Scott Morrison (Cook, Liberal Party, Treasurer) Share this | Hansard source

Firstly I would like to thank those members who have contributed to this debate. The Banking Executive Accountability Regime, or BEAR, as it has become colloquially known, which this government is implementing represents part of some of the most significant reform to our financial sector we've seen in some period of time.

This bill will increase the accountability of banks as authorised deposit-taking institutions, or ADIs, and their most senior executives and directors, restoring the community's trust and confidence in the institutions that play such a central role in our financial system and the wellbeing of all Australians. Schedule 1 of the bill introduces the BEAR. The BEAR imposes new, heightened accountability obligations for ADIs and their accountable persons. These obligations are focused on matters such as conducting businesses with honesty and integrity and with due care, skill and diligence; being open and cooperative in dealings with APRA, the regulator; and preventing matters arising that would adversely affect the prudential reputation or standing of the ADIs. These accountability obligations go to the heart of ensuring the community can have trust in ADIs and in the way they conduct their business.

ADIs will be required to register their accountable persons with APRA prior to appointment, ensuring APRA has greater visibility over the individuals taking up the roles that shape the conduct of ADIs. ADIs will also be required to provide accountability statements and accountability maps to APRA, ensuring there is a clear allocation of responsibility for an ADI's function to individual accountable persons. The bill also increases the consequences for ADIs and accountable persons that fail to meet the new heightened accountability obligations. These increased consequences will ensure that ADIs and their accountable persons have strong incentives to ensure they meet their obligations. Accountable persons will have a minimum amount of their variable remuneration deferred for at least four years, with the amount to be deferred based on the size of the ADI. ADIs will also be required to include in their remuneration policies provisions for the non-payment of deferred variable remuneration where an accountable person fails to comply with their accountability obligations. Ensuring there are financial consequences for accountable persons who do not meet their obligations will increase their focus on the long-term outcomes of their decisions. APRA will also be provided with stronger disqualification powers by being able to disqualify an accountable person directly rather than apply to the Federal Court. APRA disqualification decisions will be subject to merits and judicial review; however, the more streamlined powers will ensure that APRA can more readily respond where an accountable person does not comply with their accountability obligations.

The bill also introduces substantial new civil penalties for ADIs that breach many requirements of the BEAR that relate to prudential matters. These penalties will range from up to $10.5 million for small ADIs to up to $210 million for large ADIs. These civil penalties will put in place strong financial incentives for ADIs to ensure they meet their obligations under the BEAR. Finally, schedule 2 to the bill introduces a number of powers to allow APRA to examine witnesses. These powers will apply in relation to the entire Banking Act and will particularly support APRA's enforcement of the BEAR. They broadly replicate powers that APRA already has in relation to other institutions, including the superannuation sector.

Australia's financial system is strong and it is resilient. However, the series of issues in recent years—and prior to that—have demonstrated that it's not immune from problems. Banks have not always acted with the highest levels of integrity and accountability, which the community expects of them, and this has eroded trust in these institutions. That is why it is important that the BEAR commence as soon as possible: to ensure that accountability gaps in the banking sector are addressed promptly. For this reason, the BEAR will commence on 1 July 2018. That said, the government has provided for transitional arrangements for elements that will require longer to implement, such as the remuneration requirements and the accountability documentation.

Following meetings with APRA, the government had been developing additional transitional arrangements that would have provided APRA with the flexibility it needed to allow staged implementation for small ADIs and provide additional time, until at least 1 January 2019, for these entities to comply with the BEAR. I had held discussions with the chair of APRA some time last year that provided APRA with administrative flexibility to roll these measures out for small- and medium-sized ADIs. As a result, we are quite comfortable with suggestions and proposals that are being put forward that would recognise that formally in this legislation. This will allow APRA to focus on implementing the BEAR for the large ADIs, a key priority because of how many Australian customers are touched by these institutions. In discussions with the opposition, they have informed us that they will be proposing to delay the commencement of the BEAR for both small- and medium-sized ADIs until 1 July 2019 in order to facilitate the expeditious passage of these important and critical reforms. The government is happy to agree to this amendment. It is consistent with the administrative arrangements we were already seeking to put in place with APRA in any case.

It is vital that Australians see these reforms implemented and that these rules are legislated as soon as possible. We thank the opposition for their support, both in this chamber and in the other place, in ensuring this bill's expeditious passage through the parliament. These coalition government reforms are too important to delay. While we are reluctant to see any unnecessary delay, our first priority is protecting Australian banking customers and enshrining appropriate protections in legislation. This bill will ensure that the banks at the heart of our financial sector meet community expectations by clarifying accountability obligations, clarifying the responsibilities of senior executives and imposing more significant consequences where these obligations are not met. The BEAR will ensure the banks shift their focus to ensuring there is a strong outcome for all Australians and that they are accountable for all of those outcomes, including the stewardship of their important social licence. I commend the bill to the House.

Question agreed to.

Bill read a second time.

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