Banks’ culture and governance next target for Australian regulators
Australia’s Predential Regulation Authority (APRA) has said it’s going to ask the country’s financial firms to declare their annual reports on governance and corporate culture, as part of the regulator’s four-year plan to improve standards in the industry.
Following a report by the Royal Commission which uncovered decades of misconduct, from misselling for big bonuses to charging fees for no service, these new requirements by the regulator will see “deep dive” reviews if firms do not live up to the mark.
With his speech now published on the APRA’s website, its chairman Wayne Byres focused on transforming governance, culture, remuneration and accountability, calling them ‘GCRA’ for short, at a forum in Sydney this week.
Byres says: “It is difficult to genuinely claim to be strong in one if you do not have reasonable strength in the others. Moreover, it only takes weaknesses in one to undermine the other three.”
The regulator plans to name and shame companies with the worst GCRA records, whilst holding up those with the best as exemplary examples.
Affirming its own actions, the APRA says it’s “not aware of any peer regulator who has such an aspirational and wide-ranging plan”.
As well as supervising GCRA, the regulator wants to strengthen the prudential framework by introducing a maximum cap on the use of financial metrics. “Unsurprisingly, our proposals have not been warmly welcomed,” says Byres, who challenges the industry to come up with an “alternative” that isn’t just “the status quo”.
If industry practice changes, Byres says the regulator will ensure boards use discretion when considering remuneration outcomes.
In tandem with new regulation, the regulator will also be sharpening up its supervision, using a variety of technology and human-delivered methods to “restore community trust in the financial system as a whole”.
Since the Banking Executive Accountability Regime (Bear) was enforced, Byres says the APRA has had “a much stronger role in enforcing accountability”. This regime establishes accountability obligations for authorised deposit-taking institutions (ADIs) and their senior executives and directors.
Byres final message in Sydney was this: “Regulated institutions must lift standards of governance, improve their internal cultures, and embed systems and practices of remuneration and accountability that support the long-term interests of their full range of stakeholders.”