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May 02, 2018

The APRA Chairman Wayne Byres spoke at the UNSW Center for Law Markets and Regulation Seminar in Sydney. He discussed the five main elements to the Banking Executive Accountability Regime (BEAR): registration, obligations, accountabilities, remuneration, and sanctions. He also highlighted that the BEAR formally comes into effect on July 01, 2018.

This new regime applies to the largest banks from day one; other authorized deposit-taking institutions have a another year before they are subject to the BEAR. The additional transitional provisions also exist within the legislation: from a requirement that allows authorized deposit-taking institutions three months to register their accountable persons, to allowing until the end of 2019 to accommodate the remuneration requirements in pre-existing executive employment contracts. Thus, it will be some time before the BEAR is in full force. He examined each element of the regime and elaborated on the new requirements:

  • Registration. The BEAR prescribes a set of "accountable persons" who are required to be registered with APRA before they can perform their duties, as opposed to the current process that only requires an authorized deposit-taking institution to notify APRA after an appointment. Accountable persons are deemed registered 14 days after they have lodged their registration.
  • Obligations. The new statutory obligations apply to both accountable persons and authorized deposit-taking institutions. These obligations require each to act with honesty and integrity; act with due skill, care,and diligence, and deal with APRA in an open, constructive, and cooperative way.
  • Accountabilities. Each accountable person must have an accountability statement, setting out the aspects of an institution's operations for which they are accountable. Each authorized deposit-taking institution must have an accountability map, showing how the statements come together to cover the totality of an institution's business and risks. Together, the map and accompanying statements establish clarity on the allocation of accountability across the executive team within an authorized deposit-taking institution.
  • Remuneration. The BEAR requires institutions to defer a minimum proportion of an accountable person's variable remuneration—generally 40% for executives or 60% for the CEO of a large bank—for a at least four years. It also requires institutions to have remuneration policies that provide for the reduction in variable remuneration should an accountable person fail to comply with their obligations and to exercise the provision should circumstances warrant it. The basic requirements of the BEAR—a remuneration policy and provision for the reduction of variable remuneration when warranted—are in place today. However, the BEAR introduces the prescribed minimum deferral amounts and terms.
  • Sanctions. These apply at two levels: the authorized deposit-taking institution and the individual. For authorized deposit-taking institutions, the BEAR provides a penalty regime in instances where the institution has failed to meet its obligations under the legislation.

The BEAR strengthens after-the-event sanctions that could apply if things go seriously wrong in an authorized deposit-taking institution. However, its real value is supporting the preventive role of APRA by promoting strong and clear accountability and ensuring that directors and executives who have the primary responsibility for the safe and sound operation of an institution stay focused on that task, added Mr. Byres. According to him, this has been the experience in the UK: "despite the SMR's [Senior Managers Regime] extensive penalty regime, the UK authorities have only needed to use it sparingly because the industry itself has lifted its game." He concluded that although the regulators will play their role, the industry needs to embrace this opportunity and "think beyond the BEAR necessities." 


Related Link: Speech

Keywords: Asia Pacific, Australia, Banking, Insurance, BEAR, Accountability Regime, Remuneration, APRA

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