In a sign that the Government intends to quickly amend the Banking Act to implement the Banking Executive Accountability Regime (BEAR), Treasury has released the exposure draft of the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2017 for a 7 day consultation period. Background.

Who does the BEAR apply to?

The Banking Executive Accountability Regime will apply to authorised deposit-taking institutions (ADI’s) namely banks, building societies and credit unions and their subsidiaries. They will have significant new obligations under the BEAR.

The BEAR obliges an ADI to:

• comply with its accountability obligations;
• meet its key personnel obligations, by ensuring all key areas of responsibility in ADI and its group are attributed to accountable persons;
• give APRA accountability maps and statements, which explain who is responsible for all parts and aspects of the ADI; and
• implement remuneration policies that defer the remuneration of accountable persons for a period of up to four years and allow for a reduction in remuneration in proportion to any failure to meet the BEAR obligations .

Accountability obligations

The accountability obligations of an ADI are to:

• conduct its business with honesty and integrity and with due skill care and diligence;
• deal with APRA in an open, constructive and co-operative way. This does not displace legal professional privilege; and
• take reasonable steps to conduct its business to prevent matters arising which affect the prudential standing or reputation of the ADI.

An ADI is responsible for its subsidiaries, and must take reasonable steps to ensure its subsidiaries meet the accountability obligations.

APRA can apply to a court for the imposition of a civil penalty (up to $210 million for a large ADI) when there is evidence of a failure to comply with the BEAR relating to prudential matters.

Accountable persons

A person is an accountable person, of an ADI or a subsidiary of an ADI, if the person:
(a) holds a position in, or relating to, the ADI or subsidiary; and
(b) because of that position, has actual or effective responsibility:
(i) for management or control of the ADI or subsidiary; or
(ii) for management or control of a significant or substantial part or aspect of the ADI’s or subsidiary’s operations.

A person could also be an accountable person if they have the following responsibilities:
(a) responsibility for oversight of the ADI as a member of the Board of the ADI, or a subsidiary of the ADI;
(b) responsibility for carrying out the management of all or a significant part of the business activities of the ADI and its subsidiaries, including:
(i) allocating to accountable persons responsibility for all parts or aspects of the ADI; and
(ii) reporting directly to the Board of the ADI;
(c) responsibility for management of the ADI’s financial resources;
(d) responsibility for overall risk controls and/or overall risk management arrangements of the ADI;
(e) responsibility for management of the ADI’s operations;
(f) responsibility for information management, including information technology systems, for the ADI;
(g) responsibility for management of the ADI’s internal audit function;
(h) responsibility for management of the ADI’s compliance function;
(i) responsibility for management of the ADI’s human resources function;
(j) responsibility for management of the ADI’s anti-money laundering function.

An ADI is responsible for each accountable person it nominates, including those in a subsidiary or a parent company. The ADI must take reasonable steps to ensure each of its accountable persons meet his or her accountability requirements.

BEAR requires that ADIs give APRA accountability statements detailing the roles and responsibilities of each accountable person as well as accountability maps allocating the roles and responsibilities of accountable persons across the ADI and its subsidiaries.

APRA may disqualify an ‘accountable person’ for breaching the obligations of BEAR.

APRA may apply to the Federal Court to have a director, senior manager or auditor disqualified from being or acting in that position.

Deferral of remuneration
An ADI must defer a proportion of the remuneration of an accountable person for a period of four years (the lesser of 60% of the financial year’s variable remuneration or 40% of the total remuneration for a CEO and the lesser of 40% of the financial year’s variable remuneration or 20% of the total remuneration for other accountable persons). The proportion to be deferred depends on the size of the ADI.

The Minister has the power to determine what constitutes a small, medium or large ADI by legislative instrument.

The Government intends that the legislative instrument will provide that:

• a small ADI would have less than or equal to $10 billion on a three year average of total resident assets.
• a medium ADI would have between $10 billion and $100 billion on a three year average of total resident assets.
• a large ADI would be any ADI with greater than or equal to $100 billion on a three year average of total resident assets.
• all amounts, once finalised, will be indexed to GDP.

There are circumstances where APRA may allow an ADI to defer a person’s remuneration for a shorter period.

An ADI must have a remuneration policy which is consistent with its BEAR obligations.

Insurance

Under BEAR an ADI must not take out insurance against the consequences of breaching the BEAR for itself or an accountable person.