APRA chairman Wayne Byres has described the banking sector as “far less trusted to do the right thing” one day after publishing a damning report into CBA's governance and accountability.
Speaking at a UNSW event in Sydney on Wednesday, Mr Byres said that while Australia's bank are "financially sound" they are far from being "trusted".
Confidence among Australians that banks will "do the right thing" is taking a "severe hit" at the moment, he said – a reference to revelations at the banking royal commission as well as the scandals besetting institutions like CBA.
APRA released a report on CBA's governance, culture and accountability on Tuesday that exposed "inadequate oversight" at the board level, "reactive and complacent" accountability processes and a dismissive attitude towards regulators.
Without referencing CBA directly, Mr Byres said that while "things can and do go wrong", institutions must do "everything they can to minimise these risks".
"But given heightened expectations of behaviour in the financial sector, it is also important that when things do go wrong they are quickly and transparently identified, reported and rectified," he said.
"The community will be far more likely to maintain its trust that the sector will do the right thing if it is evident there is accountability when it does not," Mr Byres said.
The APRA chairman went on to discuss the Banking Executive Accountability Regime (BEAR), which will come into effect on 1 July 2018.
Treasurer Scott Morrison referenced the BEAR in his Tuesday press conference about the CBA report, noting it will "strengthen APRA's powers in assessing the transparency and accountability of decision-making processes within authorised deposit-taking institutions".
For his part, Mr Byres said the BEAR regime will change the way banks govern and manage their businesses.
"It is important that the BEAR is not seen as a compliance exercise, but rather a trigger to genuinely improve systems of governance, responsibility and accountability," he said.
"Organisational complexity and diffused responsibility have been at the heart of many of the issues that have damaged the standing of the banking industry in recent years.
"Often, process failures or poor decision-making have been the result of a lack of clear accountability for ensuring a product works as it should, a risk is fully understood, or that a system delivers what was intended," Mr Byres said.
Finally, the APRA chairman played down criticisms that the BEAR regime – which gives the prudential regulator powers to adjust banker remuneration and administer fines – broadens APRA's mandate into territory traditionally held by ASIC.
"ASIC, reflecting its own mandate, will take an interest in shortcomings that lead to damaging outcomes for consumers and markets," he said.
"APRA, on the other hand, has an interest in failings in governance, culture and accountability that indicate a lax attitude to risk-taking, which might ultimately impact the soundness of the financial institution itself," Mr Byres said.
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