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APRA consults on guidance in support of prudential standard on remuneration

Friday 30 April 2021

The Australian Prudential Regulation Authority (APRA) has commenced consultation on draft guidance to assist industry meet the requirements of APRA’s updated prudential standard on remuneration.

The draft Prudential Practice Guide CPG 511 Remuneration sets out principles and examples of better practice to assist banks, insurers and superannuation licensees comply with prudential standard CPS 511 Remuneration, which will be finalised later this year. 

CPS 511 will materially strengthen remuneration requirements, particularly for larger and more complex regulated entities, which will be required to assign material weight to non-financial measures when assessing variable remuneration outcomes, and implement longer vesting periods for executive bonuses.

The draft prudential practice guide will assist entities comply with the new standard by:

  • outlining examples of better practice in board oversight, including robust challenge and independent scrutiny;
     
  • setting out frameworks for defining non-financial measures and determining material weight for use in calculating variable remuneration; and 
     
  • setting out principles for downward adjustments of variable remuneration where there have been poor risk outcomes.

APRA Deputy Chair John Lonsdale said CPS 511 and CPG 511 will address shortcomings in remuneration arrangements across APRA’s regulated population.

“As the financial services Royal Commission too often illustrated, weaknesses in remuneration and accountability practices can incentivise inappropriate behaviour, leading to poor consumer outcomes and financial damage to companies themselves.

“APRA’s prudential standard on remuneration, supported by this guidance, will bolster the resilience of the financial sector by ensuring senior executives are not rewarded – and, indeed, face consequences – for poor risk management,” Mr Lonsdale said.

The closing date for submissions on the draft CPG 511 is 23 July 2021. APRA is currently reviewing stakeholder submissions on the revised CPS 511 that was released for consultation in November last year, but does not anticipate material changes. The final versions of CPS 511 and CPG 511 will be published in the second half of this year.

Copies of the draft CPG 511 and a consultation letter to industry are available on APRA’s website at: Consultation on remuneration requirements for all APRA-regulated entities.
 

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The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry. APRA currently supervises institutions holding $7.9 trillion in assets for Australian depositors, policyholders and superannuation fund members.