The prudential regulator could get powers to remove a bank manager without going to the Federal Court and managers will have to vouch for work done by underlings, under a tougher accountability regime being designed by the Turnbull government.
A Treasury consultation paper on the new Banking Executive Accountability Regime (BEAR), released on Thursday after being announced in the May budget, suggests the Australian Prudential Regulation Authority's existing powers to remove directors, auditors and senior executives should be enhanced and widened. It will also create "new expectations" for banker conduct.
"The BEAR should make it easier to hold senior individuals to account for their behaviour in carrying out their responsibilities," the consultation paper says, by creating a "heightened responsibility and accountability framework". It will supplement rather than replace the existing prudential framework and directors' duties.
The banks have been given only three weeks to respond to the consultation paper, with submissions due with Treasury on August 3.
APRA is working with Treasury to ensure BEAR does not conflict with its existing powers over bank culture, pay, governance, risk standards and the quality of staff.
The regime will create a list of bank "accountable persons", which will be cast widely to capture the chairmen of board committees, such as audit and risk, as well as managers responsible for specific business areas who have responsibility for a "significant proportion" of the activity based on total gross assets, revenue or profit. The definition of accountable person will also have a principles-based element to capture other bankers with "significant influence over conduct and behaviour".
Importantly, "accountable persons" will be responsible for the action of their underlings, with the consultation paper warning executives will need to "take reasonable steps to ensure that ... any delegations of responsibilities are to an appropriate person and those delegated responsibilities are discharged effectively".
Banks will have to register accountable persons with APRA and provide "accountability statements" and "accountability maps" detailing their roles and responsibilities.
The paper proposes creating new expectations on accountable persons to "act with integrity, due skill, care and diligence and be open and co-operative with APRA". They will also have to "take reasonable steps" to ensure the bank's activities for which they are responsible "are controlled effectively".
With the May budget mandating that 60 per cent of executive remuneration should be deferred for at least four years, the consultation paper says this should apply to bank CEOs.
APRA's expanded powers over setting remuneration will apply to accountable persons and be designed to ensure "there are financial consequences for conduct that does not meet the new expectations".
The banks have been asked for feedback on whether any shift from variable to base remuneration as a result of the regime would be problematic due to changing incentives regarding taking risk.
Managers in subsidiaries providing non-banking activity and foreign subsidiaries would be captured by the new regime, Treasury said.
Acting Treasurer and Minister for Revenue and Financial Services, Kelly O'Dwyer said BEAR would seek to draw on similar legislative regimes offshore, including the "senior managers regime" in the UK, but would not adopt all of its provisions.
Few faced consequences
APRA chairman Wayne Byres said last month BEAR would not follow the UK by making APRA responsible for decisions about hiring executives, which he said must remain the responsibility of regulated institutions.
The creation of BEAR is part of a package of government responses to toughen up on bank culture in response to calls for a royal commission into the sector.
Application of the UK senior managers regime was a key focus of the House of Representatives economics committee chaired by David Coleman, which highlighted how few senior managers had faced consequences from failures in their divisions.
The consultation paper proposes a new civil penalty regime introducing a maximum penalty of $200 million for a breach to apply to banks with total liabilities greater than $100 billion, and that banks be prevented from taking out insurance against such penalties.
Law firm Allens told clients in a recent note that no individual has been held accountable under the UK senior managers regime but it has had an impact by making banks deeply consider management and governance frameworks, which had resulted in a renewed focus on culture and practices.This article was first published by http://www.afr.comAuthor: James Thomson James Eyers