The Palmer Report has raised a number of important issues which have been ignored by commentators, APRA Chairman Jeffrey Carmichael told a Committee for Economic Development of Australia (CEDA) luncheon in Melbourne on Friday.

Former Canadian Financial Institutions Superintendent John Palmer was commissioned by APRA last year to investigate its role into the collapse of HIH, and his report was tendered as evidence to the HIH Royal Commission. Mr Palmer said APRA had insufficient enforcement powers and lacked good staff in the three years leading up to HIH’s demise.

Mr Carmichael said APRA had experienced a “rocky” first four years and also had to confront the major challenge of the internal restructuring from nine predecessor agencies into one. “The challenge posed by the internal restructuring cannot be overstated,” he said.

One of the key issues being ignored in commentary about the Palmer report is the question of what is reasonable to expect of a prudential regulator, he said. “Prudential regulation is about providing an extra layer of oversight over institutions that offer financial promises that are inherently difficult to keep. However, it is not a guarantee.”

“To provide regulation to the point where it became a guarantee would not only be unreasonably costly, it would eliminate the risk spectrum that is fundamental to a healthy competitive financial system,” he said.

Comparing the watchdog roles of ASIC and APRA, he said it is harder for APRA to be judged accurately on its performance. “The difficulty for a prudential regulator is that it is much easier for the community to identify when you are doing a poor job than it is for them to identify when you are doing a good job,” he said. “Unlike a conduct regulator, which can at least count ‘heads on spikes’, there is no ready metric for APRA’s performance.”