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APRA Focus on Culture

Friday 26 November 2021

Governance, risk culture, remuneration and accountability have to all work or none of them will be adequately effective.

Australian Prudential Regulation Authority (APRA) Deputy Chair  Helen Rowell explained in a recent address, “…it is important that organisations understand whether the various streams of GCRA are aligned and working together.”
Rowell’s focus in largely faced on the role internal auditors.

In 2022, the prudential regulator will be looking be looking at the way organisations have been implementing GCRA in their organisations, but also looking beyond design effectiveness of  risk management and compliance controls to see how they are operating.

Rowell said that this would include making sure that boards and senior management are being ‘vigilant’ and will not repeat past mistakes.

“With just over a year to go until our new remuneration standard, CPS 511, takes effect, APRA expects banks, insurers and superannuation licensees to be preparing to comply with the new requirements,” she said.
The Standard
The Prudential Standard  CPS 511, that Rowell is referring to, will place particular focus on three key areas:

  • updated guidance to align with the final CPS 511 requirements released in August 2021, in particular with amendments on third-party service providers, and risk and conduct adjustments;
  • aligned guidance with the Government’s proposed Financial Accountability Regime (FAR), including for deferral and vesting requirements; and 
  • additional examples of better practice, such as for applying material weight to non-financial measures.
In addition,  all variable remuneration is subject to deferral agreements, but this would not affect variable remuneration  agreements if the opportunity to earn this comes before the prudential standard commences.
What’s Next?
“Over the next 18 months, APRA will have a strong supervisory focus on industry’s implementation of the new CPS 511 requirements. For a subset of entities, APRA will undertake a more detailed review of implementation progress, including benchmarking against peers,” the Deputy Chair said.

In addition to risk culture surveys that APRA is/or will be undertaking with Banks, insurance and superannuation, Rowell said that there will also be other related publications to guide APRA-regulated entities.

“When it comes to financial institutions, we need internal auditors to ask themselves:  how can I get the true picture of the risk culture of my organisation? How do I identify GCRA issues in my organisation before they manifest in a real problem? How do I ensure I’m looking at the right things, that I’m capturing the relevant issues and concerns and – perhaps most importantly – providing real insight back to the board? The recent release by the IIA [Institute of Internal Auditors] of “
A Practical Guide to Auditing Risk Culture” provides a useful reference to help you do this.”