The strength of the Australian Prudential Regulation Authority (APRA) during the global financial crisis (GFC) can be attributed, in part, to the collapse of HIH, a senior APRA official says.

Wayne Byres, Executive GM of APRA’s diversified institutions division made the comments in a speech to the Committee for Economic Development of Australia seminar last week.

The speech addressed changes in both the Australian and international regulatory and supervisory regimes in the aftermath of the global financial crisis.

Mr Byers says that many of the failings in the supervision and regulation of other financial markets around the world were identified and rectified in Australia 10 years ago as a result of the collapse of HIH and the subsequent royal commission.

He says that in the lead-up to the current crisis, not only were financial market regulations inadequate but global regulators lacked the supervisory “gumption” required to take appropriate action when potential problems emerged. 

Supervisors must be interventionalist, which requires appropriate resources, hard work, diligence, a clear and unconflicted mandate, industry acceptance and political support.

“I certainly acknowledge that they were, a decade ago, the failings of APRA that were highlighted by the HIH Royal Commission,” Mr Byres said. “In the post-HIH world, those are things that APRA, thankfully, has not lacked.”   

He says APRA views strengthening supervision as just as important as strengthening the regulatory framework, but from a global perspective it is “less easy to see how the role of supervisors is being supported and strengthened”.   

He says Australia will not make regulatory changes as a result of the GFC, beyond adopting the Basel III regulations.

“From an Australian perspective, we do not see there are any major deficiencies within the regulatory framework that require major domestic policy initiatives over and above that which is being driven internationally.”

But Mr Byers warns that strengthening the regulations “will not be enough to prevent another crisis” and without global supervisory improvements, markets are “destined to repeat the mistakes of the past”.

“The financial system is weakest precisely when it looks at its strongest – when credit is flowing, liquidity is abundant and asset values are high.”