Culture change must not be a fad: APRA

APRA chair Wayne Byres told Australia's banking lobby that changes to the sector's culture cannot disappear once the spotlight moves away.

Speaking at the Australian Banking Association's national economic series in Sydney on Wednesday, Byres said APRA's four-year plan to make a difference to financial services would deliver the Australian community what it wanted to see in the sector: long-lasting improvements to governance, culture, remuneration and accountability (GCRA).

The four-year timeline was necessary, Byres said, and APRA needs "every bit of that time" to drive change and determine whether it's been successful. The APRA chair commended the industry for the part it was playing in taking care of its problems, but warned the industry's efforts must be ongoing, and that the Australian community wouldn't accept a short-term improvement.

"We're aided by the fact that, in many areas, the industry is seeking to change itself. Generally speaking, we are not swimming against the tide," Byres noted.

"But what the Australian community wants to see is that improvements in governance, culture, remuneration and accountability are not a short-term fad, dismissed once the spotlight swings elsewhere. They must be long-lasting."

Byres said APRA's efforts would be focused on three areas: strengthening the prudential framework, sharpening supervision of governance, culture, remuneration and accountability, and sharing its insights and findings with the industry and broader community.

"In total, it is an ambitious agenda," Byres said.

"We are not aware of any peer regulator who has such an aspirational and wide-ranging plan.

"We are taking ideas from others and combining them with our own to build an approach that we believe is capable of driving genuine improvements across the industry."

While the APRA chair said its newfound attitude to disclosure was important, Byres warned the regulator would remain cautious about what information it chose to make public, in keeping with its role of ensuring the stability of Australia's financial system.

However, Byres said APRA would still look to take the lead compared to the prudential regulator's global peers, without triggering "undue concern".

"We are therefore actively looking to expand the range of material we publish about key areas of supervisory focus (not just in relation to GCRA), and the associated findings," he said.

"You may have seen that we have recently been more much transparent about a number of our enforcement actions. We will be doing likewise shortly in relation to superannuation heat-maps for member outcomes."

Byres said GCRA issues were less likely to trigger concerns about Australia's financial stability, and thus were an ideal candidate for bringing greater transparency to the industry, alongside pushing institutions to make certain information - such as self-assessment results public more routinely.

"We are still reviewing all of the options available to us, and of course will need to consult on any new requirements we impose," Byres admitted.

"But at the very least we foresee routinely making public reports on all thematic reviews and the risk governance self-assessments (including identifying the institutions that are demonstrating better or poorer practice), insights from our risk culture deep dives, and, wherever possible, reports from Prudential Inquiries and similar investigations."

On the back of Byres speech, the Australian Council of Superannuation Investors (ACSI) released an update suite of governance guidelines on Friday, designed to "sharpen the focus" following the Royal Commission.

Commenting on the new guidelines - which include an increased emphasis on incorporating ESG issues into risk frameworks - ACSI chief executive Louise Davidson went a step further than the APRA chair, declaring governance was not up for negotiation.

"Public trust in business remains shaken and companies have more work to do to meet the expectations of the broader community," Davidson said.

"Poor governance practices were on full display during the Royal Commission. A number of companies have since paid dearly in terms of their reputation and profitability. Unfortunately, investors in those companies have worn the cost too.

"Good governance is not negotiable."

Now in their ninth edition, ACSI's updated guidelines include several changes. On remuneration, ACSI's new guidelines address the disconnect between investors and companies on variable pay, by asking boards to regularly assess the effectiveness of remuneration structures, and make meaningful disclosures.

"Good corporate governance is critical to investment performance and returns. ACSI's updated guidelines provide a sharpened focus on long-term investors expectations," Davidson said.

Read more: APRAAustraliaACSIWayne ByresRoyal CommissionLouise DavidsonAustralian Banking AssociationESG
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