(2 June 2009 – Australia) The remuneration of authorised deposit taking institutions and general and life insurance companies are set to come under new laws implemented by APRA.The Australian Prudential Regulation Authority (APRA) released a consultation package on remuneration for authorised deposit-taking institutions and general and life insurance companies.
APRA is looking to ‘endorse and implement’ the Financial Stability Forum’s (FSF) ‘tough new principles on pay and compensation’, as quoted from the Declaration by the Leaders of the G20 in April.
APRA said that it will require Boards of regulated institutions to have a remuneration policy that aligns remuneration arrangements with the long-term financial soundness of the institution and its risk management framework, structured in a way that suits the type of organisation.
The policy would extend beyond senior executives to all persons who, because of their roles, have the capacity to make decisions that could materially affect the interests of depositors or policyholders, and owners, APRA said.
APRA executive member, John Trowbridge said that the risks associated with remuneration arrangements must be managed as part of the institution’s risk management framework.
The Australian Bankers’ Association (ABA) welcomed the consultation, and said that if there are sensible ways of improving risk management through imposing remuneration principles by legislation, then the ABA will support them.
The ABA did, however, indicated that it could be difficult to implement the requirements across such a wide variety of employees in larger organisations.
APRA is seeking submissions on the draft standards and PPG by 24 July, while it expects the requirements to be effective from the start of 2010.