'Severe hit' but run on banks 'unlikely': APRA boss

The Banking Executive Accountability Regime (BEAR) comes into effect on 1 July this year and applies to the major banks from day one. Other banks have another year off the hook before the regime applies to them.

But APRA chairman Wayne Byres this week warned that “more than the BEAR alone is needed” if financial institutions truly wish to demonstrate accountability.

Speaking at the UNSW Centre for Law Markets and Regulation Seminar in Sydney on Wednesday, Mr Byres said that while the financial sector might be trusted to be safe, it is far less trusted to do the right thing.

“And at the moment, that form of trust is taking a severe hit,” the chairman said. “That is not as fatal as it would be if an institution’s financial soundness was called into serious question. It is unlikely to lead to a bank run, for example.

“It does, however, still have commercial implications and will likely make the financial system less efficient and competitive over the longer run than it might otherwise be.”

The APRA boss said that traditional prudential requirements for adequate financial resources may not be sufficient when an institution suffers from poor governance, weak culture or ineffective risk management.

“These deficiencies can, if severe and persistent enough, threaten the financial soundness that is at the heart of prudential safety,” Mr Byres said.

APRA is of the view that organisational complexity and diffused responsibility have been at the heart of many of the issues that have damaged the standing of the banking industry in recent years.

On Tuesday, the regulator released its much-anticipated report into the Commonwealth Bank, in which it slammed the nation’s largest mortgage lender for having “inadequate oversight”, “unclear accountabilities” and “a widespread sense of complacency”, among many other failings.

On Wednesday, Mr Byres said that often process failures or poor decision making have been the result of a lack of clear accountability for ensuring a product works as it should, a risk is fully understood or that a system delivers what was intended.

“To the extent that BEAR provides a catalyst to untangle that complexity and provide clear accountability for putting things right, it can only be a good thing. Regulators will play their role, but the industry needs to wholeheartedly embrace that opportunity and think beyond the BEAR necessities,” the chairman concluded.

[Related: CBA apologises and offers EU following damning report]