APRA chief Graeme Thompson finally got his chance to fire back last week at the Investment and Financial Services Association conference in Brisbane. Not surprisingly, he focused on the achievements of the three-year-old regulatory body rather than its much-criticised role in the collapse of HIH.

Pointing out that APRA has successfully integrated the activities of 11 federal and state agencies, Mr Thompson attacked “commentators who become experts in two or three months – without one day’s hands-on experience”. 

Taking care to preface his comments with the warning that “there will no doubt be some valuable lessons for us from the HIH episode”, he said APRA inherited a “flawed regulatory system for general insurers”. 

“No system of prudential regulation can ever or has ever guaranteed against financial collapses,” he said. “I’ve been in and around prudential supervision for 12 years, and I certainly don’t pretend to know all the answers.”

Noting that the HIH collapse has raised questions concerning the Wallis reforms of 1998, Mr Thompson said any unwinding of the reforms of recent years would be disastrous.

But he committed himself to doing more to explain the role of prudential supervisors and what can be expected of that role by the public and government.  “This step will ensure that APRA is not perceived as an inactive body in bad favour with the consumer.”

On superannuation, Mr Thompson said the challenges of gaining sufficient knowledge of the risk profiles of each of the 3000 or so employer-sponsored funds is difficult to overcome. Two-thirds of these funds contain less than $10 million in assets, and have to report to APRA only once a year. “Delays in submitting returns have been endemic,” he said.

“Such funds tend to present a higher risk than others. Most enforcement actions over the past six years have involved funds with assets of less than $5 million.”

APRA will also work with ASIC to require greater clarity of investment strategies to members. “In particular, a trustee should provide clear justification to members for holding a single asset or certain narrow asset classes,” he said. “Whatever investment and governance standards APRA introduces, supervising superannuation with our present resources will remain something of a challenge while we still have to deal with several thousand funds.”