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Increasing banking executive accountability

Increasing bank accountability is a prominent trend in Australia at present, alongside greater enforcement in respect of anti-money laundering (AML) and counter-terrorism financing (CTF). New draft laws1 for banking executive liability were released on 22 September as part of the proposed Banking Executive Accountability Regime (BEAR).

According to the Australian Treasury, "the intention of the BEAR is to enhance the responsibility and accountability of Authorised Deposit-Taking Institutions (ADI's) and their directors and senior executives. The BEAR will provide greater clarity regarding their responsibilities and impose on them heightened expectations of behaviour in line with community expectations".

Financial institutions will be familiar with some of the features of the proposed regime, as they are similar to the UK Senior Managers and Hong Kong Manager In Charge regimes. Similar themes include:

  • A registration requirement for 'accountable persons': the same as in the UK; in contrast the HK registration requirement only applies to managers in charge.
  • Responsibility mapping: individuals within management positions will become personally accountable for compliance, with the consequential implications for reputation and career. This appears broadly consistent with the UK's Senior Manager Regime and Hong Kong's Manager In Charge measures, which require entities to produce a Management Responsibilities Map and an organisation chart respectively.
  • Deferral of remuneration for senior executives – up to 40% of an ADI's variable remuneration and up to 60% for certain ADI executives, such as the CEO of a large ADI, will be deferred for a minimum period of four years.
  • Enhanced powers for the regulators to remove and disqualify senior bank executives and directors: APRA will have enhanced powers to remove and disqualify senior executives and directors. This includes the ability to disqualify a person without applying to the Federal Court. However, the draft legislation is currently being redrafted to provide for merits review by the Administrative Appeals Tribunal. Consequently, this will enable executives to appeal decisions to the Federal Court.
  • New penalties: The Australian proposed penalties for individuals are far less stringent than the UK regime. The draft legislation currently does not include any proposals on penalties which may be imposed on senior managers themselves in the event of non-compliance. Under the UK's Senior Manager Regime, if a senior manager's firm breaches a relevant regulatory requirement; the senior manager may face personal enforcement action if it can be shown that the senior manager did not take reasonable steps to stop the breach from occurring or continuing. Senior managers of certain entities may also be found criminally liable if they take or contribute to a reckless decision which results in their firm failing.

Scope

The new regime is currently proposed to apply to all entities within a group with an Authorised Deposit-taking Institution (ADI) parent. Where an ADI exists, within a group with a non-ADI or overseas parent company, the new regime is only to apply to those subsidiaries where the ADI is the parent.

The new changes are due to come into force on 1 July 2018.

If you require further details in respect of the UK's Senior Managers Regime please contact Calum Burnett or Sarah Hitchins in London; in respect of Hong Kong's Manager-In-Charge measures, please contact Charlotte Robins in Hong Kong.

Footnote:

1 http://www.treasury.gov.au/consultation/c2017-t222462/

Further information

This case summary is part of the Allen & Overy Legal & Regulatory Risk Note, a quarterly publication. For more information please contact Karen Birch – karen.birch@allenovery.com, or tel +44 20 3088 3710.