When financial services sneeze, rest of the economy catches a cold

THERE is an old colloquialism in business that "when financial services sneeze, the rest of the economy catches a cold". This may be particularly relevant if the symptoms relate to risk management, corporate culture and remuneration. When it comes to executive pay levels, incentive plans and risk adjustments (such as clawback and malus provisions), banks and insurance companies tend to lead the general market practices.

Indeed, we are starting to see banks and insurance companies in Singapore and across the region evolve and reshape themselves, which is why financial institutions here should keep a close watch on recent developments in Australia.

In February this year, the Australia Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry found that the pervasive culture of misconduct and mis-selling in Australian banks was driven by companies' excessive focus on sales and profits, and individuals' focus on sales incentives and commission schemes. Subsequently, the Australian Prudential Regulation Authority (APRA) released a new draft prudential standard on July 23 to strengthen the governance requirements on remuneration in large financial institutions in Australia. Known as CPS 511 Remuneration, it is aimed at enhancing conduct, risk management and accountability in APRA-regulated institutions.