Big four name execs as BEAR kicks off

Directors and senior executives of the big four banks have submitted BEAR accountability statements to APRA.

The new laws give APRA the power to take court action to fine an executive or a director if there is a material offence. Picture: Hollie Adams

Directors and senior executives of the big four banks have submitted accountability statements to the Australian Prudential Regulation Authority in time for the new Banking Executive Accountability Regime.

Announced in the May budget last year, the new accountability regime comes into effect today for the major banks, with smaller banks given another year to comply.

The new rules, dubbed BEAR, could see APRA disqualify bank executives or seek to dock their pay.

Banks were required to submit a list of directors and senior executives to APRA, and describe the areas of accountability for each person.

While the law operates from today, APRA asked the major banks to submit what are now known as “BEAR statements” by mid-June to allow them to be registered in time for today’s start date.

While the announcement of the new regime took the banks by surprise last year, the atmosphere has changed considerably since then, particularly with the start of the royal commission into misconduct of the banking and finance industry this year.

The chief executive of the Australian Banking Association, Anna Bligh, said the banks “welcome reforms that strengthen accountability and competition in the system”.

She said the BEAR regime would “sharpen the minds of those working in banks to ensure they, at all times, work in the best interest of both the customer and the organisation”.

“BEAR is an important initiative that will help in the transformation of culture and conduct already under way in the industry,” she said.

A spokesman for Westpac told The Australian that the bank “supports the rationale of BEAR and has done an extensive amount of work to implement the new regulations”.

“Clear and transparent accountability is an essential part of good corporate governance,” he said.

“If implemented well, BEAR will play an important role in rebuilding trust and confidence in the industry by setting standards and establishing a framework for how banks should respond when things go wrong.”

APRA would not make any comment on Friday on whether all major banks had submitted their BEAR statements, but banking sources told The Australian that all had been working to submit them by the mid-June deadline.

Under the legislation, which is modelled on similar requirements introduced in Britain, “accountable persons” such as directors and senior executives at major banks are now required to be officially registered with APRA before they can begin working.

Under the previous regime, banks were only required to inform APRA of the appointment of senior executives after their ­appointment.

The legislation gives APRA the power to disqualify executives from their role in cases of poor behaviour.

In extreme cases, APRA can prevent them from working in a similar role in banking.

The legislation also requires banks to defer a minimum amount of the person’s variable remuneration, generally about 40 per cent for executives and 60 per cent for the chief executive of a large bank, for a minimum of four years.

It also requires them to have remuneration policies that allow executive pay to be adjusted if the director or executive fails to meet their obligations.

Banks have had teams in place working on complying with the new regime for some time.

The legislation gives the banks until the end of next year to adjust remuneration policies to comply with the new requirements if there are pre-existing executive employment contracts.

But banks have already been moving in this direction.

“Westpac already has a strong framework around the deferral of variable remuneration for key executives,” the spokesman said.

“Our existing practices leave us well placed to comply with BEAR.”

A spokesman for ANZ said the bank had “met APRA’s requirements to comply with the beginning of the BEAR regime by the required timeline”.

While the details of the new regime are clear, the industry will be watching how it is implemented in practice by APRA in response to specific events.

In a recent speech, APRA chairman Wayne Byres said the new BEAR regime imposed “substantially strengthened requirements in relation to accountability within banking organisations”. Mr Byres said the new regime did not mean that APRA would be vetting all new bank executive appointments, but he said the pre-appointment registration process provided an opportunity for APRA to discuss any concerns if it was aware of any information that might make an appointee unsuitable.

The new legal obligations require “accountable persons” to act with honesty and integrity, due care and diligence and to deal with APRA in an “open, constructive and co-operative way”.

“They must also take reasonable steps to prevent matters arising that would undermine the bank’s prudential standing and prudential reputation,” he said.

He rejected suggestions that the new laws were too onerous for bank executives. “I don’t think they are notably more onerous than the existing requirements in our prudential standards, which requires that ‘responsible persons’ possess the competence and the character to perform their roles,” he said.

But he added that the big change with the new regime is identifying individual accountability for specific areas within the bank.

“In many banks, there is often collective responsibility for various aspects of the business,” he said.

“But this creates the risk of collective responsibility leading to no individual accountability. Clarity of accountability — the foundation of BEAR — goes to the heart of a strong risk culture.”

The new laws give APRA the power to take court action to fine an executive or a director if there is a material offence. In extreme cases, it can take action to disqualify the executive or director.

Mr Byres said APRA could not impose fines unilaterally on any executive who fell short of their responsibilities but could take a case to court. “That will require APRA to have a belief as to its reasonable grounds for success and that the offence is material.”

He said APRA did not intend to use its powers of disqualification or fining lightly.

But he said that the power would be used in a way that was “appropriate and useful where necessary to eliminate known poor behaviour endangering prudential safety”.