In this speech on the Australian Banking System on 10 November 2004, APRA Chairman John Laker commented on APRA’s ongoing prudential regulation of the financial services industry and in particular standards for "fit and proper persons" and corporate governance:
"we have seen need to strengthen our capital and risk management standards in response to developments that were causing us unease, particularly in housing credit. Our actions have involved:
• the removal of certain types of capitalised expenses – such as loan origination fees and mortgage broker commissions – from calculations of regulatory capital;
• a tightening of prudential standards for “low doc” and other non-traditional mortgage loans where ADIs do not independently verify the borrower’s servicing capacity;
• an improved capital framework for lenders’ mortgage insurance, which assumes a significant proportion of credit risk in housing lending in Australia; and
• a new prudential standard on business continuity management.
These last two initiatives are currently in the public consultation stage.
These actions will be augmented by two new prudential standards governing behaviour in our regulated institutions. These are still “work in progress”. The first is a proposed fit and proper standard for responsible persons, which will put the onus on regulated institutions to ensure that directors, senior managers, auditors and (where relevant) actuaries of these institutions have the competence and integrity necessary to perform their roles. The second is a proposed standard for corporate governance, which aims to promote the highest standard of prudence by boards, the pivotal decision-making body in an institution. APRA will shortly be releasing a second round of discussion papers on these two standards."
