Brian Mitchell (Lyons, Australian Labor Party) Share this | Link to 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.

Ann Sudmalis (Gilmore, Liberal Party) Share this | Link to this | Hansard source

I would like to begin this small contribution to the debate by thanking Treasury, the minister, the Hon. Scott Morrison, and staff for taking on changes to legislation to address many of the recommendations that have been derived from a number of parliamentary inquiries where there is a clear direction for government to take. Such legislative application is an example of the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2017. This bill amends the Banking Act to establish a Banking Executive Accountability Regime, commonly known and frequently referred to in here as 'the BEAR'.

The BEAR is a strengthened responsibility and accountability framework for the most senior and influential executives and directors in banking groups. To support the BEAR, the bill gives the Australian Prudential Regulation Authority—APRA—new and strengthened powers. Contrary to some of the arguments presented by those opposite, this bill is not directing the boards of banks about the money to be paid to their executives. It is, however, a strengthening of the accountability of those very executives, making sure they do the job we expect them to do. This is about re-establishing the confidence and faith we had in our banks as an institution of reliability and the foundation stone of the economy of our nation. Over the last decade in particular, the awareness of the financial activities of our banking institutions has been growing, and there is increased scrutiny and pressure on those organisations. This legislation is part of a suite of changes in legislation and regulation to make our banking industry better.

Working on each issue in this industry has been a thorough and important process. It has, however, been misunderstood in the general public and, to some degree, by the media. Late in 2017, it became very apparent that the public expected a royal commission into banking, rather than the rock-steady changes to regulation. While those opposite say, by throwing it in the debate constantly, that this current bill relates directly to that royal commission, that is patently untrue. This work was already underway. May I remind those opposite: you can't bring in a new bill as a result of the royal commission inquiry until that inquiry is complete. Seriously, do not confuse our public. That banking royal commission is only just beginning.

The banking sector plays an essential role in promoting economic growth and a critical role in the lives of everyday Australians. In order for it to operate in an efficient, stable and fair way, the community has to trust that sector. In Australia, a series of incidents involving poor behaviour by banks over recent years has raised the question of whether there are emerging systemic issues that are undermining trust in our banks.

For more than four years I've been involved in lobbying the government for an investigation like or equal to a royal commission, because I'm well aware of the difficulties faced by so many Australians who've been victims of banking actions and policies. Strategies that I have heard and seen evidence of include the following, one of which is referred to as the bad banking strategy. During inquiries, some statements that resulted in the examination of banking executive behaviour were confusing and seemed to be deliberate misinformation. When asked if they manipulated loans and if this was a banking activity, the response would be something along the lines of: 'Well, what I can say at a general level is, as I've said before, there is absolutely no commercial advantage, and therefore no incentive whatsoever, for this bank or that bank to put borrowers in default. Both parties lose out. There is no incentive.' I've seen conclusive evidence that that, in fact, is not the case, and yet that is part of the inquiry. Homes and businesses have been lost over manipulated loan books with loan-to-value ratios being changed, yet the payments of those mortgages were continuing. There were dozens of other stories, yet no-one in the bank was responsible. There are farmers now living in other people's homes or transitioning in sheds. They were great farmers. What is wrong with our banking industry when the interests of the shareholders are held in much greater esteem than those of the customers?

We all know that the economy has a cycle. It has elastic terms which make economic downturns difficult to predict. However, we do not have (a) adequate rescue options for smaller customers and (b) regulations in place that prevent banks taking the decisions they have done in the past, which have led to very difficult financial circumstances.

Under the BEAR, banks and their most senior executives and directors will be expected to conduct their business and responsibilities with honesty, integrity, due skill, care and diligence. They'll need to deal with APRA in an open, constructive and cooperative way and prevent matters from arising that would adversely affect the authorised deposit-taking institution's prudential reputation or standing. Where these expectations are not met, APRA will be empowered to more easily disqualify the individuals, ensuring that banks' remuneration policies result in financial consequences for individuals. In fact, people have to take responsibility for the decisions over which they are in charge. APRA will be allowed to impose substantial fines on banks. Banks will be required to register individuals with APRA before appointing them as senior executives and directors. APRA will also get additional examination powers—albeit at a cost, but it's a good investment—which will help to investigate potential breaches of the BEAR.

Personally, I'd really like to see a process where bank executives, failed or successful, are not able to be part of ASIC, APRA or the ACCC, either before or after their banking executive career position. While that is a very personal view, it is not without basis. On many occasions, it was difficult during committee inquiries to get straight answers from different representatives, and it seemed that was a result of the interrelationship between past working experiences of those different organisations. In my opinion, they need to be quite separate.

Properly designed measures, such as the BEAR, will make part of our financial system safer, and we'll feel reassured that integrity is returning to an institution that we have held very precious until the recent past.

Reckless banking practices such as dangerous lending conditions are the responsibility of the banking executive. The board and the executives sign off on any policy change and they should be held accountable. The industry itself knows that the issue is not just a few bad apples. It is a chronic cultural function. They've admitted they need to change the culture, but they have yet to do that. It is to be a process of change. These mechanisms are intended to deter poor bank behaviour and ensure the banks and individuals are held to account, which is what the Australian nation expects of them.

Matt Keogh (Burt, Australian Labor Party) Share this | Link to this | Hansard source

The changes to be brought about through the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2017, the Banking Executive Accountability Regime and some related measures, have been driven by increased calls over many years now for intervention into the Australian banking sector. The call for increased government intervention into banking has been coming from a wide variety of voices across all sectors in our community. A key concern is the perception here that banking executives are not being properly held to account for the various scandals and mistreatment of customers emanating from Australian banks. For example, we've had the bank bill swap rate rigging scandal, which has now enveloped all four of our major Australian banks; we've had the AUSTRAC bank scandal with the Commonwealth Bank; and we've had many—in fact, way too many—examples of dodgy financial advice being handed out by our banks, or in fact customers being charged for that advice when it was not even provided. The introduction of a senior executive and director accountability regime is significant and it does recognise that it's about making the leaders of our banking sector responsible for the changes that are required in our banks and, in particular, for the cultural change that is required.

The government, in its explanatory memorandum, does point out that this scheme—the BEAR—comes about from a recommendation of the House Economics Committee, a committee of which I am a member. What the government seemed to skip over in its explanation in the explanatory memorandum is that this recommendation actually came from the opposition, not from its own members of the committee. But what the government has put together here doesn't quite go the full distance. It is actually quite limited. The committee recommendation was essentially based on the UK senior executive accountability regime, but, unlike that regime, which is about both consumer issues and prudential issues, the BEAR that is proposed by the government here is only about prudential ones. That is why we support it but we must also see it expanded. For, in truth, this isn't a real BEAR; it's a clayton's BEAR—it's the banking executive accountability regime you have when you aren't really having one. It's a bit like the government's banking royal commission.

The government appears also to have confused APRA, the prudential regulatory authority, with its consumer counterpart, ASIC. APRA is the prudential regulator in this country and is responsible for ensuring that banks, amongst others, do not undermine the integrity of our financial system and that, of course, they're able to pay out banking customers when they call on their funds. That is a very important role and it is key to this regime, as it should be. But ASIC, it also needs to be realised, is our key consumer focused regulator, looking at what the outcomes are for consumers and those that are purchasing financial products and using our banking sector, and that is the area that it has responsibility for regulating. So it's responsible for making sure that our banks do act fairly. For example, it is ASIC that is taking the bank bill swap case against the banks. It is ASIC that has been involved in the proceedings in relation to dodgy financial advice from our banks. So I do, in some regard, feel sorry for ASIC, because it's quite clear that, under this government, it's go-to financial regulator has become APRA, excluding ASIC from consideration—in fact, often not even asking it or consulting with it in relation to legislation just like this.

If we cast back to the flurry of these banking scandals, they were not prudential. The ones I mentioned before— in fact, none of the ones that we've seen—have been prudential. They have been customer-facing scandals and issues, and that's where we see the deficiency in this accountability regime. This deficiency has been acknowledged by ASIC in the evidence it's given to parliamentary committees—that this is a missing component of this regulatory regime when we compare it to the regimes that are in force in other places, such as the United Kingdom.

I will say that the government has taken on some of the initial feedback that was provided by stakeholders when it first proposed this legislation. So it has relooked at the application to banking subsidiaries. One of the key concerns was: what happens with insurers that sit under banks? It turns out in the process that the banks have largely sold off all of their insurance arms. They're clearly quite concerned. They've also clarified the role of directors in relation to the definition of accountable persons. They've set new start dates. They've tried to deal with the overlap between ASIC and APRA in its disqualification powers mainly to make sure that what they have proposed in this legislation would actually work. They have also dealt with the issue of the start date, as I said. Then there is the issue of how this will apply to small banks, and I'll come to that at the end.

The other issue that hasn't been addressed to anyone's confidence is the resourcing that this legislation is going to require from APRA. APRA is already very busy doing important work, making sure that the prudential regulation in this country is generally up to scratch and meeting world standards. It has been working with the Reserve Bank of Australia, looking at the level of household debt in this country and the changes that have been required, for example, to interest-only loans. Given that APRA is already going full pelt, to add this burden on top does require the government to make sure that they properly resource APRA to do the job that they're now asking them to do. However, if additional resources are not being given to APRA to enforce the new law that will be coming into place, the question has to be asked: is it the case that the government actually do not intend anything to happen under this legislation, that it is, as I said, a Clayton's piece of legislation that doesn't actually do the job? Or is it the case that, whilst they have put all of this in place, they have no intention of APRA doing any of the work, and they're happy for it to fail? Let me mark this term right here: we need to make sure that, if we're going to do these sorts of things, we resource the bodies that are going to be there to enforce them.

As I mentioned before, there is an issue about levelling the playing field between large banks and small banks, and that is why Labor have proposed that, in acknowledging this difference, we give a 12-month delay to the start date for our smaller banking institutions to comply with this new framework. As I'm sure everyone will appreciate, there is a world of difference between our large Australian banks—with their huge compliance teams and access to funds to be able to fund the lawyers to get these schemes and the internals that are required within the banks up to speed in order to comply with this law—and our smaller banks. For smaller banks, for smaller ADIs in Australia, to comply, it will take longer. They don't have that regulatory team just sitting there, waiting to go—though sometimes you do wonder about the large banks as well, given their rate of noncompliance of recent years. That is why Labor have proposed a very sensible amendment. As I said, we support the legislation. We just don't think it goes far enough. We've proposed an amendment to make sure that small banks are not disproportionately disadvantaged by the introduction of this regime.

As I mentioned before, the government has form, terrible form, when it comes to financial services legislation. We've had their attempts to rip up FOFA. We've had their superannuation backflips. We've had them refusing to hold a banking royal commission. We've had the crowd-sourced funding debacle, which they introduced legislation for, which no-one actually liked. They had to come back and fix it up, despite us telling them that at the time. We've had their attempt at multinational tax avoidance legislation, which doesn't even go halfway to doing the job. We've had ASIC and reviews calling for increased corporate penalties in this country for years and years and years, and the government have kept talking the talk but have never delivered the legislation to do it. We've had their attacks on the industry superannuation sector. And we've had the banking royal commission, which they finally announced, which, as I said, is a bit of a Clayton's royal commission, because they've given the terms of reference without any consultation with Labor, who have been calling for a royal commission for many years. They've effectively excluded looking at the regulatory part of the banking sector, which, in my view, means that they're not looking at the whole case for what is required for cultural change. You can't change the culture in Australian banking by just looking at the banking players. You've also got to look at the regulatory environment in which they play and the way in which their regulators operate.

The government has given the royal commission all of 12 months to get all of that work done. You would think that, after the amount of evidence and the countless inquiries that have happened through this parliament in relation to this issue, it would be abundantly clear that there is a lot of work to be done by a royal commission. By straddling it and really constraining it with a 12-month time frame shows just how much this government was trying to score political points by calling a royal commission and nullify a political issue that was hanging around its neck, instead of getting on with the work of making sure that financial regulation works properly in this country. Now we have the Claytons Banking Executive Accountability Regime. We thank the government for bringing it forward, but it doesn't actually deliver on what is needed. We all knew that this government was out of touch but, when it comes to financial services regulation, we now can see clearly, through the litany of failures through the term of this government, that it is clearly out of its depth as well.

Adam Bandt (Melbourne, Australian Greens) Share this | Link to this | Hansard source

There is a problem with banks in this country. People do not trust them, and rightly so. Trust in the banks has been eroding for a very, very long time. People wonder why the Australian government gives the banks such a massive leg-up, by effectively underwriting the big banks' activities, because they know they're too big to fail, and then allows them to make world-leading record profits. Yet, at the same time, people find themselves going further and further into debt, paying more and more in bank fees every year, and they wonder where the bank profits are coming from. Well, the bank profits are coming from the people of Australia. The bank profits are coming from an overinflated housing market that sees the banks get rich from writing huge mortgages. The bubble keeps growing and growing and the people in the banks and those at the top keep doing better and better. People know something is wrong with the system.

The big part of the problem, the driver of the problem, is that what the banks pay themselves, their executives and the people at the top is not based on how happy customers are but is based solely, or in very large part, on how much money they make for their shareholders. It is based on whether or not they can find strategies to keep these world-leading record profits going, by hell or high water. So the people at the top of the banks have an interest in making as much money as possible and putting the community last. Money first, community last—that's the way the big banks run in this country, but they rely on the government to step in should they ever get into trouble, as they did during the global financial crisis.

The way the system works is that the salaries of so many of the people at the top are tied to the bonuses they make, which are based on how much profit the banks rein in. Because of this, we have this system and this bubble that is going to keep inflating and get bigger and bigger, unless action is taken. When you see the head of the Commonwealth Bank of Australia, for example—an organisation that's been prosecuted in court for allegedly illegal activity—in 2016 have a base salary of $2.65 million and a total salary of $12.3 million, you see how much of a problem there is with this bonus culture inside the banks, where they are forced, by hell or high water, to find ways of making money out of everyday Australians, even if it puts Australians into further and further debt that ultimately they can't afford.

If the culture of an organisation starts at the top, we need to change the way that banking executives are paid. Start saying to them, 'You operate in this country under a social licence.' Everyone has to have a bank account now, whether you work or are unemployed or whatever you are. They have a steady stream of our money coming in and they have the government underwriting them, because they know they are too big to fail. Well, there's a quid pro quo, which is that you don't contribute to inequality in Australian society. You pay a reasonable amount, but no more.

This bill largely leaves all of that untouched. They'll still be able to get away with paying themselves enormous salaries and enormous bonuses, and it's that bonus culture that is putting Australians further and further into debt and seeing the banks continue to make a motza. So this bill can be supported for being a very small drop in the very big bucket that needs to be filled, if we are to regain trust in this country.

But one of the things we should do is seize the opportunity, now that the government has rediscovered that it's time we took on the banks and reined them in, to fix this bill. When this bill comes before the Senate, the Greens and Senator Peter Whish-Wilson, who has been paying very close attention to this and has been all over it like a rash for a very long time, will be introducing some amendments to give this bill some teeth. In this country we legislate for the minimum wage. It's not much, it puts people in poverty, but we legislate for the minimum wage. What we don't have are any controls at the other end. As a result we see these bank bosses who can earn over 100 times the average wage—not the minimum wage, the average wage. Is there any justification for the head of a bank to earn over 100 times the average wage in this country? There is not.

It is time to make Australia more equal, it is time to make the banks behave better and it is time to stop them contributing to inequality in this country, which is why the Greens will be moving to amend this bill. This bill should include hard caps on how much bank executives at the top are able to pay themselves. There is no reason that their base remuneration should be any more than 10 times the average national wage. That would start to make Australia a more equal place. I ask people who say that you can't go around restricting banks: what is the justification for someone in this country earning more than 10 times the average wage? Surely, after you've earned your first million dollars a year, what's the point of the rest of it? You're living a very comfortable life. What can be the justification for saying in Australia, in an egalitarian country, that we're quite happy, through government largesse and government support, to allow someone to earn $12 million a year? That is not what the banks are there for. That's not the social licence they operate under.

We'll move to say that the base rate should be limited to 10 times the average national wage, but, as I said, that variable bonus component is the real problem, and that should be limited to a further five times the average national wage. This will start to make Australia a more equal place again. You shouldn't shed a tear for the bank executives if those amendments get through, because they would still be able to earn over a million dollars. According to the Parliamentary Library, they'd still have $840,000 per annum as the cap for the base salary and about $420,000 per annum for the variable component. They could still count themselves millionaires, but they wouldn't be earning more than 10 times what the average Australian worker does. At a time when everyone else's wages are going backwards, the pay of bank executives is skyrocketing, their profits are skyrocketing and the shareholders, the people who own the banks, are doing very well out of it, but it's all at the expense of everyday people in Australia who are going further and further into debt and getting mortgages that they are struggling to meet, who are paying outrageous bank fees and who are getting advice from their banks about wealth management products that aren't in people's best interests but are just in the banks' best interests. We need to crack that nut and say to banks: 'You operate here under a social licence. We'll let you earn 10 times what the average person does, but above that is just unjustifiable greed that is coming at people's expense.'

When this bill passes the House, as I imagine it will, I hope that consideration is given in the Senate to giving it some teeth, because this bill sees a big problem and then really does nothing about it. It introduces some little moves around the edges but it is turning a blind eye to the core problem, which is that greed still drives this industry and still drives the pay structure in this industry. Until we start saying, 'You get remunerated for something close to the value of your work, not because you've been able to fleece a lot of money out of everyday Australians,' we will continue to have this problem. I commend the amendments that are to be moved in the Senate to this chamber and I hope this parliament won't just be seen to be saying something about the banks but will actually do something to rein in the obscene salaries that we're seeing.

Andrew Giles (Scullin, Australian Labor Party, Shadow Assistant Minister for Schools) Share this | Link to this | Hansard source

The bill before the House is less than what it seems and much less than what Australians need. I rise to make a brief contribution to the debate on the bill. In particular, I want to support the amendment moved by the shadow Treasurer, the member for McMahon, and express some concerns and make two wider points relating to the issue of banking regulation and executive remuneration. The member for Kingsford Smith described the government's approach to regulation in this area as 'piecemeal'—and, characteristically, that was both accurate and generous. The bill before us amends the Banking Act and the APRA Act to put in place some new accountability obligations on executives of authorised deposit-taking institutions. To make this meaningful, the bill will put in place new penalty provisions and additional powers for APRA in the Banking Executive Accountability Regime.

This is a regime that is modelled on that which has been relatively recently put in place in the UK—and so far so good. The regime is much more limited in nature than that which has been introduced in the UK. In terms of its coverage, in terms of the industry and indeed conduct rules and the rest of it, there are things that are worthy of wider consideration through, in particular, the banking royal commission into which this government has been dragged kicking and screaming. This bill was put before the House prior to the government's concession to a royal commission in December last year. Looking at the terms of the bill before us, we could do much more to align the consequences of a failure to meet community standards with the expectations that lead to the social licence our banks have.

The bill before us, so far as it goes, achieves some reasonable objectives, particularly if the amendment moved by the shadow Treasurer is agreed to. But there are a couple of concerns I wish to put before the House. First and foremost, there are some on the government benches who clearly don't get it, who don't accept that there is a need for action. I've been very disturbed at reports that a number of government members feel there is no warrant for these sorts of measures. These members have not been paying attention to what has been going on in our banks—in particular, our big banks. I'm very disturbed by these reports, and I hope by their actions on the floor of this place they will prove them wrong.

I'm also concerned at reports about some in the banking industry. In an interview with the Treasurer published in the Fin Review today, I was concerned to read of reports that concerns were apparently expressed to Mr Hartzer in Davos that people don't see where the problem is. If this is the case, they haven't been looking very hard because clearly there are very significant and systemic issues in the Australian banking industry which require detailed and holistic review.

That takes me to the first of the two wider points I wish to mention briefly. Firstly, the government's signature and indeed only economic policy for growth is an enormous company tax cut. Secondly, the four biggest banks are already some of the most profitable businesses in Australia, so a giveaway to those banks would be enormous. That context is important when we're debating this piece of legislation because it reminds us of what is going on in the wider economy and that the piecemeal measures here are no substitute for wholesale reform, particularly in light of the litany of regulatory failures that the member for Burt has detailed.

What is required is a holistic review and widespread cultural change. That cultural change is needed more widely in the Australian business community beyond the banks, though the banks are the exemplars of worst practice. Last year I was pleased to put before the House a private member's bill looking at executive remuneration more generally. It highlighted the positive impact of Labor's two-strikes policy on restraining the extraordinary growth of salaries which has seen the top 0.1 per cent of Australian's income share increase exponentially—and, with that, their share of wealth grow even more. Other members have spoken about the bonus culture which is particularly prevalent in our big banks. These big issues remain.

I note that Malcolm Borland's comments have been referred to in the Bills Digest, very helpfully looking at the mystery of the lack of conformity of bonuses and executive remuneration generally with performance. The mystery has been unpacked quite a bit by such inquiries as that conducted by the Productivity Commission in 2009. There is a lot more work to be done to deal with the issues of banking culture and, indeed, with an executive remuneration system that remains too mysterious, not just for shareholders but also for the social licence it grants to those who are its beneficiaries.

Scott Morrison (Cook, Liberal Party, Treasurer) Share this | Link to 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.