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Banking royal commission: APRA chief Wayne Byers vows to get tough on executive pay

APRA chair Wayne Byres has promised to ‘ratchet up the mongrel’ in its enforcement activities.

APRA chairman Wayne Byres in Melbourne yesterday. Picture: AAP
APRA chairman Wayne Byres in Melbourne yesterday. Picture: AAP

Australian Prudential Regulation Authority chairman Wayne Byres has promised to “ratchet up the mongrel” in its enforcement activities after the regulator’s lack of action over the scandal-prone Commonwealth Bank was exposed.

Appearing at the financial services royal commission yesterday, Mr Byres said APRA had learned from its failure to crack down on executive pay at CBA early enough after being aware of most of the bank’s woes since 2016 at the latest.

Questioned by counsel assisting the commission Michael Hodge QC about the inaction, Mr Byres said APRA was now finalising a draft update to prudential standards covering remuneration, with a consultation draft due out next year.

Also giving evidence yesterday during a final public round of hearings was Bendigo Bank chairman Rob Johanson, who defended the regional bank’s use of customer satisfaction scores in setting executive pay, and ANZ chief executive Shayne Elliott, who was grilled over falls in staff satisfaction at the big four bank.

Mr Byres, who has just been given an additional five years in the job by the Morrison government, is set to continue giving evidence on the 69th and final day of public hearings today.

Yesterday, he told the commission the phrase “supervisory mongrel”, which appears in an APRA executive board paper from June this year, was one coined by his predecessor, John Laker. He said Mr Laker, former competition tsar Graeme Samuel and veteran banker Jillian Broadbent presented the APRA board with the results of an inquiry they conducted for the regulator into CBA’s governance, culture and accountability woes.

The inquiry following years of damning media coverage of the bank, together with action against it by the Australian Securities & Investments Commission and other regulators, over scandals in areas as diverse as financial planning, superannuation and money laundering through its ATMs by drug and gun gangs.

“Dr Laker, the chair of the panel and my predecessor, finished the session with some parting words about just rallying the troops and the fact that we had had the inquiry shouldn’t be seen to be in any way a failing of APRA, and that it was really important that supervision teams pursued issues aggressively, even when the institution concerned was pushing back quite aggressively,” Mr Byres told the commission.

The unsigned executive board paper, headed “CBA Inquiry — implications for APRA’s supervision practices”, included “supervision ‘mongrel’ in a table of issues raised for the regulator by its investigation into Australia’s biggest bank.

“The CBA supervision team were aware of most of the issues identified by the CBA inquiry, with the inquiry providing absolute clarity of evidence to support the findings,” the APRA board was told. “Stronger support of supervisory ‘gut feel’, together with strengthened supervisor tenacity and more frequent use of sanctions can be considered.

“Supervision ‘mongrel’ is an attitude rather than a framework issue. Senior leadership in APRA would have to set the tone on how this supervision mongrel would operate in practice.”

Mr Hodge put it to Mr Byres that “the problem may be the tone that is set by senior leadership in APRA”.

“The way that I interpret that comment is simply that supervisors will be very ready to ratchet up the mongrel, so to speak, as long as it’s clear that senior management will support them when they are being more aggressive in their approach,” Mr Byres said.

He admitted that he did not raise the failure of CBA to take into account risk and compliance problems in setting executive pay when he met with the bank board in December 2016, even though these problems were raised within APRA at the time.

This was because shareholders had already stung the bank with a strike, voting down its remuneration report, and it was changing chairmen from David Turner to Catherine Livingstone, he said.

“We didn’t have to ask them are you going to do this because they were reflecting on they were going to have to change things, they had got the message that the market, investors were unhappy that there hadn’t been consequences,” he said.

Mr Byres told Mr Hodge he was open to an external review of APRA even though the agency earlier this month kicked off an internal review led by deputy chairman John Lonsdale and an advisory panel. The draft prudential standards being planned by Mr Byres update a governance standard known as CPS 510.

“I think what we’re trying to do at the moment is articulate … what does good look like,” he said.

Mr Byers said APRA was receiving input from the corporate regulator and wanted a document out for consultation early next year, ahead of a 2020 start.

“To the extent that current employment contracts don’t adhere to the standard, it would be necessary to allow some period of transition for industry to make appropriate arrangements,” he said.

He told Mr Hodge there was “still too much focus” in the banking sector on pay metrics including total shareholder returns and share price performance.

Mr Byres also noted that internationally there had already been a shift away in many markets from financial to non-financial metrics.

However, he said Australian banks were unlikely to move by themselves to change their remuneration standards to take better account of risk and compliance issues because they were afraid of being punished by shareholders.

“If I can be really blunt about it I think what I am saying is, to get change APRA will have to do it,” he said.

It came after Bendigo’s Mr Johanson described his bank’s practice of deferring part of an executive’s base salary as unique in the industry.

“We think it’s better to have a large proportion of the total package in the form of base ... and as shareholders often tell me, they like to see executives and directors with skin in the game,” Mr Johanson said.

Read related topics:Bank Inquiry

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Original URL: https://www.theaustralian.com.au/business/banking-royal-commission/banking-royal-commission-apra-chief-wayne-byers-vows-to-get-tough-on-executive-pay/news-story/c1259bb026c727426bf62f13b4eac73b