October 18, 2016 / 7:21 AM / a year ago

Australia's banking watchdog to closely monitor pay amid focus on risk

SYDNEY, Oct 18 (Reuters) - Australia’s banking sector regulator said on Tuesday it will review pay practices for some executives, risk and control and risk-taking staff at financial institutions as part of an increased focus on risk management culture.

The regulator said it wanted to ensure banks avoided the behaviour that caused the global economic downturn in 2008-09 at a time when Germany’s Deutsche Bank is facing a crippling $14 billion fine from US regulators over investigations into its mortgage-backed securities trading.

Australia’s four biggest banks, which control 80 percent of the lending market, are under heavy political and regulatory scrutiny for practices including the provision of bad financial advice and alleged interest rate-rigging.

Australian Prudential Regulation Authority (APRA) chairman Wayne Byres said in a statement that the regulator would apply “greater supervisory intensity” to institutions that were either unwilling or unable to address behaviours that were inconsistent with prudent risk management practices.

APRA said it would engage with industry partipants and relevant industry experts this year and in 2017 to review pay practices to gauge how well existing requirements were being implemented and how they were interacting with the risk cultures of regulated institutions.

The Australian Bankers’ Association (ABA) on Tuesday said in a statement that it welcomed initiatives that helped banks understand and manage their own risk culture.

“It is important that the tone is set from the top and employees have a clear framework to make decisions that appropriately balance the potential gain with any potential loss,” ABA Chief Executive Steven Münchenberg said.

In testimony before an Australian parliamentary committee on Oct. 5, Australia and New Zealand Banking Group Chief Executive Shayne Elliott denied the bank had a “blokey”, or male-dominated, culture of risk-taking in its institutional banking division.

Two employees sacked for alleged involvement with interest-rate rigging last year claimed in an unfair dismissal case that a culture of sex, drugs and alcohol was rampant in the division.

“We have done a lot more ethics training in that business,” Elliott said on Oct. 5. (Reporting by Jamie Freed; Editing by Simon Cameron-Moore)

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