Banks had better be wary of regulatory BEAR

The Australian 12:00AM August 17, 2017

Richard Gluyas

 We can all smell political propaganda from 1000 kms away!!!!

If you ever dreamt of serious combat with the financial intelligence agency Austrac, then now is the time to do it — before the proposed banking executive accountability regime, or BEAR, is implemented.

The framework has unpleasant, razor-sharp teeth, which for some potential bankers is likely to increase the attractiveness of employment in other industries with less punitive regulatory regimes.

Commonwealth Bank’s battle with Austrac over money-laundering allegations is precisely the kind of case where BEAR would rear up in all its ferocity.

CBA would be staring down the barrel of a maximum penalty of $200 million if it failed to meet the heightened standards of behaviour demanded by BEAR.

Not only that, but a consultation paper released last month said it might be necessary to prevent banks from taking out insurance against civil penalties to maximise the deterrence impact.

BEAR also proposes that banks register individuals with the prudential regulator prior to their appointment as directors and senior executives. Maps of their roles and responsibilities would be provided to help guard against “fudging” of accountability.

So-called “accountable persons” would include chairs of board committees, such as audit and risk, as well as managers of business areas with responsibility for a “significant proportion” of the activity based on total gross assets, revenue or profit. There would also be a principles-based element to capture other bankers with “significant influence over conduct and behaviour”.

Under the regime, APRA would have stronger powers to remove accountable persons, subject to review, and civil penalties would be imposed when behavioural standards are not met.

Finally, variable remuneration for senior executives would be deferred for at least four years, with APRA able to require banks to review and adjust remuneration policies. CBA’s Austrac battle would be a far more unpleasant experience for the bank under a BEAR framework.

Accountability at the corporate and individual level would be wider and more direct and the penalties would be harsh. Accountable persons — instead of just directors, senior managers and auditors — would be subject to disqualification.

Even Harry Houdini wouldn’t escape the net, given the proposed requirement for banks to tell APRA when individuals have been dismissed, suspended or had their variable pay cut for not meeting the BEAR’s expectations.