Prudential regulator sets 2019 agenda

The prudential regulator has set out its agenda for the coming 18 months, prioritising residential mortgages, executive remuneration and formal enforcement actions.

APRA says that focus will fall on strengthening prudential frameworks in order to “lift the bar for industry” in terms of governance, remuneration practices and the management of non-financial risks.

Residential mortgages will be tackled under ongoing revisions to the capital framework for ADIs. Specifically, APRA says it will “revise requirements for credit and operational risk, including for residential mortgages and constraints on advanced modelling approaches.” It will also “simplify treatment” on this point for smaller ADIs.

Executive remuneration will also come under the microscope.

On this point, APRA chair Wayne Byers made specific reference to the regulator’s inquiry into CBA, which he said highlighted the importance of looking into culture and accountability, as well as balance sheets, when assessing an institution’s overall performance.

“These issues were further emphasised during the royal commission, where a lack of accountability often lay at the heart of misconduct and poor consumer outcomes,” he said.

“To address these issues, we will further strengthen our prudential requirements on executive remuneration, with consultation on a revised prudential standard due to start mid-year,” he added.

“We will also review our cross-industry governance and risk management standards this year to ensure they encourage a sharper focus on non-financial risks,” he continued.

The royal commission also made recommendations in this area, including that frameworks in each organisation also address misconduct, compliance and other non-financial risks, as well as other aspects of “remuneration design”.

Revised prudential standards will be released for consultation in mid-2019.

Other areas of priority include:

• Capital framework revisions for ADIs, which commenced in February 2018, are likely to come into effect in 2022 “consistent with international timetables”;
• Total capital requirements for ADIs will be finalised “later in 2019”;
• The BEAR regime will be implemented for ADIs, effective 1 July 2019;
• Updated standards relating to outsourcing, business continuity and information security, applicable to businesses in the banking, insurance and super sectors will be effective from July this year;
• In terms of credit risk management, a formal consultation will commence in the first half of 2019 with a target implementation date of 2020.