e n t s e c u r i t i e s a r e

r e c o g n i s e d a t a m o r t i s e d c o s t ( i . e . a t o r i g i n a l c o s t a d j u s t e d f o r

a m o r t i s a t i o n t o d a t e o f a n y d i s c o u n t o r p r e m i u m w h e n

o r i g i n a l l y i s s u e d ) . I n t e r e s t i s c r e d i t e d t o r e v e n u e a s i t a c c r u e s .

A P R A i n v e s t s i n s e c u r i t i e s w i t h t e r m s o f u p t o 9 0 d a y s . T h e y a r e g u a r a n t e e d

b y t h e i s s u i n g g o v e r n m e n t a n d a r e t r a d e d i n a c t i v e m a r k e t s . E f f e c t i v e

i n t e r e s t r a t e s a v e r a g e d 6 . 1 7 p e r c e n t ( 1 9 9 9 / 0 0 : 4 . 9 4 p e r c e n t ) . I n t e r e s t i s

p a i d o n m a t u r i t y .

R e c e i v a b l e s f o r

g o o d s a n d

s e r v i c e s

9 B R e c e i v a b l e s a r e r e c o g n i s e d a t t h e n o m i n a l a m o u n t s d u e

l e s s a n y p r o v i s i o n f o r b a d a n d d o u b t f u l d e b t s .

C o l l e c t a b i l i t y o f d e b t s i s r e v i e w e d a t b a l a n c e d a t e .

P r o v i s i o n s a r e m a d e w h e n c o l l e c t i o n o f t h e d e b t i s

j u d g e d t o b e l e s s r a t h e r t h a n m o r e l i k e l y .

C r e d i t t e r m s f o r l e v i e s c o m p l y w i t h t h e d u e d a t e f o r p a y m e n t o f l e v i e s , a s

s p e c i f i e d u n d e r t h e Financial Institutions Supervisory Levies Collection A ct 1998. F o r n o n - s u p e r a n n u a t i o n e n t i t i e s t h e d u e d a t e f o r p a y m e n t i s 1 J u l y

o f t h e f i n a n c i a l y e a r , o r w i t h i n s i x w e e k s o f b e c o m i n g a r e g u l a t e d e n t i t y .

F o r s u p e r a n n u a t i o n e n t i t i e s , t h e d u e d a t e f o r p a y m e n t i s w i t h i n s i x w e e k s

o f l o d g e m e n t o f a n a n n u a l r e t u r n , o r w i t h i n s i x w e e k s o f b e c o m i n g a

r e g u l a t e d e n t i t y . T h e s e l e v i e s a r e d r a w n - d o w n b y A P R A w i t h i n a f o r t n i g h t

o f b e i n g d e p o s i t e d t o t h e C o n s o l i d a t e d R e v e n u e F u n d . C r e d i t t e r m s f o r o t h e r

r e c e i v a b l e s a r e n e t 3 0 d a y s ( 1 9 9 9 / 0 0 : 3 0 d a y s ) .

9 C A c c r u e d r e v e n u e s a r e r e c o g n i s e d a t t h e n o m i n a l a m o u n t s

a s i t a c c r u e s .

A c c r u e d i n t e r e s t r e v e n u e s a r e d u e : o n t h e f i r s t d a y o f t h e n e x t m o n t h f o r

i n t e r e s t o n t h e o p e r a t i n g a c c o u n t a n d o n m a t u r i t y o n s e c u r i t i e s . A l l o t h e r

a c c r u e d r e v e n u e s a r e d u e w i t h i n 3 0 d a y s o f i n v o i c i n g .

A c c r u e d

r e v e n u e s

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

for the year ended 30 June 2001

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended 30 June 2001

Note 21. Financial instruments (continued) (c) Net fair values of fnancial assets and liabilities

N o t e

2001 Total

carrying amount $'000

2001

Aggregate net fair value $'000

2 0 0 0

T o t a l

c a r r y i n g

a m o u n t

$ ' 0 0 0

2 0 0 0

A g g r e g a t e

n e t f a i r

v a l u e

$ ' 0 0 0

Financial assets C a s h a t b a n k 9 A 3,740 3,740 1 1 , 7 3 4 1 1 , 7 3 4

C a s h o n h a n d 9 A 3 3 3 3

C o m m o n w e a l t h a n d s t a t e

g o v e r n m e n t s e c u r i t i e s 9 A 10,053 10,053 1 1 , 8 3 7 1 1 , 8 3 7

R e c e i v a b l e s 9 B 1,529 1,529 6 , 3 8 2 6 , 3 8 2

A c c r u e d r e v e n u e 9 C 522 522 7 3 4 7 3 4

T o t a l f i n a n c i a l a s s e t s 15,847 15,847 3 0 , 6 9 0 3 0 , 6 9 0

Financial liabilities (recognised) L o a n s 1 2 C 5,439 5,439 1 0 , 8 7 8 1 0 , 8 7 8

R e v e n u e i n a d v a n c e 1 2 B 51 51 3 , 1 4 0 3 , 1 4 0

L e a s e s 1 1 24 24 3 4 3 4

P r o v i s i o n s 1 3 B 1,857 1,857 2 , 1 1 8 2 , 1 1 8

S u p p l i e r s 1 2 A 5,120 5,120 5 , 6 1 5 5 , 6 1 5

Total financial liabilities (recognised) 12,491 12,491 2 1 , 7 8 5 2 1 , 7 8 5

F ina n cia l assets

T h e n e t f a i r v a l u e s o f c a s h , g o v e r n m e n t s e c u r i t i e s a n d n o n - i n t e r e s t - b e a r i n g

m o n e t a r y f i n a n c i a l a s s e t s a p p r o x i m a t e t h e i r c a r r y i n g a m o u n t s .

F ina n cia l lia b ilitie s

T h e n e t f a i r v a l u e s o f t h e f i n a n c i a l l i a b i l i t i e s a r e b a s e d o n d i s c o u n t e d c a s h f l o w s

u s i n g c u r r e n t i n t e r e s t r a t e s f o r l i a b i l i t i e s w i t h s i m i l a r r i s k p r o f i l e s . ( W h e r e t h e l i a b i l i t y

i s o n a f l o a t i n g r a t e o f i n t e r e s t , t h e m e t h o d r e t u r n s t h e p r i n c i p l e a m o u n t ) .

T h e n e t f a i r v a l u e s f o r s u p p l i e r s a r e a p p r o x i m a t e d b y t h e i r c a r r y i n g a m o u n t s .

(d) Credit risk exposures A P R A ' s m a x i m u m e x p o s u r e s t o c r e d i t r i s k a t r e p o r t i n g d a t e , i n r e l a t i o n t o e a c h c l a s s

o f r e c o g n i s e d f i n a n c i a l a s s e t s , i s t h e c a r r y i n g a m o u n t o f t h o s e a s s e t s a s i n d i c a t e d i n

t h e S t a t e m e n t o f a s s e t s a n d l i a b i l i t i e s .

A P R A ' s h i g h e s t c r e d i t r i s k e x p o s u r e i s l e v i e s o f $ 1 , 0 5 0 , 2 3 6 ( 2 0 0 0 : $ 2 , 5 7 0 , 8 0 1 ) ,

w h i c h w e r e r e c e i v a b l e a t 3 0 J u n e 2 0 0 1 f r o m s u p e r a n n u a t i o n f u n d s r e g u l a t e d b y

A P R A . T h e a s s e t h a s b e e n r e c o g n i s e d i n t h e S t a t e m e n t o f f i n a n c i a l p o s i t i o n , n e t o f

a p r o v i s i o n f o r d o u b t f u l d e b t s .

A l l f i g u r e s f o r c r e d i t r i s k r e f e r r e d t o d o n o t t a k e i n t o a c c o u n t t h e v a l u e o f a n y

c o l l a t e r a l o r o t h e r s e c u r i t y .

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

for the year ended 30 June 2001

Note 22. Administered revenues

2001 2 0 0 0

$'000 $ ' 0 0 0

N o t e 2 2 A . F i n a n c i a l i n s t i t u t i o n s s u o e r v i s o r v l e v i e s

( s e e N o t e 5 E ) 62,027

62,027 -

N o t e 2 2 B . R e f u n d s o r o c e s s e d b y A P R A 639

639 -

U n d e r A P R A ' s s p e c i a l a p p r o p r i a t i o n , a l l m o n i e s c o l l e c t e d b y A P R A f o r i n d u s t r y l e v i e s

i n e x c e s s o f t h e a m o u n t t o b e r e t a i n e d i n t h e C o n s o l i d a t e d R e v e n u e F u n d t o f u n d

c e r t a i n a c t i v i t i e s o f t h e A u s t r a l i a n S e c u r i t i e s a n d I n v e s t m e n t s C o m m i s s i o n a n d t h e

A u s t r a l i a n T a x a t i o n O f f i c e a r e p a i d t o A P R A . W h e r e i t i s s u b s e q u e n t l y d e t e r m i n e d

t h a t a m o u n t s a r e t o b e r e f u n d e d t o f i n a n c i a l i n s t i t u t i o n s a n d t h e r e l a t e d a m o u n t h a s

a l r e a d y b e e n p a i d t o A P R A , A P R A r e m i t s t h e f u n d s d i r e c t l y t o t h e i n s t i t u t i o n f r o m i t s

o p e r a t i n g a c c o u n t . A P R A i s t h e r e f o r e m e e t i n g a n o b l i g a t i o n o f t h e C o m m o n w e a l t h

a n d a n a d m i n i s t e r e d r e v e n u e r e s u l t s .

Total administered revenue 62,666

Note 23. Administered expenses

N o t e 2 3 A . N e t w r i t e - d o w n o f a s s e t s

L e v i e s w a i v e d ( s e e N o t e 5 F ) 659

L e v i e s w r i t t e n o f f ( s e e N o t e 5 G ) 569

T o t a l l e v i e s w a i v e d a n d w r i t t e n o f f 1,228

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended 30 June 2001

Note 24. Administered financial assets

2 0 0 1 2 0 0 0

$ ' 0 0 0 $ ' 0 0 0

N o t e 2 4 A . R e c e i v a b l e s

L e v i e s ( s e e N o t e 5 K ) 1,050 -

L e s s : p r o v i s i o n f o r d o u b t f u l d e b t s (557) -

N e t r e c e i v a b l e s 493 -

Receivables which are overdue are aged as follows:

N o t o v e r d u e 267 -

O v e r d u e b y :

L e s s t h a n 3 0 d a y s 232 -

3 0 t o 6 0 d a y s 18 -

6 0 t o 9 0 d a y s 3 -

M o r e t h a n 9 0 d a y s 530 -

T o t a l l e v i e s r e c e i v a b l e 1,050

N o t e 2 4 B . A c c r u e d r e v e n u e s

A c c r u e d l e v y r e v e n u e 306 -

T o t a l a c c r u e d r e v e n u e s 306 -

Note 25. Administered revenue in advance

2 0 0 1 / 0 2 s u p e r v i s o r y l e v i e s p a i d i n a d v a n c e 4,461 T o t a l r e v e n u e i n a d v a n c e 4,461

Note 26. Administered equity

Item

Accumulated net change in administered net assets from operations Total equity

2001 2 0 0 0 2001 2 0 0 0 *

$'000 $ ' 0 0 0 $'000 $ ' 0 0 0

B a l a n c e 1 J u l y 3,360 3,360

C h a n g e i n a d m i n i s t e r e d n e t a s s e t s

f r o m o p e r a t i o n s 61,438 - 61,438 -

C a s h t r a n s f e r r e d t o

O f f i c i a l P u b l i c A c c o u n t (68,460) - (68,460)

B a l a n c e 3 0 J u n e (3,662) - (3,662) -

' N o t e t h a t c o m p a r a t i v e f ig u r e s a r e n o t p r o v i d e d f o r 1 9 9 9 / 0 0 a s t h e D e p a r t m e n t o f t h e T r e a s u r y

p r e v i o u s ly r e p o r t e d t h e s e t r a n s a c t i o n s a t a h i g h l y s u m m a r i s e d l e v e l, i n c l u d i n g t r a n s a c t i o n s f o r

b o t h A P R A - r e g u l a t e d i n s t i t u t i o n s a n d s e l f - m a n a g e d s u p e r a n n u a t i o n f u n d s . T h e o p e n i n g e q u i t y

r e p r e s e n t s b e s t e s t i m a t e s a s t o t h e v a l u e o f n e t a s s e t s r e l a ti n g t o A P R A - r e g u l a t e d i n s t i t u t i o n s

i n c l u d e d in t h e t r a n s a c t i o n s r e c o g n i s e d b y t h e D e p a r t m e n t o f t h e T re a s u ry . 81

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

for the year ended 30 June 2001

Note 27. Administered cash-flow reconciliation

2001 2000'

$'000 $'000

R e c o n c i l i a t i o n o f " N e t c h a n g e i n a d m i n i s t e r e d n e t a s s e t s “ f r o m s c h e d u l e o f

a d m i n i s t e r e d r e v e n u e s a n d e x p e n s e s t o n e t c a s h p r o v i d e d b y o p e r a t i n g a c t i v i t i e s :

N e t d e c r e a s e i n a d m i n i s t e r e d n e t a s s e t s (7.022) -

C h a n g e s i n a s s e t s a n d l i a b i l i t i e s

D e c r e a s e i n c a s h a t b a n k 48

D e c r e a s e i n r e c e i v a b l e s 2,819 -

I n c r e a s e i n a c c r u e d r e v e n u e (306) -

I n c r e a s e i n r e v e n u e i n a d v a n c e 4,461 -

N e t c a s h f r o m o p e r a t i n g a c t i v i t i e s 0 -

03 13 C

N o t e t h a t c o m p a r a t i v e f i g u r e s a r e n o t p r o v i d e d f o r 1 9 9 9 / 0 0 a s t h e D e p a r t m e n t o f t h e T r e a s u r y

p r e v i o u s ly r e p o r t e d t h e s e t r a n s a c t i o n s a t a h i g h l y s u m m a r i s e d le v e l , i n c l u d i n g t r a n s a c t i o n s f o r

b o t h A P R A - r e g u l a t e d i n s t i t u t i o n s a n d s e l f - m a n a g e d s u p e r a n n u a t i o n f u n d s . T h e c h a n g e s in a s s e ts

a n d lia b ilitie s h a v e b e e n c a l c u l a t e d u s i n g b e s t e s t i m a t e s a s t o t h e v a l u e o f a s s e t s a n d l ia b ilitie s

r e l a t i n g t o A P R A - r e g u l a t e d e n t i t i e s i n c l u d e d in t h e t r a n s a c t i o n s r e c o g n i s e d b y t h e D e p a r t m e n t of

t h e T r e a s u ry .

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended 30 June 2001

Nature of underlying instrument (including significant terms and conditions affecting the amount, timing and certainty of cash flows)

C r e d i t t e r m s f o r l e v i e s c o m p l y w i t h t h e d u e d a t e f o r p a y m e n t o f l e v i e s , a s

s p e c i f i e d u n d e r t h e Financial Institutions Supervisory Levies Collection A c t 1998. F o r n o n - s u p e r a n n u a t i o n e n t i t i e s t h e d u e d a t e f o r p a y m e n t i s 1 J u l y

o f t h e f i n a n c i a l y e a r , o r w i t h i n s i x w e e k s o f b e c o m i n g a r e g u l a t e d e n t i t y .

F o r s u p e r a n n u a t i o n e n t i t i e s , t h e d u e d a t e f o r p a y m e n t i s w i t h i n s i x w e e k s

o f l o d g e m e n t o f a n a n n u a l r e t u r n , o r w i t h i n s i x w e e k s o f b e c o m i n g a

r e g u l a t e d e n t i t y .

T h e l e v i e s w i l l b e i n v o i c e d w i t h a d u e d a t e f o r p a y m e n t c o n s i s t e n t w i t h

t h e l e g i s l a t i o n a s d e t a i l e d a b o v e .

T h e C o m m o n w e a l t h w i l l r e c o g n i s e t h e r e v e n u e i n a d v a n c e , a s r e v e n u e , i n

t h e f o l l o w i n g f i n a n c i a l y e a r .

AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for th e year ended 30 June 2001

Note 29. Moneys held in trust

A P R A ' s a n t e c e d e n t b o d y , t h e I n s u r a n c e a n d S u p e r a n n u a t i o n C o m m i s s i o n , r e p o r t e d i n

1 9 9 7 / 9 8 t h e e x i s t e n c e o f c e r t a i n a m o u n t s h e l d i n t r u s t o n b e h a l f o f t h e

C o m m o n w e a l t h . T h e s u b s e q u e n t d i s p e r s a l o f t h e s e f u n d s , n e c e s s i t a t e d b y t h e

e s t a b l i s h m e n t o f A P R A a s a c o r p o r a t e b o d y a s d e f i n e d i n t h e Commonwealth Authorities and Companies A ct 1997, w a s n o t c l e a r l y s t a t e d i n s u b s e q u e n t A P R A

a n n u a l r e p o r t s .

A d m i n i s t r a t i o n o f a n a m o u n t o f $ 5 6 2 , 1 5 3 h e l d a s L l o y d ' s D e p o s i t T r u s t F u n d , u n d e r

S 9 3 o f t h e Insurance A ct 1973, w a s t r a n s f e r r e d t o t h e D e p a r t m e n t o f t h e T r e a s u r y i n

J u l y 1 9 9 8 .

A n a m o u n t o f $ 6 , 2 5 0 , h e l d i n t h e R e s e r v e d M o n e y F u n d - O t h e r T r u s t M o n e y s a s

u n t r a c e a b l e m o n e y s , i s r e c o r d e d b y t h e D e p a r t m e n t o f F i n a n c e a n d A d m i n i s t r a t i o n a s

p a r t o f A P R A ' s i n t e r e s t i n t h e C o n s o l i d a t e d R e v e n u e F u n d a t 3 0 J u n e 2 0 0 1 .

APRA A n n u a l R e p o r t 2 0 0 1 / I n d e p e n d e n t A u d i t R e p o r t

T o t h e M i n i s t e r f o r F i n a n c i a l S e r v i c e s a n d R e g u l a t i o n

Scope I h a v e a u d i t e d t h e f i n a n c i a l s t a t e m e n t s o f t h e A u s t r a l i a n P r u d e n t i a l R e g u l a t i o n A u t h o r i t y f o r t h e y e a r

e n d e d 3 0 J u n e 2 0 0 1 . T h e f i n a n c i a l s t a t e m e n t s c o m p r i s e :

• S t a t e m e n t b y B o a r d M e m b e r s ;

• S t a t e m e n t s o f F i n a n c i a l P e r f o r m a n c e , F i n a n c i a l P o s i t i o n a n d C a s h F l o w s ;

• S c h e d u l e s o f C o m m i t m e n t s a n d C o n t i n g e n c i e s ;

• S c h e d u l e s o f A d m i n i s t e r e d R e v e n u e s a n d E x p e n s e s , A s s e t s a n d L i a b i l i t i e s , C a s h F l o w s ,

C o m m i t m e n t s a n d C o n t i n g e n c i e s ; a n d

• N o t e s t o a n d f o r m i n g p a r t o f t h e f i n a n c i a l s t a t e m e n t s .

T h e m e m b e r s o f t h e B o a r d a r e r e s p o n s i b l e f o r t h e p r e p a r a t i o n a n d p r e s e n t a t i o n o f t h e f i n a n c i a l

s t a t e m e n t s a n d t h e i n f o r m a t i o n t h e y c o n t a i n . I h a v e c o n d u c t e d a n i n d e p e n d e n t a u d i t o f t h e

f i n a n c i a l s t a t e m e n t s i n o r d e r t o e x p r e s s a n o p i n i o n o n t h e m t o y o u .

T h e a u d i t h a s b e e n c o n d u c t e d i n a c c o r d a n c e w i t h A u s t r a l i a n N a t i o n a l A u d i t O f f i c e A u d i t i n g

S t a n d a r d s , w h i c h i n c o r p o r a t e t h e A u s t r a l i a n A u d i t i n g S t a n d a r d s , t o p r o v i d e r e a s o n a b l e a s s u r a n c e a s

t o w h e t h e r t h e f i n a n c i a l s t a t e m e n t s a r e f r e e o f m a t e r i a l m i s s t a t e m e n t . A u d i t p r o c e d u r e s i n c l u d e d

e x a m i n a t i o n , o n a t e s t b a s i s , o f e v i d e n c e s u p p o r t i n g t h e a m o u n t s a n d o t h e r d i s c l o s u r e s i n t h e

f i n a n c i a l s t a t e m e n t s , a n d t h e e v a l u a t i o n o f a c c o u n t i n g p o l i c i e s a n d s i g n i f i c a n t a c c o u n t i n g e s t i m a t e s .

T h e s e p r o c e d u r e s h a v e b e e n u n d e r t a k e n t o f o r m a n o p i n i o n a s t o w h e t h e r , i n a l l m a t e r i a l r e s p e c t s ,

t h e f i n a n c i a l s t a t e m e n t s a r e p r e s e n t e d f a i r l y i n a c c o r d a n c e w i t h A u s t r a l i a n A c c o u n t i n g S t a n d a r d s , ,

o t h e r m a n d a t o r y p r o f e s s i o n a l r e p o r t i n g r e q u i r e m e n t s a n d s t a t u t o r y r e q u i r e m e n t s i n A u s t r a l i a s o a s t o

p r e s e n t a v i e w o f t h e e n t i t y w h i c h i s c o n s i s t e n t w i t h m y u n d e r s t a n d i n g o f i t s f i n a n c i a l p o s i t i o n , t h e I

r e s u l t s o f i t s o p e r a t i o n s a n d i t s c a s h f l o w s .

T h e a u d i t o p i n i o n e x p r e s s e d i n t h i s r e p o r t h a s b e e n f o r m e d o n t h e a b o v e b a s i s .

Qualification T h e A u t h o r i t y a d m i n i s t e r s l e v i e s o n b e h a l f o f t h e C o m m o n w e a l t h u n d e r t h e Financial Institutions Supervisory Levies Collection A ct 1998 a n d r e p o r t s r e v e n u e a r i s i n g f r o m t h e s e l e v i e s i n t h e S c h e d u l e

o f A d m i n i s t e r e d R e v e n u e s a n d E x p e n s e s .

T h e A u t h o r i t y i s f u n d e d u n d e r t h e Australian Prudential Regulation Authority A ct 1998. S e c t i o n 5 0 o f j

t h e A c t p r o v i d e s f o r a S p e c i a l A p p r o p r i a t i o n , w h e r e b y t h e A u t h o r i t y i s t o b e p a i d a n a m o u n t e q u a l t o (

t h e r e s t o f t h e l e v y m o n e y r e c e i v e d b y t h e C o m m o n w e a l t h , a f t e r d e d u c t i n g t h e C o m m o n w e a l t h ' s

c o s t s o f p r o v i d i n g m a r k e t i n t e g r i t y a n d c o n s u m e r p r o t e c t i o n f u n c t i o n s f o r p r u d e n t i a l l y r e g u l a t e d

i n s t i t u t i o n s .

Audit Office

T h e A u t h o r i t y r e c o r d s ' R e v e n u e s f r o m G o v e r n m e n t ' a s t h e a m o u n t o f l e v i e s i n v o i c e d n e t o f t h e

C o m m o n w e a l t h ' s c o s t s o f p r o v i d i n g m a r k e t i n t e g r i t y a n d c o n s u m e r p r o t e c t i o n f u n c t i o n s . T h i s p o l i c y

i s c o n t r a r y t o s e c t i o n 5 0 o f t h e A u s t r a l i a n P r u d e n t i a l R e g u l a t i o n A u t h o r i t y A c t , w h i c h , i n i t s p r e s e n t

f o r m , e n t i t l e s t h e A u t h o r i t y t o a S p e c i a l A p p r o p r i a t i o n e q u a l t o t h e a m o u n t o f l e v y m o n e y r e c e i v e d b y

t h e C o m m o n w e a l t h n e t o f t h e c o s t s o f m a r k e t i n t e g r i t y a n d c o n s u m e r p r o t e c t i o n .

T h e p o l i c y a d o p t e d a l s o r e p r e s e n t s a d e p a r t u r e f r o m Australian Accounting Standard AA S 15 - Revenue, w h i c h r e q u i r e s t h a t r e v e n u e s b e r e c o g n i s e d w h e n , a n d o n l y w h e n , t h e e n t i t y h a s g a i n e d

c o n t r o l o f t h e r e v e n u e o r t h e r i g h t t o r e c e i v e t h e r e v e n u e . T h e e f f e c t s o f t h i s d e p a r t u r e a r e :

• o v e r s t a t e m e n t o f r e c e i v a b l e s ( $ 0 , 4 9 3 m i l l i o n ) , a c c r u e d r e v e n u e s ( $ 0 , 3 0 6 m i l l i o n )

a n d t o t a l e q u i t y ( $ 0 , 7 9 9 m i l l i o n ) i n t h e S t a t e m e n t o f F i n a n c i a l P o s i t i o n ; a n d

• o v e r s t a t e m e n t o f r e v e n u e s f r o m G o v e r n m e n t ( $ 0 , 7 9 9 m i l l i o n ) a n d u n d e r s t a t e m e n t

o f t h e n e t o p e r a t i n g d e f i c i t ( $ 0 , 7 9 9 m i l l i o n ) i n t h e S t a t e m e n t o f F i n a n c i a l P e r f o r m a n c e .

Qualified Audit Opinion I n m y o p i n i o n , e x c e p t f o r t h e e f f e c t s o n t h e f i n a n c i a l s t a t e m e n t s o f t h e m a t t e r r e f e r r e d t o i n t h e

Q u a l i f i c a t i o n p a r a g r a p h ,

( i ) t h e f i n a n c i a l s t a t e m e n t s h a v e b e e n p r e p a r e d i n a c c o r d a n c e w i t h S c h e d u l e 1 o f t h e C o m m o n w e a l t h

A u t h o r i t i e s a n d C o m p a n i e s ( F i n a n c i a l S t a t e m e n t s 2 0 0 0 / 0 1 ) O r d e r s ; a n d

( i i ) t h e f i n a n c i a l s t a t e m e n t s g i v e a t r u e a n d f a i r v i e w , i n a c c o r d a n c e w i t h a p p l i c a b l e A c c o u n t i n g

S t a n d a r d s , o t h e r m a n d a t o r y p r o f e s s i o n a l r e p o r t i n g r e q u i r e m e n t s a n d S c h e d u l e 1 o f t h e

C o m m o n w e a l t h A u t h o r i t i e s a n d C o m p a n i e s ( F i n a n c i a l S t a t e m e n t s 2 0 0 0 / 0 1 ) O r d e r s , o f :

• t h e f i n a n c i a l p o s i t i o n o f t h e A u s t r a l i a n P r u d e n t i a l R e g u l a t i o n A u t h o r i t y a s a t 3 0 J u n e 2 0 0 1

a n d t h e r e s u l t s o f i t s o p e r a t i o n s a n d i t s c a s h f l o w s f o r t h e y e a r t h e n e n d e d ; a n d

• t h e C o m m o n w e a l t h a s s e t s a n d l i a b i l i t i e s a s a t 3 0 J u n e 2 0 0 1 a n d t h e r e v e n u e s , e x p e n s e s a n d

c a s h f l o w s o f t h e C o m m o n w e a l t h f o r t h e y e a r e n d e d , w h i c h h a v e b e e n a d m i n i s t e r e d

b y t h e A u t h o r i t y .

A u s t r a l i a n N a t i o n a l A u d i t O f f i c e

P H i n c h e y

S e n i o r D i r e c t o r

D e l e g a t e o f t h e A u d i t o r - G e n e r a l

S y d n e y

1 3 S e p t e m b e r 2 0 0 1

8 7

APRA has reported in accordance with the following Commonwealth legislation:

Page

Australian Prudential Regulation Authority Act 1998 89

Commonwealth Authorities and Companies Act 1997 90

Equal Employment Opportunity (Commonwealth Authorities) Act 1987 93

Freedom of Information Act 1992 94

Occupational Health and Safety (Commonwealth Employment) Act 1991 97

and the Prime Minister and Cabinet guidelines 98

Australian Prudential Regulation Authority Act 1998

Report under section 59 S e c t i o n 5 9 o f t h e A P R A A c t r e q u i r e s A P R A t o r e p o r t o n :

• t h e a c t i v i t i e s o f a u t h o r i s e d d e p o s i t - t a k i n g i n s t i t u t i o n ( A D I ) s t a t u t o r y m a n a g e r s

w i t h i n t h e m e a n i n g o f t h e Banking A c t 1959 a n d p e r s o n s c o n d u c t i n g

i n v e s t i g a t i o n s u n d e r D i v i s i o n 2 o f P a r t I I a n d s e c t i o n 6 1 o f t h a t A c t ;

• t h e e x e r c i s e d u r i n g t h e y e a r o f A P R A ' s p o w e r s u n d e r P a r t 1 5 o f t h e Retirement Savings A ccounts A ct 1997 a n d P a r t 2 9 o f t h e Superannuation Industry (Supervision) A c t 1993 ( S I S A c t ) .

A P R A d i d n o t a p p o i n t a n y A D I s t a t u t o r y m a n a g e r s o r p e r s o n s t o c o n d u c t a n

i n v e s t i g a t i o n u n d e r D i v i s i o n 2 o f P a r t I I o r s e c t i o n 6 1 o f t h e B a n k i n g A c t d u r i n g

2 0 0 0 / 0 1 . T h e r e w e r e n o c o n t i n u i n g a p p o i n t m e n t s d u r i n g t h a t y e a r .

A P R A d i d n o t e x e r c i s e i t s p o w e r s u n d e r P a r t 1 5 o f t h e Retirement Savings Accounts A c t 1997 d u r i n g t h e y e a r . I t e x e r c i s e d i t s p o w e r s u n d e r P a r t 2 9 o f t h e

Superannuation Industry (Supervision) A c t 1993 a s s e t o u t b e l o w :

Exemption Provision of SIS

number Date regulations exempted

1 0 7 2 6 / 7 / 0 0 P a r a g r a p h 7 . 0 3 ( 2 ) ( b )

1 0 8 5 / 9 / 0 0 R e g u l a t i o n 9 . 2 9

1 0 9 1 3 / 9 / 0 0 R e g u l a t i o n 9 . 2 9

1 1 0 1 6 / 1 1 / 0 0 S u b r e g u l a t i o n 6 . 1 7 ( 2 )

1 1 1 2 8 / 6 / 0 1 R e g u l a t i o n 9 . 2 9

1 1 3 3 / 4 / 0 1 D i v i s i o n 9 . 3

1 1 4 3 / 4 / 0 1 D i v i s i o n 9 . 3

1 1 5 1 5 / 6 / 0 1 P a r a g r a p h 9 . 2 9 ( a )

1 1 6 1 / 6 / 0 1 P a r a g r a p h 9 . 2 9 ( a )

1 1 7 7 / 6 / 0 1 R e g u l a t i o n 9 . 2 9

1 1 8 2 8 / 6 / 0 1 S u b r e g u l a t i o n 6 . 1 7 ( 2 )

Modification Provision of SIS Act

declaration Date or regulations affected

A m e n d m e n t o f

M o d i f i c a t i o n D e c l a r a t i o n N o 2 3 1 8 / 1 0 / 0 0 R e g u l a t i o n s 9 . 2 9 A a n d 9 . 3 1

A m e n d m e n t o f

M o d i f i c a t i o n D e c l a r a t i o n N o 2 3 2 5 / 1 / 0 1 R e g u l a t i o n 9 . 2 9 A

A m e n d m e n t a n d R e v o c a t i o n o f S e c t i o n s 9 2 , 9 2 A a n d

M o d i f i c a t i o n D e c l a r a t i o n N o 1 0 2 3 / 2 / 0 1 9 2 B , r e g u l a t i o n 4 . 0 8 A .

89

Commonwealth Authorities and Companies Act 1997

Auditor-General's report I n J u n e 2 0 0 0 , t h e A u s t r a l i a n N a t i o n a l A u d i t O f f i c e ( A N A O ) c o m m e n c e d a

p e r f o r m a n c e a u d i t o f A P R A ' s p r u d e n t i a l s u p e r v i s i o n o f b a n k s . I t e x a m i n e d A P R A ’ s

a d o p t i o n a n d i m p l e m e n t a t i o n o f i n t e r n a t i o n a l l y a c c e p t e d s u p e r v i s o r y s t a n d a r d s a n d

d e v e l o p m e n t s f o r b a n k s i n a r e a s s u c h a s r i s k - b a s e d s u p e r v i s o r y p r o g r a m s , o f f - b a l a n c e ; ;

s h e e t a c t i v i t i e s o f b a n k s a n d s u p e r v i s i o n o f i n t e r n a t i o n a l b a n k i n g g r o u p s . T h e a u d i t

p a i d p a r t i c u l a r a t t e n t i o n t o t h e a d e q u a c y o f A P R A ' s m o n i t o r i n g o f b a n k s ' c a p i t a l I

a d e q u a c y , l i q u i d i t y m a n a g e m e n t a n d c r e d i t e x p o s u r e s . C o n s i d e r a t i o n w a s a l s o g i v e n

t o t h e f u n d i n g a r r a n g e m e n t s o f A P R A a n d t h e a l l o c a t i o n o f r e s o u r c e s b y A P R A t o i t s

a r e a s o f r e s p o n s i b i l i t y , w i t h i n a r i s k m a n a g e m e n t f r a m e w o r k . T h e a u d i t r e p o r t w a s

t a b l e d i n M a y 2 0 0 1 .

I n i t s s u m m a r y , t h e A N A O n o t e s t h a t A P R A h a s " n e g o t i a t e d t h e t r a n s i t i o n f r o m t h e

p r e v i o u s s y s t e m o f C o m m o n w e a l t h a n d s t a t e s u p e r v i s o r s t o b e c o m e a n i n t e g r a t e d

p r u d e n t i a l r e g u l a t o r o f a l l a u t h o r i s e d d e p o s i t - t a k i n g i n s t i t u t i o n s . T h i s h a s i n c l u d e d

e s t a b l i s h i n g a n e w o r g a n i s a t i o n s t r u c t u r e w i t h e f f e c t f r o m A u g u s t 1 9 9 9 , a d o p t i n g

f r o m J u l y 2 0 0 0 a r i s k - b a s e d s u p e r v i s o r y m e t h o d o l o g y f o r s o p h i s t i c a t e d f i n a n c i a l

i n s t i t u t i o n s ( i n c l u d i n g m o s t b a n k s ) a n d t h e O c t o b e r 2 0 0 0 i n t r o d u c t i o n o f h a r m o n i s e d j

P r u d e n t i a l S t a n d a r d s f o r a l l A D I s . "

T h e r e p o r t n o t e s t h a t A P R A ' s s u p e r v i s i o n o f b a n k s c o n f o r m s w i t h m o s t a s p e c t s o f

i n t e r n a t i o n a l b e s t p r a c t i c e a s s e t o u t i n t h e C o r e P r i n c i p l e s f o r E f f e c t i v e B a n k i n g

S u p e r v i s i o n r e c o m m e n d e d b y t h e B a s e l C o m m i t t e e o n B a n k i n g S u p e r v i s i o n . A P R A

p u b l i s h e d i t s s e l f - a s s e s s m e n t a g a i n s t t h e s e P r i n c i p l e s ( w h i c h w e r e f i n a l i s e d o n l y i

t o w a r d t h e e n d o f 1 9 9 9 ) i n A p r i l t h i s y e a r .

T h e A N A O ' s r e p o r t a l s o p o i n t s o u t a f e w a r e a s w h e r e A P R A ' s p r a c t i c e s c o u l d u s e f u l l y j b e b r o u g h t m o r e c l o s e l y i n t o l i n e w i t h t h e C o r e P r i n c i p l e s . T h e s e i n c l u d e t h e

s t r i n g e n c y o f l i m i t s o n b a n k s ' l a r g e c r e d i t e x p o s u r e s , f o r m a l a r r a n g e m e n t s f o r

i n f o r m a t i o n s h a r i n g w i t h r e g u l a t o r s i n o t h e r c o u n t r i e s , a n d a m o r e s t r u c t u r e d

s c h e d u l i n g o f A P R A ' s o n - s i t e v i s i t s t o b a n k s . A P R A a c c e p t s t h e r e c o m m e n d a t i o n s

m a d e i n t h e s e a r e a s . I n s o m e i n s t a n c e s , w o r k w a s a l r e a d y u n d e r w a y t o m o v e

t o w a r d c l o s e r c o m p l i a n c e w i t h i n t e r n a t i o n a l b e s t p r a c t i c e a s p a r t o f A P R A ' s n o r m a l

r e v i e w p r o c e s s ; i n o t h e r c a s e s , A P R A n o w i n t e n d s t o m o d i f y i t s c u r r e n t

a r r a n g e m e n t s .

T h e H o u s e o f R e p r e s e n t a t i v e s S t a n d i n g C o m m i t t e e o n E c o n o m i c s , F i n a n c e a n d P u b l i c

A d m i n i s t r a t i o n i n J u n e 2 0 0 1 u n d e r t o o k t o r e v i e w t h e A u d i t o r - G e n e r a l ' s r e p o r t a n d

a l s o r e v i e w l e v y a r r a n g e m e n t s , r e s o u r c i n g , r i s k - b a s e d s u p e r v i s i o n m e t h o d o l o g y a n d

c o m p l i a n c e w i t h i n t e r n a t i o n a l s t a n d a r d s . A P R A w i l l a s s i s t t h e C o m m i t t e e i n i t s

d e l i b e r a t i o n s .

T h e A N A O h a s a l s o a d v i s e d t h a t i t i n t e n d s t o c o n d u c t p e r f o r m a n c e a u d i t s o n A P R A ' s

p r u d e n t i a l s u p e r v i s i o n o f s u p e r a n n u a t i o n f u n d s a n d p r u d e n t i a l s u p e r v i s i o n o f t h e

i n s u r a n c e i n d u s t r y i n 2 0 0 2 .

I n a d d i t i o n , s e e p a g e 8 6 o f t h e F i n a n c i a l s t a t e m e n t s i n t h i s r e p o r t .

Board members' attendance S e e p a g e 3 3 o f t h e C o r p o r a t e g o v e r n a n c e s e c t i o n o f t h i s r e p o r t .

Board members' qualifications S e e p a g e 3 3 o f t h e C o r p o r a t e g o v e r n a n c e s e c t i o n o f t h i s r e p o r t .

Board members' statement S e e p a g e 4 0 o f F i n a n c i a l s t a t e m e n t s i n t h i s r e p o r t .

Courts and tribunals D u r i n g 2 0 0 0 / 0 1 t h e r e w e r e n o s i g n i f i c a n t j u d i c i a l d e c i s i o n s o r c o m m e n t s , o r

d e c i s i o n s o r c o m m e n t s m a d e b y a n a d m i n i s t r a t i v e t r i b u n a l t h a t h a d , o r m a y h a v e , a

s i g n i f i c a n t e f f e c t o n A P R A ' s o p e r a t i o n s .

T h e E n f o r c e m e n t s e c t i o n o f t h i s r e p o r t c o n t a i n s d e t a i l s o f c o u r t d e c i s i o n s r e l a t i n g t o

e n f o r c e m e n t a c t i o n t a k e n b y A P R A .

Enabling legislation A P R A ' s p u r p o s e , p o w e r s a n d f u n c t i o n s a r e s e t o u t i n s e c t i o n s 8 , 9 , 9 A , a n d 1 1 o f t h e

Australian Prudential Regulation A uthority A c t (1998).

A P R A ' s p u r p o s e i s t o r e g u l a t e b o d i e s i n t h e f i n a n c i a l s e c t o r i n a c c o r d a n c e w i t h t h e

l a w s o f t h e C o m m o n w e a l t h t h a t p r o v i d e f o r p r u d e n t i a l r e g u l a t i o n o r r e t i r e m e n t

i n c o m e s t a n d a r d s , a n d f o r d e v e l o p i n g t h e p o l i c y t o b e a p p l i e d i n p e r f o r m i n g t h a t

r e g u l a t o r y r o l e . I n p r o v i d i n g t h i s r e g u l a t i o n a n d d e v e l o p i n g t h i s p o l i c y , A P R A i s

r e q u i r e d t o b a l a n c e t h e o b j e c t i v e s o f f i n a n c i a l s a f e t y a n d e f f i c i e n c y , a n d c o m p e t i t i v e

n e u t r a l i t y .

Financial statements S e e p a g e 4 1 o f t h i s r e p o r t .

Indemnities and insurance premiums D u e t o a m e n d m e n t s t o t h e C A C A c t , t h e B o a r d r e s o l v e d t o e n t e r i n t o i n d e m n i t i e s

w i t h B o a r d m e m b e r s a n d o f f i c e r s a s r e q u i r e d , c o n s i s t e n t w i t h , a n d t o t h e e x t e n t

a l l o w e d , b y s e c t i o n 2 7 M o f t h e C A C A c t .

A P R A d i r e c t o r s a n d o f f i c e r s a r e c o v e r e d b y t h e p r o f e s s i o n a l i n d e m n i t y i n s u r a n c e

c o v e r o f t h e C o m m o n w e a l t h - m a n a g e d i n s u r a n c e f u n d , C o m c o v e r . T h e g e n e r i c

t e r m s a n d c o n d i t i o n s o f t h e i n s u r a n c e c o v e r p r o v i d e d b y C o m c o v e r t o

C o m m o n w e a l t h a g e n c i e s a r e a v a i l a b l e o n t h e C o m c o v e r i n t e r n e t s i t e :

w w w . c o m c o v e r . g o v . a u . U n d e r t h e c o n d i t i o n s o f t h e p o l i c y , A P R A i s p r o h i b i t e d f r o m

d i s c l o s i n g t h e s p e c i f i c n a t u r e a n d l i m i t o f t h e l i a b i l i t i e s c o v e r e d a n d t h e a m o u n t o f

t h e p r e m i u m .

Location S e e t h e i n s i d e b a c k c o v e r o f t h i s r e p o r t .

Organisation chart S e e p a g e 1 0 0 o f t h i s r e p o r t .

9 1

Equal Employment Opportunity (Commonwealth Authorities) Act 1987

EEO staff data S t a f f d i v e r s i t y a s a t 3 0 J u n e 2 0 0 1

F e m a l e N E S B 1 N E S B 2 A T S I P W D T o t a l

L e v e l 1 6 0 1 0 0 0 0 7 6

L e v e l 2 4 6 1 7 1 0 0 7 9

L e v e l 3 5 4 2 9 1 0 0 1 4 3

L e v e l 4 2 2 1 1 3 0 1 6 2

S e n i o r 4 8 1 0 1 4 4

E x e c u t i v e 0 0 0 0 0 4

Total 1 8 6 7 5 6 0 2 4 0 8

N E S B 1 N o n - E n g l i s h - s p e a k i n g b a c k g r o u n d , f i r s t g e n e r a t i o n

N E S B 2 N o n - E n g l i s h - s p e a k i n g b a c k g r o u n d , s e c o n d g e n e r a t i o n

A T S I A b o r i g i n a l a n d T o r r e s S t r a i t I s l a n d e r

P W D P e o p l e w i t h d i s a b i l i t y

Workplace diversity program report

A P R A h a s a r e s p o n s i b i l i t y t o d e v e l o p a n E E O p l a n u n d e r t h e Equal Employment Opportunity (Commonwealth Authorities) A c t 1987. T h e B o a r d o f A P R A e n d o r s e d

a n a c t i o n p l a n t h a t i n v o l v e s i n n o v a t i v e s t r a t e g i e s i n f u l l c o n s u l t a t i o n w i t h s t a f f

r e p r e s e n t a t i v e s t o f a c i l i t a t e a n d c a t e r f o r d i v e r s i t y i n A P R A e m p l o y m e n t .

T h e S t a f f C o n s u l t a t i v e G r o u p p l a y s a n i m p o r t a n t o v e r s i g h t a n d a d v i s o r y r o l e i n t h e

a c t i o n p l a n . A s t a f f c l i e n t s u r v e y i s b e i n g c o n d u c t e d w h i c h i n c l u d e s s p e c i f i c

q u e s t i o n s c o n c e r n i n g w o r k p l a c e d i v e r s i t y . T h i s w i l l a s s i s t i n e s t a b l i s h i n g a b e n c h m a r k

o f a w a r e n e s s a n d a p p r e c i a t i o n o f w o r k p l a c e d i v e r s i t y p r i n c i p l e s i n A P R A a n d

i d e n t i f y i n g i s s u e s f o r f u t u r e a c t i o n . T h e s u r v e y w i l l c o m p l e m e n t o t h e r o n g o i n g

i n i t i a t i v e s , s u c h a s e x i t i n t e r v i e w f e e d b a c k , i n f o r m a t i o n p r o v i d e d a t i n d u c t i o n

p r o g r a m s a n d p a r t i c i p a t i o n i n t h e W o m e n i n L a w E n f o r c e m e n t S t r a t e g y g r o u p ( W I L E S ) .

Freedom o f Information Act 1982

T h e Freedom o f Information A ct 1982 ( F O I A c t ) p r o v i d e s t h e p u b l i c w i t h a g e n e r a l

r i g h t o f a c c e s s t o d o c u m e n t s h e l d b y C o m m o n w e a l t h a g e n c i e s , i n c l u d i n g A P R A . T h i s ,

g e n e r a l r i g h t i s l i m i t e d b y e x c e p t i o n s n e e d e d t o p r o t e c t e s s e n t i a l p u b l i c i n t e r e s t s o r

t h e p r i v a c y a n d b u s i n e s s a f f a i r s o f t h o s e w h o g i v e i n f o r m a t i o n t o A P R A o r t h e

C o m m o n w e a l t h .

I n 2 0 0 0 / 0 1 A P R A r e c e i v e d 1 0 a p p l i c a t i o n s u n d e r t h e F O I A c t .

D u r i n g t h a t y e a r , F O I a p p l i c a t i o n s ( i n c l u d i n g a n a p p l i c a t i o n r e c e i v e d i n 1 9 9 9 / 0 0 )

w e r e d e a l t w i t h a s f o l l o w s :

G r a n t e d i n f u l l 3

G r a n t e d i n p a r t 2

A c c e s s r e f u s e d 4

O n h a n d a t 3 0 J u n e 2 0 0 1 2

Total 11

W h i l e c h a r g e s c o l l e c t e d w e r e $ 6 9 5 , t h e e s t i m a t e d c o s t o f h a n d l i n g F r e e d o m o f

I n f o r m a t i o n r e q u e s t s i n 2 0 0 0 / 0 1 w a s $ 1 0 , 7 7 2 ( i n c l u d i n g A u s t r a l i a n G o v e r n m e n t

S o l i c i t o r ' s f e e s ) .

Access to documents A P R A i s i n c r e a s i n g l y u s i n g t h e I n t e r n e t t o m a k e i t s p u b l i c a t i o n s a v a i l a b l e t o t h e

p u b l i c f r e e o f c h a r g e f r o m t h e A P R A w e b s i t e . T h i s c o n t a i n s a p p l i c a t i o n s , r e g u l a t o r y

i n f o r m a t i o n , p r u d e n t i a l s t a t e m e n t s , c i r c u l a r s a n d g u i d e l i n e s c o v e r i n g t h e t y p e s o f j e n t i t i e s w h i c h A P R A r e g u l a t e s . T h e s e m a y b e c h a n g e d o v e r t i m e w i t h t h e

c o m p l e t i o n o f v a r i o u s p r o j e c t s .

S o m e p u b l i c a t i o n s , h o w e v e r , a t t r a c t a c h a r g e . A l i s t o f d o c u m e n t s a v a i l a b l e f o r

i n s p e c t i o n a n d p u r c h a s e i s a v a i l a b l e o n t h e I n t e r n e t .

I n a d d i t i o n , a l i s t o f d o c u m e n t s w h i c h a r e u s e d b y A P R A i n m a k i n g d e c i s i o n s o r

r e c o m m e n d a t i o n s f o r t h e p u r p o s e s o f l e g i s l a t i o n a d m i n i s t e r e d b y A P R A , m a d e u n d e r

s e c t i o n 9 o f t h e F O I A c t , h a s b e e n l o d g e d w i t h t h e F r e e d o m o f I n f o r m a t i o n

C o n t r o l l e r a t t h e N a t i o n a l A r c h i v e s o f A u s t r a l i a n i n C a n b e r r a .

Q u e s t i o n s a b o u t p u b l i c a t i o n s s h o u l d b e m a d e t o :

Public Affairs Unit Australian Prudential Regulation Authority GPO Box 9836 Sydney NSW 2001 AUSTRALIA

Phone: 02 9210 3364 Fax: 02 9210 3430

I

I

i

Categories of documents A P R A m a i n t a i n s t h e f o l l o w i n g c a t e g o r i e s o f d o c u m e n t s c o v e r e d b y s . 8 ( 1 ) ( a ) ( i i i ) o f t h e

F O I A c t :

• D o c u m e n t s o p e n t o p u b l i c a c c e s s a s p a r t o f a p u b l i c r e g i s t e r i n a c c o r d a n c e

w i t h a n e n a c t m e n t w h e r e a c c e s s i s s u b j e c t t o a f e e o r o t h e r c h a r g e :

- A c c o u n t s a n d a u d i t o r c e r t i f i c a t e s r e l a t i n g t o g e n e r a l i n s u r e r s a v a i l a b l e

u n d e r s e c t i o n 1 2 2 o f t h e Insurance A c t 1973 • O t h e r d o c u m e n t s a v a i l a b l e f o r p u r c h a s e b y t h e p u b l i c i n a c c o r d a n c e

w i t h a r r a n g e m e n t s m a d e w i t h A P R A :

- L i f e i n s u r a n c e p u b l i c a t i o n s ( f i n a n c i a l d i s k e t t e c o n t a i n i n g a n n u a l d a t a

a n d m a r k e t s t a t i s t i c s f r o m h a l f - y e a r l y d a t a )

- P r u d e n t i a l s t a n d a r d s a n d r u l e s m a d e u n d e r t h e Banking A c t 1959 a n d t h e

Life Insurance A ct 1995 ( a l s o a v a i l a b l e o n A P R A ' s w e b s i t e ) .

• D o c u m e n t s m a d e a v a i l a b l e t o t h e p u b l i c f r e e v i a A P R A ' s w e b s i t e

( w w w . a p r a . g o v . a u ) :

- L i s t s o f r e g u l a t e d e n t i t i e s a n d i n d u s t r y b o d i e s

- P r u d e n t i a l s t a n d a r d s a n d r u l e s m a d e u n d e r t h e Banking A c t 1959 a n d t h e

Life Insurance A ct 1995, a n d e x p l a n a t o r y n o t e s

- T r a n s i t i o n a l p r u d e n t i a l s t a n d a r d s m a d e u n d e r t h e F i n a n c i a l S e c t o r R e f o r m

( A m e n d m e n t s a n d T r a n s i t i o n a l P r o v i s i o n s ) R e g u l a t i o n s 1 9 9 9

- D r a f t p r u d e n t i a l s t a n d a r d s f o r g e n e r a l i n s u r e r s

- T r a n s f e r R u l e s m a d e u n d e r t h e Financial Sector (Transfers o f Business) A c t 1999

- C l a s s c o n s e n t u n d e r s e c t i o n 6 6 o f t h e Banking A ct 1959

- M a r k e t s t a t i s t i c s ( i n c l u d i n g A P R A Insight) a n d o t h e r r e s e a r c h m a t e r i a l

- P o l i c y d i s c u s s i o n p a p e r s

- M e d i a r e l e a s e s

- C o r p o r a t e i n f o r m a t i o n

- P r o c e d u r a l g u i d e l i n e s

- E n a b l i n g l e g i s l a t i o n

- I n d e x e d f i l e l i s t f o r t h e p u r p o s e s o f S e n a t e C o n t i n u i n g O r d e r N o . 5 .

Consultative arrangements I n m o s t c a s e s , A P R A c o n s u l t s w i t h i n d u s t r y b o d i e s a n d r e g u l a t e d e n t i t i e s p r i o r t o

f o r m u l a t i n g o r a m e n d i n g p o l i c i e s o r f i n a l i s i n g p r u d e n t i a l s t a n d a r d s .

Information on purpose and functions S e e t h e E n a b l i n g l e g i s l a t i o n s e c t i o n o n p a g e 9 1 o f t h i s r e p o r t .

Initial contact for requests under FOI Act R e q u e s t s u n d e r t h e F r e e d o m o f I n f o r m a t i o n A c t s h o u l d b e m a d e i n w r i t i n g , t o g e t h e r

w i t h t h e p r e s c r i b e d f e e t o :

The FOI Coordinator Office of General Counsel Australian Prudential Regulation Authority GPO Box 9836 Sydney NSW 2001

Phone: 02 9210 3080 Fax: 02 9210 3424

Organisation chart S e e p a g e 1 0 0 o f t h i s r e p o r t .

Occupational Health and Safety (Commonwealth Employment) Act 1991

Details of investigations and other matters as prescribed T h e f o l l o w i n g i n f o r m a t i o n i s p r e s e n t e d i n a c c o r d a n c e w i t h s e c t i o n 7 4 o f t h e

Occupational Health and Safety (Commonwealth Employment) A ct 1991 ( O H & S A c t ) .

I n t e r m s o f c o m p l i a n c e w i t h t h e O H & S A c t , t h e r e w e r e :

• n o i n v e s t i g a t i o n s c o n d u c t e d d u r i n g t h e y e a r t h a t r e l a t e d t o

u n d e r t a k i n g s c a r r i e d o n b y A P R A ;

• n o t e s t s c o n d u c t e d o n a n y p l a n t , s u b s t a n c e o r t h i n g i n t h e c o u r s e

o f s u c h i n v e s t i g a t i o n s ;

• n o d i r e c t i o n s t o A P R A b y a n i n v e s t i g a t o r t h a t t h e w o r k p l a c e

n o t b e d i s t u r b e d ; a n d

• n o p r o h i b i t i o n o r i m p r o v e m e n t s a n d p r o v i s i o n a l n o t i c e s w e r e g i v e n t o A P R A .

Measures taken to ensure health, safety and welfare of employees and contractors A P R A h a s d e v e l o p e d a n d p r o m u l g a t e d a p o l i c y i n a c c o r d a n c e w i t h t h e t e r m s o f t h e

O H & S A c t .

R e s p o n s i b i l i t i e s i m p o s e d b y t h e l e g i s l a t i o n w e r e i d e n t i f i e d a n d a l l o c a t e d t o i n d i v i d u a l

s t a f f m e m b e r s . T h i s i n c l u d e s t h e i d e n t i f i c a t i o n a n d t r a i n i n g o f h e a l t h a n d s a f e t y s t a f f

r e p r e s e n t a t i v e s a t a l l w o r k l o c a t i o n s .

P r o c e d u r e s f o r d e a l i n g w i t h h e a l t h a n d s a f e t y i s s u e s a r e p u b l i s h e d o n A P R A ' s i n t r a n e t

s i t e a n d i n c l u d e d i n i n d u c t i o n p r o g r a m s .

T h e r e h a s b e e n d e v e l o p m e n t o f p o l i c y a n d p r o c e d u r e s t o i d e n t i f y , a s s e s s a n d c o n t r o l

h a z a r d s a s s o c i a t e d w i t h w o r k p r o c e s s e s , p a r t i c u l a r l y c o m p u t e r - b a s e d w o r k . A n

e r g o n o m i c c o n s u l t a n t h a s b e e n i n t r o d u c e d t o a s s i s t t h e p r o c e s s .

W e h a v e p r o v i d e d f i r s t a i d s e r v i c e s f o r t h e t r e a t m e n t o f w o r k - r e l a t e d i n j u r y o r i l l n e s s ,

i n c l u d i n g a p p r o p r i a t e l y t r a i n e d f i r s t a i d o f f i c e r s , a t a l l w o r k l o c a t i o n s . R e h a b i l i t a t i o n

s e r v i c e s a n d s u p p o r t a r e p r o v i d e d t o i n j u r e d e m p l o y e e s w i t h o n g o i n g c o n s u l t a t i o n

f o r a f f e c t e d e m p l o y e e s .

AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY ORGANISATION CHART

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Board

Jeffrey Carmichael (Chair), Graeme Thompson, Rod Atfield, David Knox, John Laker, Ian Macfarlane, Don Mercer, Marian Micalizzi

Company Secretary CEO Risk Management

Thea Rosenbaum Graeme Thompson and Audit Committee

Executive General Manager Diversified Institutions Tom Karp

Executive General Manager Specialised Institutions Les Phelps

Executive General Manager Policy, Research and Consulting

Chief Financial Officer Jim Flaye

General Manager Branch 1 Keith Chapman

General Manager Central Region Darryl Roberts

General Manager Policy Development and Statistics

General Manager Human Resources Peter Vodicka

Greg Brunner

General Manager Branch 2 David Lewis

General Manager Co-ordination, Rehabilitation and Enforcement

General Manager Risk Analysis and Research

Chief Information Officer Colin Cayless

Wayne Byres

General Manager Branch 3

General Manager Northern Region

General Manager Consulting Services Graham Johnson

General Counsel Chris Fogarty

Venkatramani

General Manager Technical Advice and Support Craig Thorburn

General Manager South West Region Stephen Glenfield

General Manager Risk Assessment and Internal Audit Peter O'Callaghan

100

Directory

I n f o L i n e 1 3 0 0 1 3 1 0 6 0

W e b s i t e : w w w . a p r a . g o v . a u

L e v e l 2 6 , 4 0 0 G e o r g e S t r e e t

S y d n e y N S W 2 0 0 0

G P O B o x 9 8 3 6 , S y d n e y N S W 2 0 0 1

T e l · 0 2 9 2 1 0 3 0 0 0 F a x : 0 2 9 2 1 0 3 4 1 1

Other offices

L e v e l 5 , A l l i a n z C e n t r e

1 0 0 P i r i e S t

A d e l a i d e S A 5 0 0 0

G P O B o x 9 8 3 6 , A d e l a i d e S A 5 0 0 1

T e l : 0 8 8 2 3 2 5 1 3 0 F a x : 0 8 8 2 3 2 5 1 8 0

L e v e l 2 3 , 3 0 0 Q u e e n S t r e e t

B r i s b a n e Q L D 4 0 0 0

G P O B o x 9 8 3 6 , B r i s b a n e Q L D 4 0 0 1

T e l : 0 7 3 0 0 1 8 5 0 0 F a x : 0 7 3 0 0 1 8 5 0 1

2 4 3 - 2 5 1 N o r t h b o u r n e A v e n u e

L y n e h a m A C T 2 6 0 2

G P O B o x 9 8 3 6 , C a n b e r r a A C T 2 6 0 1

T e l : 0 2 6 2 4 7 2 2 9 9 F a x . 0 2 6 2 1 3 5 1 0 0

L e v e l 2 1 . C a s s e l d e n P l a c e

2 L o n s d a l e S t r e e t

M e l b o u r n e V I C 3 0 0 0

G P O B o x 9 8 3 6 , M e l b o u r n e V I C 3 0 0 1

T e l : 0 3 9 2 4 6 7 5 0 0 F a x : 0 3 9 6 6 3 5 0 8 5

L e v e l 9 , Q V . 1 B u i l d i n g

2 5 0 S t G e o r g e s T e r r a c e

P e r t h W A 6 0 0 0

G P O B o x 9 8 3 6 . P e r t h W A 6 0 0 1

T e l : 0 8 9 4 8 1 8 2 6 6 F a x : 0 8 9 4 8 1 8 1 4 2

dt i i d and pvodui d b> vryt-nom dc .tgn

QAPRAAustralian Prudential Regulation Authority

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

PARLIAMENTARY PAPER N o. 88 o f 2 0 0 2 ORDERED TO BE PRINTED

ISSN 0727-4181

APRAAustralian Prudential Regulation Authority