APRA has published the findings of its Prudential Standard CPS 511 Remuneration implementation review which involved all Significant Financial Institutions (SFIs). Background: Remuneration disclosure

APRA says that while the review predominantly involved SFIs, the findings are relevant to all APRA-regulated entities. 

APRA found early signs of a step change in remuneration practices, including entity efforts to strengthen alignment of remuneration and risk management in remuneration frameworks. This was evident through inclusion of risk measures in variable remuneration design and downward-adjustment processes. Board engagement had improved across all entities, including through Remuneration Committee oversight of CPS 511 implementation.

While APRA was broadly comfortable with entities’ progress to implement CPS 511, given the timing of the review they were more focused on the design of their remuneration frameworks. To ensure sustainable change, industry should consider the following common gaps observed during the review:

• limited progress implementing controls to manage potential conflicts arising from compensation arrangements of third-party service providers;
• inadequate understanding of how selected non-financial measures (NFMs) will drive desired behaviour, risk outcomes and performance; and
• insufficient rigour in the proposed processes to ensure remuneration consequences result from poor risk management outcomes.

Once remuneration outcomes start to be determined under the new requirements, APRA will be better able to assess whether CPS 511’s key objectives have been fully satisfied. APRA’s approach to this will be risk-based, such as through prudential reviews and engagements.

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