Fed: APRA overhaul after royal commission finding

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Fed: APRA overhaul after royal commission finding

By Linda McSweeny

CANBERRA, April 16 AAP - The insurance industry regulator which failed to detect Australia'sbiggest corporate disaster - the $5.3 billion HIH collapse - will be overhauled and itsboard dumped.

The Royal Commission into the HIH Insurance collapse found the Australian PrudentialRegulation Authority (APRA) missed vital warning signs when the company was sliding downhill.

HIH Insurance's $5.3 billion collapse in March 2001 was Australia's largest corporate calamity.

The federal government today accepted a recommendation from HIH Royal Commissioner,Justice Neville Owen, to scrap the APRA board.

The nine-member board includes Reserve Bank Governor Ian Macfarlane and AustralianSecurities and Investments Commission (ASIC) member Berna Collier.

"I recommend that the direct involvement of representatives of ASIC and the ReserveBank of Australia in the governance of APRA be discontinued," Justice Owen said.

He said APRA was not to blame for the HIH collapse but made vital misjudgments.

APRA was not performing to the standard expected by the public and should have beenmore aggressive, he said.

A more vigilant APRA may not have stopped HIH from collapsing but it may have detectedthe problems sooner.

Justice Owen said APRA grappled poorly with the mounting information it had, eitherfailing to recognise its significance or failing to analyse it thoroughly.

"There is no doubt that APRA was misled as to HIH's true financial and statutory solvencyposition in many respects," Justice Owen said.

"(But) APRA's failure to pick up the many signs that HIH was heading towards statutoryand commercial insolvency highlighted a number of systemic weaknesses in its administrationof the regulatory system."

Treasurer Peter Costello said he planned to introduce legislation into parliament inthe next few months which would enable a revamped, more vigilant regulator.

"We will be presenting legislation to the parliament in order to accomplish that assoon as possible," Mr Costello said.

APRA's board is to be replaced with an executive group or commission to carry the responsibilityof the regulator's record.

"The executive group would carry the responsibility and be accountable for the operationand performance of APRA," Mr Costello said.

He said the government expected a more aggressive approach from APRA.

"(The commissioner says) having improved the framework, we are still expecting moresceptical, aggressive tougher activity from the prudential regulator and that's certainlythe government's view," Mr Costello said.

Former financial services minister Joe Hockey also criticised APRA, saying the regulatormisled him when he asked about HIH's finances before its March 2001 collapse.

"I asked questions, I was misled by APRA and as counsel assisting said in his evidenceto the royal commission, I am beyond criticism," he said.

APRA chief executive Graeme Thompson will stay on during the transition to a commissionbut all positions will be thrown open at that time.

Mr Thompson said APRA looked forward to assisting in future policies and had alreadymade changes.

He acknowledged APRA's actions fell short of community expectations.

"Most importantly, however, remedial changes have already been made in many areas andthis has also been recognised in the report," he said.

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KEYWORD: HIH APRA NIGHTLEAD