APRA addresses accountability

In a speech delivered on 20 February 2020, Hellen Rowell, Deputy Chair at the Australian Prudential Regulation Authority (APRA) addresses several issues raised by the Royal Commission into Financial Services. Commenting on the responsibility of Boards, Mrs Rowell, said they were accountable for “the performance of their companies, executives and employees, and the outcomes they deliver to consumers. APRA is responsible for holding entities, including boards and senior managers, to account for meeting their prudential obligations, and we are accountable for making sure we use the tools and new powers we have to do just that.”

For revising APRA’s proposed new prudential standard on remuneration, Mrs Rowell said: “We have been thinking hard about the options, especially around the 50 per cent limit on financial performance measures. The introduction of a limit on the use of financial metrics in connection with long-term variable remuneration was a recommendation of the Royal Commission. Our challenge in revising the draft standard is to design a package of requirements that remains true to the intention of the recommendation (…) and is also suitable across entities of widely different size, nature, and complexity.”

APRA is engaging with the Government in the development of the Financial Accountability Regime (FAR) package, as the intention is to introduce legislation creating FAR before the end of the year. “The FAR proposals provide an opportunity for entities to be pre-emptive and establish clear lines of accountability to potentially head off future problems. Doing so will ensure that if and when significant failings happen, the entity itself can quickly and effectively enforce appropriate accountability. Insurers and superannuation entities are not immune from risks and poor outcomes, and many business operations are becoming larger and more complex.

Clarifying lines of accountability in large, complex institutions makes business sense. Using the FAR and APRA’s new remuneration standard to drive positive cultural change and discourage poor performance and misconduct makes business sense. It is ultimately in institutions’ long-term financial interests for their boards and management to take the lead on enhanced accountability because a greater emphasis on accountability in the post-Hayne era is inevitable.”

The full speech is available on the APRA website at https://www.apra.gov.au/news-and-publications/deputy-chair-helen-rowell-speech-to-australian-institute-of-company-directors.