Nor is he afraid to lose friends – as evidenced by Samuel’s willingness to pursue a criminal prosecution case against the chair of Visy, the late Dick Pratt, for cartel behaviour while Samuel was head of the Australian Competition and Consumer Commission. More recently, he has been dive-bombing Australian airports as chair of the airlines lobby group accusing the airports of abusing their monopoly power.
Forensic look at APRA
But that personal history and experience also gives Samuel an invaluable head start in now heading the “capability review” of APRA announced by Treasurer Josh Frydenberg in response to Hayne’s recommendation. The royal commission and the coming review will effectively operate as a double act in applying the pressure on APRA to change.
Due to his prior work, Samuel would clearly be intimately familiar with APRA’s approach – now shown to be embarrassingly inadequate – in terms of dealing with potential problems at CBA. He would understand the flaws in APRA’s culture that allowed this to happen as well as being familiar with its key personnel. He would also appreciate just how much APRA knew and the extensive powers it had to find out despite not doing much about it in practice.
That also means he shares the same focus as Hayne on culture, governance and remuneration in improving the practice of banking as well as its appropriate supervision.
The royal commission views APRA’s interpretation of its prudential role as overly passive, with its focus on financial stability coming at the cost of ignoring other looming problems. It’s one reason why Hayne is also recommending APRA must now be required to share critical information with the Australian Securities and Investment Commission, aka the cop on the beat in charge of enforcement.
But Samuel’s review will undoubtedly take an even more forensic look at the scope of APRA’s overall remit, beyond the notion of ensuring financial stability. That will mean looking hard at its corporate culture and recommending changes – rather like the CBA report bluntly condemning the failure of the CBA board to appropriately guide and guard the company’s culture and strategy.
In the wake of the CBA report, for example, Samuel was totally dismissive of boards that relied on legal checklists rather than what he calls the simple “Can we/should we?” director test. That is remarkably similar to Kenneth Hayne’s assessment of how to ensure better behaviour in the financial services industry.
So Hayne’s obvious exasperation with the inadequate response by National Australia Bank directors to the delays in dealing with its fee-for-service scandal and ASIC’s complaints, for example, would be mirrored by Samuel’s blunt views of a board’s responsibilities.
“It is plainly not the role of the board to review every piece of correspondence that goes out the door,” Hayne found. “But it is the role of the board to be aware of significant matters arising within the business, and to set the strategic direction of the business in relation to those matters.”
Samuel also backs the need for more rigorous enforcement of existing laws and regulations rather than any new rules being required. Hayne pointed the finger of blame at remuneration practices that encouraged greed and rewarded making profits at the expense of customers.
In APRA’s case, that will probably include Samuel investigating whether public service regulators can become too easily seduced by big business, including the prospect of getting future jobs in the industry.
That APRA is really the regulator charged with preventing things going wrong ahead of time rather than punishing wrong-doing after the fact makes it a particularly significant player post-Hayne’s revelations.
According to Samuel, the royal commission is a wake-up call for a corporate Australia that tends to fall back to sleep rather too easily. He intends to ensure APRA will continue ringing the bell to keep everyone awake.
“It would be a major step forward if this can bring about change in pre-emptive regulation rather than waiting for harm to be done,” he says.
He also suggests banks could choose to get ahead of the game by insisting they would formally adopt Hayne’s recommendations as their new codes of conduct rather than waiting for legislation and implementation. APRA and ASIC, he says, already have the power to accept such enforceable undertakings. And he would know.
The Coalition recently reappointed Wayne Byres APRA chair for another five years. In evidence to the royal commission, Byres promised a change in approach in order to intensify APRA’s supervision of the financial services sector and identify issues earlier.
Graeme Samuel’s review will no doubt make him an offer of advice he can’t afford to refuse.