APRA launches consultation on remuneration and bank disclosures
10 August 2022
10 August 2022
Last year, APRA released the final version of CPS 511 which aims to improve transparency and strengthen accountability in relation to regulated entities' remuneration arrangements. For further information on CPS 511, please see our previous Financial Services Update.
On 6 July 2022, APRA released for consultation proposed amendments to CPS 511. The amendments contain new disclosure requirements and a draft Reporting Standard CRS 511.0 Remuneration (draft CRS 511.0). APRA's discussion paper and associated documents can be found here. Together, the proposed changes seek to promote greater transparency in remuneration practices across APRA-regulated entities.
The proposed amendments to remuneration requirements are outlined below:
TOPIC | PROPOSED CHANGES |
---|---|
Disclosure on remuneration arrangement design |
Under the proposed amendments to CPS 511, entities will be required to publicly disclose information relating to their remuneration practices on an annual basis, including:
The disclosure requirements will be proportionate to the size of an entity and the complexity of its remuneration arrangements. Accordingly, "Significant Financial Institutions" (SFIs) as defined under CPS 511, will be required to disclose additional quantitative information including how they have placed material weight on non-financial metrics (such as risk management and conduct) in determining remuneration outcomes, as well as the remuneration outcomes for the Chief Executive Officer, other key executives and material risk-takers. APRA intends that the new disclosures will allow entities to demonstrate to external stakeholders the strengthening of their remuneration practices in line with the requirements in CPS 511. |
Reporting requirements |
Draft CRS 511.0 will require all entities to report specified qualitative and quantitative remuneration data, in a specified reporting template, to APRA including:
APRA's objective in introducing CRS 511.0 is to ensure that its data collection supports its supervisory activities and prudential decision-making. |
Publication of centralised remuneration statistics |
APRA intends to use the data it collects to publish centralised remuneration statistics. This will facilitate comparison of remuneration outcomes and promote greater transparency across the industry. APRA specifically notes that there has been a loss of trust in financial entities, as highlighted by the Royal Commission, and emphasises the ongoing need for accessible and clear information. |
APRA has proposed that the new remuneration disclosure and reporting requirements will take effect consistently with the staggered implementation of CPS 511 by entity size and industry. This means that the requirements would apply as follows:
Key issues that APRA is seeking feedback on include:
On 6 July 2022, APRA also released for consultation proposed amendments to APS 330 which requires locally-incorporated ADIs to publicly disclose key prudential information about their risk profile and capital position. The discussion paper and draft APS 330 can be found here.
As with the remuneration proposals, the changes aim to promote greater transparency and accountability among ADIs. They also respond to previous feedback from market participants that ADI disclosures are complex and difficult to use for analysis.
The proposed amendments to APS 330 are outlined below:
TOPIC | PROPOSED CHANGES |
---|---|
Alignment with international standards and new bank capital framework |
Since APS 330 was last updated in 2018, the Basel Committee has updated their Pillar 3 disclosure framework to align with the final Basel III framework for prudential regulation of banks. APRA has proposed amending APS 330 to incorporate the Basel Committee's disclosure requirements by reference. This will allow APS 330 to align with the updated international standards as well as APRA's new ADI capital framework. Under the revised framework, ADIs will be required to disclose a broad range of prudential information to assist stakeholders with assessing an ADI's risk profile and capital position. |
Centralised publication of risk metrics |
APRA has proposed introducing a new centralised dashboard of prudential metrics which compiles key prudential data points on the risk profile and capital position of all locally-incorporated ADIs. Similar to the remuneration disclosure proposals, APRA intends that this will facilitate access to high quality prudential information, enabling market participants to compare and evaluate an ADI's risk profile effectively. Additionally, APRA has also proposed bringing forward the requirement for IRB ADIs to disclose their capital floor to enhance comparability across banks. This would apply from 1 January 2023 to align with the implementation of the new ADI capital framework. |
Removal of disclosure requirements for small ADIs |
APRA has proposed removing disclosure requirements for smaller ADIs and to only apply these to SFIs. Instead, it will rely on the centralised publication of risk metrics outlined above to promote transparency for the smaller ADI cohort of the industry. This proposal aims to promote proportionality and simplicity in APRA's public disclosure standard. As a consequential amendment, APRA is proposing to bring forward the removal of public disclosure requirements for non-SFI ADIs to 1 January 2023 to align with the new capital framework. |
APRA seeks to finalise APS 330 in 2022, enabling ADIs 12 months to implement the requirements before the effective date of 1 January 2024.
Key issues that APRA is seeking feedback on include:
Both consultations will be open until 7 October 2022. APRA will then review industry feedback with a view to finalising both the remuneration disclosure and reporting requirements under CPS 511 and draft APS 330 by the end of 2022.
APRA-regulated entities should review the proposed amendments, consider how they may apply and determine what impact they will have on their existing disclosure frameworks. Submissions can also be made to APRA on these matters to highlight any concerns or suggestions for better implementation.
Author: Daniel Fawcett, Senior Associate; Vivien Lin, Graduate.
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.