The Australian Prudential Regulation Authority (APRA) has taken on a “new enforcement appetite” to guide its supervision of insurers and other financial services providers.

Chairman Wayne Byres today unveiled the regulator's Enforcement Approach blueprint following an internal review aimed at sharpening the handling of errant entities whose actions threaten prudential stability.

The blueprint says APRA will use the full range of legal powers at its disposal, including taking court actions and issuing licence conditions, to protect the financial system.

APRA will activate its legal toolkit when non-formal approaches such as thematic reviews and heightened engagement have failed to encourage cooperation from non-complaint entities or individuals.

“With the release of APRA’s revised Enforcement Approach today, the new enforcement appetite comes into effect immediately,” Mr Byres said.

“Particularly as our powers have recently been strengthened in a number of areas, the new Enforcement Approach will ensure we make use of those powers as the Parliament intended.

“That means that in future, APRA will be less patient with the time taken by uncooperative entities to remediate issues, more forceful in expressing specific expectations, and prepared to set examples using public enforcement to achieve general deterrence.”

APRA will take up all seven proposals put up by the internal review, which was set up after the Hayne royal commission questioned the regulator’s perceived reluctance to use its court-based sanction powers.

One of the proposals involves bolstering the regulator’s statutory powers, a move that will require legislative changes and has the support of Mr Byres.

The recommendation will significantly enhance APRA’s powers and penalties by addressing impediments that could hinder the new enforcement appetite and remove barriers to conducting joint investigations with the Australian Securities and Investments Commission (ASIC).

It will also extend the Banking Executive Accountability Regime (BEAR) across all APRA-regulated industries, thereby allowing for the introduction of a civil penalty for a breach of accountability obligations by an accountable person.

Another of the proposals calls for the setup of a “hypothecated enforcement fund” to support APRA when it decides to take on formal investigations or other actions.

Unlike the existing Contingency Enforcement Fund, which has never been used and requires ministerial approval, the new financial resource is readily available for APRA to tap into.

“To enable the new enforcement appetite, the review considers that APRA needs a hypothecated enforcement fund, separate from its operating budget, sufficient to cover the cost of the mid- to large-sized investigations and other enforcement actions expected under its new enforcement appetite,” the review’s final report says.

“The primary purpose of this fund would be to enable access to the external expertise required to pursue formal investigations and other actions.”

The seven recommendations from the internal review:

1. Strengthening APRA-ASIC coordination on enforcement by developing clear principles for sharing information and taking coordinated action on matters of mutual interest.

2. Increasing APRA’s enforcement appetite from a ‘last resort’ to a ‘constructively tough’ approach and setting this out in a Board-endorsed, publicly available enforcement strategy.

3. Strengthening APRA’s supervisory-led approach by assigning clear responsibility to supervisory divisions for applying the new enforcement appetite.

4. Building a more forceful supervisory culture and approach, emboldened by the tone from the top and management support, to better empower and support supervisors to hold entities and individuals to account, including through use of enforcement action.

5. Establishing an APRA Member-led committee to drive enforcement decision-making and strengthen oversight.

6. Giving APRA’s supervisors more enforcement support by creating a combined team of investigation and legal experts, and ensuring adequate funding for APRA’s enforcement actions.

7. Bolstering APRA’s statutory powers including: revising and creating additional penalties; enhancing APRA’s enforcement powers in superannuation and private health insurance; removing barriers to joint investigations with ASIC; and extending the BEAR to other regulated industries.