APRA finalises guidance for new prudential standard on remuneration

The Australian Prudential Regulation Authority (APRA) has published guidance to assist banks, insurers and superannuation licensees in meeting the requirements of the new prudential standard CPS 511 Remuneration (CPS 511).

CPS 511, which comes into effect from 1 January 2023, is designed to strengthen remuneration practices across all APRA-regulated entities. It introduces heightened requirements on remuneration and accountability aimed at creating more balanced incentive structures, promoting financial resilience and supporting better outcomes for customers.

The final Prudential Practice Guide CPG 511 Remuneration (CPG 511) released today will assist industry in complying with CPS 511 by setting out guidance and examples of better practice for:

• strengthening incentives for individuals to prudently manage the risks they are responsible for;
• implementing appropriate consequences for poor risk outcomes; and
• improving oversight, transparency and accountability on remuneration.

The finalisation of CPG 511 follows consultation on draft guidance in April 2021. In response to submissions, 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 Deputy Chair John Lonsdale said: “Effective implementation of CPS 511 will strengthen the resilience of the financial sector and rein in the kinds of poorly designed remuneration practices that have damaged community trust and prudential soundness in the past.

With just over a year to go until the new prudential standard takes effect, we expect banks, insurers and superannuation licensees to be preparing now to ensure they are ready to comply with the new requirements. This prudential practice guide should be essential reading for entities looking to make sure they understand their legal obligations under the new standard. APRA is also increasing its supervisory oversight of remuneration practices ahead of the implementation of CPS 511 to ensure appropriate preparations are being made.”

CPS 511 comes into effect on 1 January 2023 for the largest and most complex ADIs, and on a staggered basis for other entities. APRA expects to release new reporting and disclosure requirements on remuneration for consultation in 2022.

Copies of this publication are available on the APRA website at: Consultation on remuneration requirements for all APRA-regulated entities.