APRA Finalizes Guidance for New Prudential Standard on Remuneration
The Australian Prudential Regulation Authority (APRA) published the prudential practice guide CPG 511 to assist banks, insurers, and superannuation licensees in meeting requirements of CPS 511, the new prudential standard on remuneration. CPS 511, which comes into effect from January 01, 2023, is designed to strengthen the remuneration practices across all APRA-regulated entities. It introduces the heightened requirements on remuneration and accountability with the aim of creating more balanced incentive structures, promoting financial resilience, and supporting better outcomes for customers. APRA expects to release the new reporting and disclosure requirements on remuneration for consultation in 2022.
APRA has aligned CPG 511 with the proposed Financial Accountability Regime of the government and provided additional examples of better practice, for example, for applying material weight to non-financial performance measures. CPG 511 should be essential reading for entities looking to ensure that they understand their legal obligations under the new standard. APRA is increasing its supervisory oversight of remuneration practices ahead of the implementation of CPS 511 to ensure that appropriate preparations are being made. CPG 511 will assist the target entities in complying with CPS 511 by setting out guidance and examples of better practice for:
- strengthening incentives for individuals to prudently manage the risks they are responsible for
- implementing appropriate consequences for poor risk outcomes
- improving oversight, transparency, and accountability on remuneration
APRA had released a draft CPG 511 for consultation in April 2021. APRA received 23 submissions during the consultation from regulated entities, industry associations, consultants, and governance bodies. Submissions largely focused on clarifying expectations in the guidance and sought further examples of better practice, particularly for applying material weight to non-financial measures in variable remuneration and meeting minimum deferral requirements. In respone, APRA has updated the guidance to align with the final CPS 511 requirements released in August 2021, in particular with respect to amendments on third-party service providers and risk and conduct adjustments; align with the proposed Financial Accountability Regime of the government, including for deferral and vesting requirements; and provide additional examples of better practice, such as for applying material weight to non-financial measures.
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Effective Date: January 01, 2023
Keywords: Asia Pacific, Australia, Banking, CPG 511, Remuneration, CPS 511, Financial Accountability Regime, Reporting, Disclosures, Operational Risk, Basel, APRA
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