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APRA has outlined a tough new approach to regulating non-financial risks across the financial sector that looks set to include naming and shaming of those entities that fail to get it right.
In an information paper released yesterday, the regulator sets out a more intensive and prescriptive approach to its regulation of non-financial risks – governance, culture, remuneration and accountability (GCRA) - across the financial sector.
Releasing the paper, APRA said that a failure to adequately address non-financial risks could cause major financial losses through reputational damage, fines and expensive remediation programs. It noted that remediation costs relating to issues identified in the Financial Services Royal Commission had cost industry in excess of $7 billion to date and were likely to rise further as both new and historical issues came to light.
And in what looks to be a significant shift away from its previous ‘behind closed doors’ approach, APRA has signalled it will reinforce its tougher new approach with greater transparency, by publishing to “the full extent possible”, findings from a range of GCRA-related thematic reviews and deep-dives, entity self-assessments and industry-wide surveys. AIST welcomes this commitment to greater transparency.
The key attributes of APRA’s new approach to non-financial risks – many elements of which are already well known to industry stakeholders and are now underway - are:
New research released today by the Australia Institute has debunked arguments that increasing the Superannuation Guarantee contribution would negatively impact wages growth.
The research – commissioned by Industry Super Australia – examined whether the legislated SG increase from 9.5% to 12% would suppress wage growth in the future.
It found that there was no negative trade-off between wages and superannuation contributions, and that Australia’s economy can afford both higher wages and higher employer contributions to superannuation.
The research refutes claims made by some commentators and lobbyists that higher superannuation contributions would automatically lead to lower wages, and hence would be self-defeating. Rather it found that on average, wages were more likely to accelerate and grow at a faster rate when the SG rate was increased, than to decelerate or grow more slowly. This indicates a slight positive correlation between wages growth and changes in employers’ minimum SG rate.
Australia Institute’s Dr Jim Stanford, who conducted the research, concluded that current record-low wage growth in Australia cannot be "fixed" by abandoning scheduled increases in the SG rate. The SG is legislated to increase to 12% over five years starting 1 July 2021.
New ATO data shows that there is over $20.8 billion in lost and unclaimed super across Australia.
Since new laws on inactive accounts were introduced, the ATO has received over 2.3 million inactive low balance accounts from super funds, valued at approximately $2.16 billion. It has reunited just over 841,000 of these accounts worth nearly $1.38 billion. This includes approximately 684,000 accounts worth $1.22 billion that have been transferred into an individual’s active super account and approximately 157,000 accounts worth $161 million directly to individuals’ bank accounts.
The ATO says it expects more one million people will receive a direct payment.
The Investor Group on Climate Change (IGCC) has released a policy update on investors managing climate change risk that outlines recent moves by regulators and central banks to encourage asset owners to focus more on the issue.
The update notes that asset owners have a clear legal obligation to manage climate risks and that financial regulators around the world are now requiring a proactive response from investors and companies to manage climate related financial risks in order to ensure financial stability. The update also reports on how investors are responding to climate change risk.
The ICGC is a collaboration of Australian and New Zealand investors – including many AIST-member funds – who are focused on the impact that climate change has on the financial value of investments.
New data on the gender pay gap – a key driver of the poor retirement outcomes experienced by many Australian women – shows the gap remains stubbornly high at 20.8 per cent, with only a modest drop over the past year.
The sixth year of workplace data released this week by the Workplace Gender Equality Agency (WGEA), shows men out-earn women by $25,679 on average.
Encouragingly, WGEA found more Australian employers were taking action to promote gender equality in their organisations, however the pace of change was modest and uneven.
The WEGA data shows the strongest progress towards workplace gender equality is in those areas where employers have a direct influence on the outcome. There was incremental growth in employer action on overall gender equality policies and strategies, pay equity and flexible work.
The stand-out result was a substantial increase in employer action on family and domestic violence. There was a 13.3 percentage point jump in the number of employers with a policy or strategy on family and domestic violence and an 8.9 pp increase in employers offering paid domestic violence leave.
WEGA’s findings also showed a small increase in the representation of women in management but the number of female CEOs has not changed, remaining at 17.1% for the second year in a row. Access to paid parental leave improved but more than 50% of employers offer no paid parental leave.
WGEA’s data also highlights some key areas where more effort is needed. In the female-dominated industry of Health Care and Social Assistance, the gender pay gap in favour of men has barely shifted in three years. There was also little improvement in the representation of women on boards.
The ATO is urging small employers who’ve not yet made the switch to Single Touch Payroll (STP) to get in touch if they need help to transition.
Small employers with 19 employees or fewer are now required to start reporting through STP, though some may be eligible for a quarterly reporting concession or a deferral if they need more time.
The ATO says no penalties will be applied in the 2019-20 financial year for small employers who make a genuine attempt to transition or for missed or late reports.
More than 540,000 employers across the country have successfully transitioned to STP.
New research from the Australian National University (ANU) has found overconfidence driven by outstanding performance is the decisive factor when companies behave badly.
The research found that when high-performing companies and individuals behave unethically it is because past successes make them arrogant or cut corners to maintain strong performance.
The research also found that under-performing companies tended to engage in unethical behaviour, but were motivated by desperation to improve their performance. The study, the first of its kind to examine how financial performance affected corporate social responsibility (CSR), explored the motivation behind corporate risk taking leading to breaches in regulation.
Lead researcher, Dr Di Fan, said very human emotions were behind the causes of breaches in corporate social responsibility, with companies motivated by a sense of overconfidence or a desire to avoid losses and continue strong financial performance.
"While you might expect poor performers to take more risks in order to reach their targets, what surprised us most was finding that both poor and very good performing companies tended to engage in risky behaviour," Dr Fan said.
"Shareholders need to be aware that companies which exceed their aspirational targets are especially more likely to engage in unethical behaviour, the more successful they are."
20 November 2019