October 23, 2018

Pat Brennan, Executive General Manager Policy and Advice Division of APRA, examined how APRA expects authorized deposit-taking institutions to implement and maintain the Banking Executive Accountability Regime (BEAR) regime. He highlighted that BEAR is relevant for all authorized deposit-taking institutions, regardless of their size and complexity. He also added that APRA recently released an information paper on the implementation of BEAR and it will be releasing additional information on the enforcement of this regime in due course.

Mr. Brennan emphasized that the obligations of both the authorized deposit-taking institutions and their accountable persons are to deal with APRA openly, constructively, and cooperatively; authorized deposit-taking institutions must and take steps to prevent matters that would adversely affect their prudential standing or prudential reputation. In addition, an authorized deposit-taking institution is required to take reasonable steps to ensure its accountable persons meet their accountability obligations. He further explained that BEAR requires authorized deposit-taking institutions to identify who is accountable for each area. All accountable persons are required to have an accountability statement describing their areas of responsibility and this statement must be provided to APRA. BEAR requires that each authorized deposit-taking institution should provide to APRA an accountability map showing lines of reporting and responsibility. He added “... at the center of identifying and documenting accountability, there is proportionality in the regime; it is not a case of one size fits all. The clearer the starting point on accountability, consistent with good governance and a strong risk culture, the more straightforward implementing BEAR will be.”

Next, Mr. Brennan stated that an accountability statement needs to be a clear articulation of what an individual is accountable for in practice and the outcome expected of each responsibility. Given BEAR is a prudential regime, attention may be given to the allocation of key functions of prudential significance, including accountability for the management of prudential risks with respect to those responsibilities. These statements will generally reflect individual accountability. While joint accountability is recognized in the BEAR regime, in practice areas of presumed joint accountability can often be found to be suitably distinct through the process of preparing clearly articulated accountability statements. Where joint accountability genuinely exists, however, this should be explicitly identified and defined. APRA expects the accountable persons to be closely involved in the development of their accountability statement, as, at the time of registration, the accountable person will sign his/her statement.

He added that BEAR requires a minimum portion, most commonly 40%, of an accountable person’s variable remuneration to be deferred for a minimum of four years. It also requires authorized deposit-taking institutions to have remuneration policies that provide for the reduction in variable remuneration if an accountable person fails to meet obligations; authorized deposit-taking institutions can exercise this provision if circumstances warrant it. APRA commenced industry engagement on BEAR immediately after the legislation was passed and has discussed BEAR with industry associations on a number of occasions. APRA looks forward to actively engaging with the sector more broadly on this important development. In terms of next steps, “APRA will shortly write to authorized deposit-taking institutions that will be subject to BEAR from July 01, 2019 requesting submission, in the coming months, of an initial draft list of accountable persons and draft accountability statements. APRA will provide feedback on these drafts to help prepare for formal submission as July 01, 2019 approaches.” Finally, without detracting from the effort required to implement BEAR, he emphasized it is a proportionate regime—most evidently in the numbers of accountable persons, the size of potential penalties, and the remuneration requirements.

 

Related Link: Speech

Keywords: Asia Pacific, Australia, Banking, BEAR, Governance, Accountability Regime, Proportionality, APRA

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