THE AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY

The Australian Prudential Regulation Authority (APRA) is an integrated prudential regulator responsible for deposit-taking institutions (banks, building societies and credit unions) as well as friendly societies, life and general insurance and superannuation1. APRA is charged with regulating these financial institutions and for developing administrative practices and procedures (e.g. prudential standards) to give effect to its regulatory role, in a manner that balances financial safety and efficiency, competition, contestability and competitive neutrality.

Deposit-taking institutions are regulated by APRA under a single licensing regime. The Banking Act 1959 gives APRA power to authorise and revoke authorities of authorised deposit-taking institutions (ADIs), to make prudential standards or issue enforceable directions, and to inspect ADIs. In addition, ADIs which are permitted to accept retail deposits are covered by the ‘depositor protection’ provisions of the Banking Act 1959. These provisions provide APRA with the power to act in the interests of depositors, including the power to appoint a statutory manager to an ADI in difficulty to take control of the institution.

The legislation covering life and general insurance companies in Australia provides for the protection of the interests of policyholders. APRA has power under the relevant legislation to authorise and revoke authorities of insurers, to make prudential standards or issue enforceable directions, and to inspect insurers. In the relevant legislation, preference is afforded for the policyholders of statutory funds of life companies and Australian creditors of general insurers over the assets of statutory funds, and assets in Australia of general insurers respectively. A general insurer in Australia is required to hold assets in Australia sufficient to cover the total amount of its liabilities in Australia. In addition, APRA may, in the case of life insurers, seek the appointment of a judicial manager for a troubled insurer.

Legislation provides APRA with various powers with respect to superannuation funds. These include the removal and appointment of trustees covering troubled superannuation funds. The Treasurer can, on public interest grounds, compensate members of a superannuation fund for losses due to fraudulent conduct or theft. The assistance can be funded either from Consolidated Revenue or by levying other superannuation funds. Again, however, members’ and policyholders’ entitlements are not guaranteed by either APRA or the Government.

Footnotes

1. APRA regulates the superannuation funds’ compliance with the prudential regulation and retirement income provisions of the Superannuation Industry (Supervision) Act 1993, while ASIC has responsibility for the other provisions. The Australian Taxation Office has responsibility for the regulation of excluded funds (i.e. funds that have less than five members). (back to text)