Louise Davidson, ACSI

The chair of the prudential regulator told a parliamentary hearing on Monday that broader enforcement powers have allowed APRA to achieve better results.

APRA chair Wayne Byres told the House of Representatives Standing Committee on Economics that while Westpac’s alleged breaches of anti-money laundering laws have dominated the headlines, it is essential not to lose sight of other issues which are important for delivering a resilient financial system.

Separately, Louise Davidson, head of the Australian Council of Superannuation Investors, said ACSI was in talks with both National Australia Bank and ANZ about their exposure to anti-money laundering and counter terrorism finance laws (AML).

Byres said APRA will publish its long-awaited superannuation heatmap next week rating every MySuper product on the basis of returns, fees and costs.

“Our goal with the heatmap is simple: to help drive better member outcomes by shining the light on those MySuper products that need to improve,” he said. “For the past couple of years, we have been focused on using data to weed out the under-performers in the industry.

“We have seen reductions in costs and, in some cases, changes of trustee as a result.

“However, when coupled with new regulatory powers and penalties provided by the Parliament earlier this year, our heatmap means APRA is now much more well-equipped to take these efforts to a whole new level.”

Queried by the committee on the quality of the data used for the new appraisal system, Byres said the heatmaps were just one source of information and were not meant to be used as the only source when members elect superannuation products.

“But having members choose to move to a better performing fund is a good thing…I don’t think we need to be worried about liquidity,”  he said in response to a question on whether the heatmap could cause a run on a fund.

In addition to the heatmap, APRA has launched a multi-year project to upgrade the breadth, depth and quality of our superannuation data collection.  Byres also said in 18 months the regulator will be in the position to publish data for CHOICE products.

Byres said the fact that shortcomings in governance and risk culture continue to emerge in Australia’s financial services industry is concerning APRA will significantly ramp up its supervision.

“Our intensified approach establishes a supervisory framework and methodology designed to strengthen the resilience of financial institutions by addressing, and ideally preventing, issues of poor risk governance, misaligned incentives and misconduct that have undermined public confidence in the financial sector over recent years,” he said. “It is, we believe, at the forefront of international practice in many areas.”

The APRA chair called the allegations against Westpac “very serious”  and is actively considering what further regulatory action is required.

“This includes examining whether obligations under the Banking Executive Accountability Regime (BEAR) have been met, and how Westpac’s management of operational and compliance risks more broadly needs to be enhanced.

“As would be expected, we are also ensuring we closely coordinate our activities with our fellow regulators – especially AUSTRAC, the financial crime agency and ASIC.”

Davidson said ACSI was talking to the banks about what sort of governance oversight they have over financial crime generally and money laundering specifically.

Regarding Westpac, Davidson said ACSI’s position has always been that once a new chair is appointed next year, directors could consider then whether further board changes are necessary.

“There will be two vacancies on the board which is an opportunity for renewal,” she added. “There will be two new directors – one of whom may or may not be the new chair.

“The new chair will have the opportunity to review the composition of the board and check whether they have the right experience around the table to ensure this sort of event {AUSTRAC’s s statement of claim} never happens again.”

Davidson said now that Westpac chair Lindsay Maxsted, chief executive Brian Hartzer and director Ewen Crouch have stepped down, the bank ought to focus on sorting out what went wrong and how to fix it.

“We don’t think the whole board should go. We think that would be quite impactful at a time when the organisation needs some stability,” she said.

The BEAR came into effect in February last year.

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