“Ultimate responsibility” for a financial institution’s compliance with regulatory standards lies with its board, the Australian Prudential Regulation Authority (APRA) says.

APRA meets boards at least once a year, with a few sessions set aside for larger institutions’ chairmen and committees, as part of its efforts to stay in touch with the “gatekeepers”, APRA Deputy Chairman Ian Laughlin said in a speech at Macquarie University Financial Risk Day.

“Good governance is critical to the long-term viability of any company,” he said.

“The ultimate responsibility for the sound and prudent management of an APRA-regulated institution rests with its board.”

He says meetings with chairmen and directors allow an exchange of views, which is in the interests of stakeholders and the wider community.

They also give APRA the chance to hear boards’ views on risk management and prudential supervision.

“It is fundamentally important for the board to set clear bounds and expectations for management about acceptable levels of risk,” Mr Laughlin said.

“So we look to see if the board has a good understanding of the importance of clear articulation of its risk appetite, and is able to talk sensibly and with purpose about it.”

Most of these meetings have been held with insurers, whose boards have shown competence and understanding of their responsibilities.

However, it has occasionally been observed that there is too much deference to CEOs’ views, that meetings appear “orchestrated” and directors are reluctant to comment.

“In these sorts of circumstances, the challenge for us is to elicit the real views of the individual directors, and to convey the messages we think are important, even if they cause indigestion,” Mr Laughlin said.

Separate meetings with chairmen tend to be more “open and free-wheeling” than sessions with boards.

“It is a great opportunity for us to understand the issues most exercising the minds of the chairmen, and for them to gain better perspective on our views of the business and industry.”