Over-hyped compliance costs are not the result of regulation, but of management, according to the prudential regulator.
Dr John Laker, chairman of the Australian Prudential Regulation Authority, said last month that figures on compliance costs being touted by financial institutions and industry groups should be treated carefully.
“Some financial institutions and industry groups in Australia are quoting figures on compliance costs or on the amount of time boards and senior management spend on compliance issues,” Dr Laker told an audience of company directors last month. “These figures should be treated carefully when it comes to prudential regulation. In our view, compliance costs need to be assessed not against the quantum of APRA’s requirements but against what a well-managed and financially prudent institution would be doing of its own accord. As I have been emphasising, as much as it can APRA requires its supervised institutions to do what a well-run institution would be doing for the benefit of its shareholders.”
He added that APRA’s aim is to develop regulation that is not unduly prescriptive or intrusive and where there are reporting requirements, that their burden be a small as possible. He also cast doubt on claims that the burden of prudential regulation had in fact impacted Australia’s financial system and its constituents’ competitiveness.
“The challenge is then to assess whether the burden of prudential regulation, properly measured, has genuinely weighed on efficiency and competition in the Australian financial system – a system, we should remember, that has been performing extremely well and very profitably for some time now,” Dr Laker said.
A number of studies and industry group reports have recently placed cost values on compliance. The Insurance Council of Australia (ICA) recently claimed that the insurance industry is spending $100 million on compliance, while a study from KPMG said last year that Australia’s largest financial institutions will spend more than $100 million on compliance in coming years.
Compliance experts said that unless attitudes towards compliance change, the expenditure will not provide a return and will increasingly lead to further inefficiencies and layers of cost.