The Australian Prudential Regulation Authority (APRA) has called for an end to “efficiency dividend” funding cuts and has defended its performance in the insurance sector.

In a submission to the financial system inquiry it says government-set efficiency dividends are not suited to an industry-funded regulatory agency and will eventually compromise financial safety while providing no budget benefits.

“APRA has substantial independence from government in most respects but, over time, constraints on its prudential, operational and financial flexibility have eroded its independence,” the submission says.

“As a consequence, Australia falls short of global standards in this area.”

APRA says it is not proposing substantial prudential reforms, with changes in recent years having put regulated institutions on a more secure footing.

The regulator says its “more robust prudential regime” following the HIH Insurance collapse has achieved broad benefits for the general insurance industry.

“Following the reforms, industry performance has improved significantly and profitability has been more stable due to sound product pricing, improved and more consistent underwriting performance and more stable investment returns.

“Overall… evidence of a negative trade-off between the current prudential regime in Australia and general levels of competition in the industries regulated by APRA is yet to be put forward.”