September 04, 2018

The APRA Chair Wayne Byres spoke at the Annual Risk Management Association CRO Conference that was held in Sydney. He emphasized that that the theme of this event, which revolves around regaining the lost confidence in the financial sector, is both timely and important. He outlined the key regulatory and supervisory activities that APRA is pursuing to support and reinforce the efforts to restore the standing of the financial sector. He discussed the work of APRA in the areas of building an effective risk culture, implementing the Banking Executive Accountability Regime (BEAR), and setting out the remuneration requirements.

According to Mr. Byres, understanding the attitudes to risk—that is, the risk culture—is fundamental to gaining confidence that an institution has robust risk management and is likely to remain in a sound financial position. Traditional prudential requirements for adequate financial resources may not be sufficient if faced with poor governance, weak culture, or ineffective risk management. He mentioned that the early goal in the risk culture work, coinciding with the commencement of CPS 220 on Risk Management in January 2015, was to raise awareness of the issue. However, getting a good handle on the risk culture of an organization—particularly a large and complex one—is not easy. Following the publication of an October 2016 information paper on risk culture, a cross-sectoral pilot program of risk culture reviews commenced. The first attempts proved informative, but also resource-intensive. Unfortunately, it was concluded that they were not going to be scalable. Now, the pilot risk culture assessment program is being re-scoped to make it more usable on a wider basis within the overall supervisory framework. The executives and their Boards are expected to establish and maintain the risk culture that they consider to be appropriate to their organizations, given their strategy and risk appetite. As set out in CPS 220, it is the job of the Board—inevitably supported by management—to form a view about whether the risk culture is appropriate and to initiate changes if required.

The APRA Chair noted that BEAR formally came into effect on July 01, 2018 for the largest banks while other authorized deposit-taking institutions have until mid next year to get themselves ready. The major banks have identified and registered their accountable persons, developed reasonably detailed accountability statements, and from these put together accountability maps for their organizations. Returning to the theme of the event, Mr. Byres noted that BEAR will not necessarily aid the industry to regain the community’s trust, at least directly. Use of the enforcement provisions of BEAR will demonstrate to the community that there will be clear and material consequences for poor prudential outcomes. He further mentioned that one of the components within the BEAR that has attracted quite a bit of attention is the remuneration requirements, which come into effect during the course of 2019. The review of remuneration policies and practices across a sample of large APRA-regulated entities found that remuneration frameworks and practices across the sample did not consistently and effectively meet the objective of sufficiently encouraging behavior that supports risk management frameworks and long-term financial soundness. Mr. Byres also flagged the three key areas in which improvement is needed: outcomes, metrics, and oversight. 

He mentioned, "....we intend to strengthen our prudential requirements in these areas......As senior leaders in the risk profession, I’d encourage you all to take a leadership role in this area to drive change. That will do far more to demonstrate a genuine commitment to regaining the trust than simply complying with new requirements imposed on you by regulators." Mr. Byres concluded that the efforts of the industry to strengthen risk culture, improve accountability, and develop more balanced performance measurement and remuneration practices are seen to be highly aligned with good prudential outcomes. However, increased regulation is an insufficient substitute for trust. It will ultimately be the industry’s collective behavior that determines the extent to which the trust and confidence of the community is regained.

 

Related Link: Speech

Keywords: Asia Pacific, Australia, Banking, BEAR, Risk Culture, Risk Management, CPS 220, Remuneration, APRA

Related Articles
News

IMF Releases Report on 2019 Article IV Consultation with United States

IMF published its staff report in the context of the 2019 Article IV consultation with the United States.

June 24, 2019 WebPage Regulatory News
News

BIS Report Discusses Regulatory Issues Related to Big Techs in Finance

BIS has pre-released a chapter of the BIS Annual Economic Report; this chapter focuses on the risks and opportunities presented by large technology firms in the financial services sector.

June 23, 2019 WebPage Regulatory News
News

IOSCO Report Examines Liquidity in Corporate Bond Markets

IOSCO published a report that examines the factors affecting liquidity, under stressed conditions, in the secondary corporate bond markets.

June 21, 2019 WebPage Regulatory News
News

FED Publishes Results of the 2019 Stress Tests for Banks

FED published a report presenting results of the Dodd-Frank Act Stress Test (DFAST) exercise for 2019.

June 21, 2019 WebPage Regulatory News
News

BCBS Report Examines Global Pillar 2 Supervisory Review Practices

BCBS published a report that examines the Pillar 2 supervisory review practices and approaches in Basel member jurisdictions.

June 21, 2019 WebPage Regulatory News
News

IASB Publishes Work Plan and Meeting Updates for June 2019

IASB published an updated work plan and a summary of its June meeting, which presents preliminary decisions of the Board.

June 21, 2019 WebPage Regulatory News
News

HKMA Publishes Banking Exposure Limits Code Under Banking Ordinance

HKMA issued a circular to all authorized institutions informing that the Banking (Exposure Limits) Code has been published in the Gazette on June 21, 2019.

June 21, 2019 WebPage Regulatory News
News

OSFI Proposes Guideline on Internal Model Oversight for Insurers

OSFI proposed the draft guideline E-25 on the internal model oversight framework for federally regulated property and casualty (P&C) insurance companies.

June 21, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: Third Update for June 2019

Under the Single Rulebook question and answer (Q&A) updates for this week, EBA published one answer regarding the calculation of institution-specific countercyclical capital buffer rates.

June 21, 2019 WebPage Regulatory News
News

SEC Finalizes Capital and Margin Requirements for Security-Based Swaps

SEC adopted a package of rules and rule amendments to establish capital, margin, and segregation requirements for security-based swaps, under Title VII of the Dodd-Frank Act.

June 21, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3304