The big banks have been placed on notice that their executive remuneration regimes will have to become more transparent and that variable remuneration will have to be variable in practice.
The Australian Prudential Regulation Authority executive general manager, Policy and Advice, Pat Brennan has flagged to a Sydney forum that before the middle of the year the regulator will be releasing a consultation paper ahead of an updated prudential standard on remuneration.
He said that the consultation paper represented a follow-on from APRA’s 2018 Information Paper on Remuneration practices at large financial institutions “where we found that practices were not as robust as they should be”.
“We have also learnt a great deal from the CBA Prudential Inquiry and of course the Royal Commission,” Brennan said.
“The new standard will be stronger and be primarily focused on outcomes. This will include that performance assessment must reflect consideration of all relevant contributions to performance, including risk management,” he said. “Banks will need to be transparent with APRA on how remuneration decisions are made; and variable remuneration must be truly variable in practice.”
Brennan also flagged that APRA would be refreshing its governance and fit and proper standards as part of an improved accountability regime for financial institutions, particularly the new regime to be run by the Australian Securities and Investments Commission (ASIC) in parallel with APRA’ s Bank Executive Accountability Regime (BEAR).
“Again, this will be in light of what we have learned through our supervisory activity, through the CBA Prudential Inquiry and the findings of the Royal Commission,” he said.