The Australian Prudential Regulation Authority (APRA) has published Prudential Practice Guide CPG 511 Remuneration (CPG 511) to assist banks, insurers and superannuation licensees in meeting the requirements of the new prudential standard CPS 511 Remuneration (CPS 511) which comes into effect on 1 January 2023 for the largest and most complex ADIs (Significant Financial Institutions or SFIs), and on a staggered basis for other entities. Background.
The PPG is intended to guide entities to enhance Board oversight, improve the use of non-financial measures in remuneration design and ensure there are appropriate consequences for poor risk management.
Certain requirements in CPS 511 only apply to significant financial institutions (SFIs). There are simpler requirements for smaller and less complex entities.
The minimum asset size thresholds for SFIs are
- Authorised deposit-taking institutions >$20 billion
- General and Life insurers >$10 billion
- Private health insurers >$3 billion
- Registrable superannuation entities >$30 billion.
Under CPS 511, foreign branches with assets above the SFI threshold are required to defer the variable remuneration of highly paid material risk-takers, in line with the requirements of SFIs. Foreign branches would not need to meet other SFI requirements, unless otherwise determined by APRA.
CPG 511 discusses the role of the Board, the remuneration framework, remuneration design and risk and conduct adjustments.
APRA has aligned the guidance with the Government’s proposed Financial Accountability Regime (FAR) and provided additional examples of better practice, such as for applying material weight to non-financial performance measures.
APRA expects to release new reporting and disclosure requirements on remuneration for consultation in 2022.
APRA-regulated entities will be required to comply with the new CPS 511 requirements from 1 January 2023, under a staged implementation approach:
- ADI SFIs from 1 January 2023;
- Insurance and RSE licensee SFIs from 1 July 2023; and
- Non-SFIs (across all APRA-regulated industries) from 1 January 2024.
CPS 511 requirements will not apply to a person’s variable remuneration if the opportunity to earn the variable remuneration arose before the relevant commencement dates of the Prudential Standard. In practice, APRA says this would mean that an ADI SFI with a 30 June financial year-end must have incorporated CPS 511 requirements into the variable remuneration arrangements of all staff from 1 July 2023 onwards. APRA considers it appropriate to provide the same flexibility to APRA-regulated entities for new employees, who might join after the commencement date of the Prudential Standard but ahead of the entity’s new financial year.
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Author: David Jacobson
Principal, Bright Corporate Law
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About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.
