APRA Corporate Brochure Australian Prudential Regulation Authority by alicejenny


									Australian Prudential
Regulation Authority
Protecting Australia’s depositors, insurance
policyholders and superannuation fund members
    APRA’s vision
    is to be a world-class integrated prudential supervisor recognised
    for its leadership, professionalism and innovation.

    APRA’s core mission
    is to establish and enforce prudential standards and practices
    designed to ensure that, under all reasonable circumstances,
    financial promises made by institutions we supervise are met
    within a stable, efficient and competitive financial system.

    We also act as a national statistical agency for the Australian
    financial sector and play a role in preserving the integrity of
    Australia’s retirement incomes policy.

    APRA’s values
    underpin the critical role we play in protecting the financial well-
    being of the Australian community. High standards are required in
    everything we do. In our work and in our interactions with others,
    we value and seek to demonstrate:

    APRA’s supervisory approach
    is forward-looking, primarily risk-based, consultative, consistent
    and in line with international best practice. The approach also
    recognises that management and boards of supervised
    institutions are primarily responsible for financial soundness.

    Financial regulation in Australia
    The Australian Prudential Regulation Authority (APRA) is one of four
    independent agencies that oversee the Australian financial system.
    The other three are the Reserve Bank of Australia (RBA), the
    Australian Securities and Investments Commission (ASIC) and the
    Australian Competition and Consumer Commission (ACCC).

    APRA is responsible for prudential         Established in 1998, APRA is a
    supervision of individual financial        Commonwealth statutory authority
    institutions and for promoting financial   established under the Australian
    system stability in Australia. ASIC        Prudential Regulation Authority Act
    is responsible for financial market        1998. APRA’s high-level powers
    integrity, business conduct and            for the prudential supervision
    disclosure, and consumer protection        of institutions derive from this
    in the financial system. The RBA is        Act and from specific industry
    responsible for monetary policy,           legislation: the Banking Act 1959; the
    stability of the financial system          Insurance Act 1973; the Life Insurance
    and the safety and efficiency of           Act 1995; and the Superannuation
    the payments system. The ACCC is           Industry (Supervision) Act 1993.
    responsible for competition policy.
                                               APRA is primarily funded by levies
    APRA, ASIC and the RBA work                paid by the institutions it supervises.
    together to ensure a coordinated           APRA’s head office is located in Sydney,
    approach to the resolution of              and it also has offices in Melbourne,
    issues relating to the stability of        Brisbane, Canberra, Adelaide and Perth.
    the financial system. Together
    with the Commonwealth Treasury,
    these agencies form the Council of
    Financial Regulators, which provides
    advice to the Australian Government
    on the adequacy of Australia’s
    financial regulatory arrangements.

    What is APRA’s role?
    APRA supervises Australia’s authorised deposit-taking institutions
    (banks, building societies and credit unions), life and general insurance
    and reinsurance companies, friendly societies and superannuation funds
    (excluding self-managed funds).

    APRA promotes safety and                     APRA collects data for its own purposes
    soundness in business behaviour              and acts as a national statistical agency
    and risk management on the part              for the financial sector, collecting
    of the institutions it supervises. It        data on behalf of the RBA and the
    establishes and enforces prudential          Australian Bureau of Statistics.
    standards and practices designed
                                                 APRA plays a role in preserving the
    to ensure that, under all reasonable
                                                 integrity of Australia’s retirement
    circumstances, financial promises
                                                 incomes policy. In addition, APRA
    made by the institutions it supervises
                                                 administers the regulations under which
    are met within a stable, efficient
                                                 people can, in limited circumstances,
    and competitive financial system.
                                                 apply for the early release of
    APRA refers to depositors, insurance         their superannuation benefits on
    policyholders and superannuation             specified compassionate grounds.
    fund members as ‘beneficiaries’. The
                                                 APRA also has responsibility for
    financial interests of these beneficiaries
                                                 administering the Financial Claims
    lie at the centre of APRA’s mission.
                                                 Scheme arrangements, which provide
    APRA promotes financial stability by         depositors in a failed deposit-taking
    requiring institutions it supervises         institution with timely access to
    to manage risk prudently so as               their deposit funds (up to a limit),
    to minimise the likelihood of                and eligible policyholders and other
    financial losses to beneficiaries.           claimants with access to funds to
                                                 meet insurance claims in the event
    However, APRA cannot eliminate
                                                 of the failure of a general insurer.
    completely the risk that a
    financial institution might fail
    and attempting to do so would
    constrict the financial system.

    Promoting stability and confidence
    A stable and efficient financial system is crucial to the effective
    functioning of the Australian economy. Without confidence and
    stability in the financial system, individuals and corporations would be
    less able and less willing to borrow, protect their assets and invest.
    Prudential supervision plays an important role in supporting this
    confidence and stability.

    Financial transactions necessarily            Potential risks can also emerge from
    involve some form of promise to meet          many unpredictable sources, such as
    financial commitments. For example:           natural or human catastrophes. The
                                                  complexity of modern financial markets
    » a deposit-taking institution accepts
                                                  means that financial institutions must
      deposits from members of the public
                                                  approach their risk management with
      and promises to repay them on
                                                  a high degree of professionalism.
      demand or at some future time;
                                                  For these reasons, most countries
    » an insurance company accepts
                                                  have established prudential
      premiums on the promise to
                                                  supervisory agencies to ensure
      meet insurance claims when a
                                                  risks taken by financial institutions
      specified event occurs; and
                                                  are within reasonable bounds so
    » a superannuation fund trustee               that institutions are well placed
      receives contributions from                 to meet their obligations.
      members and is responsible for
                                                  In the rare event an APRA-supervised
      managing those funds to provide
                                                  institution fails, APRA seeks to
      for a member’s retirement.
                                                  minimise losses to beneficiaries
    Beneficiaries are not in a position           and to the financial system.
    to assess fully whether financial
                                                  Because problems in one financial
    institutions are well managed
                                                  institution can be transmitted to
    and, consequently, whether they
                                                  others, prudential supervision helps to
    are able to meet their financial
                                                  preserve stability across the financial
    promises when called upon to do
                                                  system and the broader economy.
    so. This is why APRA exists.
    For a financial institution, risk can arise
    from a wide variety of sources, such as:
    » adverse economic conditions
      might cause borrowers to
      default on their loans;
    » premiums charged by insurance
      companies might not adequately
      cover future claims; or
    » the value of assets held by a financial
      institution might decline as a result of
      adverse movements in market prices.

    Our approach
    APRA supervises financial institutions across the deposit-taking,
    insurance and superannuation sectors.

    APRA’s work falls into four main areas:   The primary responsibility for
                                              financial safety and soundness
    » establishing prudential standards
                                              within an institution rests with
      to be observed by supervised
                                              its board of directors and senior
      financial institutions;
                                              management. APRA’s approach is
    » assessing new licence applications;     to ensure that boards and managers
                                              understand these responsibilities.
    » assessing the financial soundness
      of supervised institutions; and         APRA is legally prohibited from
                                              publicly revealing most details about
    » where necessary, carrying out
                                              the institutions it supervises. APRA’s
      remediation, crisis response
                                              commitment to confidentiality ensures
      and enforcement.
                                              there is a high level of trust between
    APRA’s aim is to identify potential       APRA and supervised institutions.
    weaknesses in supervised institutions
                                              The names of all the institutions
    as early as possible. When we
                                              APRA supervises are listed on APRA’s
    discover any weaknesses, we work
                                              website (www.apra.gov.au) under
    with the institution to fix them.
                                              respective industry headings. Other
                                              institutions, such as Registered Financial
                                              Corporations (RFCs, including finance
                                              companies) and Discretionary Mutual
                                              Funds (DMFs), are required to provide
                                              statistics to APRA but they are not
                                              prudentially supervised by us.

    The prudential framework
    APRA operates under laws determined by the Australian Parliament.
    Among other things, these laws grant APRA the power to set prudential
    standards that underpin its supervisory approach towards supervised
    For deposit-taking and insurance           » liquidity;
    industries, APRA has developed
                                               » credit risk;
    a comprehensive framework of
    prudential standards and prudential        » operational risk;
    practice guides to promote sound
                                               » market risk;
    financial and risk management
    and good governance. In the                » insurance and reinsurance risks;
    superannuation industry, APRA
                                               » contagion risk from related entities;
    administers regulations and
    operating standards put in place           » outsourcing; and
    by the Australian Parliament.
                                               » business continuity.
    APRA’s prudential standards set
                                               The superannuation operating
    out minimum capital and risk
                                               standards address:
    management requirements, which
    are legally binding. Prudential practice   » capital requirements;
    guides provide guidance on how
                                               » risk management;
    supervised institutions might best
    satisfy the prudential standards.          » outsourcing;
    APRA follows a risk-based approach         » adequacy of resources; and
    under which institutions facing greater
                                               » fitness and propriety of
    risks receive closer supervision. This
                                                 responsible persons.
    enables APRA to deploy its resources in
    a targeted and cost-effective manner.      APRA recognises the complexity
                                               and diversity which exists among
    The framework of prudential
                                               institutions and avoids a ‘one-size-
    standards and prudential practice
                                               fits-all’ approach. APRA’s supervision
    guides addresses the inherent risks
                                               allows institutions to use a variety
    faced by institutions, the controls
                                               of approaches to comply with high-
    adopted to manage and mitigate
                                               level principles, rather than APRA
    those risks, and the level of capital
                                               seeking to direct an institution
    needed by each institution to
                                               through detailed prescription.
    withstand unexpected losses.
                                               Notwithstanding this principles-based
    Among other things, APRA’s                 focus, APRA by necessity prescribes
    prudential standards address:              some absolute requirements, such
                                               as minimum capital requirements.
    » solvency and capital adequacy;
                                               The key elements of APRA’s approach
    » corporate governance;
                                               to prudential supervision are outlined
    » fitness and propriety of                 in the APRA Supervision Blueprint,
      responsible persons;                     which is available on APRA’s website
                                               (www.apra.gov.au). The Blueprint
    » asset quality and concentration;
                                               sets out the objectives, processes and
    » liability valuations;                    procedures for APRA’s supervision.

    How we supervise
    All deposit-taking institutions, life and general insurance and reinsurance
    companies and friendly societies must hold an APRA licence to operate in
    Australia. APRA also licenses trustees of prudentially regulated
    superannuation funds.
    After an institution is licensed, it is    Off-site analysis
    subject to ongoing supervision. The
    main purposes of this supervision are      APRA’s off-site analysis involves
    to ensure that institutions are managing   assessing the financial strength of
    their risks prudently and are meeting      an institution and making qualitative
    their prudential requirements, and         judgments about the effectiveness
    to identify those institutions that        of the institution’s management,
    are unable or unwilling to do so.          operations and risk management
                                               systems. The analysis is undertaken
    The two main supervisory tools             on a continuous basis and includes:
    APRA uses are on-site and off-site
    analysis. These reviews are undertaken     » regular financial analysis supported
    by prudential supervisors with in-           by APRA’s statistical collections;
    depth knowledge of institutions in         » analysing emerging risk across
    a particular sector, and supported           APRA-supervised industries;
    by specialist risk experts.
                                               » risk-rating assessments (see ‘PAIRS’
                                                 assessments page 9); and
                                               » analysis and assessment of
                                                 prudential issues as they arise.

    APRA’s off-site work addresses             Risk assessment
    the material risks to which the
    assessed institution is exposed, and       The centrepiece of APRA’s supervisory
    typically includes reviews of:             risk assessment is the Probability and
                                               Impact Rating System (PAIRS). PAIRS
    » capital adequacy;                        helps supervisors make judgements
    » earnings and financial performance;      about a supervised institution’s
                                               risk position. The main objectives
    » key risk areas (including asset          of PAIRS assessments are to:
      quality, management, market
      risk, insurance risk, liquidity risk     » determine the probability that
      and operational risk); and                 the institution may not meet
                                                 its financial promises; and
    » changes to business mix,
      organisational structure and             » assess the potential consequences
      governance arrangements.                   of not meeting those promises.

    APRA supervisors meet regularly with       Supervisory outcomes
    the management of each supervised
    institution to review their assessment
                                               and action
    of its prudential condition. Supervisors   It is not enough for an APRA supervisor
    and APRA management also meet              just to identify risk. APRA must also
    with the boards of supervised              respond appropriately to identified
    institutions on an as-needed basis.        risks. APRA’s supervisory responses
                                               are driven by its Supervisory Oversight
    On-site analysis                           and Response System (SOARS).
    APRA supervisors regularly visit the       Supervisory responses can range
    premises of supervised institutions.       from a normal cycle of review to a
    During these visits, supervisors speak     heightened supervisory stance that
    with staff and, where appropriate,         requires extra supervisory oversight,
    examine records and files. These           to mandating improvements or to
    reviews typically target a particular      restructuring a supervised entity.
    risk area. They assess the effectiveness
    of an institution’s risk management
    framework, including its internal
    governance processes. The frequency
    and length of these on-site reviews are
    determined on a case-by-case basis.
    APRA increases the frequency and
    intensity of its on-site reviews where
    supervisors identify an institution
    facing a greater than average risk.

     Licensing and authorisation
     In order to obtain an APRA licence to operate in Australia, applicants are
     required to present a submission addressing APRA’s licensing criteria.

     These licensing criteria will vary            In addition to addressing financial
     depending upon whether the                    soundness and risk management,
     applicant is applying for a licence           APRA’s assessment covers the adequacy
     to operate in the deposit-taking,             of operational resources, the quality
     life insurance, general insurance or          of management and the reputation of
     superannuation industry. Applicants           the applicant. Subject to meeting the
     must be able to demonstrate their             minimum requirements, APRA treats
     strategic and financial viability, an         all applications equally, whether from
     effective risk management framework           institutions in Australia or overseas.
     and a capacity to meet all of
     APRA’s prudential requirements.

     Remediation, crisis response and
     From time to time, an institution may be unable or unwilling to meet its
     prudential requirements. APRA engages with these institutions to rectify
     the outstanding issues through a range of remedial actions.

     APRA has substantial legal powers that        If the Court finds the case proven,
     enable it to intervene where there is         the individual is disqualified and their
     a threat that an institution may not          name added to the Disqualification
     be able to meet its obligations to its        Register on APRA’s website.
     beneficiaries. APRA will also intervene
                                                   In extreme situations, APRA can
     where there is a threat to the stability of
                                                   appoint a statutory manager with wide-
     the financial system. In these contexts,
                                                   ranging powers to assume control of a
     APRA has the power to conduct
                                                   deposit-taking institution. In the case
     investigations of supervised institutions
                                                   of general and life insurers, APRA can
     and, in some cases, to give them
                                                   recommend to a Court that a judicial
     directions of a wide-ranging nature.
                                                   manager be appointed to take control
     Where APRA concludes that the                 of the institution. In the superannuation
     conduct of an individual in a supervised      industry, APRA may replace a trustee
     institution is inappropriate, APRA can        where that trustee is unable to
     apply to the Federal Court to have that       meet its prudential obligations.
     person disqualified from working in
     their relevant industry.

     Elements that underpin APRA’s
     prudential supervision
     » The board and management          » APRA’s prudential standards
       of a supervised institution         and guidance material are
       are primarily responsible for       generally principles-based,
       its financial soundness and         recognising that sound
       prudent risk management.            prudential outcomes can
                                           be achieved by different
     » APRA’s prudential supervision       institutions in differing ways.
       is designed to encourage
       healthy risk management           » APRA’s prudential supervision
       cultures within the                 strives to be flexible. APRA
       institutions it supervises.         responds to emerging risks
                                           and adapts to changing
     » APRA aims to minimise the           circumstances of supervised
       risk of an institution failing;     industries and institutions.
       but survival and failure are
       ultimately in the hands of        » In order to maintain high
       the institution itself.             standards, APRA benchmarks
                                           itself against best international
     » APRA’s prudential supervision       and market practices.
       is risk-based, focussing
       attention and resources           » In conducting supervision,
       on areas and institutions           APRA strives to be consistent,
       of greatest potential               realistic and effective.
       risk to beneficiaries.

     » As far as possible, APRA seeks
       to intervene early to address
       potential problems before
       they emerge. APRA’s risk
       assessments anticipate future
       events and an institution’s
       preparedness to handle them.

Head Office              Brisbane              Melbourne
Level 26                 Level 23              Level 21
400 George Street        300 Queen Street      Casselden Place
Sydney NSW 2000          Brisbane QLD 4000     2 Lonsdale Street
                                               Melbourne VIC 3000
GPO Box 9836             GPO Box 9836
Sydney NSW 2001          Brisbane QLD 4001     GPO Box 9836
                                               Melbourne VIC 3001
Tel 02 9210 3000         Tel 07 3001 8500
Fax 02 9210 3411         Fax 07 3001 8501      Tel 03 9246 7500
                                               Fax 03 9663 5085
Adelaide                 Canberra
Level 5                  243-251 Northbourne   Perth
100 Pirie Street         Avenue                Level 15
Adelaide SA 5000         Lyneham ACT 2602      QV1 Building
                                               250 St Georges Terrace
GPO Box 9836             GPO Box 9836
                                               Perth WA 6000
Adelaide SA 5001         Canberra ACT 2601
                                               GPO Box 9836
Tel 08 8235 3200         Tel 1300 131 060
                                               Perth WA 6001
Fax 08 8232 5180         Fax 02 6213 5307
                                               Tel 08 9481 8266
                                               Fax 08 9481 8142

APRAinfo 1300 55 88 49

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