Risk Regulatory Update
/APRA responds to remuneration feedback in a new consultation paper
The Australian Prudential Regulation Authority (APRA) has released a new consultation paper for revisions to the remuneration prudential standard. The changes aim to strengthen market practice, underpin sound remuneration practices, and enhance accountability within institutions.
The new draft is a response to industry feedback from the initial consultation and sets robust minimum standards for APRA-regulated entities. The paper also addresses Royal Commission recommendations.
Revisions include:
Replacing the 50 per cent cap on financial measures for variable remuneration, requiring that material weight is assigned to non-financial measures, with the addition of a risk and conduct modifier to possibly decrease variable remuneration to zero.
Reduce minimum deferral periods for variable remuneration from seven to six years for chief executives, from six years to five for senior managers, and from six years to four for highly-paid material risk-takers.
Remuneration requirements for smaller (SFI) entities have had regulatory burdens reduced.
Non-SFI’s will not be subject to several elements that impact variable remuneration. , and will not be required to complete annual compliance checks or triannual effectiveness reviews of remuneration frameworks.
The consultation period will close on 12 February 2021. Consultation on remuneration requirements for all APRA-regulated entities.
CBA in court on massive interest overcharging allegations
The Australian Securities and Investments Commission (ASIC) has taken the Commonwealth Bank (CBA) to court over interest overcharges of thousands of customers. The allegations were made during the Royal Commission, whereby CBA charged a rate of interest on business overdraft accounts that was much higher than customers were advised.
The allegations from ASIC are that between 2011 and 2018, CBA provided its terms and conditions for specific credit facilities with the interest rate of usually 16 per cent per annum. Periodic statements were sent to customers referencing the usual rate of 16 per cent, but a systems error meant that 2,200 customers were charged higher rates on overdrafts, in most cases 34 per cent. The overcharged interest exceeds $2.9 million. Each customer was charged on average around $1,500 for CBA Simple Business Overdraft products and almost $4,000 on CBA Business Overdraft products.
The highest overcharge to one customer was $17,522.34. CBA has remediated over $3.5 million to 2,269 customers so far. ASIC is alleging that CBA contravened financial services law over 12,000 times.
FASEA releases October exam results
The eighth Financial Advisers Exam was held in October 2020, with results showing that 76 per cent passed, compared to the overall average pass rate of 83 per cent. So far, 10,460 advisers have passed the exam. The lower pass rate was attributed to the smaller cohort of advisers with a higher than usual proportion of advisers who had failed it at least once already.
