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Background
In May 2009 APRA released a consultation package on employee remuneration by authorised deposit taking institutions and general and life insurance companies. This consultation package followed from a declaration made by the leaders of the G20 in October 2008 arising out of the global financial crisis.
The aim of the consultation package was to put together governance standards and a prudential practice guide (PPG) to align remuneration and risk management.
Draft governance standards and a draft PPG were released in May 2009 and, following proposals and submissions, a redrafted version was released on 7 September 2009. The final PPG was released on 30 November 2009, taking into account further submissions made.
Timing
The final governance standards were released on 30 November 2009 and must be complied with by 1 April 2010.
Regulated institutions may need to undertake a substantial amount of work to ensure they have remuneration policies and employment and consultancy agreements that comply with the APRA governance standards, so to be compliant by 1 April 2010 may not be easy.
APRA's Approach
APRA's approach is to lay down general governance standards rather than to set out prescribed methods of remuneration.
However, if APRA takes the view that remuneration arrangements of an authorised deposit taking institution or general and life insurance company are likely to encourage excessive risk taking then it may, among other things, impose additional capital requirements on that organisation.
As this may render the organisation uncompetitive in the marketplace it is important for regulated institutions to ensure that their remuneration arrangements comply with the APRA standards.
Regulated institutions should be aware that the board retains final responsibility for remuneration and compliance with PPG 511, not the senior executives.
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Checklist: APRA governance standards
Click here for a general checklist which regulated institutions can use as a guide to help ensure they are compliant with PPG 511.
There are consequences associated with non-compliance; regulated institutions should seek legal advice to ensure their policies and arrangements are compliant with PPG 511.
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Further information
For further information about the governance standards and what action regulated institutions will need to take to ensure they are compliant, please contact:
Peter Willcocks | Special Counsel
D: +61 3 9269 9305
E: pwillcocks@landers.com.au
Anthony Seyfort | Partner
D: +61 3 9269 9353
E: aseyfort@landers.com.au
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