APRA's new approach to governance, culture, remuneration and accountability will see the prudential regulator focus on strengthening, sharpening and sharing.
The regulator today released an information paper on its "more intensive" regulatory approach to transform governance, culture, remuneration and accountability (GCRA) practices across the sectors it regulates,.
APRA said the new method would aim to strengthen the resilience of financial institutions by addressing and preventing issues the regulator believes have undermined confidence in financial services recently.
The new attitude incorporates three key attributes: strengthening the prudential framework, sharpening APRA's supervisory focus and sharing the regulator's insights to better inform industry and the public about APRA's work.
APRA said its new "more transparent approach" builds on the Prudential Inquiry into the Commonwealth Bank of Australia and the results of the self-assessments APRA requested from a series of large financial institutions following CBA's examination.
APRA deputy chair John Lonsdale said Australia's institutions could not simply pin their prudential health on strong balance sheets, despite recognising the "financially sound and resilient" nature of the nation's banks, insurers and superannuation licensees.
"Although governance, culture, remuneration and accountability are often termed 'non-financial risks', a failure to address weaknesses in these areas can cause major financial losses through reputational damage, fines and expensive remediation programs," Lonsdale said.
"Remediation costs relating to issues identified in the Royal Commission have cost industry in excess of $7 billion to date, and are likely to rise further as both new and historical issues come to light."
Lonsdale said the risk governance self-assessments conducted in 2018 "made clear" that industry was grappling to manage GCRA risks, adding many of which were well-known and long-standing.
"Although boards are ultimately responsible for GCRA within their institutions, we have concluded that a higher degree of regulatory prescription and oversight is needed to achieve the requisite improvement in GCRA practices and community outcomes," Lonsdale said.
The APRA deputy chair also said the regulator would exercise the new approach with a level transparency unprecedented among global prudential regulation, which he hopes will help elevate GCRA issues in the minds of financial services directors.
"APRA is committed to harnessing transparency as a tool to drive better prudential outcomes. Over coming years, our enhanced GCRA team will undertake a range of GCRA-related thematic reviews and deep-dives, as well as utilise entity self-assessments and industry-wide surveys," Lonsdale said.
"Our intention is that the results and findings of these be published to the fullest extent possible. We believe that using transparency to increase scrutiny and accountability will help ensure GCRA is a higher priority for boards and management, and make it more likely they will act to identify and address weaknesses at an early stage."