Brian Mitchell (Lyons, Australian Labor Party) Share this | Hansard source

The only reason the government finally acted on banking was its own reptilian political survival instincts. It knew it had to do something—anything—if it was to survive, and as a result we have this timid creature, the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2017, the BEAR bill. It is not much, but Labor will not stand in its way because at least it's something. It's a first step in the journey of a thousand steps.

The bill gives APRA new and strengthened powers and an extra $4.2 million over four years, plus a further $1 million a year to enforce breaches. Costs are to be met by an increase in APRA financial institutions levies of $8.2 million over four years. There is an extra $1.1 million for Treasury to oversee a more accountable and competitive banking system of which the Banking Executive Accountability Regime, or BEAR, is part. The total change in average annual regulatory cost from the business-as-usual model is about $11½ million across the sector. That is a minuscule impost for a sector which in 2016 posted after-tax profits of more than $30 billion.

At its core, the BEAR will make certain individuals in banks, credit unions and the like, which are termed 'authorised deposit-taking institutions' or ADIs, legally accountable both for their decisions and for practices that occur under their authority. So if people under the supervision of these accountable persons do certain things that these people should have known about, the ADIs are held accountable for them. The intention is to get rid of the wriggle room for the slippery executives and directors who try to pass the buck onto subordinates or blame vague processes. And I welcome that. The BEAR requires ADIs and people with significant influence over conduct and behaviour to conduct themselves with honesty and integrity, and to carry out effectively the business activities for which they are responsible. The BEAR does this by creating a new definition of 'accountable person', who is a board member with oversight over the bank or ADI, or a senior executive with responsibility for management or control of significant or substantial parts or aspects of the business. Accountable persons must be located in the ADI, not on some beach resort in the Caymans, where they are uncontactable. In the case of an ADI group, they should be located in significant or substantial subsidiaries. Not all subsidiaries will have accountable persons located in them individually, but throughout an ADI group accountable persons must have clear lines of responsibility to cover all business activities of the group. ADIs will be required to tell APRA who its accountable persons are and clearly outline the responsibilities and duties of those people. When it comes to an ADI group, APRA must be given a clear map of who is responsible for what across the myriad business units. Again, the intention is: no place to hide.

The BEAR will require that up to 40 per cent of an accountable person's variable remuneration—what we loosely call 'bonuses'—is kept in reserve for four years so that it can be stripped from said person if they are found to have failed in their governance duties. In the case of CEOs, who one would think would all be accountable persons under the definitions of this bill, the reserved bonus amount will be 60 per cent, or up to 60 per cent, depending on the size of the institution. As a result of this requirement, I will not be at all surprised if we see a change in remuneration practices for senior executives. Perhaps base pay and allowances will end up being much bigger and much higher, and bonuses perhaps less generous. Time will tell.

APRA will be granted the power to disqualify with seven days notice, without court order and without giving reasons, any accountable person that APRA determines has failed to comply with their obligations under the BEAR. It will be important that APRA ensures that it operates within tight guidelines to ensure that its own officers act with the utmost care. The phrase 'who watches the watchers' comes to mind. While it is important that APRA be given the authority it needs to act swiftly and decisively, that should not be at the expense of natural justice.

Labor does not propose to stand in the way of this bill, and I am pleased that the government has accepted some of our amendments. But I do acknowledge the harbouring of some personal concern about handing APRA the authority to disqualify an accountable person, without giving that person a reason. That does not sit well with me. While the bill states that an accountable person, under notice of disqualification, must be given the opportunity to submit a defence, if they wish to do so, there is no minimum time provided for such submissions to be made, beyond the initial seven days notice, before the disqualification comes into effect. Unless I am missing something, it is entirely possible under this legislation that an accountable person can be given notice by APRA one Monday that they are under notice of disqualification, and for that disqualification to take effect the following Monday, with the accountable person not necessarily being informed of the reason for the action. That does not sit well with me at all. I would expect and hope that APRA will exercise discretion and ensure that accountable persons within its sights are afforded natural justice and, at the very least, told why they are about to lose their livelihood. It sets a worrisome precedent that anyone should be forced by a government instrument out of their profession, without the legal right to be told why.

As well as disqualification, accountable persons and ADIs can face significant civil penalties for breaching their obligations under the BEAR. Big banks could face penalties of up to $210 million. It sounds like a lot of money, but when we're talking about institutions that make billions of dollars in profits, I'm not sure that figure really hits the mark in terms of sending a message to the banks that they need to do the right thing.

The Treasurer introduced this legislation in September. It was promptly sent to a Senate review committee, which recommended that the bill be passed subject to its implementation being delayed by 12 months from legislative approval, which is in effect a practical delay of six months. Labor and cross-party senators, following input from smaller institutions and APRA, were concerned that those smaller and regional banks and ADIs would find the 1 July 2018 start date challenging to implement. So Labor is pleased that the government seems to have agreed, as I understand it, to this sensible recommendation for the delay.

You won't often find me in agreement with the Australian Bankers' Association, an organisation that is relentless in pursuing what is in the best interests of big banks' profitability, rather than what is in the best interests of bank customers, but I do find myself thinking it may have a point when it comes to one day expanding the scope of the BEAR. The ABA says, not unreasonably in my view, that as well as authorised deposit-taking institutions perhaps other financial institutions, such as insurance and superannuation firms, should come under the ambit of the BEAR. ABA CEO, Anna Bligh, notes that APRA's regulatory oversight already stretches to such bodies, so it wouldn't be much of a stretch for the BEAR to encompass them too. Ms Bligh notes that banks recruit not only from other banks but also from the insurance sector and the superannuation sector. Employment is very mobile across the entire finance sector. It stands to reason, to me at least, that if the BEAR can strengthen accountability and ethical decision-making in the banking sector, then it should be able to do the same across the financial sector as a whole, and that's something that can perhaps be revisited once the BEAR is up and running.

As with all things, the devil will be in the detail, and we'll see how this process runs out once the legislation goes through the House and the parliament. Accountability and transparency are laudable goals that Labor always supports, often in the face of trenchant opposition from those opposite. We will always keep a close eye on the government to ensure that it brings to this place legislation that is even-handed and that works in the best interests of Australian consumers and not just Australian banks. Thank you.

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