The financial regulator is set to receive new powers to probe insurers, compel compliance and take swift action to save failing institutions.

Draft legislation released by the Federal Government significantly expands the Australian Prudential Regulation Authority’s (APRA) role. The changes clarify the Government’s administration of the Financial Claims Scheme (FCS).

The FCS, which provides absolute guarantees for Australian banks, credit unions and building societies of up to $1 million, was initiated in late 2008 at the height of the credit crunch to protect depositors. It will be directly administered by APRA.

The sweeping legislation, called the Financial Sector Legislation Amendment Bill, will amend more than seven separate acts.

Financial Services Minister Chris Bowen says refinements to prudential regulation are in line with those taking place in the UK and the US.

“The Government is committed to ensuring Australia has a regulatory framework that is risk-based, consultative and consistent with international best practice,” he said.

Under the proposed legislation, APRA will also have greater control over the activities of authorised deposit-taking institutions, including provisions allowing APRA to instruct them to return control of foreign-owned assets to its Australian operation.

The bill will be open for submissions until March 16.