The APRA wants to repair our banks in three ways

Bank regulator Wayne Byres told the royal commission that he would let his bank surveillance team bog down after stating that she needed to "straighten out the bastard."

Mr. Byres, who testified before the Royal Bank Inquiry Commission, also stated that the Australian Prudential Regulatory Authority would also expand its supervisory mandate to include all pay in the big banks, including front-line staff, after finding misconduct.

Byres also revealed that the Commonwealth Bank and APRA had disagreed over a number of issues during his review of the bank's culture in 2017. He admitted that APRA should have acted earlier on the issues. CBA executive pay structures before the record company shareholders strike in 2016 against his compensation report, but said the company had decided to back down after the strike because the bank's board of directors was "beaten down".

He also revealed that he did not know what a good salary looked like and that APRA lacked skills on this point.

APRA's desire to be more rigorous in dealing with big bank behavior comes after the interim report of the royal commission questioned the behavior of APRA and the Australian Securities Commission. securities and investments for failing to eliminate wrongdoing in the industry. APRA has been using the courts only once in the past 10 years.

A lot of 'tenacity'

During the hearing, Mr. Byres was taken to an APRA Executive Board document from June 2018. He shows the APRA discussing what was going on. she could learn after her review of the culture of the Commonwealth Bank in 2016, which was scathing from the bank.

Under the title of "Métis of Surveillance", the document reads: "Stronger support from the gut in surveillance, increased tenacity on the part of supervisors and more frequent use of sanctions may be considered. "

The paper adds, "The supervision bastard is an attitude rather than a cadre problem." APRA senior leaders should set the tone on how this bastard supervision would work in practice. "

Byres said the CBA's supervision was "very tenacious".

"They were chasing a lot of problems and they disagreed with the ABC on several fronts," he said.

"I would never question the tenacity of the supervision team. They did a good job.

Assistant counsel Michael Hodge, QC, asked Byres that the document also showed that the problem did not arise at the supervisory level.

"The problem lies in the tone of senior management," said Hodge.

Mr. Byres replied, "I interpret this comment as simply that supervisors will be very willing to go back up the bastard, so to speak, to the extent that it is clear that management will support them when they take a more aggressive approach.

"It was really important that the supervisory teams look at the issues aggressively, even when the institution involved was very aggressive."

Changing perspective on executive compensation

Mr. Byres also conceded that APRA could have done more on pay throughout the industry. APRA had to limit the amount of interest-only loans that banks hold after a rise in sales. The Royal Commission has looked at the impact of front-line staff compensation structures in major banks on failures to meet responsible lending obligations.

APRA's change of opinion on executive compensation will have tremendous consequences for the industry as it currently only examines executive compensation through the Banking Regulatory Regime, or BEAR, mandated by the government.

Byres said the Financial Stability Board, the international body overseeing the global financial system, recommended in 2018 to broaden the supervisory responsibilities of all prudential regulators.

"Do we intend to follow the additional guidance of the CSF, the lessons learned from the ABC Prudential Survey, the lessons learned from this commission, the lessons learned from the CBA? a series of work we have done and to improve the current set of prudential standards. "