APRA insider spots CEC agenda

Ian Rogers Latest news
Linus, what’s up with APRA’s risk ratings, and the upcoming report of Graeme Samuel’s Capability Review?
Linus, what’s up with APRA’s risk ratings, and the upcoming report of Graeme Samuel’s Capability Review?

APRA insiders rarely vent their spleen, let alone spill the beans on their former employer. Wilson Sy, a principal researcher at APRA from 2004 to 2010 (and a favourite of the Citizens Electoral Council) may now be making this a hobby.

In a paper posted with Elsevier’s Social Science Research Network 7 weeks ago, Sy lets rip at “government sanctioned oligopolies which have captured the regulators”, Australian banking, in essence operating as “a trade guild [guided by a] philosophy of self-regulation.”

The Australian reports on Sy’s dissident commentary today.

By standardising practice with its compliance rules, “APRA has effectively eliminated
competition from the financial system and consumers have been paying monopoly prices for many years,” Sy contends.

ASIC’s and APRA’s “databases have become a shambles, because they have not been
properly used and maintained,” Sy asserts.

“They publish little research in any depth to validate the data or to distribute the knowledge to inform their staff, other regulators and the public,” he says, though Banking Day, among others, frequently reports on periodic statistical releases (including today on lending).

Mentioning but not delving deep into one of APRA’s safety blankets, Sy complains that APRA’s “PAIRS and SOARS databases should have been audited” by Kenneth Hayne’s banking royal commission last year.

These acronyms refer to the little discussed (even by APRA) Probability and Impact Rating System and Supervisory Oversight and Response System, or in colloquial terms bespoke risk ratings.

PAIRS, the first of these, is a “system that acts as an early warning of emerging distress and feed directly into our SOARS system, which provides for a measured series of supervisory responses stepping up in intensity,” former APRA chief John Laker summarised in a speech years ago.

Taking an angry stand on firmer terrain, Sy complains that last year’s Laker-led Prudential Inquiry into Commonwealth Bank merely “did what APRA should have already done in routine supervision.

“If APRA did not know about how CBA is managed and how the largest financial institution in Australia has breached regulation for years, what does APRA know about other institutions?”

On his first point, Sy omits the genuine gem unearthed during the final stage of Hayne’s public examinations late last year.

Current APRA chief Wayne Byres told Hayne one Thursday afternoon that the CBA supervision team “demonstrated a great deal of tenacity … there were a raft of issues that they were pursuing, and they were at loggerheads with CBA on a number of fronts. So I would never in any way question the tenacity of the supervision team. They were doing a good job.

“And the CBA inquiry, obviously, it went deeper and broader and so it found some extra things.

“But the starting hypotheses that the supervision team provided the panel as they went about their task were, I think, proved to be spot on.”

Is Sy spot on, or off beam, and will the CEC bank loathers find any cheer from Samuel’s now completed review, following three and a half month’s work.

If he met his deadline, the former ACCC chief (who also served also on the CBA inquiry panel) will have emailed his final report to the Treasury last night.