APRA Finds Room for Improvement in Executive Remuneration Practices
APRA released the results of a review of remuneration practices at large financial institutions. The findings reveal considerable room for improvement in the design and implementation of executive remuneration structures.
The review found that remuneration frameworks and practices did not consistently and effectively promote sound risk management and long-term financial soundness; they fell short of the better practices set out in the existing guidance of APRA. The report identified the need for improvement in:
- Ensuring practices were adopted that were appropriate to the size, complexity, and risk profile of an institution
- The extent to which risk outcomes were assessed, and weighted, within performance scorecards
- Enforcement of accountability mechanisms in response to poor risk outcomes
- Evidence of the rationale for remuneration decisions
Chairman Wayne Byres said APRA encouraged all regulated institutions to review their remuneration frameworks and address any areas where the findings indicated room for improvement. "Both the design and implementation of performance-based remuneration must support effective risk management and the long-term financial soundness of each institution. In this regard, there is considerable room for improvement," Mr. Byres said. In response to the findings, APRA will consider ways to strengthen its prudential framework. A future review of the relevant prudential standards and guidance will take account of the forthcoming Banking Executive Accountability Regime (BEAR) as well as the international best practices. Any revisions to the prudential framework will be subject to APRA’s usual practices of stakeholder consultation and engagement.
The APRA review comprised detailed analysis of executive remuneration practices and outcomes from a sample of 12 regulated institutions across the authorized deposit-taking institutions, insurance, and superannuation sectors. The sample of institutions reviewed collectively accounts for a material proportion of the total assets of the Australian financial system.
Related Links
Keywords: Asia Pacific, Australia, Banking, Insurance, Remuneration, Best Practices, APRA
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.