BEAR is ‘absolutely the right thing to do’

Former CEO of mortgages at Barclays London Steve Weston has said that asking third parties to go around “kicking the tires” at the bank took “courage”, but that it was necessary and allowed the bank to start “building culture”.

The British government last year introduced the Senior Managers and Certification Regime (SM&CR), which changed the way people working in the financial services sector are regulated.

PwC has argued that the Australian government’s Banking Executive Accountability Regime (BEAR), introduced in July, “appears to echo the SM&CR”, which aims to “encourage a culture of staff at all levels taking personal responsibility for their actions [and] make sure firms and staff clearly understand and can demonstrate where responsibility lies”.

Mr Weston agreed, calling the BEAR regime the Australian version of SM&CR and added that BEAR is the “most personally invasive piece of senior manager accountability that we’ve seen”.

Mr Weston said that prior to regulatory scrutiny, Barclays relied on internal reports. “What I did [before] in the UK, and what many did in the UK, is … we had relied on our committees and our direct reports and we were comfortable in being informed of what was going on, and we took that at face value.”

However, when regulatory questions came knocking in the UK and executive accountability was questioned, he called in the third parties.

He said in a PwC Banking Matters insight: “I called in third parties, I called in legal firms, and I called in professional services firms, and said: Hey, I think I’m okay, but would you mind going around kicking the tires?

“What you find is, quite often your third party will interpret [what you’re doing] through the lens of today and not the lens of yesterday that you’ve been operating under and you will find things [to improve on].”

Mr Weston said that it “takes courage to do that, but it’s absolutely the right thing to do. [And] it actually starts building culture in the organisation because others will do it as well”.

He said that the introduction of the regime has the capacity to change mindsets within the financial services sector completely.

“When you are put in the situation where you need to make a decision on something, your mindset will be different on something than it was yesterday. Yesterday it was: I love customers, but I love shareholders a little more. Now I’m the one that’s in the dock if this goes wrong. I probably will love shareholders a little less than customers.”

Further, the “difficult decisions” that senior managers might have to make under third-party scrutiny will “spread like wildfire” within the company.

He explained: “It gives license for everyone else to make those same difficult decisions, the same decisions they’ve been wanting to make but have felt hamstrung.

“In the longer term, the BEAR regime, I think, will be a key platform in rebuilding trust between the banks and communities in which they serve. But [it] absolutely will feel uncomfortable in the short to medium term.”

BEAR 'not new territory': APRA

APRA chairman Wayne Byres said in a speech made on 8 September that the BEAR regime is “not new territory” and that APRA has “long had an interest” in producing appropriate accountability frameworks. He argued that the BEAR regime should be considered a “strengthening” of the existing framework.

Mr Byres explained: “Our existing regime — seen as overbearing (no pun intended) when it was introduced — would now be seen internationally as somewhat limited. APRA has therefore been providing input to government on the overall design of the BEAR.

“Changes to the Banking Act will set out the overarching framework, to ensure that it achieves the government’s objective that the BEAR has ‘teeth’, but it will then be up to APRA to implement the framework through our supervision process. It will also necessitate consequential changes to our supporting prudential standards.”

He added that it is “difficult to be precise” about the way in which BEAR will work. However, he said that “establishing clearer accountabilities” and “expected standards of behaviour” were the core objectives and are “difficult to argue against”.

He concluded: “The goal must be that, with clear boundaries and obligations set out by the regulatory framework, Boards and executives conduct their affairs in such a manner that intervention by APRA is not needed. It is a much better outcome, for example, that Boards hold their executives to account for poor outcomes than have to rely on the regulator to do it for them.”

[Related: Big banks wary of BEAR]