Banking executive draft legislation sparks protests – October 2017

Filed under: Economy and Finance, Banking, Politics, Australian Politics,

The federal Government, acting on its commitment to strengthen accountability in the banking system, has released exposure draft legislation for its proposed Banking Executive Accountability Regime (BEAR).

Treasurer Scott Morrison said: “In order for the banking sector to operate at the highest standards and meet the needs and expectations of Australian consumers and businesses the Government is focused on taking action now to ensure Australians can have trust and confidence in the banking system.

“Announced in the 2017-18 Budget, the BEAR will make banks and their most senior executives and directors accountable for meeting heightened standards of behaviour in line with community expectations and ensure our banking system is unquestionably strong, unquestionably fair and unquestionably competitive.

“Public consultation took place from 13 July 2017 to 3 August 2017 and covered the key design elements of the BEAR. Submissions were received from a wide range of respondents including banks, industry groups, consumer bodies and law firms.

“The draft legislation provides further clarity on the accountability obligations of banks and their directors and senior executives, and enhanced consequences for being in breach of these obligations.”

In particular, he said, the prudential regulator APRA would be empowered to:

  • impose substantial fines on banks;
  • more easily disqualify accountable persons; and

· ensure that banks’ remuneration policies result in financial consequences for individuals.

The BEAR is due to apply from 1 July 2018.

Under the draft legislation bank bosses will be forced to defer almost half of their pay for four years and banks will be subject to fines of up to $210 million under tough new accountability measures announced by Treasurer Scott Morrison.

According to the legislation, the CEO of a big bank will be required to defer the lesser of 60 per cent of variable pay or 40 per cent of total remuneration for a minimum of four years. Under the new rules, up to $4.8 million from a total salary of a $12 million package could be required to be deferred.

APRA may also seek civil penalties of up to a million units, or $210 million, if a bank breaches its obligations under BEAR.

An executive with critical responsibilities at a smaller bank will be required to defer the lesser of 40 per cent of variable pay or 10 per cent of total pay unless the consideration in question is less than $50,000.

Australian Bankers' Association chief executive Anna Bligh protested at the unusually short seven day exposure period for the draft legislation as not good enough and urged the government to reconsider it. “The seven-day consultation period announced by the federal government on new banking executive accountability laws is grossly inadequate and playing fast and loose with a critical sector of the economy,” Ms Bligh said.

The Treasurer said, “Banks remain at the centre of some of the most critical decisions in life, including buying a first home, starting a business, and saving and investing for retirement,” the Treasurer said.

“It is therefore important that mechanisms are in place to deter poor behaviour and provide for accountability where standards of behaviour are not met.

“This is imperative to maintain community confidence that the banking sector will serve the interests of consumers and businesses.”

The exposure draft of the legislation is available on the Treasury website (see below).

Submissions are due by 29 September 2017.

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