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).
