Document ID: chunk:federal_register_of_legislation:F2023L01348:front:0:p9
Version: federal_register_of_legislation:F2023L01348
Segment Type: other
Provision Reference: 
Character Range: 22543–25895

to risk and financial control personnel and other relevant parties (internal and external); and
(c)          if choosing to engage third-party experts, have the power to do so in a manner that ensures that the engagement, including any advice received, is independent.

Remuneration design
33.         An APRA-regulated entity must design all variable remuneration arrangements to align with paragraph 21 of this Prudential Standard and must incorporate in its variable remuneration arrangements:
(a)          financial and non-financial risks that could materially impact the entity's risk profile, sustainable performance, long-term soundness, and in addition for an RSE licensee, those risks that could materially impact on performing its duties and exercising its powers in the best financial interests of beneficiaries;
       (b)          payout and vesting schedules that are commensurate with the possible range of risk and performance outcomes and that are sensitive to the time horizon of risk; and
       (c)          appropriate variable remuneration adjustment tools, that include but are not limited to overriding board discretion at each decision point, in-period adjustments, malus and, where appropriate, clawback, which are supported by a downward-adjustments process:
(i)            with clearly identified triggers to make a downward-adjustment;
(ii)         that determines the appropriate adjustment tools to use; and
(iii)       that determines the amount of downward-adjustment, proportionate to the severity of risk and conduct outcomes, to nil if appropriate.
34.         The determination of each component of a person's variable remuneration must:
(a)          give material weight to non-financial measures[12] where the remuneration is performance related; and
(b)          be adjusted downwards, potentially to nil, for adverse risk and conduct outcomes, based on clearly defined risk criteria, as specified in paragraph 37 below.
35.         An APRA-regulated entity must subject a person's variable remuneration arrangement to malus.
36.         An APRA-regulated entity must also subject the variable remuneration arrangement of a senior manager, executive director or a highly-paid material risk-taker to clawback. Clawback arrangements must include the following features:
(a)          a period of at least two years from the date of payment or vesting of variable remuneration within which clawback may apply; and
(b)          the application of clawback whether or not the employment or engagement of the person has ceased.
37.         An APRA-regulated entity must set specific criteria for the application of variable remuneration adjustment tools, including at least the following:
(a)          misconduct leading to significant adverse outcomes;
(b)          a significant failure of financial or non-financial risk management;
(c)          a significant failure or breach of accountability, fitness and propriety, or compliance obligations;
(d)          a significant error or a significant misstatement of criteria on which the variable remuneration determination was based; and
(e)          significant adverse outcomes for customers, beneficiaries or counterparties.
38.         An APRA-regulated entity must take reasonable steps to appropriately adjust variable remuneration downwards when, as a minimum,