The Banking Executive Accountability Regime would not only provide APRA with the power to remove directors and senior executives from their positions but could also subject them to bonus clawbacks, it has been revealed.
Speaking to several radio shows on Tuesday (29 August), Kelly O’Dwyer, the Minister for Revenue and Financial Services, said that the Banking Executive Accountability Regime (BEAR) aims to ensure that “where there is misconduct within a banking institution, there needs to be a level of accountability”.
Ms O’Dwyer told Ross Greenwood on 2GB radio: “[T]his regime, which borrows much from the UK regime, will see executives become responsible for misconduct that might’ve occurred at a bank or failures that might’ve occurred in relation to governance and their bonuses can be clawed back.
“So, it’s not about setting their pay, it’s not about that at all, but it is saying that there needs to be a level of accountability because, at the end of the day, banks are critically important to our financial system. It is very important that people have trust and confidence in our banking system and in our financial system.
“But it’s not just about being able to claw back bonuses. This regime has got other elements as well, and another element involves APRA, the prudential regulator, being able to step in and remove directors or particular senior executives from their job at the bank if they have got concerns.”
Ms O’Dwyer also spoke to Raf Epstein on 774 ABC Melbourne on Tuesday, and told him that while the government is “not looking to set the pay of bank executives”, it instead was looking to ensure that “in circumstances where there has been wrongdoing and bonuses have been paid to executives, there needs to be full accountability of those executives that do in fact run the bank and are responsible for the procedures within that bank”.
She added: “So, there will be clawback arrangements that would in fact apply and, in the same sort of circumstances, we would see direct accountability for APRA to be able to come in and remove particular individuals or executives within the bank where, again, there have been examples of wrongdoing."
People have not been held to account as a result of ‘scandals’
The minister said that the consultation is currently looking into how this would work, but said that it centred around the ramifications of “wrongdoing”. She added that the body was aware that “there have been scandals that have occurred and people have not lost their jobs”.
“People have not been held to account as a result of those scandals,” she said. “We have not seen any impact on the remuneration of those executives and that clearly means that that breeds the wrong sort of culture in financial institutions.”
When asked by Ross Greenwood why the board of a bank wouldn’t be removing directors or senior executives if they have concerns, Ms O’Dwyer said that this was “one of the questions, I suppose, that is being asked in relation to a series of incidents that have occurred within the CBA”.
Touching on the APRA inquiry into the Commonwealth Bank of Australia, Ms O’Dwyer elaborated to Mr Epstein that it had been triggered by “a series of issues related specifically to the CBA”.
“Our regulators are empowered to be able to not only look into the banks, not only to be able to compel evidence, but they’re also able to take action immediately as a result of that. And it could be anything from civil penalties to something far more serious,” she said.
Speaking to Mr Greenwood, she added: “APRA, as you know, announced that they were going to take a very close look at the governance around the CBA and they were going to conduct an independent panel that would look at a number of these issues to do with that. And that’s entirely appropriate.
“But at the end of the day, these executives will be accountable to the shareholders, but it’s important that they are also responsive to the regulator as well, [which] is responsible for making sure that we have got sound governance structures in place within our banking institutions and making sure that people can have trust and confidence.”
Mr Greenwood also asked the minister why this power to remove executives or claw back bonuses wasn’t being applied to other industries.
Ms O’Dwyer responded: “[T]his goes to the heart of our financial system. And this is, I suppose, where it is different. [For] banks, there is a four-pillar policy that we have in Australia.
“Banks have got a very unique position in our economy and, because of that, they are different [from] other institutions.”
[Related: Big banks wary of BEAR]