Featured Product

    APRA Finalizes Prudential Standard on Remuneration Practices

    August 27, 2021

    The Australian Prudential Regulation Authority (APRA) finalized the prudential standard (CPS 511) to strengthen remuneration practices across the banking, insurance, and superannuation industries. APRA published a response paper that sets out its response on feedback received on the consultation for CPS 511. The prudential standard on remuneration practices will come into effect from January 01, 2023, with a phased implementation starting with large authorized deposit-taking institutions. To support entities in transitioning to the new CPS 511 requirements, APRA is in the process of finalizing CPG 511, the Prudential Practice Guide on remuneration. CPG 511 outlines examples of better practices to assist entities in meeting the requirements of CPS 511. The consultation on the draft Guide closed on July 23, 2021, with the final Guide expected to be released in October 2021.

    CPS 511 introduces heightened requirements on remuneration and accountability, with the aim to create more balanced incentive structures, promote financial resilience, and support better outcomes for customers. The requirements in this standard fulfil three of the key recommendations of the Financial Services Royal Commission to APRA. This prudential standard is expected to raise the bar for remuneration practices across all APRA-regulated industries. The final version of the prudential standard incorporates three minor revisions in response to the feedback received on the proposal:

    • Remuneration arrangements of service providers. APRA amended CPS 511 to clarify that a regulated entity must identify and mitigate material conflicts to the objectives of its remuneration framework that may result from third-party service provider compensation arrangements. APRA plans to include examples of better practices in CPG 511.
    • Downward adjustments to variable remuneration. APRA revised the approach for linking the severity of risks to particular adjustment tools. The final CPS 511 clarifies that downward adjustments to variable remuneration must be proportionate to the severity of adverse risk and conduct outcomes. An entity can use in-period adjustments, such as a modifier, malus, and clawback, to ensure that the adjustment to variable remuneration appropriately reflects severity. CPG 511 will provide better practice examples to assist entities in assessing severity.
    • Significant Financial Institutions thresholds. With respect to the significant institution thresholds, APRA increased the quantitative asset threshold to AUD 20 billion from AUD 15 billion. This aligns with proportionality thresholds used in other parts of the authorized deposit taking institution prudential framework. 

    APRA will ensure there is appropriate alignment between the design and implementation of CPS 511 and the proposed Financial Accountability Regime of the government. The proposed Financial Accountability Regime will set minimum requirements for deferral of variable remuneration by all regulated entities. APRA is working closely with the Australian Treasury and may amend CPS 511, where appropriate, once the proposed Financial Accountability Regime is finalized. To reinforce accountability for effective implementation, APRA plans to also consult on the disclosure requirements for remuneration early next year. The regulated entities should publicly demonstrate how they have strengthened their remuneration arrangements in line with CPS 511 requirements and the disclosure requirements will better enable stakeholders to hold entities to account for prudent management of remuneration.


    Related Links

    Effective Date: January 01, 2023

    Keywords: Asia Pacific, Australia, Banking, Remuneration, CPS 511, CPG 511, Disclosures, Governance, Operational Risk, Proportionality, Financial Accountability Regime, ESG, APRA

    Related Articles

    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).

    February 28, 2024 WebPage Regulatory News

    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.

    February 28, 2024 WebPage Regulatory News

    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.

    February 26, 2024 WebPage Regulatory News

    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.

    February 23, 2024 WebPage Regulatory News

    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.

    February 23, 2024 WebPage Regulatory News

    BIS Bulletin Examines Cognitive Limits of Large Language Models

    The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.

    January 25, 2024 WebPage Regulatory News

    ECB is Conducting First Cyber Risk Stress Test for Banks

    As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.

    January 24, 2024 WebPage Regulatory News

    EBA Continues Momentum Toward Strengthening Prudential Rules for Banks

    A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.

    January 24, 2024 WebPage Regulatory News

    EU and UK Agencies Issue Updates on Final Basel III Rules

    The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards

    December 19, 2023 WebPage Regulatory News

    Industry Agency Expects Considerable Uptake for Swiss Climate Scores

    The Swiss Federal Council recently decided to further develop the Swiss Climate Scores, which it had first launched in June 2022.

    December 18, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8952