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.
Keywords: Asia Pacific, Australia, Banking, Insurance, Remuneration, Best Practices, APRA
FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).
BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.
FCA proposed guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19, after October 31, 2020.
EBA issued an opinion on prudential treatment of the legacy instruments as the grandfathering period nears an end on December 31, 2021.
ESRB published the fifth issue of the EU Non-bank Financial Intermediation Risk Monitor 2020 (NBFI Monitor).
HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament.
APRA announced that it has increased the minimum liquidity requirement of Bendigo and Adelaide Bank for failing to comply with the prudential standard on liquidity.
PRA published the consultation paper CP17/20 to propose changes to certain rules, supervisory statements, and statements of policy to implement elements of the Capital Requirements Directive (CRD5).
US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB).
US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations.