The prudential regulator has revealed it will investigate the remuneration practices of banks, insurance companies and superannuation firms as it looks to promote good risk culture.
On Tuesday APRA released an information paper that provides a snapshot of current practice in risk culture in a range of banking, insurance and superannuation businesses.
APRA said it intends to conduct “a stocktake of current industry remuneration practices” to gauge how well existing requirements are being implemented, and how they are interacting with the risk cultures of regulated institutions.
“This will include reviewing the remuneration arrangements and outcomes for some senior executives, risk and control staff, and material risk-takers at a sample of institutions,” the regulator said.
“APRA will also use this opportunity to compare its remuneration requirements with more recent international regulatory developments and supervisory practices.
“This work will commence in 2016 and will continue into 2017. APRA will engage with industry participants, as well as relevant industry experts, throughout this period as it formulates its views.”
The information paper released this week notes that while there has clearly been a stronger focus on risk culture in recent years amongst APRA-regulated institutions, continued effort and ongoing attention is required by institutions to better understand and manage their risk cultures.
APRA chairman Wayne Byres said that although the findings show there has been a welcome focus on improving risk culture in recent years, it’s critical that industry sustains its focus on strengthening risk culture.
“It’s the responsibility of each institution’s leadership — led by their CEO and supported by their board of directors — to ensure they have a sound risk culture that supports its ability to operate in accordance with its strategy and risk appetite. This is not an easy task, but nonetheless it is critically important for an institution’s long-run health,” Mr Byres said.
“APRA cannot regulate sound risk culture into existence. However, APRA will apply greater supervisory intensity to institutions that are either unwilling or unable to address behaviours that are inconsistent with prudent risk management practices,” he said.