Australia’s “industrial strength” prudential regulation framework doesn’t need overhauling in the wake of the global financial crisis, according to Australian Prudential Regulation Authority (APRA) Chairman John Laker.

But he says changes to APRA’s prudential policy agenda are “not confined to the banking system”, with capital standards in the general and life insurance sectors also under scrutiny.

Speaking at the Finsia financial services conference in Sydney last week, Dr Laker said a review of capital standards in life and general insurance “is looking at the scope to harmonise standards and improve their risk-sensitivity”.

He says the G20 industrialised nations are demanding “strict and precise” reform timetables to build “a financial system that operates with less leverage, is immune to the set of misaligned incentives at the root of [the global financial] crisis, where prudential and regulatory oversight is strengthened, and where transparency allows better identification and management of risks”.

“Strict they are and must be, because the forces of amnesia resistant to change that will inevitably accompany the return to calmer global conditions may soon begin to chip away at fundamental reforms,” Dr Laker said.

And he warned the issue of remuneration for senior executives is seen as a “key source of misalignment”. APRA’s new remuneration requirements will be finalised by the end of the year and come into effect from next April.

“APRA is currently in a second round of consultations on its proposals on remuneration for [authorised deposit-taking institutions] and general and life insurance companies. These proposals are designed to align remuneration incentives with good stewardship of institutions.”