- Treasurer unveils BEAR trap for bank boss pay
- By James Frost
- Contributed by: Dom ( 2 articles in 2017 )
Bank bosses will be forced to defer almost half of their pay for four years and the banks will be subject to fines of up to $210 million under tough new accountability measures announced by Treasurer Scott Morrison.
A draft of the Banking Executive Accountability Regime (BEAR) legislation released late on Friday spelled out a new era for banker remuneration that will force banks to defer portions of pay for executives on a sliding scale according to the size of the bank and the executive's seniority.
The Treasurer said the federal government was focused on restoring confidence and trust in the banking system and that banks were at the centre of many critical decisions for Australians.
"It is therefore important that mechanisms are in place to deter poor behaviour and provide for accountability where standards of behaviour are not met," Treasurer Scott Morrison said in a statement.
All group-level executives and board members on a salary of $500,000 or more will be required to defer a component of their remuneration.
The new measures have emerged on the back of growing tensions between the banks and the federal government, which has resisted calls for a royal commission but chosen to hit the big four banks and Macquarie with a levy that is forecast to raise $6.2 billion during the next four years.
The Australian Banking Association took aim at the legislation, describing the process as grossly inadequate while legal experts said the seven-day draft exposure period represented a new low point in regulation.
According to the legislation, the CEO of a big bank will be required to defer the lesser of 60 per cent of variable pay or 40 per cent of total remuneration for a minimum of four years. Under the new rules, up to $4.8 million from a total salary of a $12 million package could be required to be deferred.
An executive with critical responsibilities at a smaller bank will be required to defer the lesser of 40 per cent of variable pay or 10 per cent of total pay unless the consideration in question is less than $50,000.
The legislation also introduces the new definition of "accountable person" who will need to be registered with the banking regulator.
Banks will be required to submit accountability statements and accountability maps, spelling out the roles and responsibilities of each. APRA may disqualify a bank-nominated accountable person.
Under the new regime APRA will know who is responsible for particular business lines and responsibilities within each bank
APRA recently launched a special inquiry into the governance, culture and accountability at Commonwealth Bank after allegations that it breached anti-money laundering and counter-terrorism financing rules 53,000 times.
Commonwealth Bank CEO Ian Narev subsequently said responsibility for the failures could not be traced to a single division or reporting line.
APRA may also seek civil penalties of up to a million units, or $210 million, if a bank breaches its obligations under BEAR.
Australian Bankers' Association chief executive Anna Bligh described the rushed exposure period as not good enough and urged the government to reconsider the consultation period.
"The seven-day consultation period announced by the federal government on new banking executive accountability laws is grossly inadequate and playing fast and loose with a critical sector of the economy," Ms Bligh said.
"It's an entirely new addition to the system of corporate governance in Australia. The government's timeframe risks serious unintended consequences."
Herbert Smith Freehill's global co-chair of the banks sector group Tony Damian lashed the decision as short-sighted and rushed.
"One week to consult on important legislation like this represents a low watermark of regulation in Australia. The Treasurer has chosen to do it quick over doing it right. The construct of an antagonistic relationship between government and business is in urgent need of repair," Mr Damian said.