APRA sets out BEAR expectations

The Australian Prudential Regulation Authority (APRA) has released an information paper to assist authorised deposit-taking institutions (ADIs) to meet their obligations under the Banking Executive Accountability Regime (BEAR).

The BEAR, which establishes heightened standards of accountability among ADIs and their most senior executives and directors, came into force for the largest banks from 1 July.

It will apply to all other ADIs from 1 July 2019. The regime was established under legislation and is administered and enforced by APRA.

The information paper, based on APRA’s experience in implementing the regime for the largest banks, is aimed at assisting all other ADIs prepare to implement the BEAR, and helping the largest ADIs refine and embed the regime.

It clarifies APRA’s expectation of how an ADI can effectively implement the accountability regime on matters including:

  • identifying and registering accountable persons;
  • creating and submitting an accountability statement for each accountable person, and an accountability map for the ADI;
  • establishing a remuneration policy requiring that a portion of accountable persons’ variable remuneration be deferred for a minimum of four years, and reduced commensurate with any failure to meet their obligations; and
  • notifying APRA of any accountability-related changes or breaches of accountability obligations.

The information paper also includes questions and answers based on some of the issues commonly raised by ADIs during implementation. APRA will address enforcement-related issues, including the disqualification of accountable persons and civil penalties under the BEAR, in a subsequent paper.

APRA Chairman Wayne Byres said the BEAR presented an opportunity for a major strengthening of accountability among the directors and senior executives of ADIs.

“Many problems that have arisen in the financial system over recent years have had, at their heart, organisational complexity and diffused responsibility. By effectively implementing the BEAR, ADIs will genuinely enhance their governance and risk management through much clearer understanding and agreement on individual accountabilities,” Mr Byres said.

Trust In Financial Services, And The BEAR

Wayne Byers, APRA Chairman spoke on ‘Beyond the BEAR Necessities‘ at the UNSW Centre for Law Markets and Regulation Seminar in Sydney. Timely, given recent events. He looks at the BEAR, which is due to commence formally from 1 July 2018. He also touched on the relative roles of APRA and ASIC, and potential overlap.

But note BEAR is NARROW  – it applies only to ADI groups, and deals primarily with matters related to the prudential standing and reputation of the ADI. So the broader customer issues are off radar! This will not be sufficient to deal with the issues at hand.

He argued that trust is the corner stone of a financial business, that the Australian financial system is “financially  sound” but are far less trusted to “do the right thing”. He regards this a less fatal flaw than lack of financial soundness (which tells you something about APRA’s DNA)!

Financial institutions operate in a privileged position in society, and yet consumers have difficulty in assessing financial products which are often require long term commitments, and consumers are forced to use them, – for example super.

So, he says, “That combination of compulsion, opacity and materiality generates, as a quid pro quo, a heightened expectation that financial institutions will exhibit high standards of behaviour in the way they operate.”

The community will be far more likely to maintain its trust that the sector will do the right thing if it is evident there is accountability when it does not.

APRA has had an increasing interest in the risk culture of financial institutions (and admits there is some cross-over with ASIC).

ASIC, reflecting its own mandate, will take an interest in shortcomings that lead to damaging outcomes for consumers and markets. APRA, on the other hand, has an interest in failings in governance, culture and accountability that indicate a lax attitude to risk-taking, which might ultimately impact the soundness of the financial institution itself (and thereby jeopardise the interests of depositors, policyholders and superannuation fund members).

Which brings me to the BEAR, which imposes substantially strengthened requirements in relation to accountability within banking organisations. In its design, the BEAR draws its inspiration from the Senior Manager Regime (SMR) in the UK. However, the BEAR is narrower in coverage: the BEAR applies only to ADI groups, and deals primarily with matters related to the prudential standing and reputation of the ADI. For this reason, the BEAR is naturally administered by APRA. The joint administration between the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) that occurs the UK reflects the wider range of institutions and behaviours that are covered by the SMR. Were the BEAR to be broadened at some stage in the future, a similar joint administration might well be appropriate in Australia. Until then, it is framed with a prudential focus and hence administered by a prudential regulator.

Bringing the BEAR to life

The BEAR formally comes into effect very shortly: 1 July 2018. In practice though, implementation occurs over time. The new regime applies to the largest banks from day one; other ADIs have a further year before they are subject to the BEAR. There are also additional transitional provisions within the legislation: from a requirement that allows ADIs three months to register their accountable persons, to allowing until the end of 2019 to accommodate the remuneration requirements in pre-existing executive employment contracts. So it will be some time before the BEAR is in full force.

Broadly, there are five main elements to the BEAR and I’d like to say a few words about each: registration, obligations, accountabilities, remuneration and sanctions. In each case, I’ll talk about the new requirements, and what’s changing from the regime in place today.

The first element is registration.

The BEAR prescribes a set of ‘accountable persons’. These are essentially the directors and senior executives responsible for an ADI’s overall health and well-being. The BEAR requires accountable persons to be registered with APRA before they can perform their duties.

Accountable persons are deemed registered 14 days after they have lodged their registration. Unlike the UK SMR, there is no scope for regulatory approval of appointments, nor any process of interviews. That is a deliberate choice: it maintains accountability for senior appointments where it rightly belongs – with the Boards and senior executive teams that are making the appointments. However, unlike the current process which only requires an ADI to notify APRA after an appointment, the BEAR requires an executive to be registered prior to taking up duties. While APRA will not be vetting all appointments, the pre-appointment registration does provide an opportunity, should we be aware of information that might make an appointee unsuitable, to discuss any concerns with the individual or the employing ADI.

The second element of the BEAR is obligations.

New statutory obligations apply to both accountable persons, and ADIs. These obligations require each to (i) act with honesty and integrity, (ii) with due skill, care and diligence, and (iii) deal with APRA in an open, constructive and cooperative way. In doing so, they must also take reasonable steps to prevent matters arising which would undermine the ADI’s prudential standing and prudential reputation.

Are these new obligations onerous? I personally don’t think they are notably more onerous than the existing requirements in our Prudential Standards, which requires that ‘responsible persons’ possess the competence and character to perform their roles.6 Of course, there’s no explicit obligation at present to be open and cooperative with APRA, or any formal obligation to prevent matters arising that would undermine the ADI’s prudential standing and reputation. But I hope no one wants to claim they require senior executives to do something they shouldn’t naturally do!

The third element of the BEAR is the requirement for accountability maps and statements.

Each accountable person needs to have an accountability statement, setting out the aspects of an ADI’s operations for which they are accountable. Each ADI must have an accountability map, showing how the statements come together to cover the totality of an ADI’s business and risks. Together, the map and accompanying statements establish clarity on the allocation of accountability across the executive team within an ADI.

To the person in the street, this wouldn’t seem particularly difficult. After all, all executives have some kind of role statement that sets out their broad responsibilities, and they have staff reporting to them that undertake various functions and that they oversee. But this is probably the most important element of the BEAR. In many ADIs, there is often collective responsibility for various aspects of its business: for any given process or product, there are often hand-offs of responsibility (including, at times, to external partners and suppliers). But this creates the risk of collective responsibility leading to no individual accountability. Clarity of accountability – the foundation of the BEAR – goes to the heart of a strong risk culture.

In speaking with some executives and directors in the largest ADIs – not all of whom, I must admit, were fans of the BEAR – they acknowledge the benefits that the accountability statements and maps can bring them from a business perspective. The complexity of organisational structures, with the separation of product manufacturing, distribution, and operations, makes it challenging to ensure it is clear who is responsible when things are not as they should be. Clearer accountabilities can only be beneficial.

Clearer accountabilities can also improve remuneration outcomes. As we noted recently, it is not uncommon for performance metrics within executive scorecards to be weighted more heavily to the performance of the institution rather than the individual. On a positive note, this promotes a collegiate whole-of-organisation focus but, on the other hand, can also permit poor risk outcomes in a particular business line to be ‘averaged out’ across the business as a whole, reducing the impact on the executive(s) most accountable and potentially undermining effective risk management. Clearer accountabilities should allow for more targeted scorecards, and thereby greater alignment between the outcomes an individual delivers and the rewards he or she receives.

Which brings me to the fourth element: the remuneration requirements.

The BEAR requires ADIs to defer a minimum proportion of an accountable person’s variable remuneration – generally 40 per cent for executives, or 60 per cent for the CEO, of a large bank – for a minimum of four years. It also requires ADIs to have remuneration policies that provide for the reduction in variable remuneration should an accountable person fail to comply with their obligations, and to exercise the provision should circumstances warrant it. Contrary to some beliefs, however, the BEAR does not grant APRA any power to determine what amount of remuneration an individual should receive.

The basic requirements of the BEAR – a remuneration policy, and provision for the reduction of variable remuneration when warranted – are in place today. But compared to today, the BEAR introduces the prescribed minimum deferral amounts and terms, and creates a stronger link to the statutory obligations I referred to earlier.

The BEAR will therefore mean accountable persons have more skin in the game for a longer period of time than is typically the case now and will place greater pressure on ADIs, when adverse prudential outcomes occur, to explain how that has been factored into remuneration outcomes. As a result, the BEAR will require many ADIs to restructure their remuneration frameworks. As I did a few weeks ago, I’d encourage all ADIs to think more holistically about the right structure for performance-based remuneration – the BEAR’s ’40 per cent for four years’ formula is not necessarily the right mix for all. Alongside our recent remuneration review, the BEAR provides an opportunity to fundamentally rethink remuneration frameworks and achieve a stronger alignment with long-term financial safety and a strong risk culture. It will be a lost opportunity if everyone just defaults to the minimum.

The fifth and final element of BEAR are the sanctions.

These apply at two levels: the ADI and the individual. For ADIs, the BEAR provides a penalty regime in instances where the ADI has failed to meet its obligations under the legislation – put simply, failing to operate with integrity, skill, care and diligence, or preventing the prudential standing or reputation of the ADI from being materially undermined.

I’d like to point out here, in response to some misunderstandings that seem to exist, that APRA cannot impose the fines unilaterally: APRA must make a successful case before the Courts. That will require APRA to have a belief as to its reasonable grounds for success, and that the offence is material.

For individuals, the financial sanctions for any failure to fulfil their obligations will be addressed via the ADI’s remuneration policy. APRA’s sanction is a disqualification power – the power to remove an accountable person from their role, and in the most extreme cases, prevent them for taking on any similar role in the industry in the future. This is obviously not a power that will be used lightly, but appropriate and useful where necessary to eliminate known poor behaviour endangering prudential safety.

APRA’s role

I want to finish by noting another concern that some have raised about the BEAR: that it somehow changes APRA’s role. I hope I’ve been able to point out today that that’s not the case. Many aspects of the BEAR are already present in APRA’s prudential framework, and the BEAR has been framed from a prudential perspective. In that sense, the BEAR should be viewed as a major strengthening of APRA’s prudential framework, not an expansion of its mandate. And the BEAR is not dissimilar to a number of other management responsibility/fitness and propriety regimes that are administered by APRA’s prudential peers in other jurisdictions.

The BEAR certainly provides for a strengthening of after-the-event sanctions that could apply if things go seriously wrong in an ADI. But its real value, I hope, will be to support APRA’s preventative role by promoting strong and clear accountability, and ensuring directors and executives who have the primary responsibility for the safe and sound operation of an ADI stay focussed on that task. Indeed, that has been the experience in the UK: despite the SMR’s extensive penalty regime, the UK authorities have only needed to use it sparingly because the industry itself has lifted its game.

APRA seeks improvement in executive remuneration practices

The Australian Prudential Regulation Authority (APRA) today released the results of a review of remuneration practices at large financial institutions which found considerable room for improvement in the design and implementation of executive remuneration structures.

The review examined whether policies and practices in regulated institutions were meeting the objectives of APRA’s prudential framework: that remuneration frameworks operate to encourage behaviour that supports risk management frameworks and institutions’ long-term financial soundness.

APRA’s review comprised detailed analysis of executive remuneration practices and outcomes from a sample of 12 regulated institutions across the authorised deposit-taking institutions (ADIs), insurance and superannuation sectors. The sample of institutions reviewed collectively accounts for a material proportion of the total assets of the Australian financial system.

The review found that remuneration frameworks and practices did not consistently and effectively promote sound risk management and long-term financial soundness, and fell short of the better practices set out in APRA’s existing guidance.

Chairman Wayne Byres said APRA encouraged all regulated institutions to review their remuneration frameworks and address any areas where APRA’s findings indicated room for improvement.

“Both the design and implementation of performance-based remuneration must support effective risk management and the long-term financial soundness of each institution. In this regard, there is considerable room for improvement,” Mr Byres said.

The report identified the need for improvement in:

  • ensuring practices were adopted that were appropriate to the institution’s size, complexity and risk profile;
  • the extent to which risk outcomes were assessed, and weighted, within performance scorecards;
  • enforcement of accountability mechanisms in response to poor risk outcomes; and
  • evidence of the rationale for remuneration decisions.

In response to the findings, APRA will consider ways to strengthen its prudential framework. A future review of the relevant prudential standards and guidance will take account of the forthcoming Banking Executive Accountability Regime (BEAR), as well as international best practice.

Mr Byres said: “APRA does not believe institutions should be satisfied with simply meeting the minimum requirements on remuneration.

“Well-targeted incentive schemes and firmly enforced accountability systems should be viewed not simply as a matter of regulatory compliance but as essential for sustained commercial success.

“Boards and senior executives should consider the findings of this review and take action to better align their remuneration arrangements with good risk management and the long-term soundness of their institutions.”

Any revisions to the prudential framework will be subject to APRA’s usual practices of stakeholder consultation and engagement.

Copies of the publication are available on APRA’s website at: http://www.apra.gov.au/CrossIndustry/Documents/180328-Information-Paper-Remuneration-Practices.pdf.

COBA Welcomes Bipartisan Approach to BEAR

COBA has welcomed the bipartisan approach taken in Federal Parliament to give small and medium banking institutions more time to prepare for the Banking Executive Accountability Regime (BEAR).

Amendments to the Bill moved by the Opposition in the House were supported by the Government and the amended Bill has now passed the Senate. Small and medium banking institutions have until 1 July 2019 to prepare for the BEAR. It will commence for the major banks on 1 July 2018.

“It’s very pleasing that the Government and the Opposition recognise the importance of customer owned banking and the vital role it plays in delivering diversity and competition in retail banking,” COBA CEO Michael Lawrence said.

“To promote a more competitive banking market, it is critically important to minimise regulatory costs on smaller banking institutions.

“Customers ultimately bear the cost of regulatory compliance.

“MPs have also recognised that the regulatory compliance burden is effectively a competitive advantage for the major banks. This is because major banks have vastly greater resources than their smaller competitors to quickly respond to new regulatory obligations.

“More time for small and medium banking institutions to prepare for the BEAR in an orderly way will reduce the cost burden that would otherwise apply.

“I congratulate the Government and the Opposition on this outcome.”

APRA’s 2018 Priorities

APRA released their Policy Agenda 2018 today which sets their priorities and agenda.

Looking at banking, they outlined the following:

  • Capital adequacy tweaking will likely continue for the next 2-3 years, plus  revisions to the prudential standards for operational risk, interest rate risk in the banking book and market risk, and associated changes to reporting and public disclosure requirements. APRA is considering changes to its overall approach to capital requirements in a number of areas where APRA’s methodology is more conservative than minimum international requirements.
  • APRA does not anticipate the need to incorporate BEAR expectations into the prudential standards or prudential practice guides in 2018 but will provide guidance where appropriate, potentially in the form of published Frequently Asked Questions.
  • They will finalise arrangements to licensing some new ADIs through a phased approach.
  • Expect more changes to APG 223 Residential Mortgage Lending, revising underwriting standards and the development of a prudential practice guide for commercial property lending.

 

 

Banking Misdirection and the BEAR

According to Wikipedia, Misdirection is a form of deception in which the attention of an audience is focused on one thing in order to distract its attention from another. Managing the audience’s attention is the aim of all theatre; it is the foremost requirement of theatrical magic.

An article From The New Daily. suggests the banks employed this tactic by using Sundays announcements about the end of ATM fees to distract attention from the BEAR draft legislation released the previous Friday.  We had already covered the BEAR on our blog but more generally I agree the potential coverage was diluted thanks to the ATM news.

It is worth looking at the limitations of BEAR, especially as conduct relating to consumer outcomes is excluded, the focus on the rules relate to prudential matters. In the UK, who have similar measures on place, they also included consumer related bad practice.  The rules should have similar reach here, because this is actually the central issue banks need to address.

Will BEAR help consumers?

According to consumer advocate CHOICE and the Consumer Action Law Centre, not really. In a joint submission to the government, the two groups pointed out that these rules only applied to prudential matters – that is, matters relating to systemic financial integrity. They did not apply to consumer matters.

The difference between the two is best understood as follows: the global financial crisis was essentially a prudential crisis. Overseas banks were lending more than they could afford, and (to put it simply) they ran out of money.

The CBA financial advice scandal, meanwhile, was a consumer issue. It involved bank representatives doing the wrong thing by customers.

CHOICE and the Consumer Action Law Centre urged the government to imitate similar laws in the UK, and extend the BEAR to consumers. That would mean bringing in the consumer watchdog ASIC as well as the prudential watchdog APRA.

But the draft legislation reveals the government has not done this. It has also crafted loopholes that allow both itself and the regulator freedom to relax the rules in special (unspecified) circumstances.

These moves suggest the government isn’t quite as tough on banks as it would have the public believe.

The BEAR Roars!

The Treasury released the exposure draft of the Banking Executive Accountability Regime, open for consultation until 29th Sept 2017.

The Bill amends the Banking Act to establish the BEAR: an enhanced accountability framework for ADIs and persons in director and senior executive roles.

  • The BEAR imposes a clearer accountability regime on ADIs and people with significant influence over conduct and behaviour in an ADI. It requires them to conduct themselves with honesty and integrity and to ensure the business activities for which they are responsible are carried out effectively.
  • It does this by creating a new definition of ‘accountable person’. An accountable person is a Board member or senior executive with responsibility for management or control of significant or substantial parts or aspects of the ADI group.
  • The general requirement placed on accountable persons is framed in the context of their particular responsibilities. These will be clearly defined in accountability statements for each accountable person and an accountability map for each ADI group.
  • Accountability maps and statements are designed to give APRA greater visibility of lines of responsibility. The maps will clearly allocate responsibilities throughout the ADI group, to ensure that all parts or elements of the group are covered.
  • An ADI must comply with its BEAR obligations. These include new accountability, remuneration and key personnel obligations. An ADI must ensure that it has a remuneration policy consistent with the BEAR, its accountable person roles are filled and it has given accountability statements and maps to APRA.
  • ADIs must set remuneration policies deferring an accountable person’s variable remuneration to ensure accountable persons do not engage in behaviours inconsistent with BEAR obligations.
  • APRA will have additional powers concerning examination and disqualification to let it implement the BEAR.
  • If an ADI breaches its BEAR obligations, significant civil penalties may be imposed by a court.
  • Recognising there are different business models and group structures in the banking industry, the Bill uses both high level principles as well as prescribed detail. The BEAR will work with existing legislative and regulatory frameworks

The ABA were unimpressed in a statement from Anna Bligh, Australian Bankers’ Association Chief Executive:

“The seven day consultation period announced by the Federal Government on new banking executive accountability laws is grossly inadequate and playing fast and loose with a critical sector of the economy.

“The industry recognises that improving senior executive accountability is crucial for customers to have trust in banks.

“Banks want to work with the Federal Government to get this right, but just seven days to consult is not good enough.

“This is a significant piece of reform that impacts on the integrity of banks and the stability of the financial system and it needs thorough scrutiny.

“It’s an entirely new addition to the system of corporate governance in Australia. The Government’s timeframe risks serious unintended consequences.

“The ABA urges the Government to extend the consultation period and do the proper due diligence to ensure that the objective of improving senior executive accountability is met.”

 

The BEAR Roars!

The Government has released the Banking Executive Accountability Regime (BEAR) Consultation Paper for comment. We now get to see how these measures may be implemented, and it is the consequence of a significant “fail” across the industry in terms of appropriate behaviour over many years, especially given the special yet unequal place financial services companies have in the economy.

Of course, the question is – will these measures help tackle the cultural shortcomings endemic to the sector?

In the 2017-18 Budget the Government brought forward a comprehensive package of reforms to strengthen accountability and competition in the banking system. As part of this package, the Government announced that it will legislate to introduce a new Banking Executive Accountability Regime (BEAR).

The intention of the BEAR is to enhance the responsibility and accountability of ADIs and their directors and senior executives. The BEAR will provide greater clarity regarding their responsibilities and impose on them heightened expectations of behaviour in line with community expectations.

Where these expectations are not met, APRA will be empowered to more easily remove or disqualify individuals, ensure ADIs’ remuneration policies result in financial consequences for individuals, and impose substantial fines on ADIs. ADIs will be required to register individuals with APRA before appointing them as senior executives and directors.

The Government is now releasing this consultation paper, which outlines the key features of the BEAR and the proposed approach for implementation.

All interested parties are encouraged to make a submission by 3 August 2017.

Here are the main points.

All ADI’s are included.

ADIs are in scope of the BEAR due to the critical role they play in the economy and in response to community concern regarding recent poor behaviour. It is imperative that they maintain the trust of financial sector participants and depositors in particular.

The scope of the BEAR is also intended to include all entities within a group with an ADI parent. This will include subsidiaries of ADIs, including those that provide non-banking services and those that are foreign subsidiaries. Where an ADI exists within a group with a non-ADI or overseas parent company, the scope of the BEAR is intended to apply only to the subgroup of entities for which the ADI is the parent.

Senior Management and Board are included.

An objective in defining accountable persons for the purpose of the BEAR is to provide greater clarity in relation to the responsibilities of the most senior individuals within an ADI. The BEAR should make it easier to hold senior individuals to account for their behaviour in carrying out their responsibilities.

The net should not be cast so wide that responsibility can be deflected and accountability avoided. The risk is that if everybody is responsible, nobody will be accountable. On the other hand, the definition of accountable persons should not be cast too narrowly so as to exclude individuals with effective responsibility for management and control.

The definition of accountable persons is intended to clearly identify the most senior directors and executives who will be held to a heightened standard of responsibility and accountability. It is intended to build on, rather than replace, existing concepts of responsibility and accountability, such as definitions of ‘responsible persons’, ‘directors’ and ‘senior managers’ under APRA’s Fit and Proper framework.

Specific Behaviour Expectations Are Defined.

The new expectations are intended to identify a heightened standard of conduct or behaviour rather than replacing existing concepts such as contained in APRA’s Fit and Proper framework.

The BEAR will apply where there is poor conduct or behaviour that is of a systemic and prudential nature.

ASIC will remain responsible in its role as conduct regulator.
One potential approach in identifying the new expectations for ADI groups and accountable persons is to draw upon the expectations of behaviour contained in the SMR and the Fundamental Rules in the United Kingdom, as outlined in Appendix A, but keeping the focus on systemic and prudential matters.

Using this approach, an ADI would be expected to:
• conduct its business with integrity;
• conduct its business with due skill, care and diligence;
• deal with APRA in an open and cooperative way; and
• take reasonable steps to:
– act in a prudent manner, including by meeting all of the requirements of APRA’s prudential standards, and maintaining a culture which supports adherence to the letter and spirit of these standards;
– organise and control its affairs responsibly and effectively; and
– ensure that these expectations and accountabilities of the BEAR are applied and met throughout the group or subgroup of which the ADI is parent.

An accountable person would be expected to:
• act with integrity, due skill, care and diligence and be open and co-operative with APRA; and
• take reasonable steps to ensure that:
– the activities or business of the ADI for which they are responsible are controlled effectively;
– the activities or business of the ADI for which they are responsible comply with relevant regulatory requirements and standards;
– any delegations of responsibilities are to an appropriate person and those delegated responsibilities are discharged effectively; and
– these expectations and accountabilities of the BEAR are applied and met in the activities or business of the ADI group or subgroup for which they are responsible.

Includes Variable Remuneration Deferment.

In the 2017-18 Budget, the Government announced that:
• a minimum of 40 per cent of an ADI executive’s variable remuneration — and 60 per cent for certain ADI executives such as the CEO — will be deferred for a minimum period of four years; and
• APRA will have stronger powers to require ADIs to review and adjust remuneration policies when APRA believes these policies are producing inappropriate outcomes.

Remuneration policy should be aligned with sound and effective risk management and should not incentivise a short-term focus or excessive risk-taking. Deferring variable remuneration is aimed at providing an appropriate period of time for risks to crystallise and for variable remuneration to be adjusted downwards as a result. The intention is to better align the realisation of risk with reward.

Accountable Persons to be Registered.

ADIs will be required to register accountable persons with APRA. This mechanism will operate by requiring ADIs, prior to appointing an individual as an accountable person, to advise APRA of the potential appointment and provide APRA with information regarding the candidate’s suitability.

Upon notification, APRA would consult its register of accountable persons and advise the ADI if the candidate has previously been removed or disqualified by APRA, or if APRA is aware of any other issues that that could affect the candidate’s suitability for the role. It is not intended that ADIs be able to consult the register themselves. In order to ensure that the register is internal to APRA it may be necessary to provide exceptions from information law regimes, such as the Freedom of Information Act and the Privacy Act.

From The Introduction.

In recent years, there has been growing community concern regarding a number of examples of poor culture and behaviour in banks and the financial sector generally. There have been too many instances where participants have been treated inappropriately by banks and related financial institutions.

The House of Representatives Standing Committee on Economics Review of the four major banks (the Coleman Report) found that no individuals have had their employment terminated as a result of recent scandals, noting that:

‘The major banks have a ‘poor compliance culture’ and have repeatedly failed to protect the interests of consumers. This is a culture that senior executives have created. It is a culture that they need to be accountable for.’

The Australian financial system is the backbone of the economy and plays an essential role in promoting economic growth. In order for it to operate in an efficient, stable and fair way, it is imperative that participants have trust in the system. It must operate at the highest standards and meet the needs and expectations of Australian consumers and businesses.

Participants need to be confident that financial firms will balance risk and reward appropriately and serve their interests. As the Financial System Inquiry noted:

‘Without a culture supporting appropriate risk taking and the fair treatment of consumers, financial firms will continue to fall short of community expectations.’

Banks, as authorised deposit-taking institutions (ADIs), play a critical role in the financial system, including through their deposit-taking, payments and lending activities. ADIs enjoy a privileged position of trust, with prudential regulation designed to provide consumers with confidence in the safety of their deposits.

In the 2017-18 Budget the Government brought forward a comprehensive package of reforms to address the recommendations of the Coleman Report and strengthen accountability and competition in the banking system. As part of this package, the Government announced that it will legislate to introduce a new Banking Executive Accountability Regime (the BEAR).