On 3 September, The Australian Prudential Regulation Authority (APRA) updated the 'constructively tough' enforcement approach it released in April, to outline how it will increase transparency around the use of its formal enforcement powers and flagging its intention to take stronger action against institutions that fail to meet their legal obligations to report data in full and on time.
Two key changes
1. When will APRA publicise the enforcement actions it takes?
The revised Enforcement Approach includes an expanded section on transparency and financial stability to include guidance on how and when APRA will publicise the enforcement actions it takes and the criteria it will take into account in reaching a decision.
APRA states that it will consider when and how to publicise the enforcement actions it takes on a case by case basis.
Having said this, APRA says that 'unless there are likely to be risks to beneficiaries’ interests and/or financial stability from publicising an action, APRA will typically make public the following actions.
- administrative enforcement actions taken by APRA, such as formal directions and licence conditions or infringement notices
- acceptance of an enforceable undertaking received from a regulated entity or an individual
- disqualifications of accountable persons under the Bank Executive Accountability Regime, or other responsible persons under the prudential framework
- court-based enforcement actions commenced by APRA
APRA adds that 'for reasons of natural justice, procedural steps in respect of potential enforcement actions, including the issuance of "show cause" notices will generally not be made public'.
Commenting on the changes, ASIC Deputy Chair John Lonsdale said the 'getting "constructively tough" is not only about taking stronger action earlier where banks, insurers and super licensees break the law, or fail to behave in an open and cooperative manner with us. It also means setting public examples where it is appropriate to do so and there’s no risk to financial stability'. Mr Lonsdale added that 'publicising our enforcement actions not only acts as a general deterrent, it gives the community confidence that financial institutions are being held to account when they do the wrong thing'.
2. New guidance on APRA's approach to enforcement for data submissions
The updated Enforcement Approach also includes a new section (section 6) outlining APRA's intention to use enforcement action 'where appropriate to ensure that APRA's data remains fit for purpose for its users' and providing insights into the criteria APRA will use to determine whether enforcement action is appropriate in the circumstances.
Criteria APRA will take into account?
APRA states that the value of an entity’s data to APRA and to the agencies it collects on behalf of is impacted by three characteristics: timeliness, quality and proportionality of the entity’s data to the collection and that these form the basis of APRA’s approach to enforcement for data submissions.
Figure 3 of the revised Enforcement Approach sets out the criteria the regulator will take into consideration to help determine when enforcement action may be appropriate in more detail, though APRA states that 'meeting the criteria…will not automatically lead to APRA taking enforcement action…in deciding what action to take APRA will always take into account the facts, matters and circumstances of the particular case under consideration'.
APRA adds that its revised approach to enforcement on data submissions is complementary to its approach to enforcement more broadly, adding that 'where data breaches or issues are indicative of prudential risk at a regulated entity, APRA will also consider the need to take enforcement action to address the prudential risks'.
Commenting on the changes, APRA Deputy Chair John Lonsdale said entities that failed to comply with their data reporting obligations would also be exposing themselves to potential penalties. 'As the central statistical agency for Australia’s financial sector, including other regulators, APRA must ensure the data we receive is timely and accurate.' Mr Lonsdale went on to say that as was demonstrated by the move by APRA to fine Westpac recently, 'our reporting standards are legally binding, and we will act when necessary to ensure institutions meet their obligations. Consequently, we have also updated the Enforcement Approach to include guidance on how we will use enforcement action to ensure the data we collect remains fit for purpose'.
Stronger enforcement appetite?
Announcing the changes, APRA said that since the adoption of the new 'constructively touch' approach to enforcement in April, APRA has 'repeatedly demonstrated its stronger enforcement appetite' and cited a number of examples of this including the imposition of additional capital requirements on three major banks and one general insurer in response to risk/governance issues.
[Note: APRA released both the results of the enforcement strategy review led by APRA Deputy Chair John Lonsdale and details of its 'constructively tough' enforcement approach on 16 April. For a summary see: Governance News 17/04/2019]
[Sources: APRA media release 03/09/2019; APRA's Enforcement Approach 03/09/2019]