The Banking Executive Accountability Regime Bill (BEAR) was passed by both Houses on 7 February and received Royal Assent on 20 February. It is now law and large banks will have to comply in a matter of months.

The BEAR imposes a heightened accountability regime on Authorised Deposit-taking Institutions (ADIs) and their subsidiaries, including foreign ADIs for any branches they have in Australia, plus, it seems, overseas subsidiaries of Australian ADIs (but not of course, their overseas competitors).

The BEAR legislation provides that an “accountable person” who manages the ADI or significant or substantial parts of the ADI must:

• act with “honesty and integrity and with due skill, care and diligence”,
• deal with APRA in an “open, constructive and co-operative way” and
• take “reasonable steps” to prevent matters from arising that would adversely affect the prudential standing or reputation of the ADI.

Key points of the BEAR include:

• A new definition of accountable person that will capture many more employees than the senior executive team
• Notification requirements around the appointment of accountable persons
• Accountability maps and statements to be provided to APRA. Where responsibilities are not allocated appropriately, APRA can make directions regarding the allocation of responsibilities, with penalties able to be imposed if the directions are not followed.
• Powers for APRA to disqualify accountable persons or impose financial penalties through variable remuneration reductions
• Funding for APRA to enforce the new laws
• New penalties to be imposed on ADIs that breach the BEAR
• Requirements for ADIs to defer a proportion of the remuneration of accountable persons for a period of up to four years, with the proportion depending on the size of the ADI and the position involved.

A detailed description of the BEAR’s key points can be found HERE, and the details around the remuneration deferral requirements and accountable person definition can be found HERE.

The BEAR will come into effect on 1 July 2018, although small and medium-sized ADIs have received a reprieve following the recommendations of a Senate committee (See HERE), that concluded the start date of the Bill was too close and should be pushed back.

The BEAR now reflects this recommendation. Small and medium-sized ADIs will be covered by the BEAR after 1 July 2019. Large ADIs will still have to meet the 1 July 2018 date because the government believes they have the resources to do so and the accountability issues in the sector should be addressed “as soon as practicable”.

The government will create a legislative instrument to outline the definitions of a large, medium and small ADI. The current intention is that:

• a small ADI would have up to $10bn of total resident assets on a three-year average.
• A medium ADI would have between $10bn and $100bn of total resident assets on a three-year average.
• A large ADI would be any ADI with $100bn or more on a three-year average of total resident assets.

Transitional provisions apply so that an ADI will have 90 days to register an accountable person who was in place on 1 July 2018 for large ADIs and, for small and medium ADIs, on 1 July 2019.

Transitional provisions also apply to give APRA the power to determine, by legislative instrument, how an ADI may meet its requirement to provide an accountability map and statement during the first 18 months of the BEAR. This power is expected to be used to increase the level of detail required in accountability maps and statements over time.

A large ADI must update its remuneration policies to comply with the BEAR deferred remuneration provisions from 1 July 2018. Small and medium ADIs must ensure their remuneration policies are updated from 1 July 2019.

The BEAR remuneration requirements apply to the variable remuneration of an accountable person of a large ADI if the decision to grant the variable remuneration to that person was made on or after 1 January 2019.

If an employment contract is in place on Royal Assent, all ADIs should update contracts to reflect the ADI’s BEAR compliant remuneration policy and the BEAR’s deferred remuneration requirements by 1 January 2020.

There was a significant amount of discussion regarding the “fairness” of the Bill, in that it targeted the accountability of executives at ADIs with non-ADI operations while not requiring the same from competitors who are not ADIs.

The concern was that an executive could do the same job in two different companies and be subject to different regulatory scrutiny and remuneration.

While this has been singled out as an area for development by APRA and the Senate Committee that reviewed the Bill, at this point the BEAR’s scope has remained as originally envisioned.

The version of the BEAR that became legislation can be found HERE.

 

 

 

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