In an address to the Risk Management Association Australia CRO board dinner in Sydney, Mr Byres reflected on his last five years leading the prudential regulator.
Mr Byres spoke on a number of the topics including prudential standards in superannuation and lending regulation which he noted will be focused on as core outcomes for APRA in the four-year plan, ranking alongside maintaining financial safety and resilience.
As he recalled, the start of his tenure was set in a different landscape, with the Abbott government in 2014 pursuing a “strong deregulatory agenda,” with the new statement of expectations for APRA emphasising “the importance of reducing regulatory burden on industry.”
The chairman admitted the regulatory body had been lacking in upholding standards across governance, culture and accountability.
“Let me be clear: five years ago, I did not foresee all of the culture-related issues that have since come to light,” Mr Byres commented.
“I certainly underestimated the extent to which these issues and their impact would become front and centre of community debate. But I was certainly sceptical about the claim that issues that existed in many other parts of the world could not be present here, and I do think APRA has played an important role in forcing more board and management attention to these matters.”
In contrast to a lax 2014, over the past year, six major reviews have been conducted on APRA: by the IMF, the royal commission, two Productivity Commission inquiries, the body’s own enforcement review and the APRA capability review.
The body now has more far-reaching guidance on remuneration and it is having to review and tighten its governance and risk management standards.
“We will need to devote substantially more supervisory resources to these issues and they will need to become a core competency, just as much as bank capital and liquidity,” Mr Byres commented.
Regulation not ready for new technology
Mr Byres also proclaimed that the current regulations in place will be inadequate for technological disruption reshaping the financial system.
“The current regulatory framework is not designed for clouds, ecosystems and partnership models,” he said.
“Not only do we need new skills, additional resources and stronger partnerships, but potentially new powers to ensure that as critical functions and data move outside the regulatory perimeter, we are able to satisfy ourselves that the requisite level of safety and control remains in place.
“The idea of APRA formally reviewing the capabilities of unregulated service providers would have once been rejected as regulatory overreach – now such service providers may be so fundamental to the operations of a bank that bank supervision cannot properly be done without it.”
Additionally, he noted climate change has entered the purview of prudential regulators, with climate risks impacting asset values and markets.
“We are now in a world where climate-related financial risks need to be assessed and addressed alongside more traditional balance sheet and operational risks,” Mr Byres said.
“We are working with our colleagues in the Council of Financial Regulators to ensure we, and the industries we regulate, have an appropriate awareness of the risks, and how they are being managed.”
An APRA survey undertaken last year saw across Australian banks and insurers, climate change was ranked as the most commonly cited long-term financial risk, ahead of economic downturns and cyber security.
