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A tsunami of regulatory reform is upon us

Madeleine Mattera

Last month, the Government released its implementation roadmap accepting all 76 of the Royal Commission’s recommendations plus committing to an additional 18 actions.

Here’s what’s progressing:

  • The Government is responsible for implementing 54 of the recommendations, while the remainder have been directed to industry regulators, ASIC and APRA, as well as industry itself.
  • Fifteen (15) of these recommendations or commitments have now been implemented, although many of them will generate further reforms with indefinite time frames.
  • The remaining 57 recommendations and commitments are expected for completion in the next 15 months.

The Treasurer has acknowledged that this timeline is ambitious. The Government has further committed to review the implementation of its reforms in 2022, where according to the timeline, some implementations could be as young as 12 months.

These reforms are set to significantly impact the financial services industry

APRA has proposed a significant new prudential standard on remuneration – CPS 511. Last week, Grant Thornton hosted a roundtable to discuss CPS 511 and its impact on the Financial Services industry, with representation from insurers, superannuation funds, small financial firms, and mutual banks. Whilst we recognise reform is needed, CPS 511 appears to be a one-size fits all approach covering all regulated sectors. While APRA mentions proportionate regulation, the practical application of this is a small number of additional rules for significant financial institutions. This presents a unique challenge for small financial institutions and startups in how they incorporate these changes.

APRA has presented the main elements of the new standard to be:

  • strengthening governance, in particularly through an expanded Board role where they are active and have direct oversight
  • providing more clarity on overarching remuneration objectives
  • limiting financial performance metrics; and
  • setting minimum deferral periods for senior executives for risk and performance outcomes



The roundtable raised the question of CPS 511 compliance expectations for a small financial institution or restricted ADI. CPS 511 places a heavy weighting on non-financial performance criteria such as culture and leadership, which are incredibly subjective and difficult to measure, particularly if you aren’t trained in this area. Further, all employees in a startup or small business could be considered “material risk-takers” given their activities impact the business’s performance, risk profile and long-term soundness. There are no clear exemptions outlined in CPS 511.

Another area where further clarity is needed is around BEAR, which establishes accountability obligations for ADIs and their senior executives and directors as well as deferred remuneration, key personnel and notification obligations. The definition of BEAR does not align with the draft CPS 511 – consensus from our clients is that the two definitions should align to avoid confusion.


A small / medium / large financial institution tiering could achieve APRA’s objectives while also providing proportionate regulation.


The draft CPS 511 has been formulated with large ASX Listed banks in mind. APRA has not provided a future-proof standard as we anticipate further reforms may be required when BEAR is extended to insurance and superannuation. A ‘one-size fits all’ approach may work for the regulating bodies but not for those being regulated, which extends beyond banking. The heavy focus on banking is a likely result of the Royal Commission and its recommendations but it must be remembered that conduct failures were largely the preserve of major banks, financial advice firms and certain insurers, particularly where the business structure involves vertical integration.

Once again it is important to ensure that proportionate regulation is addressed to provide real relief to the smaller institutions while allowing an appropriate additional burden on larger financial institutions. We would argue that APRA could provide more detail on this, with the focus relying more on the complexities of the organisation rather than size. It’s important that structure doesn’t lead to unfair advantages.

There are also a number of mutual banks and insurers that haven’t had serious conduct failures – should they be exempt from regulation?


It’s time for APRA to provide meaningful recognition of the relative absence of conduct risk in mutual and profit-to-members institutions.

Grant Thornton will be making a submission on the proposed CPS 511 addressing issues relevant to smaller & mid-sized financial institutions.