8 August 2017

Consultation Paper On The Banking Executive Accountability Regime



ADIs and all entities within a group with an ADI parent.
Australia Finance and Banking
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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.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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