Tim Wilson (Goldstein, Liberal Party) Share this | Link to this | Hansard source

On behalf of the Standing Committee on Economics, I present the committee's report entitled Review of the Australian Prudential Regulation Authority annual report 2019, together with the minutes of proceedings.

Report made a parliamentary paper in accordance with standing order 39(e).

by leave—The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry found that Australia's financial sector suffered from a lack of moral leadership and a corporate culture motivated by greed. Evidence provided to the royal commission expressed shocking and widespread examples of misconduct, and highlighted systemic failings throughout the banking and financial services sector. Revelations of further misconduct have continued to come to light following the conclusion of the royal commission. The public expects—and deserves—better than a financial sector lacking in moral leadership and motivated by greed. The community expects the banks and other financial institutions to be held to account, and to fear their regulator because it has the power, the authority, the responsibility and the duty to exercise accountability across the sector.

It is essential that we restore trust, eliminate conflicts of interest and raise standards of professionalism in Australia's financial services industry. Governance, culture, remuneration, and accountability risks are core to a healthy and working prudential supervision regime. As demonstrated by the findings of the royal commission and noted by the capability review, these risks must be supervised and monitored as rigorously as traditional financial risks are. This will require not only the efforts of government and of regulators but the efforts and actions of lenders and individuals within the sector. Critical to that is the capability of the prudential regulator in making sure they understand their purpose and their responsibility but also that they have the internal skills to be able to manage their obligations. This was a matter highlighted by the recommendations of the inquiry into the capability of APRA. That inquiry was led by good Goldstein constituent Graeme Samuel, and we appreciate his efforts and ongoing interest.

The government has been working to implement the royal commission's recommendations and strengthen financial regulators, and is investing in improving APRA's capabilities and resources. The government recently commenced work on the extension of the Banking Executive Accountability Regime, or the BEAR, to all APRA regulated entities. This is known as the financial accountability regime, and will increase the transparency and accountability of financial entities, and will improve risk, culture and governance for both prudential and conduct purposes.

Across a series of public hearings, the committee scrutinised APRA's progress regarding the implementation of the royal commission recommendations, the APRA capability recommendations and, of course, its annual report. This important work will continue to strengthen APRA as a regulator and enable it to continue to ensure the raising of standards of governance, culture, remuneration and accountability across the financial services sector. And let there be no misunderstanding, the committee takes this work very seriously. At the end of last year we asked APRA to come and present. Shortly after their presentation, they were advised that the evidence they provided was inadequate. They were recalled to make sure that they exercised their full responsibilities. We continue to scrutinise their work now and into the future. Consistent with the work we're doing in the oversight of the implementation of the Hayne royal commission around the banking sector, insurance, financial advice and superannuation, we continue to recall witnesses and hold them to account to make sure that everybody is following the full recommendations, but also that the committee is understood to be an important part of holding financial services firms and the banking sector to its full accountability.

The committee also scrutinised APRA's new enforcement approach and its commitment to increasing transparency in its supervision and enforcement work. This will assist in both the raising of standards of governance, culture, remuneration and accountability and rebuilding the Australian people's trust in the financial services sector. The committee will continue to scrutinise APRA's performance, particularly its ongoing implementation of royal commission recommendations and the capability review recommendations, as well as the ongoing strengthening of APRA's capability.

On behalf of the committee I would like to thank the chair of APRA, Mr Wayne Byres; the other APRA representatives; and the chair of the APRA Capability Review, Professor Graeme Samuel, for appearing at these important hearings. I also, of course, would like to thank the secretariat, including Mr Stephen Boyd, who ably steers the secretariat and keeps troublesome chairs such as myself in line from time to time, at least in terms of following procedure. I commend the report to the House.

Andrew Leigh (Fenner, Australian Labor Party, Shadow Assistant Minister for Treasury) Share this | Link to this | Hansard source

by leave—Australians spend more on superannuation fees than they do on energy: over $30 billion per year. According to work by the Productivity Commission, this amounts to some 1.1 per cent of total assets, which may not sound like much until you realise that the difference between fees of one per cent and half a per cent is the difference between a nest egg which is 10 per cent bigger or 10 per cent smaller. As the Productivity Commission noted:

While some may be receiving exceptional investment returns or member services, the evidence indicates that funds that charge higher fees tend to deliver lower returns, once both investment and administration fees have been netted off. High fees also persist over time.

The Productivity Commission further concluded:

Superannuation fees in Australia are higher than those observed in other OECD countries.

The issue of superannuation fees has been one that the committee has focused upon. I personally have been disappointed in APRA's response to fees. In answer to earlier questions last year, APRA doubted the Productivity Commission's finding that higher fees were associated with lower returns. Pressed for evidence to the contrary, they were unable to provide any. In the most recent hearing, APRA said:

… I think it's simplistic to try and reduce the level of expenditure to a single metric.

While the issue of fees is complex, it is important for APRA to place a significant spotlight on the on fees and ask for greater clarity and more information from funds as to the fees that are charged from members. The APRA heat map does this to some extent, and APRA themselves have said that it's about enhancing comparability. I would urge APRA however to use their powers to a greater extent to ensure that all of the relevant fees are reported, given how critical excessive fees are to driving down the retirement savings of Australians.

We also heard from APRA about the issue of climate risk. APRA made the interesting observation:

… the emerging discipline of central banks and regulators globally is to project a zero carbon 2050 scenario …

It's striking that this is the view of APRA, given how out of step it is with the government's own approach to a zero carbon 2050 target. While 73 countries and all Australian states and territories have committed to a zero carbon 2050 scenario and while the government's own prudential regulator is working on that basis, the government is out of step with the business community and the international community on this issue.

APRA also answered questions relating to their enforcement activities. I was concerned that their enforcement activities may not have stepped up in response to the findings of the royal commission. I was pleased when APRA responded to a question they took on notice in the hearings to say that notices to produce had gone from two in 2018 to 64 in 2019 and that infringement notices had gone from zero to one, depending on how you count it—they actually said that, if you counted the 715 infringement notices to Westpac, it went from zero to 715. Either way, it's good to see APRA stepping up somewhat. APRA also noted that they've commenced court proceedings against the IOOF group, imposed additional conditions on the RSE licence of two entities in the IOOF group and two entities in the AMP group.

Finally, on the issue of APRA's own staff survey, on some indicators APRA is improving and on others it seems to have fallen backwards. Two that are of concern to me again come from answers to supplementary questions: only 67 per cent of staff say that APRA leaders, SM and above, in their division act in a way that is consistent with APRA's present values and only 42 per cent say that, in their opinion, decisions are made in a timely manner in APRA. That does suggest that the organisation has some way to go to ensure that it is operating as promptly and as consistently with values as Australians would expect.

Like the chair, I thank the secretariat for their hard work in this and other hearings in the busy agenda that the committee has been undertaking.