APRA unveils plan to lift governance standards at banks, super funds and insurers
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The news: The Australian Prudential Regulation Authority has made eight proposals for changes to its prudential governance framework for banks, insurers and superannuation trustees in a bid to lift standards.
The context: This is the first significant update to the regulator’s standards in more than 10 years and aims to reflect contemporary best practice and establish clear benchmarks for regulated entities.
The proposals include:
- Lifting requirements for boards to ensure they have the right mix of skills and experience to deliver the entity’s strategy;
- Raising minimum standards around the fitness and propriety of responsible persons, and requiring significant financial institutions (SFIs) to engage with APRA on succession planning and potential appointments;
- Extending existing requirements for superannuation trustees in relation to managing conflicts of interest to banking and insurance;
- Strengthening board independence, especially in relation to entities that are part of a group;
- Clarifying APRA’s expectations around the roles of boards, the chair and senior management;Introducing a lifetime tenure limit of 10 years for non-executive directors at an APRA-regulated entity;
- Require SFis to commission a third-part performance assessment of the board, committees and individual directors at least every three years; and
- Extend requirements for bank and insurer boards to have separate risk and audit committees, to apply to SFI responsible registrable superannuation entities (RSE) licensees too.
The changes will have reduced expectations in some areas for smaller and less complex financial institutions in a bid to avoid undue cost burdens.
APRA will consult on the proposals for three months.
What they said: APRA chair John Lonsdale said: “Well-governed institutions are likely to be more resilient in times of stress, while poor governance can create weakness that leads to misconduct, losses and failures.
“It is no coincidence that almost 80 per cent of entities subject to heightened risk-based APRA supervision have underlying governance problems.
“While overall standards of governance have improved over recent years, we still see areas of weakness, including entities treating compliance with some requirements as a box-ticking exercise.”
The source: APRA
