Submissions to the Senate Economics Legislation Committee Inquiry into the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2017 closed on 1 November, with the Committee due to report on 24 November.
Twenty submissions were received, including submissions from the Australian Shareholders’ Association, Westpac, ANZ, Australian Bankers’ Associates, Bank of Queensland, Finance Sector Union of Australia, a joint submission by academics at La Trobe and Deakin Universities, and Macquarie Group.
The BEAR first emerged in the UK under the UK Senior Managers and Certification Regime (SMR) and the Hong Kong Managers in Charge (MIC), (“Why the New BEAR Rules For Banks Need a Rethink”, Australian Financial Review, 18 September 2017). The SMR was introduced in 2013 in the aftermath of the Global Financial Crisis. Although the SMR has remained in the UK, key stakeholders believe that BEAR should be thoroughly examined to ensure that prior laws and regulations in Australia will not overlap with BEAR.
Many organisations are complaining about BEAR’s regulations, and it remains a contentious topic among the banking, superannuation and insurance industries.
The Business Law Section of Law Council of Australia outlined their concerns pertaining to the BEAR in their submission to Treasury on the 23 of August 2017, stating
“While we support the Government’s desire to ensure that the law imposes high standards of accountability and behaviour, the BEAR is unnecessary and should not be introduced”.
The Law Council stated that they had three concerns with the BEAR, namely policy considerations, co-regulatory issues and competition law.
The Law Council stated in relation to policy considerations that they believe that “existing legislative tools available to ASIC” are sufficient to meet the underlying intent of the BEAR and therefore there is no justification for “the impost of the BEAR”.
The Law Council asserts also that there is an “overlap between the regimes under the Corporations Act 2001” which opens the potential for inconsistency in interpretation and enforcement. The administration of the Act by ASIC and the BEAR by APRA could, according to the Law Council, lead to conflict and inconsistencies.
The Law Council also cited the potential detriment to Shareholders due to the two tiers of penalties for large and small Authorised Deposit Taking Institutions (ADIs). The Law Council stated that “the penalties proposed are very significant, so as to maximise the deterrent effect, by making the maximum penalty a substantial proportion of revenue”. However, the Law Council believes the effect of these penalties would be to essentially punish Shareholders for a breach by the regulated body.
The Law Council believes that in this respect ASIC already has the means of enforcement available through the Australian Financial Services Licences provisions of the Corporations Act.
Law Council concerns relating to Co-Regulatory Issues and the need to ensure that “the BEAR is consistent with existing regulatory regimes”. The Law Council believes this is essential to avoid giving rise to a regime that “creates confusion or double jeopardy”.
In the opinion of the Law Council, “the existing powers conferred upon ASIC under the Corporations Act, (including sections 180 and 181 of the Corporations Act) suffice to meet the objectives of BEAR if they are appropriately enforced”.
The Law Council asserts that “imposing the BEAR does not facilitate better enforcement. Rather, it divides and therefore weakens regulatory responsibility for holding accountable persons liable for inappropriate conduct” and that “board-rooms and senior managers or company officers should be held to the same competence and conduct standards, whether they be accountable persons or not and in the boardroom of or senior officers of an ADI or other company or not”.
The Law Society outline a number of other co-regulatory issues including inconsistencies in accountability requirements between Chapter 7, “Financial Services and Markets” and Section 912A, “General Obligations” of the Corporations Act and the BEAR Chapter 5, Expectations of ADIs and Accountable Persons under the BEAR.
The Law Society also outlined concerns regarding the application of BEAR to foreign branches and subsidiaries in Australia and the obligations of such entities to comply in the first instance with requirements of their offshore parent.
The third concern outlined by the Law Council in its submission to Treasury are the “Competition issues.” The Law Council is concerned that emanating from BEAR, jobs in senior banking management and executive positions will become unappealing, resulting in senior people with experience in the corporate world becoming less inclined to seek such roles in banking, superannuation and insurance.
Is Government listening to stakeholder concerns? Well, yes and no.
No in response to the Bank and their request, among others, to defer the BEAR at least six months beyond the commencement date of July 2018 due to the vague implications of APRA’s authority.
Yes, according to Tony Damian of Herbert Smith Freehills (“Banks Win More BEAR Concessions But No Extension”, Australian Financial Review, 19 October 2017), who said that some important changes to the initial BEAR draft have been made which include “amending the definition of ‘accountable person’ to clarify bankers in a subsidiary will only be caught if they have control of ‘a significant or substantial part or aspect’ of the operations of the group”.
While these concerns represent the “tip of the iceberg”, it is hoped that the objective of the BEAR to improve regulation and boost consumer confidence is achieved.