Remuneration as a strong driver of risk culture in regulated institutions including banks and superannuation funds will be re-examined from this year by the Australian Prudential Regulation Authority (APRA).
APRA today confirmed its intention to review current industry remuneration practices to assess the effectiveness of existing requirements, the level to which they were being implemented in day-to-day business, and how they were influencing the level of risk culture in regulated institutions.
In a risk culture information paper released today, APRA has called for regulated institutions to work alongside prudential regulators on risk culture-related issues, citing a need for institutions to better understand the complexities of risk culture and its triggers in order to fulfil legal requirements outlined in APRA’s existing requirements on risk management (Prudential Standard CPS 220 Risk Management).
According to the paper, attention given to risk culture in relation to governance, remuneration, and risk appetite has increased significantly since the Global Financial Crisis (GFC), and currently remains consistent with expected international frameworks, which called for increased education on organisational cultures and risk, increased public advocacy, stronger regulatory expectations and proactive action for assessing risk culture to protect obligations to funds members and policyholders.
Current regulatory requirements for risk culture in Australia focus on approaches for assessing, monitoring and communicating various types and levels of risk and on how successfully this is embedded as a business culture by executives and institutional boards.
APRA would now follow on from an information gathering exercise commenced in 2015 which saw discussions with APRA-regulated institutions across the insurance, ADI, and superannuation sectors on how best to effectively understand risk culture. The assessment would review remuneration arrangements for staff across various levels, including senior executives and risk and control staff. APRA will also examine identified ‘risk-takers’ across a sample of institutions.
In addition to this, the paper outlines the intention of APRA to commence discussion with international regulators and supervisory practices this year, in order to compare Australian remuneration requirements.
This was expected to continue into 2017.
