The Australian Prudential Regulation Authority (APRA) has used the HIH experience “to make ourselves better”, says Executive GM Charles Littrell. He told Channel Nine’s Business Sunday program that if an HIH situation happened today, the regulator would handle it a lot differently.

“One of the joys of working for a prudential supervisor is that everyone wants you to do well,” he said. “No one wants to see deposits or insurance policies or super funds put at risk.”

Mr Littrell believes a “world-class regulator” has to be able to identify risk early and have an effective response. Acknowledging that the personalities of people at the top of the corporate tree are important, he said “one of the interesting issues in our business is the people that tend to give us problems have a very high arrogance-to-wisdom ratio, or arrogance-to-competence ratio”.

“Those are exactly the sort of people you would have to lean on hard to clean up their act.”

APRA will now step in more promptly when it feels customers are at risk, he said. Under its “central supervisory response model”, people reaching high-risk positions must “quickly come to APRA with an improvement plan. If you can’t we start fairly serious enforcement action.”

The response model applies to all entities regulated by APRA, Mr Littrell said. “In terms of our integrated approach we look at risk pretty similarly across all industry sectors, so if we have a corporate super fund that is a high risk, we would respond to them in similar ways to a building society or whatever.

An internal central risk model is also now used by APRA to apply a common method to determine probability of failure and to understand the impact of a corporate collapse.

“From that we run a central supervisory response model which tells us essentially how to treat that entity… We collect the regular data and do our regular visits through an oversight process.”

Super funds are being examined by APRA in an exercise that began in October. Mr Littrell said the three-year exercise has so far seen about 15% of super funds rated, but “in terms of the amount of money we supervise, it is closing in on 80%.”