APRA’s powers are limited, warns Byres

APRA chairman Wayne Byres spoke at roundtable hearing for the Productivity Commission inquiry into the state of competition in the Australian financial system in Melbourne yesterday, where he was clear about the regulator’s remit.

“APRA does not have oversight of the entirety of the Australian financial system,” Mr Byres said.

“Prudential supervision is considered warranted where, in the words of the Wallis inquiry, which led to APRA’s establishment, the ‘intensity of the promise’ is high, and information asymmetry impedes the ability of the typical customer to make an informed decision as to the soundness of their financial service provider,” he said, adding that this includes bank deposits, insurance policies and superannuation balances.

While deposit-takers, insurance companies and superannuation funds make up a large proportion of the financial system, Mr Byres said it is important to bear in mind – particularly in the context of any consideration of competition – that there are a great many financial products and service providers that are free to operate outside APRA’s purview.

The banking regulator said that while competition can bring innovation and better customers outcomes, there have been times where APRA has needed to “temper competitive spirits” in the financial sector.

“Our current interventions in relation to housing lending are a case in point,” Mr Byres said.

“We have not been concerned with lenders competing on price or service standards, but we have been concerned that intense competition was leading to a material erosion in lending standards. This was unhealthy both for individual institutions, and the long-run interests of the community as a whole.”

Mr Byres assertion that APRA’s regulatory oversight is restricted comes after the federal government revealed plans on budget night to extend APRA’s powers to the non-bank sector.

[Related: APRA controls on non-banks could trigger 'credit crunch']