The Australian Prudential Regulation Authority's (APRA) proposal to impose a new set of corporate governance standards in the financial services industry is completely misguided, says former Australian Securities and Investments Commission (ASIC) Chairman David Knott.

Speaking at law firm Allens Arthur Robinson’s Insurance and Reinsurance Forum in Melbourne last week, he noted APRA has issued “two very important policy proposals”. One deals with corporate governance and the other with a new “fit and proper” regime for directors and officers of APRA-regulated institutions.

“In my opinion, APRA is completely misguided in seeking to impose prescriptive governance standards that follow a different approach to the one adopted by the Government, ASIC and the Australian Stock Exchange (ASX) for the rest of the economy,” Mr Knott said.

He says APRA should adopt the “generally prevailing approach” to governance, (the ASX “conform or explain” guidance) rather than its current proposal which “looks more like the American Sarbanes-Oxley” Act. [The Act defines in detail directors’ duties, standards and rules of behaviour.]

“A ‘fit and proper’ regime, designed to ensure the integrity and competence of individual officers, is a legitimate overlay for prudentially regulated entities,” Mr Knott said. “But that overlay should be built on top of nationally consistent corporate governance rules determined by the Government and the corporate regulator – not by APRA.”

In January Mr Knott joined law firm Allens Arthur Robinson as Special Adviser. He assists the firm’s legal teams in advising clients on regulatory, corporate governance, financial services and commercial issues.