Overview

Following consultation, the Australian Prudential Regulation Authority (APRA) has released an updated version of CPS 511 Remuneration incorporating new disclosure requirements for all APRA-regulated entities.   Broadly, the changes require APRA-regulated entities to disclose more detailed information about how: 

• remuneration is aligned with performance and risk and ‘how remuneration is decided, beyond purely financial performance’
• consequence management is applied 
• non-financial measures have been incorporated in remuneration outcomes (for variable remuneration).

APRA states that the disclosure requirements are intended to:

‘promote transparency, ensure boards are accountable for their remuneration decisions and demonstrate how practices have been strengthened under CPS 511’.

Our high level summary of the key changes is below. 

New disclosure requirements under CPS 511

Proportionate approach

APRA proposed to adopt a ‘proportionate’ approach to remuneration disclosure, with Significant Financial Institutions (SFIs) subject to ‘enhanced requirements’ to reflect their size/complexity as well as their status as SFIs and other institutions subject to simpler requirements. This approach has been retained in the final CPS 511.

Proposed new disclosure requirements for SFIs

SFIs will need to publicly disclose, on an annual basis, details of the their remuneration framework.  For example, 

• SFIs will need to provide (in line with the requirements set out in Table 1 in the standard) an explanation of how their remuneration framework:

‘(i) aligns to the APRA-regulated entity’s business plan, strategic objectives and risk management framework; 
(ii) promotes effective management of both financial and non-financial risks, sustainable performance and long-term soundness; 
(iii) supports the prevention and mitigation of conduct risk; and 
(iv) for an RSE licensee, promotes the RSE licensee performing its duties and exercising powers in the best financial interests of beneficiaries’.

• A description of their remuneration governance arrangements including (among other requirements) how the board exercises its discretion in determining remuneration outcomes and disclosure of whether external consultants were commissioned to advise on the remuneration framework and ‘what areas’ of the remuneration framework they advised on.  
• Details of the design of variable remuneration for specified roles 
• Details of its deferral and vesting policy
• Details of how consequence management is applied in the event of misconduct, a description of the adjustment tools available and how remuneration and risk outcomes are aligned 

In addition, SFIs will be required to disclose (in line with the requirements in Tables 2 and 3 in the standard) quantitative information on remuneration outcomes, including: fixed and variable remuneration outcomes, special payments (eg guaranteed bonuses), and deferral and adjustments relating to the financial year for the following roles: 

• the CEO (on an individual level)
• senior managers, highly paid material risk takers (HPMRTs) and other material risk takers (MRTs) at a cohort level (unless there are fewer than five individuals in the cohort – consistent with the approach in the consultation draft).

In a departure from the consultation draft, quantitative disclosure requirements for risk and financial control personnel (RFCP) have been dropped from the final CPS 511. 

New disclosure requirements for non-SFIs

In contrast, non-SFIs will be required to disclose what APRA describes as ‘summary information’ on remuneration design, governance and information about key aspects of variable remuneration (where this is offered).  

Unlike SFIs, non-SFIs will not be required to disclose quantitative information on remuneration outcomes under CPS 511.  
Having said this, APRA may determine, on a case by case basis, that a non-SFI is required to comply with the same disclosure requirements as SFIs.  

Response to industry feedback

Not ‘excessive’ or duplicative 

APRA observes that a number of submissions raised concerns that the proposed new disclosure requirements ‘duplicate other existing disclosure requirements [in both the Corporations Act 2001 (Cth) (Corporations Act) and the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act)] and appear excessive’.  

In its response paper, APRA rejects these concerns maintaining that the new requirements intentionally ‘build on existing disclosure requirements…rather than duplicate them’.  APRA considers this is warranted in the interests of enhancing transparency around remuneration governance arrangements and remuneration design and in the interests of ‘shining a light’ on ‘how executives are incentivised and on the consequences for poorly managed risk’.  

Moreover, APRA considers that the new requirements 

‘align to those of the Basel Committee for Banking Supervision as well as having regard to the disclosure principles of the Financial Stability Board.  In particular, the requirements will apply to a broader range of entities than those covered by existing legislation and add important transparency on remuneration design to explain how risk has influenced remuneration outcomes.  This will indicate how entities are complying with CPS 511’. 

Consolidating remuneration requirements into CPS 511

On the issue of duplication, APRA also reiterates that it intends that all remuneration requirements applying to all APRA-regulated entities will eventually be ‘housed’ in CPS 511.  

On this point, APRA notes that in addition to having revoked the remuneration components in Prudential Standard CPS 510 Governance (CPS 510) and Prudential Standard SPS 510 Governance (SPS 510), it intends to: 

• phase out Attachment G to Prudential Standard APS 330 Public Disclosure (APS 330) from 1 January 2024; and
• ‘retire’ Prudential Practice Guide PPG 511 Remuneration and Prudential Practice Guide SPG 511 Remuneration, which have been superseded by Prudential Practice Guide CPG 511 Remuneration, released in October 2021.

Application of CPS 511 disclosure requirements to groups

APRA notes that submissions sought clarification on how the disclosure requirements would apply to groups, including where a group comprises both SFIs and non-SFIs.  In addition, APRA notes that submission suggested that disclosure should be permitted at group level only, rather than requiring disclosure for each individual entity within a group and at a group level.

The response paper clarifies that:

• ‘APRA-regulated entities that are not part of a group will be required to disclose on a regulated entity basis; and 
• where an APRA-regulated entity is part of a Level 2 or Level 3 group, the required disclosure would be at the group level only.  The disclosure would include those persons who are in specified roles at the group level.’

Timing: When the changes will apply

The proposed changes to CPS 511 were originally due to commence on a staggered basis starting with SFI ADIs from January 2023.  In response to industry feedback, APRA has pushed back commencement of the changes to 1 January 2024 for all APRA-regulated entities.  

APRA has also agreed to provide additional flexibility around the timing of disclosures with annual disclosures required within six months of an entity’s financial year-end.  

This means that the first disclosure will be required to be made six months after the end of an entity’s first full financial year commencing on or after 1 January 2024.  

Proposed new data collection: draft CRS 511.0

APRA also consulted in July 2022 on a proposal to collect qualitative and quantitative information on entities' remuneration governance and variable remuneration design and outcomes to support its supervisory activity and enable publication of data on remuneration practices.  Table 3 at p16 of the July 2022 discussion paper provides a summary of the proposed APRA reporting requirements.  APRA also released draft standard and reporting template for entities to report information to APRA as part of APRA’s collection of information.  

In terms of APRA’s plans to publish the data, APRA proposed to 

'utilise data drawn from the proposed CRS 511.0 reporting standard and provide aggregated information about specified roles on an entity level across all APRA-regulated industries'. 

Tables 4 and 5 at pages 18-19 of the discussion paper set out the data that APRA proposed to publish to facilitate benchmarking across regulated entities. 

APRA has indicated it is still in the process of considering feedback on draft CRS 511.0 and has delayed its response to submissions on CRS 511.0 ‘to ensure it adequately addresses the issues raised by industry and, in particular, those concerns raised regarding privacy’.  The planned commencement of CRS 511.0 will be delayed in consequence.  

APRA will also consult on its planned publication of remuneration data ‘at a later date’

[Source: APRA media release 01/08/2023; Response paper; Updated Prudential Standard CPS 511 Remuneration]