The regime is aimed at dealing with issues our corporate and prudential regulators have faced in recent years: the unsatisfactory cultural behaviour of some employees of a number of banks and other financial institutions.
Even after agreeing to hold a Royal Commission into the financial services sector, the government has pressed on with this new regime.
The BEAR introduces a heightened responsibility and accountability framework for the most senior and influential directors and executives within Authorised Deposit-taking Institutions (ADIs).
It introduces extensive provisions applicable to those described as accountable persons (in occupied positions of trust and responsibility) in ADIs. The Australian Prudential Regulation Authority (APRA) will be given wide powers of examination of officers and directors and also significant powers to seek their disqualification in certain circumstances.
The BEAR will apply where there is poor conduct or behaviour “that is of a systemic and prudential nature”. It proposes civil penalties of up to $210 million for major banks, with a maximum $10.5 million fine for smaller ADIs.
Directors and senior executives of ADIs would be held responsible and accountable where they fail to meet the expectations of APRA.
A number of amendments were made to the legislation from previous drafts that directors should be aware of.
A merits review for APRA’s disqualification powers was added, the definition of ‘reasonable steps’ was improved, with the most welcome change being the delineation between the role of non-executive directors and executives of an ADI.
An amendment, agreed to by the government and opposition during parliamentary debate, will also see small and medium ADIs now have an implementation date of July 2019 to give them more time to comply with the regulations, a year longer than large ADIs which must comply with the BEAR from 1 July this year.
Despite these welcome changes the AICD still believes that legislating remuneration structures for senior executives in private companies is a significant change to Australia’s corporate environment. This area should be left to boards and ADIs to make decisions on remuneration structures appropriate to their organisation’s needs and strategies.
We also remain concerned that the new regime overlaps with duties that already apply to directors and officers through the Corporations Act and the Australian Securities and Investments Commission Act. The BEAR also risks blurring the role and accountabilities of APRA and the Australian Securities and Investments Commission (ASIC).