Australian prudential regulation authority
Section 1: Agency overview and resources
1.1 Strategic direction
The role of the Australian Prudential Regulation Authority (APRA) is developing and enforcing a robust prudential framework of legislation, prudential standards and prudential guidance that promotes prudent behaviour by authorised deposit‑taking institutions (ADIs), insurance companies, superannuation funds and other financial institutions it supervises, with the key aim of protecting the interests of their depositors, policy holders and superannuation fund members.
Prudential regulation focuses on the quality of an institution's systems for identifying, measuring and managing the various risks in its business.
In carrying out this role, APRA will enhance public confidence in Australia's financial institutions through a prudential framework that balances financial safety and efficiency, competition, contestability and competitive neutrality. This is achieved by:
- the development and implementation of prudential requirements to be observed by regulated institutions;
- a risk‑based approach to the supervision of regulated institutions, and remediation or enforcement measures, to ensure that risk‑taking is conducted within reasonable bounds and that risks are clearly identified and managed; and
- advice to the Australian Government on the development of regulation and legislation affecting regulated institutions and the financial markets in which they operate.
The Australian Government confirmed that prudential regulation can not and should not seek to guarantee a zero failure rate of prudentially regulated institutions or provide absolute protection for market participants (including consumers). Rather, the objective of the prudential regulation regime is to maintain a low incidence of failure of regulated institutions while not impeding continued improvement in efficiency or hindering competition. APRA fully supports the Australian Government's objectives for prudential regulation.
In APRA's Statement of Intent, it committed itself to further developing a supervisory approach, focussed on outcomes, that accords fully with the Australian Government's vision for APRA.
In 2008‑09, APRA's main strategic objectives are to:
- conduct effective, ongoing supervision of all APRA regulated institutions in accordance with a consistent APRA wide supervisory approach;
- consolidate the prudential framework by enhancing prudential standards where appropriate, promoting harmonised standards across industries and examining ways of removing unnecessary regulatory burden;
- enhance the efficiency and effectiveness of APRA's supervisory tools and systems through better integration of tools, greater analytical support for its risk‑rating systems, and workflow and document management;
- enhance APRA's effectiveness by continuing to ensure it recruits and retains the right people for the job, develops the skills and knowledge of its staff and deploys them where they are most needed in APRA; and
- remain well prepared for a crisis affecting APRA's own operations, a financial crisis in a regulated institution and a systemic crisis such as a pandemic or terrorism.
APRA's supervisory activities in 2007‑08 have been conducted against a background of prolonged turbulence in global credit and equity markets, which is expected to continue into 2008‑09. The Australian financial system is well positioned to withstand the impact of these global developments. It has only minimal direct exposures to the US sub‑prime mortgage market in which market turbulence had its origins but it has been affected by substantial increases in wholesale funding costs. APRA has stepped up its supervisory intensity, particularly in its dealings with ADIs. It has been closely monitoring the liquidity position of the larger ADIs and reviewing their funding plans; it has also been monitoring trends in ADI asset quality and capital adequacy. In addition, APRA has been analysing the impact of equity market declines on the insurance and superannuation industries.
APRA will maintain its heightened oversight of liquidity, risk management and capital while global market turbulence persists. In addition, APRA's resources will be committed in 2008‑09 to reviewing and, where appropriate, enhancing its prudential requirements as part of a coordinated international regulatory response to the turbulence, in line with the recommendations of the Financial Stability Forum.
1.2 Agency resource statement
The total appropriation and other resources for APRA in the 2008‑09 Budget is $101.1 million.
Table 1.1 shows the total resources from all origins. The table summarises how resources will be applied to APRA.
Table 1.1: Australian Prudential Regulation Authority resource
statement — Budget estimates for 2008‑09 as at Budget May 2008
1. Appropriation Bill (No.1) 2008‑09.
2. Appropriation Bill (No.2) 2008‑09.
3. Estimated opening balance for special accounts. For further detail on special accounts see Table 3.1.3.
1.3 Budget measures
Table 1.2: Australian Prudential Regulation Authority 2008‑09 Budget
measures
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