APRA has released its proposed new remuneration disclosure and reporting requirements for APRA-regulated entities for consultation. This article explores the key features of the new and enhanced disclosure requirements proposed by APRA.
APRA proposes to require all APRA-regulated entities to publicly disclose information about the design and governance of remuneration, and consequence management outcomes. APRA’s stated objective is to allow entities to transparently demonstrate how their remuneration practices have strengthened under the new prudential standard CPS 511.
These requirements are intended to align with the key objectives of CPS 511 to provide an important mechanism for entities to demonstrate to external stakeholders, such as APRA, that they are meeting their obligations to prudently manage remuneration practices.
The key features of the proposed disclosure requirements are:
1. Disclosure requirements for SFIs and non-SFIs - APRA has specified a proscriptive list of information required for disclosure. Different disclosure requirements apply depending on whether the APRA-regulated entity is a significant financial institution (SFI) or a non-SFI. The table below summarises the proposed disclosure requirements and how they differ for SFIs and non-SFIs:
2. APRA to publish key quantitative information - APRA will publish key quantitative information on remuneration outcomes, on a cohort basis for specified roles, for all APRA-regulated entities. The purpose of this is to increase transparency on remuneration at all APRA-regulated entities.
3. Implementation date - the disclosure requirements would take place after there has been a full financial year following the implementation date of CPS 511. CPS 511 comes into force for ADIs that are SFIs on 1 January 2023; insurance and RSE licensee SFIs on 1 July 2023; and all other entities on 1 January 2024. APRA proposes that all entities disclose information on remuneration no later than four months after the end of their financial year.
4. Cohort reporting – APRA does not expect entities to report individual remuneration information. For SFIs, an APRA-regulated entity is only required to disclose remuneration information for a particular cohort of specified roles if that particular cohort (except for the CEO) comprises more than 5 individuals; and in respect of risk and financial control personnel, only information relating to personnel that directly report to a Senior Manager must be reported.
5. Public disclosure of remuneration information – an APRA regulated-entity must make its remuneration disclosures available as a separate standalone document annually on its website.
Key points to note
The key points to note are:
1. Certain entities are already required to disclose remuneration details – some APRA-regulated entities already have disclosure requirements under the Corporations Act 2001 (Cth) (Corporations Act) or the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act). APRA’s expectation is that entities will meet their collective disclosure obligations in a concise, cost-effective and efficient manner, and explain how their remuneration framework promotes effective management of financial and non-financial risks. For example, an entity could decide to meet its Corporations Act or SIS Act disclosure requirements and CPS 511 disclosure requirements in the same document.
However, the remuneration information required to be disclosed for CPS 511 purposes differs from Corporations Act remuneration reporting a number of material ways:
The enhanced quantitative details required to be disclosed in relation to remuneration deferred and downward adjustment outcomes go significantly beyond the Corporations Act requirements and will impose significant additional reporting requirements.
2. Disclosure requirements are broader than international peers – the proposed disclosure requirements are broader than the international approaches set by the UK’s Prudential Regulation Authority (PRA), the European Banking Authority (EBA), BCBS and FSB. APRA has stated that the differences generally reflect differences in the underlying prudential requirements rather than in disclosure requirements alone.
3. Reporting deferred variable remuneration – There is established market practice of ADIs assessing their BEAR deferral obligations by considering an Accountable Person's variable remuneration for a year to include the STI paid in the year (which typically relates to performance in the previous year) and the LTI granted in the year (which typically will be assessed against performance over the next 3-4 years).
On the other hand, the reporting requirement in proposed paragraph 64 of CPS 511 requires the remuneration reporting for a year to align with the approach taken in the remuneration report for listed companies such that the variable remuneration for the year includes payments that relate to performance or service during the financial year even if they are made following the end of the financial year (i.e. the focus is on the performance year to which the payment relates rather than the time at which the payment is made).
ADIs who have previously approached BEAR deferral calculations by considering the STI paid in the year even though it does not relate to service in that year will need to consider whether there will be a mismatch between their deferral calculations and the new reporting requirements. Consideration should also be given to paragraph 40 of CPS 511 what states that the deferral period for CPS 511 must include the period over which performance is assessed which would suggest a different approach applies to BEAR.
4. Reporting requirements under CRS 511.0 – under the proposed CRS 511.0, all APRA-regulated entities would also be required to report qualitative and quantitative data on entities’ remuneration governance, and variable remuneration design and outcomes, which would include information on specified roles, deferrals and consequence management. APRA noted that in many cases, entities already supply much of this data to third party remuneration consultants for the purposes of benchmarking. CRS 511.0 will have a staggered implementation date in line with CPS 511 and will be an annual collection of financial year-end data. It is proposed that entities would submit data under CRS 511.0 four months after the end of their financial year, in line with the disclosure requirements.
APRA has requested responses to this consultation on the proposed disclosure and reporting requirements by 7 October 2022. APRA then plans to review the industry’s feedback and finalise the requirements by the end of 2022.
APRA’s consultation questions are as follows: