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More on Remuneration

Friday 22 October 2021

The Australian Prudential Regulation Authority (APRA) has published guidance for the prudential standard in remuneration set to take effect in 2023.    

 “Effective implementation of CPS 511 will strengthen the resilience of the financial sector and rein in the kinds of poorly designed remuneration practices that have damaged community trust and prudential soundness in the past,” APRA Deputy chair John Lonsdale said in an official statement this week. 

The important elements laid out by the new practice guide:

  • strengthening incentives for individuals to prudently manage the risks they are responsible for;
  • implementing appropriate consequences for poor risk outcomes; and
  • improving oversight, transparency, and accountability on remuneration.
Almost a year ago APRA published a remuneration standard which was said to be more principals based. 
Lonsdale said at the time, “APRA’s revised standard on remuneration is deliberately principles-based to provide boards with flexibility to tailor remuneration frameworks to their entities.  However, with this flexibility comes an obligation that boards actively oversee remuneration policies for employees and ensure that there are appropriate consequences when people fail to meet expectations.”
On the current standard he stressed,” With just over a year to go until the new prudential standard takes effect, we expect banks, insurers and superannuation licensees to be preparing now to ensure they are ready to comply with the new requirements. This prudential practice guide should be essential reading for entities looking to make sure they understand their legal obligations under the new standard. APRA is also increasing its supervisory oversight of remuneration practices ahead of the implementation of CPS 511 to ensure appropriate preparations are being made.”