The Australian Prudential Regulation Authority (APRA) has set out its policy and supervision priorities for the next 12 to 18 months. The regulator lists “transforming” governance, culture, remuneration and accountability (GCRA) across all APRA-regulated institutions as a core focus.
Initiatives that aim to drive improvements in GCRA are listed as “key cross-industry policy priorities for 2020,” and include an updating of its prudential standards on governance and risk management. APRA also notes that it will be conducting a range of GCRA-related supervisory reviews and “deep dives,” and that it will require supervised entities to conduct “self-assessments” in order to drive greater accountability.
“APRA is reviewing its governance and risk management standards to ensure that these remain fit for purpose,” the APRA report indicates. “Areas for review will include the clarity of board and senior management roles and expectations, the effectiveness of board obligations in relation to risk culture, the relative emphasis on financial and non-financial risks, and the clear need to strengthen the requirements in relation to compliance and audit functions.”
A related report from KMPG in Sydney argues that Australian financial institutions must work to design and conduct effective internal culture assessments, identify appropriate “culture indicators,” and develop reliable metrics through the use of data technologies.
An independent “Capability Review” conducted last summer criticized APRA harshly for a perceive failure to give adequate attention to GCRA matters. “APRA appears to have developed a culture that is unwilling to challenge itself, slow to respond and tentative in addressing issues that do not entail traditional financial risks,” the review said. News reports at the time indicted that APRA’s own “culture team” struggled to gain traction internally. “We are good with the old school stuff, but not good with challenges like culture and governance,” an APRA employee reportedly told the review panel.