Law firm considers impact of banking executive regime

First announced in the budget, the new Banking Executive Accountability Regime will give the Australian Prudential Regulation Authority (APRA) the power to remove senior executives and impose fines on banks or executives that fail to meet the obligations.

Under the regime, bank and credit union executives will face tougher scrutiny of their movements under a new federal government scheme that aims to encourage accountability.

In adhering to the regime, authorised deposit-taking institutions (ADIs), like banks, building societies and credit unions, will need to foster an environment of accountability with a focus on sustainability and consumer outcomes. 

Before appointing new executives, ADIs must satisfy APRA that the appointment is appropriate and have the executive recorded on the regime register. Executives recorded on the register must comply with obligations.

Executives will also face a deferment of a portion of their variable remuneration, including bonuses, for at least four years. The portion will be a minimum of 40 or 60 per cent, dependent on the executive’s position. 

Should they contravene an obligation, APRA will have the power to remove executives or disqualify them from being appointed to any other ADI. Executives can in addition be fined a maximum of $200 million for large ADIs and $50 million for smaller ADIs in the case of malpractice.

Dentons suggested that the regime could have a number of similarities to the Senior Managers and Certification Regime (SMCR) that applies in the United Kingdom.

However, it added that there are some “practical issues” that may arise from the regime, depending on what it ultimately looks like.

For example, Dentons said that it was unclear when an ADI would be required to report a suspected breach (i.e. once the ADI becomes aware of it, or when an allegation has been substantiated), as well as what happens when APRA removes a non-executive director’s name from the regime registry.

Dentons questioned: “Will the regime automatically disqualify the non-executive director from his or her directorship, or will the ADI be required to take the ordinary steps to remove the non-executive director from that position?”

In an insight note, the lawyers continued: “What will happen when APRA removes a senior executive’s name from the regime registry? Will the regime provide that the ADI is not liable to the senior executive for the early termination of his or her contract of employment (if it is a fixed-term contract)?”

Other questions asked by the law firm centred on remuneration: “What will happen to existing contractual entitlements if those entitlements are inconsistent with the remuneration requirements of the regime (for example, if an executive has an entitlement to be paid the full amount of a bonus after one year)? Will the Regime invalidate those entitlements?” the insight note read.

Dentons concluded: “Whilst the particular details of the regime are yet to be announced, it will without doubt be imperative that ADIs familiarise themselves with the details once released.”

[Related: Budget's bank accountability measures ‘a positive step’]