Company Directors have warned that the BEAR regime gives the Australian Prudential Regulation Authority (APRA) too much power and creates more risk-aversion in Authorised Deposit taking Institutions (ADIs).
The regime may restrict ADIs in selecting the accountable persons subject to the regime based on essential corporate needs and requirements.
The regime extends to Accountable Persons being: Chair, Chair of Risk Committee; Chair of Audit Committee; Chair of Remuneration Committee; Chief Executive Officer; Chief Finance Officer; Chief Risk Officer; Chief Operations Officer; Chief Information Officer; Head of Internal Audit; and, Senior Officer outside Australia (for foreign ADIs) and Head of a Foreign Bank Branch (for foreign ADIs).
BEAR will include remuneration restrictions:
- CEOs – 60% of variable remuneration must be deferred for 4 years.
- Other accountable persons – 40% of variable remuneration must be deferred for 4 years.
APRA will also have enhanced powers to reduce remuneration of accountable persons failing to meet the expectations of the new regime. Boards and ultimately shareholders are concerned that the regime as presently described will affect how remuneration policies are set if the outcomes are not acceptable to APRA.
This will undermine the current role of boards and CEOs, restricting ADIs role in sourcing the best candidates for positions within a contemporary remuneration framework which will remain available to other non-Bank corporations.
Conflict with Corporations Act
The regime creates a sub-set of senior bank executives that will be subject to a new APRA-administered regime. For each of these individuals, APRA will be given enhanced powers to refuse to register, remove and disqualify individuals not meeting BEAR expectations. This will differentiate the roles of some company officers in ADIs, especially as the duties incumbent on directors at common law and as prescribed by legislation is stated to apply to all persons in such positions regardless of title or corporate work function, unsettling established corporate governance principles.
ASIC or APRA
Further, how BEAR will practically delineate the roles between Australian Securities & Investments Commission (ASIC) and APRA given their established roles will likely play out in practice or with the developments of clear guidelines, as the demarcation is not clear.
The BEAR proposal includes new civil penalties for ADIs, but not individuals, of up to $200 million for failure to meet the expectations of BEAR, failure to hold persons to account, and failure to monitor the suitability of accountable persons.
Financial Services Council v Bank’s Response
The Australian Bankers’ Association in a submission to the Commonwealth Treasury submitted that BEAR should be extended to insurance companies and superannuation funds because Banks require a level regulatory playing field.
The Financial Services Council (FSC) says it supports measures to make the financial services industry more transparent and accountable to consumers and does not want the current scope of the regime changed. FSC stated BEAR should only apply to ADIs, in part because the vertically-integrated industry structure justifies the additional regulation.
The FSC did critique BEAR however, noting:
- There is a potential for conflict in having both APRA and ASIC having regulatory power for institutional accountability in the same space.
- The new and potentially confusing terminology in BEAR. For example, instead of using a new concept of accountable person, the FSC suggested it would be simpler to adopt APRA’s existing idea of responsible person in its Prudential Standard CPS 520.
- It wants non-executive directors to be exempted from BEAR, noting they are already subject to well-established legal duties, and their inclusion risks driving a conversion between their roles and responsibilities and those of management.