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APRA consults on BEAR obligations for smaller ADIs

APRA has launched a four-week consultation on how the BEAR applies to variable remuneration arrangements for small to medium-sized ADIs and has appointed Vizor to lead the transformation of its data reporting process.

The Australian Prudential Regulation Authority (APRA) is encouraging feedback on its proposed legislative instrument aimed at ensuring that the deferred remuneration obligations under the Banking Executive Accountability Regime (BEAR) applies regardless of the corporate structure of a small or medium-sized authorised deposit-taking institution (ADI).

Under the BEAR, which came into effect for the big four banks on 1 July 2018, banks are expected to establish a remuneration policy requiring that a portion of executives’ variable remuneration be deferred for a minimum of four years and reduced commensurate with any failure to meet their obligations to act in the best interests of customers.

Before the regime comes into effect for other ADIs on 1 July 2019, the prudential regulator is proposing that “only the portion of the individual’s variable remuneration that relates to the accountable person role would be subject to the deferral requirements” regardless of an ADI’s organisational structure or whether they’re locally or internationally incorporated.

“APRA expects this proposed legislative instrument will not result in any large ADI (i.e. major bank) initiating any changes to the amount of deferred remuneration, as the legislative instrument does not apply to their particular corporate structure,” the regulator wrote in its letter to ADIs.

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The regulator also released a schedule outlining what it would not consider variable remuneration. For ADIs, non-variable remuneration is any amount that:

  • is paid or payable to the accountable person by a related body corporate of the ADI or subsidiary;
  • relates only to the accountable person holding a position in one or more related bodies corporate of the ADI or subsidiary; and
  • the related bodies corporate referred to in (a) or (b) are not ADIs or subsidiaries of ADIs.

For foreign ADIs, non-variable remuneration is any amount that:

  • is paid or payable to the accountable person by the foreign ADI or a related body corporate of the foreign ADI; and
  • relates only to the activities of the foreign ADI outside of Australia or the accountable person holding a position in an Australian-incorporated non-ADI subsidiary of the foreign ADI.

Submissions to the consultation are to be provided by 30 April 2019.

Transforming the data reporting process for ADIs

The prudential regulator also announced that, after a “rigorous and extensive” tender process, it has selected a tool developed by Irish software provider Vizor to replace the regulator’s Direct to APRA (D2A) data reporting system, released nearly two decades ago in 2001.

IT managed services provider Dimension Data has been appointed to roll out the solution, which will be used by more than 4,500 financial services entities to meet their regulatory reporting requirements.

The prudential regulator admitted that D2A has become “increasingly challenging for both industry and APRA to use and maintain” and that replacing the system is part of its “broader data modernisation program”.

The prudential regulator in July 2018 said it wanted a new solution that would result in “improved usability, productivity and efficiency gains, lower cost of change, and reduced maintenance costs”.

APRA’s executive general manager for risk and data analytics, Sean Carmody, said: “We are confident this partnership will deliver a robust solution that will allow financial companies to report data to APRA more quickly, efficiently and accurately.

“Reliable data is critical for monitoring the institutions APRA supervises and to allow APRA and other agencies to protect the Australian community by ensuring the stability of the financial system.”

The new data collection solution will be a web-based portal to be released next year in March following a period of testing and training.

[Related: APRA revises ADI credit risk management standard]

APRA consults on BEAR obligations for smaller ADIs
APRA
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