Consultation Paper On The Banking Executive Accountability Regime
ADIs and all entities within a group with an ADI parent.
Australia
Finance and Banking
Further to our alert in May 2017 (which can be found
here), the Government has now released a Consultation Paper on
the Banking Executive Accountability Regime (the Regime). We have
summarised the key details of the Regime below:
|
Topic |
Detail |
1 |
Institutions to be covered by the Regime |
- ADIs and all entities within a group with an ADI parent.
- Subsidiaries of ADIs, including those that provide non-banking
services and those that are foreign subsidiaries.
|
2 |
Increased responsibility and accountability of directors and
senior executives |
- There will be an increased level of responsibility and
accountability of the most senior directors and executives within
ADIs.
- The Regime will build on the existing concepts of
responsibility and accountability, including the definitions of
‘responsible persons’, ‘directors’ and
‘senior managers’ under APRA’s Fit and Proper
framework.
|
3 |
Registration |
- Prior to the appointment of directors and senior executives,
ADIs must register individuals with APRA and provide accountability
statements and maps of their roles and responsibilities.
|
4 |
Increased power of APRA and new penalties |
- APRA will have increased power to remove and disqualify
directors and senior executives from APRA-regulated
institutions.
- Expectations of ADIs and their directors and senior executives
will be established. Where ADIs do not meet these expectations,
there may be civil penalties.
- APRA may seek a civil penalty in a range of circumstances,
including where ADIs do not monitor the suitability of
executives.
|
5 |
Expectations under the Regime |
- ADIs will be expected to:
-
- conduct business with integrity;
- conduct business with due skill, care and diligence;
- deal with APRA in an open and cooperative way; and
- take reasonable steps to act in a prudential manner, organise
and control affairs responsibly and effectively, and ensure that
the expectations and accountabilities of the Regime are applied and
met throughout the group or subgroup of which the ADI is a
parent.
- Accountable persons will be expected to:
- act with integrity, due skill, care and diligence and be open
and co-operative with APRA; and
- take reasonable steps to ensure that:
-
- the activities or business of the ADI for which they are
responsible are controlled effectively, and comply with relevant
statutory requirements and standards;
- any delegations of responsibilities are to an appropriate
person and those delegated responsibilities are discharged
effectively; and
- the expectation and accountabilities of the Regime are applied
and met in the activities or business of the ADI group or subgroup
for which they are responsible.
|
6 |
Remuneration |
- The Regime will build on APRA’s existing prudential
standards on remuneration.
- The Regime will apply to accountable persons that perform
executive functions only.
- Variable remuneration for ADI senior executives will be
deferred for at least four years.
- The intention in deferring variable remuneration (generally 40
percent, but 60 percent for certain ADI executives such as CEOs) is
to enhance the accountability and financial consequences for those
individuals whose decisions can have the largest impact on the ADI
sector and its customers.
- APRA will have increased powers to require ADIs to review and
adjust remuneration policies. The enhanced power will also apply so
that the variable remuneration of an executive accountable person
will be reduced where the expectations of the Regime are not
met.
|
7 |
Civil Penalties |
- APRA will be able to seek a civil penalty in a range of
circumstances, including where:
- an ADI fails to meet the new expectations of an ADI under the
Regime;
- an ADI fails to hold accountable persons to account under the
Regime; and
- an ADI does not appropriately monitor the suitability of
accountable persons.
- There will be a distinction in penalties for small and large
ADIs. A large ADI will be defined as having total liabilities
greater than AU$100 billion.
|
Whilst the particular details of the Regime have not been
determined, the Consultation Paper reveals that the Government is
envisaging the Regime to be similar to the Senior Managers and
Certification Regime (SMCR) that applies in the United Kingdom.
Further information about the SMCR can be found here.
Interested parties have been invited by the Government to make
comment on the issues and options in the Consolation Paper by 3
August 2017. Please contact Dentons if you would like assistance
with this process.
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