APRA published an information paper that sets out a more intensive regulatory approach to transform governance, culture, remuneration, and accountability (GCRA) practices across the prudentially regulated financial sector. The key attributes of the new approach to GCRA are strengthening prudential framework, sharpening supervisory focus, and sharing insights of APRA. This approach to GCRA is a multi-year strategy and a key pillar in the 2019-2023 Corporate Plan of APRA.
The new, intensified approach to GCRA is intended to strengthen the resilience of financial institutions, including addressing, and ideally preventing, issues, such as poor risk governance, misaligned incentives, and misconduct, that have undermined public confidence in the financial sector over recent years. This approach to GCRA seeks to incorporate a range of international practices with its own supervision philosophy in a way that is fit for purpose for the Australian financial system. While this approach builds on the recent work of APRA on GCRA, it represents a significant enhancement—in the resourcing, capability, and intensity—of its supervisory focus. This approach also reflects the willingness of APRA to use its powers more assertively to hold regulated entities and their boards and senior management to account for ensuring high standards of GCRA are maintained. The following are the key attributes of this new approach to GCRA:
- Strengthening the prudential framework in areas such as remuneration and risk management and incorporating the wider use of risk governance declarations and self-assessments
- Sharpening supervisory focus by increasing internal resourcing and capabilities for GCRA supervision, adopting new tools to assess GCRA practices, and holding entities more forcefully to account when deficiencies are identified
- Sharing insights to better inform industry and the public about the work of APRA, promoting better GCRA practices, and driving greater accountability among boards and management
The intended outcome of this intensified approach to GCRA is to drive genuine change across the industry, with success measured by
- Stronger governance frameworks and processes
- Organizations that understand and enable a risk culture that supports effective risk management practices and delivers sound prudential outcome
- Remuneration arrangements that reflect a holistic assessment of performance and risk management and reduce the incentive for misconduct
- Clear accountability for outcomes achieved
The new approach is built on a program of work that APRA commenced in 2015, including the APRA thematic reviews of risk culture and remuneration, the Prudential Inquiry into the Commonwealth Bank of Australia, and the results of the subsequent self-assessments of a range of large financial institutions. It also responds to recommendations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and the APRA Capability Review. It will involve enhanced cooperation with the Australian Securities and Investments Commission (ASIC) and will be enabled by additional resourcing approved by the Australian government in its 2019–2020 Budget and by a heightened regulatory appetite to intervene more forcefully, where necessary.
Keywords: Asia Pacific, Australia, Banking, Insurance, Pensions, Superannuation, Securities, GCRA, Governance, Misconduct Risk, Operational Risk, Accountability Regime, Culture and Conduct, Remuneration, APRA
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