The Australian Prudential Regulation Authority (APRA) has launched two separate consultations to improve transparency and market discipline within the financial system.
One consultation will focus on proposed new remuneration disclosure and reporting requirements for all banks, insurers and superannuation funds regulated by APRA, while the other focuses on APRA’s proposals to update bank prudential disclosures to align with international standards and the new bank capital framework.
The proposed remuneration requirements will support the cross-industry Prudential Standard CPS 511 Remuneration (CPS 511), which was introduced last year to strengthen remuneration practices across the banking, insurance and superannuation industries.
APRA’s key proposals are:
- APRA-regulated institutions will be required to publicly disclose information on how their remuneration arrangements are designed, and how risk is factored into remuneration outcomes for key executives. This will ensure transparency on how executives are rewarded and incentivised, and on consequences where risk is managed poorly;
- large and complex financial institutions will be required to disclose how they have placed a material weight on non-financial metrics (such as risk management and conduct) and remuneration outcomes for the Chief Executive Officer, other key executives and material risk-takers;
- APRA will publish centralised statistics to provide greater comparability of remuneration outcomes across APRA-regulated entities, supported by reporting requirements that are proportionate to their size and complexity; and
- the proposed remuneration disclosure and reporting requirements will take effect after the implementation of CPS 511 in 2023 for large entities and 2024 for smaller entities.
In a separate discussion paper released today, APRA has announced its proposals to align public disclosure requirements for banks with international standards and with APRA’s Unquestionably Strong framework for bank capital.
As part of the proposed revisions to Prudential Standard APS 330 Public Disclosure (APS 330), APRA would also introduce a centralised publication of key prudential risk metrics to facilitate the comparison and analysis of the capital positions and risk profiles of local banks.
APRA further proposes to remove disclosure requirements relating to prudential risk metrics for smaller authorised deposit-taking institutions (ADIs). Instead, APRA will use the centralised publication to promote transparency and to reduce disclosure requirements for this segment of the banking industry.
The removal of disclosure requirements for small ADIs will take effect in 2023 to align with the new bank capital framework. The disclosure requirements for large banks will take effect from 2024.
Deputy Chair John Lonsdale said APRA was driving greater transparency for the financial system, while minimising complexity for smaller entities.
“Transparency is important to a well-functioning system. APRA’s proposed disclosure requirements will ensure investors and the community can see how key executives are rewarded, and that consequences are applied where there are poor risk outcomes.
“The planned update to bank disclosures will also give investors, depositors and the broader community the information they need to assess the prudential health of individual ADIs and the industry overall,” Mr Lonsdale said.
Both consultations are open until 7 October 2022.
Copies of the discussion papers are available on the APRA website at:
Remuneration requirements for all APRA-regulated entities
Public disclosure requirements for authorised deposit-taking institutions