Cost Recovery Implementation
Statement
Cost recovered activities
Prudential regulation of financial institutions
June 2016
Table of Contents
1.
Overview
1.1
Purpose
1.2
Background
1.2.1 Government policy objectives and outcomes for APRA
1.2.2 Description of APRA’s cost base
1.2.3 Description of activities that are recovered by levies or charges
1.2.4 Institutions liable to pay levies or charges
1.2.5 Private Health Insurance regulation by APRA
1.2.6 Revenue collection on behalf of other government agencies
1.3
Charging activities not subject to the Cost Recovery Guidelines
1.3.1 Financial Claims Schemes levies
2.
3.
Policy and statutory authority to cost recover
2.1
Policy authority for cost recovery
2.2
Statutory authority to impose cost recovery charges
Cost recovery model
3.1
Key activity components
3.2
APRA’s activities
3.2.1 Financial soundness of supervised institutions
3.2.2 Remediation, crisis response and enforcement
3.3
Supervisory levy and direct user charge methodology
3.4
Licensing / authorisation charges
3.5
Annual charge activities: covering 2015-16
4.
Risk assessment
5.
Stakeholder engagement
6.
Financial estimates
7.
7a - financial performance
7b - non-financial performance
8.
Key forward dates and events
9.
Cris approval
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1.
Overview
1.1
Purpose
This Cost Recovery Implementation Statement (CRIS) covers the cost recovery model of the
Australian Prudential Regulation Authority (APRA) for the supervision of financial institutions1.
This CRIS demonstrates consistency, transparency and accountability of such cost recovered
activity/activities and promotes the efficient allocation of resources and compliance with the
Australian Government Cost Recovery Guidelines (July 2014) under the Australian Government
Charging Framework.
This CRIS also covers APRA’s current licensing and authorisation charged activities. These
charging activities were reviewed in 2011-12 and will be reviewed again in 2016-172.
A Financial Industry Supervisory Levy Methodology Review3 was undertaken in 2013 and some
changes were made to the method of calculating industry levies as a result. APRA’s framework,
activities and levy calculation methodology for the non-private health insurance industries has
not changed subsequently, and is not expected to change in the foreseeable future. The annual
levies consultation paper will address any changes if they do eventuate, including any changes
relating to the other agencies for which APRA collects revenue on behalf of the Government.
1.2
Background
APRA is the prudential regulator of the majority of the Australian financial services industry.
It oversees Australia’s banks, credit unions, building societies, general, life, and private health
insurers (PHIs)4, reinsurers, friendly societies and most of the superannuation industry. APRA
is funded largely by the industries that it supervises. APRA supervises institutions holding over
$5.8 trillion in assets for Australian depositors, policyholders and superannuation fund
members.
1.2.1 Government policy objectives and outcomes for APRA
APRA’s policy objectives are set out in its enabling legislation and in various industry Acts.
Broadly speaking, APRA’s objectives are to:

establish and enforce prudential standards and practices;
The recovery of costs for the Australian Securities and Investments Commission (ASIC), the Australian Taxation
Office (ATO), the Department of Human Services (DHS), and the SuperStream measure are generally not considered
in this document.
1
2
The Australian Government Cost Recovery Guidelines (July 2014) indicate that “Departments of State must
conduct periodic reviews of all existing and potential charging activities within their portfolios at least every five
years….”. A Treasury Portfolio Charging Review is also scheduled to be brought forward in the 2017-18 Budget.
3
The Financial Industry Supervisory Methodology Review discussion paper, released by Treasury in April 2013, can
be located at:
http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2013/Financial-Industry-Supervisory-LevyMethodology
4
From 1 July 2015 APRA assumed responsibility for the prudential oversight of the Private Health Insurance industry.
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
promote safety and soundness in the governance, behaviour and risk management of the
institutions it supervises; and

promote financial stability by, amongst others, requiring institutions it supervises to
manage risk prudently.
APRA’s outcome statement outlines the intended results, impacts or consequences of actions
for the Australian community as:

enhanced public confidence in Australia’s financial institutions through a framework of
prudential regulation which balances financial safety and efficiency, competition,
contestability and competitive neutrality.
1.2.2 Description of APRA’s cost base
APRA’s cost base comprises the following:
APRA’s cost base - $ millions
Actual
Actual
Actual
Actual
Forecast
Budget
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
Employee benefits
89.8
86.6
87.8
88.2
97.3
98.4
Supplier expenses
26.1
23.9
22.9
21.8
27.5
25.0
Depreciation and
amortisation
5.1
5.9
7.0
7.2
6.4
8.0
Other costs
0.1
0.2
0.3
0.1
-
-
121.1
116.5
118.0
117.3
131.2
131.4
Total expenses
The expansion of APRA’s cost base in 2015-16 primarily reflects the integration of the activities
of the Private Health Insurance Administration Council (PHIAC) into APRA from 1 July 2015.
Employee benefits are the largest element of APRA’s cost base ranging between 74% and 75%
of the total cost base from 2011-12 to 2016-17. These are made up of: staff salaries,
superannuation, annual performance bonuses, leave provisions and other employee-related
costs.
Supplier expenses are the second-largest area of cost ranging between 18% and 22% of the
total cost base from 2011-12 to 2016-17. These are made up of: property and office expenses,
IT costs, training and conference expenditure, travel, contractor and professional services
costs.
Depreciation and amortisation costs range between 4% and 6% of the total cost base, and
reflect the utilisation of APRA’s fixed and intangible assets which include: property fit-outs
and IT system development expenditure.
Other costs reflect mostly losses on disposal of assets and finance costs.
1.2.3 Description of activities that are recovered by levies or charges
APRA's activities fall into four main categories:
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
establishing prudential standards to be observed by supervised institutions (levy recovery);

assessing new licence applications (licencing charge recovery);

assessing the safety and soundness of supervised institutions (levy recovery); and

where necessary, carrying out our resolution authority responsibilities or other
remediation, crisis response and enforcement activities (levy recovery).
In addition, APRA:

provides statistical information to the RBA and ABS (fee-for-service charge recovery);

provides international assistance by the Department of Foreign Affairs and Trade (DFAT)
(cost recovery);

accredits banks to use internal models to meet capital adequacy requirements under the
Basel II framework (fee-for-service charge recovery);

accredits general insurers (GI) to use internal models to meet capital adequacy
requirements (fee-for-service charge recovery) and

administers the National Claims and Policies Database (NCPD) for general insurers (levy
recovery).
For revenue collected on behalf of other Commonwealth entities, refer to section 1.2.6.
1.2.4 Institutions liable to pay levies or charges
The relevant institutions are:

Authorised deposit-taking institutions – (ADIs) comprising banks, building societies and
credit unions;

Life insurance companies (LIs), comprising life insurance including friendly societies

General insurance & reinsurance companies (GIs)

Private health insurance (PHIs); and

Superannuation entities, excluding self-managed superannuation funds (Super).
1.2.5 Private Health Insurance regulation by APRA
APRA assumed responsibility for the prudential supervision of private health insurers from
1 July 2015. There are currently 33 registered PHIs. In addition to supervisory responsibility
for these insurers, APRA administers the following three PHI charges:

Supervisory Levy – to fund day-to-day regulatory activities;

Risk Equalisation Levy (REL) – to ensure that no PHI is unduly impacted by costly claims
because of the profile of their policy holders, the Private Health Insurance (Risk
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Equalisation Levy) Act 2003 provides that the cost of certain types of expensive claims
should be pooled and shared amongst all health benefits funds; and

Collapsed Insurer Levy (CIL) – following approval by the Minister for Health, a levy may be
raised against the PHIs to help meet a collapsed private health insurer’s liabilities to the
people insured under its policies which the insurer is unable to meet.
This CRIS only relates to the imposition of the supervisory levy for Private Health Insurers as
the REL and CIL are not subject to the Cost Recovery Guidelines5.The supervisory levy formula
for 2016-17 was set by the Private Health Insurance Supervisory Levy Imposition Determination
2016. The PHI aggregate number of single and non-single (i.e. joint) coverage policies issued
from all private insurers on the annual census day6 are used as the formula base from
1 July 20167.
1.2.6 Revenue collection on behalf of other government agencies
Under s50(1) of the Australian Prudential Regulation Authority Act 1998 (APRA Act), APRA is
authorised to collect revenue to offset expenses incurred by certain other Commonwealth
entities, including the Australian Securities and Investments Commission (ASIC), the Australian
Taxation Office (ATO), the Department of Human Services (DHS) and the receivers of the
Superstream collection. These expenses relate to:

certain market integrity and consumer protection functions undertaken by ASIC and the
ATO, namely: regulatory and enforcement activities (ASIC); financial literacy
improvements (ASIC); over-the-counter derivatives (ASIC); unclaimed and lost
superannuation (ATO);

funding for the Superannuation Complaints Tribunal (ASIC);

administering claims for the early release of superannuation benefits on compassionate
grounds (DHS); and

implementing the Stronger Super – SuperStream initiative (ATO and others).
1.3
Charging activities not subject to the Cost Recovery Guidelines
1.3.1 Financial Claims Schemes levies
APRA has responsibility for administering the Financial Claims Schemes (FCS) in the deposittaking and insurance industries. The FCS provides depositors in a failed deposit-taking
institution with timely access to their deposit funds (subject to a limit), and eligible
policyholders and other claimants with access to funds to meet insurance claims in the event
of the failure of a general insurer.
5
Payments where there is no relationship between the payer of the charge and recipient of the activity are not
subject to Cost Recovery Guidelines (CRG, paragraph 6).
6
As described in the Private Health Insurance Supervisory Levy Imposition Determination 2016.
7
Prior to 1 July 2016, the census day was quarterly, from 1 July 2016 the PHI levies are collected annually.
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Under the Financial System Legislation Amendment (Financial Claims Scheme and other
measures) Act 2008 the relevant Minister on activation of an FCS event makes a declaration
under either the Banking Act 1959 (Banking Act) or Insurance Act 1973 (Insurance Act). In the
event that funds recouped following the liquidation process are not sufficient to cover the
depositor/policyholder claims outstanding of a failed entity, each entity within the relevant
industry may be charged an FCS levy to recoup the shortfall.
An FCS levy is not subject to the Cost Recovery Guidelines. The only time the FCS has been
activated to date has been for recovery of funds relating to the failed general insurer
Australian Family Assurance Limited in 2010.
2.
Policy and Statutory Authority to Cost Recover
2.1
Policy authority for cost recovery
One of the recommendations of the 1997 Report of the Wallis [Financial System] Inquiry was
the establishment of an integrated prudential regulator. APRA was formally established under
the Australian Prudential Regulation Authority Act 1998 and commenced operations on
1 July 1998 assuming the responsibilities of the:

Reserve Bank of Australia – for the supervision of banks;

Insurance and Superannuation Commission – for the supervision of general and life
insurance companies and superannuation funds; and

Various state based supervisory agencies – for the regulation of building societies, credit
unions and friendly societies which had operated under the auspices of the Australian
Financial Institutions Commission.
As part of the decision to establish APRA, the Government determined that APRA’s operations
would be fully cost recovered through levies on the institutions that they prudentially regulate.
Today, this occurs under the Australian Government Charging Framework (incorporating the
Government’s Cost Recovery Guidelines), which broadly state that the cost of regulation
should be met by those institutions that create the need for it. While the Government also
provided authority for APRA to charge for direct services (such as licences), the majority of
APRA’s costs of supervision were to be met through annual financial institutions supervisory
levies.
APRA’s activities are considered appropriate for cost recovery as they meet the following
criteria:

they are of a regulatory nature;

there is an identifiable group of institutions, which are not part of the Government sector,
that directly use or are the subject of the activities;

it is practical and efficient to undertake the activities on a cost recovery basis; and

cost recovery is not inconsistent with the Government’s policy objectives outlined above.
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Annually APRA’s Portfolio Budget Statement (PBS), containing details of the year’s planned
charges is tabled for approval in Parliament on budget night8.
2.2
Statutory authority to impose cost recovery charges9
The legislative framework for levies is established by the Financial Institutions Supervisory
Levies Collection Act 1998, which prescribes the timing of payment and the collection of
levies. A suite of imposition Acts impose levies on regulated institutions. These are the:

Authorised Deposit-taking Institutions Supervisory Levy Imposition Act 1998;

Authorised Non-operating Holding Companies Supervisory Levy Imposition Act 1998;

Life Insurance Supervisory Levy Imposition Act 1998;

General Insurance Supervisory Levy Imposition Act 1998;

Retirement Savings Account Providers Supervisory Levy Imposition Act 1998;

Superannuation Supervisory Levy Imposition Act 1998; and

Private Health Insurance Supervisory Levy Imposition Act 2015.
These Acts impose levies on regulated institutions, in some instances they set a statutory upper
limit and provide for the Minister to make a determination as to certain matters where
applicable such as levy percentages for the restricted and unrestricted levy components,
maximum and minimum levy amounts applicable to the restricted levy component where
relevant, and the date at which an entity’s levy base is to be calculated10.
The links to the current applicable Determinations are:

Authorised Deposit Taking Institutions and Authorised Non-operating Holding Companies:
http://www.apra.gov.au/adi/Levies/Pages/ADI-levies.aspx

General Insurers:
http://www.apra.gov.au/GI/Levies/Pages/General-Insurance-levies-and-fees.aspx

Life Insurers:
http://www.apra.gov.au/lifs/Pages/LIFS-levies.aspx

Superannuation:
http://www.apra.gov.au/Super/Levies/Pages/Super-levies.aspx

Private Health Insurance:
8
Budget night is normally held on the second Tuesday in May however in 2016 it was brought forward by one week
to 3 May 2016.
9
The First Home Saver Account were abolished and from 1 July 2015 all such accounts became ordinary accounts.
For further details see https://www.ato.gov.au/Individuals/First-home-saver-account/
10
Described as the census date for the Private Health Insurance industry.
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http://www.apra.gov.au/PHI/Pages/PHI-levies.aspx
In respect of applications or requests made to APRA, paragraph 51(1)(b) of the Australian
Prudential Regulation Authority Act 1998 (APRA Act) permits APRA, by legislative instrument,
to fix such charges. Subsection 51(2) of the APRA Act provides that a charge fixed under
subsection 51(1) must be reasonably related to the costs and expenses incurred or to be
incurred in relation to the matters to which the charge relates, and must not be such as to
amount to taxation. The Government has also provided authority to APRA to recover other
specific costs incurred by certain Commonwealth agencies and departments. The Minister’s
determination in this regard, under the APRA Act, is to recover the costs on behalf of other
government agencies as indicated in 1.2.6.
3.
Cost Recovery Model
3.1
Key activity components
The budgeted cost base for APRA is refined over the forward estimates to reflect relevant
Government funding decisions. The forward estimates, and in particular the budget for the
upcoming budget year, are finalised in May each year and presented in the annual Portfolio
Budget Statement (PBS).
The cost-base is supported by associated income-streams, the largest element of income being
appropriation revenue, with correspondingly the largest element of the appropriation revenue
being the amount to be collected from the financial industry by annual levies, with other
elements being the separately collected NCPD levy and separate government appropriations
for interest and funding for APRA’s ongoing Standard Business Reporting running costs.
Once the cost base is finalised, and the source of funds identified, a forecast of any levy
income over- and under-collected in the current year is made. Any over-collection in a year is
returned to industry in the following year, and vice-versa for under-collections.
Upon identification of the total amount to be recovered each year by industry levies, this
amount is allocated to the five regulated industries for collection.
A key input in APRA’s cost recovery methodology is the estimated time spent on supervising
each industry. APRA’s internal time management system is used as the basis for estimating
this time.
The budgeted funding level included within the PBS defines the amount of financial resources
that APRA has available to fund its on-going operations each year. Although levy under/overcollections are recouped from/returned to industry each year as described above, expense
underspends/overspends impact APRA’s financial reserves. APRA monitors the reserve levels
quarterly to ensure they remain within appropriate tolerances and undesired buildups/reductions are avoided.
3.2
APRA’s activities
APRA's prudential standards, which are legally binding, set out minimum capital, governance
and risk management requirements. Prudential practice guides provide guidance on APRA’s
views on sound practice in particular areas and how supervised institutions might best meet
the prudential standards.
The framework of prudential standards and prudential practice guides, address the inherent
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risks faced by institutions, the controls adopted to manage and mitigate those risks and, where
relevant, the level of capital needed by each institution to withstand unexpected losses.
3.2.1 Financial soundness of supervised institutions
Once licenced, an institution is subject to ongoing supervision to ensure that it is managing its
risks prudently and meeting its prudential requirements, and to enable APRA to identify those
institutions that are unable or unwilling to do so.
APRA follows a risk-based approach under which institutions facing greater risks receive closer
supervision. This enables APRA to deploy its resources in a targeted and cost-effective manner.
The two main supervisory tools APRA uses are on-site and off-site analysis. These reviews are
undertaken by supervisors with in-depth knowledge of institutions in a particular sector, and
supported by specialist risk experts.
Off-site analysis
APRA's off-site analysis involves assessing the financial strength of an institution and making
qualitative judgments about the effectiveness of the institution's management, operations and
risk management systems.
APRA's off-site work addresses the material risks to which the institution is exposed, and APRA
supervisors meet regularly with the management of each supervised institution to review the
assessment of its financial condition. Supervisors and APRA senior management also meet with
the boards of supervised institutions on a regular basis.
On-site analysis
APRA supervisors also regularly visit the premises of supervised institutions. These reviews
typically target a particular risk area. They assess the effectiveness of an institution's risk
management framework, including its internal governance processes.
Risk assessment
The cornerstone of APRA's risk assessment is its Probability and Impact Rating System (PAIRS).
PAIRS assists supervisors make judgments about an institution's risk position. The main
objectives of PAIRS assessments are to determine the:

probability that the institution may not meet its financial promises; and

potential consequences of not meeting those promises.
Supervisory outcomes and action
APRA's supervisory responses are driven by its Supervisory Oversight and Response System
(SOARS). Supervisory responses can range from a normal cycle of review to a heightened
supervisory stance that requires extra supervisory oversight, to mandating improvements or to
restructuring a supervised institution.
3.2.2 Remediation, crisis response and enforcement
APRA has substantial legal powers that enable it to intervene where there is a threat that an
institution may not be able to meet its obligations to its depositors, insurance policyholders
and superannuation fund members. APRA will also intervene where there is a threat to the
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stability of the financial system. In these contexts, APRA has the power to conduct
investigations of supervised institutions and, in some cases, to give them directions of a wideranging nature in its resolution authority capacity.
3.3
Supervisory levy and direct user charge methodology
Supervisory levy
Two methodologies are adopted by APRA to calculate supervisory levies. The first levy
methodology used to recoup APRA’s costs are applied to the ADI, Super, GI and LI industries.
It has two components:

the restricted levy component, which has a cost-of-supervision based rationale, is
structured as a percentage rate on assets subject to minimum and maximum amounts; and

the unrestricted levy component, which has a systemic impact and vertical equity
rationale, is structured as a percentage rate on assets, without a minimum or maximum
amount for individual regulated institutions.
The levy allocation methodology is designed to fully recover the costs from each industry and
minimise cross-subsidies across industries.
To reduce the volatility in levies charged to industry, APRA smooths the allocation of costs,
through the use of a moving four-year average, when calculating the percentage of time spent
split between the restricted component and the unrestricted component, before allocation to
the four industries.
Once the amount to be recovered from the four industries in both the restricted and unrestricted components is known, this amount is apportioned at an individual institution level
and the levy rates calculated. To do this, the relevant asset value for each institution at the
appropriate valuation date11 is determined or estimated.
The second levy methodology used to recoup APRA’s costs is applied to the PHI industry and is
a fixed price levy, the PHI supervisory levy. This levy adopts a cost-of-supervision based
rationale and is structured as a fee per policy holder12. There are no minimum or maximum
amounts. As part of the transition of the PHIs to APRA on 1 July 2015, a four year costing was
agreed with the Department of Finance. Until a sufficient amount of time recording history is
established in APRA, this costing will be used to identify the amount of Private Health
Insurance levy to be collected each year.
11
Valuation date for the three non-superannuation industries is 31 March, for the superannuation industry it is
30 June.
12
The same basic methodology used under the previous Council Administration Levy (CAL), as defined in the Private
Health Insurance (Council Administration Levy) Rules 2007, has been adopted.
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Private Health Insurance costs - $ millions13
2015-16
2016-17
2017-18
2018-19
Employee costs
3.7
2.9
4.8
3.1
Supplier costs
1.5
1.4
1.4
0.9
Amortisation
0.3
0.3
0.3
0.3
Transition costs (including amortisation)
0.2
0.2
0.2
0.2
Total Operating Expenditure
5.7
4.7
6.7
4.5
The expected cost of supervising the PHI industry in the next financial year is taken, and the
levies to be collected set to ensure a break even result. The levy is not broken down into the
restricted and unrestricted components as in the other APRA regulated industries.
Supervisory costs (restricted and unrestricted)
The tables below indicate supervisory time incurred by APRA staff (actual and estimated) over
a four-year period from 2013-14 to 2016-17 for the two elements of the Non-PHI levy, the
supervisory (restricted) and systemic (unrestricted) elements of the levy. The time is reflected
as percentages of the total time recorded.
APRA’s supervisory effort by levy component (%)
2013-14
2014-15
2015-16
2016-17
2016-17
Actual (%)
Actual (%)
Forecast (%)
Estimate
(%)
4-yr
average
Supervisory (restricted)
66
68
63
65
66
Systemic (unrestricted)
34
32
37
35
34
100
100
100
100
100
Levy component
Total
The annual levies consultation paper provides similar updated (yearly comparison)
information.
The two components are then split, using the time-recording data, into the different
industries.
13
These costs are the amounts to be collected from the PHI industry prior to any adjustment for under/overcollection from the previous year.
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APRA’s supervisory effort by industry (%)
2013-14
2014-15
2015-16
2016-17
2016-17
Actual (%)
Actual (%)
Forecast
(%)
Estimate
(%)
4-yr
average
ADIs
46
49
50
48
48
Life insurance/Friendly societies
11
10
10
10
10
General insurance
16
15
16
16
16
Superannuation
27
26
24
26
26
100
100
100
100
100
ADIs
43
45
52
47
47
Life insurance/Friendly societies
11
9
7
9
9
General insurance
20
20
16
19
19
Superannuation
26
26
25
25
25
100
100
100
100
100
Industry sector
Restricted component - % of time
Total
Unrestricted component – % of time
Total
Direct costs
APRA’s costs can be split between supervision-related or ‘front office’ costs (frontline
supervisors and specialist risk teams), systemic (policy setting and other industry-wide costs
such as enforcement, statistics, also known as ‘middle office’ costs) and support functions
(Human Resources, Information Technology, Finance, Property, etc. also known as ‘back
office’ costs).
APRA’s time recording system captures time spent on each institution (and therefore industry)
for the front office costs. The middle office time spent on each industry is also recorded. The
back office functions do not time record other than for project-related activity.
The front office costs all relate to supervision, and therefore the amount of APRA’s overall
recorded time spent supervising entities is known. For the purposes of the 2016-17 levies
paper, and as noted in the table above, 66 percent of all recorded time was anticipated to be
spent on supervision activities. These are the restricted element of the levy.
The remaining 34 percent of recorded time was anticipated to be spent on systemic and
industry-wide activities, and these amounts relate to the unrestricted element of the levy.
Applying the time-driven percentage splits to the element of the APRA cost base to be
recovered by industry levies, the amount to be collected from each industry in the restricted
and unrestricted categories can be determined.
Matching costs to income at an entity level (restricted component only)
One of the challenges of adopting a cost-recovery methodology is the avoidance of crosssubsidisation within each industry. This occurs where a disproportionately large or small levy
is charged to a section of the industry, when compared to the actual cost of APRA supervision.
An annual analysis of data on the actual cost of supervision available through APRA’s internal
time recording systems has been performed since 2013-14. This analysis has showed broadly
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consistent results from year to year, and as a result a number of modifications to the restricted
levy component were made to the Financial Industry Levies for 2015-16. The 2015-16 analysis
again yielded similar results, and as such levy minimums were again adjusted in the Proposed
Financial Industry Levies for 2016-17. For 2016-17 the levy parameters are:

the restricted levy minimum for the ADI industry is set at $6,000, with the levy maximums
$2,450,000;

the restricted levy minimum for the GI industry is set at $10,000, with the levy maximums
$1,064,000;

the restricted levy minimum for the LI industry is set at $5,000, with the levy maximums
$1,320,000; and

the restricted levy minimum for the superannuation industry is set at $2,500,14 with the
levy maximums $260,000.
The results of this year’s analysis suggest there is an observed degree of intra-industry crosssubsidisation, with the larger entities possibly cross-subsidising the smaller entities, although
the very largest entities appear appropriately charged. The findings are consistent between
industries and follow the general trend as can be seen in the graph below.
All industries levies v costs
Cost to APRA / levy collected
2016
Restricted Levy
2016 Costs
2016-17
Proposed
Levies
Entity size in assets value
Overall the analysis indicates that medium-large organisations are potentially levied more than
the observed cost of supervision. Conversely, costs to supervise small-medium entities appears
higher than that collected in levies. The proposed 2016-17 adjustments to the levy minimums
continues the process of attempting to bring the costs of supervision closer to the levies
collected from an entity.
As indicated in APRA’s 2015-16 CRIS, APRA will continue to propose closer alignment of the
cost of supervision with the actual cost incurred and therefore further increases to levy
minimums are likely in future years. APRA will also consider more closely the apportionment
14
Small APRA Funds (SAFs) flat rate of $590 was left unchanged.
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of work it performs across each industry, and will make resource allocation changes as
appropriate to adjust the areas of supervisory intensity across each industry it supervises.
This analysis will continue to be developed in 2016-17 and updates, if applicable, will be
reflected in APRA’s 2017-18 CRIS.
Private Health Insurance Supervisory Levy
The PHI Supervisory Levy is a fixed price levy and is imposed directly upon insurers annually15.
It is calculated, for each insurer, according to the number of single and other (e.g. joint) policy
holders each insurer holds on the latest census date. The basis of the calculation is the number
of single policies plus twice the number of other polices each insurer has, multiplied by the
year’s rate for a policy for the industry. The year’s rate for a policy is calculated as the annual
levy in cents divided by the total number of single policies plus twice the number of other
policies for the industry.
𝑌𝑒𝑎𝑟𝑙𝑦 𝑟𝑎𝑡𝑒 =
𝐴𝑛𝑛𝑢𝑎𝑙 𝑙𝑒𝑣𝑦 𝑡𝑜𝑡𝑎𝑙 𝑖𝑛 𝑐𝑒𝑛𝑡𝑠
𝑎𝑔𝑔𝑟𝑒𝑔𝑎𝑡𝑒 𝑠𝑖𝑛𝑔𝑙𝑒 𝑝𝑜𝑙𝑖𝑐𝑖𝑒𝑠 + (2 × 𝑎𝑔𝑔𝑟𝑒𝑔𝑎𝑡𝑒 𝑜𝑡ℎ𝑒𝑟 𝑝𝑜𝑙𝑖𝑐𝑖𝑒𝑠)
Every PHI entity is required to provide APRA with the number of single and other policy holders
it has on the census day16. The reported data is audited annually.
No particular group or type of insurer draws regulatory focus disproportionately. All insurers
are subject to the same regulatory framework regardless of size, structure or ownership
arrangements. Having said this however, larger insurers tend to draw more of APRA’s analytical
resources due to their complexity and importance to the private health insurance industry as
a whole. Accordingly, a levy based on the number of policies held (a proxy for market share
and consequently risk exposure to the industry) is appropriate as there is a direct correlation
between the underlying cost drivers and market share.
The Private Health Insurance Supervisory Levy Imposition Act 2015 places an upper limit on
annual levy rates of $2 per year for single person polices and $4 per year otherwise.
Matching costs to income at an entity level (unrestricted component)
For the unrestricted levy component, matching time recording data to an institution is not
possible due to the nature of the work (industry-wide standard setting) as this applies to all
institutions that operate within the industry concerned. Therefore, once the costs associated
with any specific industry are allocated, the allocation to an institution is then based on the
methodology of allocation at that point in time. Currently, unrestricted levy costs are
allocated to the ADI, Super, GI and LI industries on an assets basis17.
The tables below demonstrate the costs recovered by the different levy components
(restricted, unrestricted and PHI) and relate them back to the total APRA approved budget for
2016-17.
15
As from the 1 July 2016, the PHI supervisory levy billing frequency will change to annual from quarterly.
16
Under section 8(4) of the Private Health Insurance Supervisory Levy Imposition Act 2015, from 1 July 2016 the
Minister will specify the census date annually by making a legislative instrument (a levy determination).
17
The PHI industry is not subject to restricted or unrestricted levies.
Australian Prudential Regulation Authority
13
Table: Cost estimates for 2016-1718 - $ millions
2015-16
2016-17
Budget
($m)
Budget
($m)
Change
($m)
Change
(%)
APRA – operating expenses
131.1
131.3
0.2
0.1
Net cost offsets (Table 2)
(6.9)
(7.6)
(0.6)
9.3
Prior year over-collected revenue (Table 3)
(1.0)
(1.7)
(0.6)
62.0
Net funding met through industry levies
123.2
122.1
(1.1)
(0.9)
Table: Breakdown of ‘Net funding met through industry levies’: $ millions
Direct costs
Indirect
costs
Depreciation
/
amortisation
Total
Restricted levy
58.0
15.4
4.5
77.9
Unrestricted levy
29.9
7.9
2.3
40.1
PHI levies
2.2
1.4
0.5
4.1
90.0
24.7
7.3
122.1
Activity component
TOTAL
The table below summarises APRA’s income budget for 2016-17 inclusive of charges for service
and other income, and again relates that back to the APRA budget for 2016-17.
18
As per the Annual Financial industry levies consultation paper for 2016-17.
Australian Prudential Regulation Authority
14
Table: Cost and revenue estimates for budget year 2016-17 - $ millions
2016/17
Cost
Handback of
2015-16
overrecovery
Recovered
from
industry in
2016/17
Cost recovery charge
Charge or
levy
Activity
component
Non-PHI Industry levies
Levy
Restricted Levy
78.5
(0.7)
77.9
Non-PHI Industry levies
Levy
Unrestricted
Levy
40.5
(0.4)
40.1
PHI Industry levies
Levy
n/a
4.7
(0.6)
4.1
123.8
(1.7)
122.1
Sub-Total
Other levies
Levy
n/a - *
1.0
-
1.0
Other appropriations
Direct
Appropriation
n/a - **
1.5
-
1.5
Other charges
Charge
n/a - ***
5.1
-
5.1
131.3
(1.7)
129.7
Grand Total
*
Other levies are the general insurance special component, which enables APRA to recoup
the cost of running the NCPD.
**
Other appropriations currently contain separate appropriations for: (i) annual running
costs for the Standard Business Reporting (SBR) database; (ii) annual appropriation for
interest; and (iii) wage and price movement adjustments.
*** Other charges relate to various other types of costs recovered, including: (i) ongoing costs
recovered from institutions accredited to use internal models for capital adequacy
purposes (BASEL II); (ii) costs recovered from the Department of Foreign Affairs and Trade
(DFAT), RBA and the ABS; and (iii) licence fee charges.
3.4
Licensing/authorisation charges
Authorised deposit-taking institutions (ADIs), including representative offices of foreign banks
(FBRO) in Australia, insurance companies - covering general insurers (GIs) and life insurers (LIs)
- and certain Non-Operating Holding Companies (NOHCs) are required to hold an APRA licence
/ authority to operate in Australia. Licensing criteria varies depending upon the type of licence
for which the applicant is applying. A licence charge is applicable at the time of application
and the charge is separate to the annual supervisory levy.
Relevant charges were reviewed during the 2011-1219 financial year to ascertain whether all
existing charges were set at appropriate levels and are compliant with the Cost Recovery
Guidelines. The outcome of the review relating to applications of ADIs, GIs, LIs and NOHCs
seeking to be authorised was:
19
APRA will undertake a review of all of its charges in 2016/17.
Australian Prudential Regulation Authority
15

all licensing application charges should be charged at the same level, regardless of the
industry type;

all licensing application charges are to be increased to better reflect the actual cost
incurred, with the exception of special service providers (Providers of Purchased Payment
Facilities20); and

there should be no discount applied to licensing re-application charges.
ADI, GI and LI charges
An Instrument dated March 2013 sets out the charges fixed by APRA for applications for
authorisation or registration as an ADI, general insurer or life insurer (including friendly
societies) for the purposes of the Banking Act, the Insurance Act and the Life Insurance Act
1995 (the Life Act).21
Table: Summary of ADI, GI and LI charges
Entity type
Type of charge
Charge
Bank
Authorisation charge
$80,000
Building society or credit union
Authorisation charge
$80,000
Provider of purchased payment facilities
Authorisation charge
$40,000
Other ADI
General insurer
Life insurer
Authorisation charge
Authorisation charge
Registration charge
$80,000
$80,000
$80,000
Friendly society
Registration charge
$80,000
Foreign Bank Representative Office charges
An Instrument dated March 201322 sets out the charges fixed by APRA to be paid:

by applicants for APRA’s consent under s67 of the Banking Act to establish or maintain
representative offices of overseas banks in Australia; and

for the costs or expenses incurred or to be incurred by APRA in relation to APRA’s
monitoring of operations of such representative offices in Australia and the overseas
banks’ compliance with the conditions imposed upon APRA’s consent under section 67.
20
Currently there is only one special service provider in existence (Paypal Australia Pty Limited).
21
This Instrument can be located at: http://www.comlaw.gov.au/Details/F2013L00581
22
This Instrument can be located at: http://www.comlaw.gov.au/Details/F2013L00582
Australian Prudential Regulation Authority
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Table: Summary of FBRO charges
Type of charge
Charge
FBRO Application
$8,500
FBRO Annual Monitoring
$14,000
NOHC charges
An Instrument dated March 201323 sets out charges in respect of applications made to APRA for
authorisation or registration of NOHCs under the Banking Act, the Insurance Act and the Life
Act.
Table: Summary of NOHC charges fixed by Instrument:
Entity type
Type of charge
Charge
Bank
Authorisation charge
$80,000
Building society or credit union
Specialist credit card institution
Authorisation charge
Authorisation charge
$80,000
$80,000
General insurer
Authorisation charge
$80,000
Life insurer
Registration charge
$80,000
Friendly society
Registration charge
$80,000
All of the above Instruments reflect that such charges:

are payable by the applicant when the application is lodged, are not refundable if the
application is unsuccessful or if APRA, in the course of processing the application, informs
the applicant that the application will be unsuccessful; and

may be waived or refunded, in whole or in part, where APRA is satisfied that special
circumstances apply that would make it unjust or oppressive to impose a part of the
charge, or the full amount of the charge. An example of a case where a waiver or refund
may be justified is where an applicant applies for the wrong kind of authorisation by
mistake, and withdraws the application before APRA has done any substantial amount of
work considering the application. An applicant seeking a refund or waiver of an application
charge must apply in writing to APRA setting out details of the special circumstances that
apply.
In addition, all charges are:

23
exempt from GST by operation of A New Tax System (Goods and Services Tax) (Exempt
Taxes, Fees and Charges) Determination 2010 (No. 2) made by the Assistant Treasurer on
7 June 2010 (the GST Determination) under section 81-5 of the A New Tax System (Goods
and Services Tax) Act 1999; and
The Instrument can be located at: http://www.comlaw.gov.au/Details/F2013L00583
Australian Prudential Regulation Authority
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
payable in respect of every new application, even one that is made after the refusal or
withdrawal of an earlier application for which the applicant also paid an authorisation
application charge.
Registrable Superannuation Entity (RSE) charges
RSE charges were also reviewed during 2011-12. Such charges are stipulated under Reg. 3A.06
of the Superannuation Industry (Supervision) Regulations 1994.24 Any amendment to RSE
charges have to be progressed by Regulations as per the Superannuation Industry Supervision
(SIS) Act 1993 through the machinery of government instead of by legislative instrument, which
was the mechanism for amending the other industry charges.
3.5 Annual fee-for-service charge activities: covering 2015-16
Some functions undertaken by APRA (as indicated in 1.6 and 3.1) are not recovered through a
levy but instead through direct user charges for service arrangements. Actual time (person and
system) expended on these tasks is used as the basis for the charge. To date, the charges have
applied to accreditation and ongoing review of internal models, and provision of statistical
information.
The charges are derived from the costs incurred by APRA in providing the services concerned
and as such do not constitute a tax. Subsection 51(1) of the APRA Act provides that APRA may,
by legislative instrument, fix charges to be paid to it by persons in respect of:

services and facilities which APRA provides to such persons; and

applications or requests made to APRA under any law of the Commonwealth.
Subsection 51(2) of the APRA Act provides that a charge fixed under subsection 51(1) must be
reasonably related to the costs and expenses incurred or to be incurred in relation to the
matters to which the charge relates and must not be such as to amount to taxation.
Fee-for-service charge activities undertaken in 2015-16 by APRA were25:

accreditation and ongoing review of internal models (Basel II compliance); and

provision of statistical information.
In addition APRA undertook activities in 2015-16 for which it intends to charge for in 2016-17:

Basel III – Committed Liquidity Facility (CLF) approval activities.
Accreditation and ongoing review of internal models
Accreditation and ongoing review of internal models for ADI’s, GI’s and LI’s with sophisticated
risk management systems to adopt the ‘advanced’ approaches for determining capital
adequacy permitted under the Basel II Framework. The charge is based on the need to recover
24
The regulation can be located at the following link: https://www.legislation.gov.au/Details/F2016C00515
25
APRA will consider recovering costs associated with Basel III – Committed Liquidity Facility (CLF) approval
activities in the 2016-17 financial year.
Australian Prudential Regulation Authority
18
APRA’s costs of assessing applications for model approval and on-going monitoring of capital
adequacy using the models-based approach. Those costs are based on the estimated APRA staff
time involved. In addition, direct overhead costs are added to the salary costs as well as an
element of indirect overhead is also recovered.
Background to the 2015-16 fee-for-service annual charge
In June 2004, the Basel Committee on Banking Supervision (the Committee) released Basel II,
reforming the 1988 Basel Capital Accord (the 1988 Accord). APRA implemented Basel II in
Australia for all ADIs on 1 January 2008, through new prudential standards under section 11AF
of the Banking Act 1959. Under these standards ADIs are able to determine their capital
adequacy requirements using one of two methods: a standardised (default) method (the
standardised method) or a models-based approach that more closely aligns with an ADI’s
individual risk profile (the models-based approach). ADIs seeking to use the models-based
approach must have APRA’s approval to do so. GI’s and LI’s are also provided with alternative
methods to determine their capital adequacy requirements under the Basel II framework. A
separate CRIS covers cost recovery activities of GI’s26.
How the charges have been calculated
The charge is based on the need to recover APRA’s costs of carrying out the on-going
monitoring of the capital adequacy of ADIs using the models-based approach and assessing
applications for approval. Those costs are based on an estimation of APRA staff time involved
with an addition of direct overhead costs. On this basis, APRA’s total cost recovery in respect
of the models-based approach for 2015-16 is $2.23 million (2014-15: $1.83 million).
The costs incurred in monitoring the capital adequacy of ADIs using the standardised method
are recovered through general financial sector levies.
In 2015-16, the focus was on the on-going supervision of the capital adequacy of ADIs approved
to use the models-based approach namely, Australia and New Zealand Banking Group Limited
(ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank limited (NAB), Westpac
Banking Corporation (WBC) and Macquarie Bank Limited (MBL). ING Bank (Australia) Limited
(ING) continued their accreditation application, and Bendigo and Adelaide Bank Limited (BEN)
and Suncorp Metway Limited (SUN) commenced an application for accreditation.
As there is no material difference in APRA’s approach to the monitoring of the models-based
approach between ADIs who have received approval, each entity is charged an equal amount
of the relevant costs. ING’s application for accreditation continued across 2015-16 and were
joined by Bendigo and Adelaide Bank and Suncorp Metway, the lower charge determined for
these institutions reflects the cost recovery of APRA’s associated effort.
Description of the charges
The charge imposed by the instrument is based on a two-tiered structure:

$343,077 plus GST (totalling $377,385) for ANZ, CBA, MBL, NAB and WBC; and
26
ADI, GI and LI cost recovery charges for the ‘advanced’ models approach will be reviewed and amended in the
near future to enable consistency across the industries. The CRIS for GI’s can be located at:
https://www.legislation.gov.au/Details/F2009L02488/Supporting%20Material/Text
Australian Prudential Regulation Authority
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
$171,538 plus GST (totalling $188,692) for ING, BEN and SUN.
The charges are set by the Instrument dated 16 June 2016.27 APRA has informed the affected
ADI’s of the proposed charges.
Table: Basel II related charges: For the period 2012/13 to 2017/18; $ millions
2012-13
2013-14
2014-15
2015-16
(Estimated)
2016-17
(Forecast)
2017-18
(Forecast)
Employee Expenses
2.0
1.7
1.6
1.9
1.9
1.9
Allocated Overheads
0.2
0.2
0.2
0.3
0.3
0.3
Net Cost
2.2
1.9
1.8
2.2
2.2
2.2
Provision of statistical information
The provision of statistical information concerning financial sector entities to the RBA and ABS
is recovered through a charge for service arrangement.
Background for the 2015-16 annual charge
Under the Financial Sector (Collection of Data) Act 2001 (the FSCODA), APRA collects financial
and other statistical information (statistical information) from ADIs, GIs, LIs PHIs and
superannuation entities (collectively financial sector entities).
The statistical information that financial sector entities are required to lodge with APRA is
prescribed by reporting standards that are made by APRA pursuant to the FSCODA. The
reporting standards detail the information required and are accompanied by forms into which
the information has to be inserted.
In 2000 and 2001, APRA implemented a computer system designed and constructed to collect,
store, and report the statistical information from financial sector entities. It is called @APRA.
The @APRA system enables financial sector entities to lodge statistical information with APRA
electronically, and it includes software which can be used to analyse and compile reports from
the statistical information collected.
Subsection 3(1) of the FSCODA provides that the purpose for which statistical information is
collected under that Act is to assist APRA in the prudential regulation of financial sector
entities and to assist the RBA in the formulation of monetary policy. Also, as is acknowledged
by subsection 56(5A) of the APRA Act, some of the statistical information will be relevant to
the ABS’s function under the Census and Statistics Act 1905 of maintaining and disseminating
statistics relating to the financial industry and the wider economy.
Thus, as envisaged by the legislation, APRA shares the statistical information it collects with
both the RBA and the ABS.
27
The Instrument can be located at: https://www.legislation.gov.au/Details/F2016L01043
Australian Prudential Regulation Authority
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The statistical information that APRA provided to the RBA and the ABS during the 2015-16
financial year is described in the Schedules attached to the legislative instrument setting the
annual charge.28
The statistical information is provided to the two agencies at their request, and they have
agreed to pay the charges for it that are fixed by the instrument.
How the charges are calculated
The costs of maintenance and operation of the @APRA system during 2015-16 is based on the
forecast costs for the year. These costs represent the costs of staff time expended in
performing ongoing maintenance (including enhancement) of the system and in operating the
system (which includes collecting, managing, analysing and distributing the statistical
information collected by the system). During the 2015-16 financial year, the @APRA system
serviced three agencies with statistical information: APRA, the RBA and the ABS. The
proportion of the above-mentioned costs have been allocated to the RBA and the ABS, based
on their usage of the @APRA system during 2015-16. Such allocations are made in two
components and are based on full cost recovery:

The charges relating to the RBA and ABS specific requests were estimated based on the
quantum of staffing resources consumed. This was based on output from APRA’s time
management system during the period 1 January 2015 to 31 December 2015. Such
resources are costed based on the average yearly staffing costs, including appropriate
management allocation;

The cost of shared services was then determined based on the number of forms processed
for each of the organisations, as a proportion of the total number of forms processed. As
expected, these costs are predominantly borne by APRA due to the fact that most of the
usage is dictated by APRA requirements. For 2015-16, the cost of shared services was
shared by the three agencies (APRA/RBA/ABS) in the following respective proportions:
76:5:19.
On the above basis, it was determined that the total cost of the services provided to the RBA
amounts to $68,267. The total cost of services to the ABS was determined to be $352,812. This
was agreed with both agencies.
Committed Liquidity Facility approval by APRA
Since 1 January 2015, the Reserve Bank of Australia (RBA) provides a Committed Liquidity
Facility (CLF) as part of Australia's implementation of the Basel III liquidity standards.
Consistent with the liquidity standards, certain authorised deposit-taking institutions (ADIs)
are required by APRA to maintain a liquidity coverage ratio (LCR) of at least 100 percent.
These ADI’s may seek annual approval from APRA to meet part of their Australian dollar LCR
requirement through the RBA’s CLF. APRA will consider recovering the costs associated with
these approval activities in 2016-17. In accordance with the Cost Recovery Guidelines, this
CRIS will be updated and relevant stakeholder engagement will be undertaken during this
process.
28
The Instrument can be located at: https://www.legislation.gov.au/Details/F2016L00814
Australian Prudential Regulation Authority
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4.
Risk Assessment
Annually APRA sets its supervisory levy rates based on estimates of relevant assets of entities
that constitute the industries, at the key levy dates. An estimate is also made of the entities
that will be in existence at the levy date (30 June). From these estimates, the restricted and
unrestricted levy rates are calculated29 (refer section 3 above for more details).
Overall the setting of the annual levy rates and the subsequent cash collection is moderately
complex, however is not considered overly onerous by APRA. Risks arising from the levy-setting
and collection process include:

A potential cash-flow risk if an under-collection of levies arises, to the extent that APRA
does not collect sufficient levies to fund its operations. This risk is mitigated as APRA holds
adequate cash reserves for its operations.

A reputation risk for APRA if the incorrect levy rates are set, as this will lead to overand/or under-recoveries for individual regulated industries, and for industry sectors. Overand under-recoveries can never be completely eliminated due to the need for estimates
to be used in the levy setting process, however large variances are to be avoided to avoid
undue volatility in levies collected.
5.
Stakeholder Engagement
An annual industry levies consultation process is undertaken by Treasury with input from APRA.
This involves the provision of a joint Treasury / APRA Proposed Financial Industry Levies
consultation paper to enable industry to provide views on the proposed levies for the upcoming
financial year.30
The annual consultation paper includes details relating to:

APRA’s activities;

a summary of APRA’s supervisory levy requirements;

a summary of total financial industry levy funding requirements;

a summary of sectoral levy arrangements;

a summary of impact on individual industries; and

supervisory levy comparisons between the current and upcoming levy year.
29
This applies to ADI, Super, GI and LI industries. The PHI supervisory levy is set based on an estimate of the number
of policy holders at the census date and is not split into restricted and unrestricted elements.
30
A link to the 2015-16 consultation paper can be located at:
http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2016/Proposed-Financial-InstitutionsSupervisory-Levies
Australian Prudential Regulation Authority
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Industry feedback from this years’ Proposed Financial Industry Levies consultation paper
included:

concern over raising minimum levies;

when setting levies, the overall burden of regulatory costs should be considered;

a lack of transparency over the calculation of costs to be recovered under APRA’s levies;
and

requests to release the CRIS prior to, or in conjunction with the consultation paper.
Treasury and APRA will consider this feedback further during 2016/17 and continue to refine
the consultation paper and CRIS as required to further increase transparency.
6.
Financial Estimates
The budget for APRA, as per the 2016-17 Portfolio Budget Statement, and the corresponding
forward estimates are provided in the table below.
Table: Future financial estimates - $millions31
Estimated
Actual
2015-16
Budget
Estimate
2016-17
Forward
Estimate
2017-18
Forward
Estimate
2018-19
Forward
Estimate
2019-20
Total expenses
131.2
131.3
137.7
135.3
137.1
Restricted levy
80.6
77.9
80.8
80.4
81.0
Unrestricted levy
38.0
40.1
41.6
41.4
41.7
PHI industry levy
6.3
4.1
6.7
4.5
4.5
Sub-total - levies
124.9
122.1
129.2
126.4
127.3
Other levies
0.4
1.0
1.0
1.0
1.0
Other appropriations
1.2
1.6
2.5
2.9
3.7
Other charges
4.7
5.1
5.1
5.1
5.1
Total income
131.2
129.7
137.7
135.3
137.1
0.0
(1.6)
0.0
0.0
0.0
Surplus / (deficit)
31
The restricted and unrestricted levy split for the forward estimate years is indicative only.
Australian Prudential Regulation Authority
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7a. Financial Performance
The following tables show APRA’s financial performance from 2012-13 to 2014-15:
Table: Expenses32 performance against budget for APRA - $ millions
Expenses $m
2012-13
2013-14
2014-15
Budget
118.6
124.4
122.4
Actual
116.5
118.0
117.3
2.1
6.4
5.1
Variance
In the previous three financial years, APRA underspent its expenditure budget. The key reasons
are outlined below:

In 2012-13, the underspend was driven by an increase in the 10 year bond rate (from 3%
to 3.75%) plus other supplier savings;

In 2013-14, the underspend was driven by lower staff numbers plus lower supplier spend
compared to budget; and

In 2014-15, the underspend was due to lower staff numbers, no staff pay increases, as
well as some delays to major projects.
Table: Revenue performance against budget for APRA; $ millions
Revenue $m
2012-13
2013-14
2014-15
Budget
118.0
117.6
122.4
Actual
121.6
116.8
125.4
3.7
(0.8)
3.0
Variance
APRA slightly over-recovered income in 2012-13 (which was returned to industry in the
following year) due to under-estimating the relative size of the Superannuation and General
insurance industries at the levy date. This was followed by a small under-recovery in 2013-14
driven by an over-estimation of superannuation industry assets. In 2014-15 levies were slightly
over-recovered again due to an underestimation of the size of the superannuation industry at
the levy date, plus and over-collection of fees and charges.
32
Actual results as per APRA Financial Statements. Budget for 2012-13 and 2013-14 as per the final budget included
within the Governments Central Budget Management System. Budget for 2014-15 as per note 27 of the APRA
financial statements.
Australian Prudential Regulation Authority
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7b. Non-financial Performance
In recent times there has been a broad push to improve accountability across the whole of
the Australian government. Enhancements have focused on non-financial performance and
have resulted in a number of changes to the accountability of government agencies in
general and regulators in particular.
The key changes are:

the enhanced Commonwealth Performance Framework – enhancements made within the
Public Governance, Accountability and Performance Act 2013 (PGPA Act); and

the development of a Regulator Performance Framework.
The PGPA Act – non-financial performance related requirements
The PGPA Act non-financial performance related requirements are intended to provide
meaningful information to the parliament and public. They seek ‘line of sight’ from the
stated objectives and key performance information provided in the Portfolio Budget
Statements (PBS) and Corporate Plan through to the assessment of APRA’s performance
against these objectives and indicators in the annual performance statement in the Annual
Report.
1. Corporate Plans
APRA’s 2015-2019 Corporate Plan was published on APRA’s website in August 2015. It outlined
APRA’s key priorities in pursuing its mission over the four years of the plan and included key
performance indicators that APRA will use to monitor and assess performance against the plan.
At the conclusion of each financial year the PGPA Act requires that an Annual Performance
Statement reporting against the Plan be included in APRA’s Annual Report.
2. Annual Reports with Annual Performance Statements
APRA’s first Annual Performance Statement will be published in APRA’s 2015-16 Annual Report
in October 2016.
The Annual Report provides an assessment at the end of the reporting period of the extent to
which APRA has succeeded in achieving its purposes. From 2015/16 the Annual Report must
contain an Annual Performance Statement to report actual achievement against planned
performance measures outlined in APRA’s PBS and Corporate Plan.
Regulator Performance Framework
The Regulator Performance Framework (the Framework) was introduced by the
Government as part of its commitment to reducing the cost of unnecessary or inefficient
regulation imposed on business, the community and individuals.
The Framework came into effect on 1 July 2015. It focuses on the reg ulatory burden
created in the way regulators administer regulation, rather than the process for, and
outcomes of, regulatory policy making. Six Key Performance Indicators (KPIs) apply to all
regulators:
1.
Regulators do not unnecessarily impede the efficient operation of regulated entities;
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2.
Communication with regulated entities is clear, targeted and effective;
3.
Actions undertaken by regulators are proportionate to the regulatory risk being managed;
4.
Compliance and monitoring approaches are streamlined and coordinated;
5.
Regulators are open and transparent in their dealings with regulated entities; and
6.
Regulators actively contribute to the continuous improvement of regulatory frameworks.
Regulators were required to formulate their own performance metrics to support an
assessment against the KPIs. APRA’s metrics, available on the APRA website, were developed
in consultation with APRA’s key industry associations and approved by the Assistant Treasurer.
At the end of each financial year, commencing in 2015/16, APRA is required to undertake a
self-assessment against the KPIs and have this externally validated by the industry
associations. The external validation process provides an avenue for industry to provide
feedback on whether APRA’s self-assessment accords with their views of APRA’s performance
against the KPIs over the period. APRA must publish the externally validated self-assessment.
APRA is also accountable for its activities and performance through a wide range of
longstanding mechanisms, including the following:

APRA makes regular appearances at Senate Estimates, as well as ad hoc appearances before
other committees. It is proposed that APRA will also make a regular half-yearly appearance
before the House of Representatives Standing Committee on Economics, on a similar basis
as the RBA.

APRA receives a Statement of Expectations from the Government which sets out the
Government’s expectations about the role and responsibilities of APRA, its relationship
with the Government, issues of transparency and accountability, and operational matters
to guide its activities. In response, APRA issues a Statement of Intent to indicate how it
will meet the Government’s expectations.

APRA’s Statement of Intent provides details of its commitment to effective and efficient
delivery of its activities and to ensuring that it operates in accordance with relevant
legislation and Government requirements.

APRA is subject to annual financial audits by the Australian National Audit Office (ANAO),
as well as occasional performance audits.

APRA complies with the Government’s best practice regulation process administered by
the Office of Best Practice Regulation, which includes cost-benefit analysis and extensive
consultation on policy proposals.
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8.
Key forward dates and events
List of key dates and events for 2016/17:
Event
Mid-Year Economic and Fiscal Outlook (MYEFO)
Pre-budget submissions
Treasury Portfolio Budget Statement
Proposed Financial Institutions Supervisory levies for 2017/18 consultation
Release of APRA’s 2017-18 CRIS
APRA internal review of fees and charges
Treasury Portfolio charging review
9.
Date
Spring 2016
Summer 2016/17
Autumn 2017
Autumn 2017
Autumn 2017
Winter 2017
2016-17
Cris Approval
I certify that this CRIS complies with the Cost Recovery Guidelines.
Wayne Byres
Chairman
Australian Prudential Regulation Authority
Date: 30 June 2016
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