The Australian Regulatory Summit 2017, hosted by Thomson Reuters, saw the convergence of thought leaders on regulatory updates and potential developments in the finance industry. Amongst the key themes presented to advance industry regulation was the need for cultural accountability in banking, and improved responsibility of senior management. David Coleman MP, Federal Member for Banks and Chair of the House Economics Committee, provided that there is a need to address the internal culture of banks to establish accountability.
Tabled in the Major Bank Levy Bill 2017, the Banking Executive Accountability Regime forms part of the federal governments measures announced in the most recent budget. Announced earlier in May, the Turnbull government’s Banking and Executive Regime will implement measures to make executives of authorised deposit-taking institutions more accountable. This comes as the government adopts 9 out of the 10 recommendations put forward by the House Economics Committee in their review of the four major banks (released November 2016). Other changes will include the establishment of the Australian Financial Complaints Authority (AFCA) as the “one-stop-shop” for dispute resolution; greater powers for the ACCC to review the financial sector and promotion of open customer data.
David Coleman explained that the changes will improve executive accountability, requiring reporting of changes to APRA and the deferrable of bonus remuneration. Under the new regime:
- Banks will be required to register proposed executive or director appointments with APRA, along with a map of their responsibilities;
- APRA will be given stronger powers to disqualify directors and executives; and
- Executive remuneration frameworks will be restructured to require a minimum of 40% (and up to 60% for certain executives such as CEOs) of variable remuneration to be deferred for a minimum for four years.
Additionally, not only will APRA have increased maximum penalties for ADI’s who breach these expectations, but will also have the extended power to implement penalty where ADI’s fail to monitor the suitability of these executives.
As ASIC seeks stronger powers of regulation in the financial industry, particularly with a focus on enforced criminal accountability, it holds banks will need to be able to trace accountability to responsible executives and senior management. Under ASIC’s proposed self-reporting framework, ADIs are encouraged to proactively identify, report and remediate breaches, with senior management responsibility. Peter Kell, Deputy Chairman, ASIC, commented that such framework will limit individuals managing finance companies, creating a culture of responsible management.