The Australian Prudential Regulation Authority’s (APRA) powers to investigate, prosecute and terminate troubled insurance companies could be dramatically increased under a root-and-branch overhaul outlined by the Federal Government.

Financial Services Minister Bill Shorten has tabled more than 100 proposals to increase oversight of the general insurance, life insurance, superannuation and banking sectors, mirroring international moves to grant greater powers to regulators following the global financial crisis.

The 184-page discussion paper – Strengthening APRA’s Crisis Management Powers – proposes a supercharged regulator with powers to investigate and prosecute companies across the four acts it administers.

The cornerstone of APRA’s new powers would be the ability to take pre-emptive action against a company’s directors or trustees through the removal of the “show cause” provision, which currently gives an institution time to show why the regulator should not investigate a potential breach of prudential standards.

A stressed company would be given just four days – down from four weeks – to respond to an APRA request for additional information.

Also proposed are powers allowing APRA to investigate authorised deposit-taking institutions (ADI), authorised non-operating holding companies (NOHC) – which do not conduct their own business but hold subsidiaries that do – and their subsidiaries for regulatory breaches.

Mr Shorten says the proposals will now go to various industries for comment.

“The consultation paper forms part of an ongoing review process to ensure our financial sector regulation remains ready to meet the needs of our economy,” he said. “A safe and well-functioning financial sector is essential to the wellbeing of all Australians.”

Besides granting APRA more powers to investigate and prosecute, the proposals also change how directors and employees are treated under law.

Liability exemptions would be extended to directors and officers, granting immunity from possible legal action if and when they comply with APRA directions. Continuous disclosure requirements would also be suspended for up to 48 hours during an APRA investigation.

Whistle-blower protection would be broadened to include situations in which a company is not at fault but the complainant has good cause to suspect illegality. Employees and directors, both current and former, would be granted liability exemptions from civil and criminal proceedings.

APRA would also have the power to ban guilty parties from all the industries it administers.

Individuals and their legal counsel would be compelled to regard information revealed to them during an APRA investigation as private and privileged, to prevent a possible “run” on a company.

The proposals also strengthen data collection and publication provisions, with tougher consequences for late, incorrect, incomplete or misleading submissions.

Other key proposals include:

• More powers to wind up the local branch of a foreign business and revoke the authorisation of a foreign-regulated entity if its parent company has its licence revoked.
• Authority to close an ADI before it has been placed into statutory management.
• Permission for APRA to make interim payments to claimants under the Financial Claims Scheme for a “minimum” amount while litigation is ongoing.
• Power for APRA to compel NOHC’s to become authorised providers.
• Permission for APRA to regulate and revoke the licences of life insurers.
• Making misleading an actuary an offence similar to misleading an auditor, which incurs up to five years in prison.
• A provision in the Insurance Act and Life Insurance Act giving priority over the Corporations Act in the event of a conflict of law.
• The right of APRA to intervene in court proceedings.
• Making life insurance company auditors legally bound to notify APRA if they have reasonable grounds to suspect one of their entities has failed, or will fail, to comply with prudential standards.
• If an insurer fails, the Insurance Act states all relevant policies will continue in effect for 28 days. This would be extended to 90 days.

Submissions on the proposals must be made to the Federal Government by December 14.