The final report has brought to the forefront the importance of, and the links between, remuneration, culture and governance, and reiterated that the primary responsibility for culture and conduct lies with the board and senior management. The Commissioner pinned responsibility for past misconduct on boards and senior managers, not “bad apples”. It is the role of the board to seek further or better information where required and to review and challenge management’s actions as required.
The Commissioner reaffirmed that when considering the best interests of the corporation, directors must consider more than the financial returns available to shareholders and that considering the interests of customers supports the best interest of the corporation. “The best interests of a company cannot be reduced to a binary choice.”
Directors of superannuation trustees
The role of directors of superannuation trustees was specifically called out. While the Commissioner accepted that shareholders appointing directors is a fundamental feature of company law, the final report suggests that the appointment of directors of superannuation trustees should be by reference to the best interests of members only, rather than as a representative of the shareholder(s).
What will happen now?
Specifically, as a result of the final report:
- the BEAR:
- will be amended to require that an additional responsibility be added to accountable persons of ADIs – the additional responsibility will relate to end-to-end management of products;
- will be extended to apply to all APRA regulated financial institutions (including insurers and superannuation trustees). In addition, the Government intends to extend the regime to AFSL and ACL holders, market operators and clearing and settling facilities so that the accountability regime has a similar scope to the UK Senior Managers Regime;
- will be jointly administered by ASIC and APRA with ASIC overseeing consumer protection and market conduct and APRA overseeing prudential aspects; and
- will be amended so that ADIs and accountable persons must deal with ASIC in an open, constructive and co-operative way. This may affect a fundamental legal right, insofar as it impacts broad principles of self-incrimination or even privilege;
- non-financial risks (such as misconduct and compliance risk) will need to be managed, and considered for remuneration purposes, alongside financial risks. For APRA regulated entities, the prudential standards will require remuneration systems to be designed to encourage management of non-financial risk;
- culture will be assessed, but not prescribed, by regulators – initially, APRA will assess the culture of APRA regulated entities;
- increased attention will be given to minute taking at board meetings to record when directors have requested additional information and engaged in debates; and
- the quality of information provided to boards will be further considered and refined – APRA has been encouraged to include guidance on the quality of information to be provided to boards.