Banking Executive Accountability Regime: Draft Legislation Comments Closing
Thursday 28 September 2017 @ 11.46 a.m. | Corporate & Regulatory | Trade & Commerce
On Friday, 29 September 2017, the time to respond to the Draft Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2017 (the Draft Bill) will close. According to the Federal Treasury website, the purpose of the consultation was to seek the views of stakeholders on the Draft Bill whose key aim is to provides further clarity on the accountability obligations of the banks and their directors and senior executives, and enact "enhanced consequences" for breaching such obligations.
Origins of Draft Bill
In response to the House of Representatives Standing Committee on Economics' first report on Australian Banks, the Government announced in the 2017-18 Budget that a comprehensive package of reforms to ". . . strengthen accountability and competition" in the banking sector would be introduced. Following from this, the Government announced that it would legislate the Banking Executive Accountability Regime (the BEAR).
The BEAR framework proposed by the Draft Bill complements the existing regulatory framework which includes the Australian Securities and Investments Commission’s (ASIC’s) role regulating market conduct, the duties placed on directors under the Corporations Act 2001 (Cth) and the Australian Prudential Regulation Authority (APRA's) prudential role.
What the Draft Bill Proposes
The Draft Bill proposes to amend the Banking Act 1959 (Cth) (the Banking Act) to establish the BEAR, a strengthened responsibility and accountability framework for the most senior and influential directors and executives in authorised deposit-taking institutions (ADIs). The new framework will be supported by giving APRA new and strengthened powers.
Specifically, the BEAR imposes a clearer accountability regime on ADIs and people with significant influence over conduct and behaviour in an ADI - requiring them to conduct themselves with "honesty and integrity" and to ensure the business activities for which they are responsible are carried out effectively.
A new definition of "accountable person" is created by the Draft Bill and will cover 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 by the Draft Bill in the context of their particular responsibilities which will be clearly defined in "accountability statements" for each accountable person and an "accountability map" for each ADI group. The intention behind accountability maps and statements is the aim of giving APRA greater visibility of the lines of responsibility - clearly allocating responsibilities throughout the ADI group, to ensure that all parts or elements of the group are covered.
The Draft Bill requires that an ADI must comply with its BEAR obligations, including the new accountability, remuneration and key personnel obligations. Further, the Draft Bill requires that an ADI must ensure that it has a remuneration policy consistent with the BEAR framework and its accountable person roles are filled and it has given accountability statements and maps to APRA. ADIs must also set remuneration policies which defer an accountable person’s variable remuneration to ensure accountable persons do not engage in behaviours inconsistent with the BEAR obligations.
The regulatory body APRA is to have additional powers concerning examination and disqualification to let it implement the BEAR.
If an ADI is found to be in breach of its BEAR obligations then the Draft Bill provides that significant civil penalties may be imposed by a court.
Differences - Old and New Law
There is currently no measure similar to the BEAR or the obligations the framework imposes in the current banking legislation, nor are there any concepts of "accountable persons", prescribed responsibilities, registrable roles. Penalties are increased with respect to breaches of the BEAR provisions and as well "deferral of remuneration" is also available as a penalty. The BEAR provisions also provide for insurance to be taken out by ADI's against breach of the BEAR requirements, as well as, for greater powers of review and investigation by APRA.
Reaction to the Draft Bill
The key reaction to the Draft Bill has come form the Australian Bankers Association (the ABA) who, as the ABC News reports, have through their CEO Anna Bligh indicated that they believe the consultation period allowed for the Draft Bill, namely, 22 September 2017 to 29 September 2017, was far too short for an important piece of legislation such as the Draft Bill.
The ABA has called out the short response period allowed for the Draft Bill saying, ". . . this is not good public policy making,"
The ABA's comments have been responded to by Treasurer Scott Morrison, who is reported by the ABC News, as saying the banks had plenty of advanced warning about the content of the new laws which the Treasurer says were first raised with chairs of the banks in February 2017 and then further discussed in specific terms in July 2017.
The ABA is reported to also wanting to see to the Draft Bill include other financial companies in the proposed changes. The ABA CEO Anna Bligh is reported as saying:
The ABA argues that other financial institutions like the Banks are responsible for large amounts of Australians' savings and that there should be accountability in the executive teams not only in banks, but also in superannuation that's looking after the long term retirement savings of many customers, and in insurance companies that also deal with similar types of funds for customers. The ABA CEO is reported as saying:
The Federal Treasurer has responded saying that the BEAR is ". . . specifically designed to address risks around so-called authorised deposit-taking institutions (ADIs), which had to be held to a higher standard because they are responsible for customer deposits".
Next Steps
This proposed legislation will complement other measures being progressed by the Government which are all intended to get past some of the more recent bad publicity that has arisen with respect to the Banking sector and its integrity and governance processes. Its passage in the parliament will be interesting once it is introduced, most likely towards the end of the year.
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