Corporate plans land from APRA and ASIC

Monday 31 August 2020 saw the triumvirate of APRA, ASIC and RBA publish their corporate plans for the next four years.

In light of the regular exhortation by ASIC Chair, James Shipton, on the need for businesses to have a strategy for how they conduct their relationships with key regulators, some familiarity with these plans is critical. The plans give an insight into upcoming supervisory approaches and enforcement priorities and, helpfully, identify what is currently on the regulators’ radars.

The current landscape and immediate priorities are naturally dominated by the pandemic, but it is clear that longer-term commitments have not been forgotten. Indeed, they have had to be sharpened in some cases to deal with COVID-19 (especially in the area of consumer protection).

Our focus includes deterring poor behaviour and misconduct and driving cultural change using all our regulatory tools James Shipton, ASIC Corporate Plan 2020-24

In light of the wider market’s increasing scrutiny of major regulated entities’ records on governance, it will come as no surprise that ASIC and APRA have each highlighted governance as a continuing concern.

ASIC views governance as falling squarely within its COVID-19 response but also as a key pillar in its ‘beyond COVID-19’ vision. Scrutiny of governance is a key action to ‘maintain financial system resilience and stability’ during the pandemic and, beyond that, to ‘change behaviours to drive good consumer and investor outcomes’.

APRA’s self-acknowledged ambitious aim is to ‘transform governance, culture, remuneration and accountability (GCRA) across all regulated institutions’. The prudential regulator sees GCRA transformation as a ‘key community outcome’ and a long-term objective. Importantly, APRA believes its supervision of governance practices by, in particular, superannuation funds, is a key driver in its goal of maintaining financial system resilience.

The market is therefore on notice that the regulators will be pursuing the continuing governance issues that challenge major institutions. In particular, how businesses deal with accountability as the ‘heart of governance’ (the expression used in the Banking Royal Commission final report) and how boards need to operate to competently perform their supervisory responsibilities.

Specific regulatory actions

So, what precisely can financial institutions and corporates expect?

A number of new projects have been proposed by ASIC, building on the progress of its Corporate Governance Task Force:

• Targeted governance reviews of select companies to assess shortcomings in culture, governance and accountability;
• Reviewing a sample of whistleblower policies of companies as part of a whistleblower program assessment; and
• Assessing whether disclosures in corporate governance statements are effective and meaningful.

These projects will take place alongside the continuation of ASIC’s  Close and Continuous Monitoring Program (in which ASIC officers are embedded in various financial institutions to monitor and improve governance and compliance) and the preparation for implementation of the Financial Accountability Regime (FAR) framework across the insurance and superannuation sectors.

APRA is also keen to emphasise its governance credentials and has signalled the following actions:

• Sharpening its supervisory focus on superannuation trustee board capabilities and governance practices to ‘maintain financial system resilience’
• Developing a tool to benchmark trends in risk culture through a new risk culture survey;
• Continuing risk culture and governance deep dives among the larger financial institutions; and
• Working with Government to extend the FAR to all APRA-regulated entities.

A significant uplift is required in APRA-regulated institutions management of Governance, Culture, Remuneration and Accountability APRA Corporate Plan 2020/24

Expectations

So, regulated entities can expect APRA and ASIC to intensify their attention on governance and this will involve more information-gathering and evidence-collection by businesses to demonstrate compliance.

Businesses should also anticipate renewed cooperation between APRA and ASIC pursuant to their revised memorandum signed at the end of 2019. This ought to make the supervisory and enforcement approach more targeted and efficient.

Both regulators’ performance on cooperation and coordination will also be a focus for the new Financial Regulator Assessment Authority (FRAA) tasked with overseeing the operations of ASIC and APRA, which is expected to be established in new legislation by the end of 2020.

The FRAA will bring a novel dynamic in the risk and regulatory landscape in Australia. And this is something that entities should expect will further sharpen the examination of governance.