New prudential standard will focus on improving outcomes for consumers.
In an effort to improve accountability, governance and risk culture within the financial services industry, both the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) have been exploring and developing regulatory measures to better align remuneration with good conduct objectives.
Prior to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission) obligations were imposed on authorised deposit-taking institutions (ADIs) under the Banking Executive Accountability Regime (BEAR).
Following the Royal Commission there has been an unprecedented increase in the level of regulatory activity on this topic, and there have been steps taken to implement the recommendations and observations of Commissioner Hayne with respect to compensation and accountability of individuals at all levels of financial services companies – from senior executives down. As observed by Commissioner Hayne, too little attention has been given to the evident connection between compensation, incentive and remuneration practices; and regulatory, compliance and conduct risks.
Given our experience with the Senior Manager & Certification Regime in the UK, it came as no surprise that BEAR will be extended to all APRA-regulated financial services institutions.
Going forward, we anticipate that the regulators will be looking to exercise their powers under the accountability regime with respect to variable compensation. The regulators will be able to test both their resolve in enforcing the regime and also strongly signal to the industry their stance that remuneration regimes must be designed to encourage good conduct which benefits consumers.