Will the most recent FSB review give impetus to mandatory clawback?
08/06/2018
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The Financial Stability Board has announced a review on whether Australia and other countries have got their act together on resolving sources of bad bank and insurer behaviour and potential insolvency.  The review, announced on 4 June 2018, includes remuneration in its sights.

This is hot on the heels of the global FSB’s additional guidance on remuneration (see HERE), the federal government’s imposition of the Banking Executive Accountability and Related measures (BEAR – see HERE), APRA’s review of remuneration across 12 regulated banks, insurers and superannuation funds (see HERE) and CBA (see HERE), the Sedwick review into bank sales incentives (see HERE) and the Hayne Royal Commission into banks, among other parliamentary committee and ASIC investigations. Some may say that the fee premium paid to be a bank director in these times is still not enough.

Of keen interest to us, and no doubt, bank boards and executives, is if the FSB (and by extension, APRA) think there is enough regulatory clout currently to impose clawback. Based on their respective reports to date, and the 2015 standard upon which their review is based esoterically, if not helpfully, titled “Key Attributes Of Effective Resolution Regimes for Financial Institutions” (see HERE), the answer would be “no”.

But clawback definitely sits among the attributes that the FSB thinks APRA and other regulators should have. From the 2015 standard:

“Resolution authorities should have at their disposal a broad range of resolution powers, which should include powers to do the following:

  1. (i)  Remove and replace the senior management and directors and recover monies from responsible persons, including claw-back of variable remuneration”

We know APRA can do the first bit (i.e. remove directors). It cannot do the second (recover monies paid).

Would it be terrible if it could? Some may argue that the FSB has said that these powers only be exercisable if a bank or insurer was on its last legs, with a possibility of being insolvent.

Banks and insurers can, on this occasion, put in their 2 cents worth and tell the FSB directly. The FSB is seeking feedback from stakeholders as part of this review. We know some banks, investors and aggrieved customers feel strongly on these matters, so get back to them by 4 July 2018.

© Guerdon Associates 2021
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