David Leyonhjelm (NSW, Liberal Democratic Party) Share this | Link to this | Hansard source

I rise to speak on the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2018. This bill imposes a new layer of regulation and supervision on the banking sector, overseen by APRA. Its purpose, as stated by the Treasurer in his second reading speech, is to ensure that where community expectations of accountability and integrity of banking directors and executives are not met, appropriate consequences will follow. As a Liberal Democrat I am opposed to this. It is not a legitimate exercise of government to seek to ensure particular businesses meet community expectations. This is a matter for the market. The bill makes no provision for discovering or addressing community expectations. The only expectations to be met are those held by APRA. The bill will not prevent a repeat of the problems in the banking sector examined during the Senate Economics Legislation Committee's five-week inquiry. The bill will have no impact on the manner in which banks serve their customers. APRA will become a de facto additional board of directors with a supervisory role in the appointment of senior executives, their responsibilities and their remuneration.

Of particular concern are section 37C and section 37CA, which require banks and accountable persons to take reasonable steps to prevent matters from arising that would adversely affect the ADI's prudential standing or prudential reputation. APRA will have complete discretion, with no reference to community or any other external standards, to determine whether a bank is complying with this. The only consideration will be its own view of prudential standing and reputation. APRA will have the authority to disqualify a person from acting as an accountable person, depriving them of their ability to remain employed. While an affected person will be able to appeal to the Administrative Appeals Tribunal, this amounts to a reversal of the onus of proof.

The bill requires banks to defer the remuneration of accountable persons for a period of up to four years, with policies that allow for a reduction in remuneration for failure to meet BEAR obligations. The bill also gives APRA the power to direct a bank with respect to the allocation of management responsibilities. These are extraordinary intrusions into the management of a private sector business by public servants. The merits of deferred remuneration are contested in management theory, and entrenching the policy in law amounts to significant overreach by the government. It also amounts to serious conceit to believe that APRA has the expertise to direct a bank as to how to allocate its responsibilities. The cost of complying with the legislation is likely to drive small ADIs from the market and reduce competition. This is likely to adversely affect consumer choice. The bill will increase executive risk, potentially making it more difficult and expensive for banks operating in Australia to recruit talented personnel. This has the potential to adversely affect the international competitiveness of the Australian banking sector.

Finally, the intended date on which the bill is to take effect, 1 July, is absurd given the far-reaching implications for the banks and even the time APRA will need to figure out what it thinks are community standards. If there are failures in the banking sector that are not being addressed by current regulations or market factors, this bill will do nothing to address them. The Liberal Democrats are committed to the principles of a free market unshackled from government intrusion. This BEAR is nothing but a bill with a sore head. It cannot be amended to make it useful, and I will therefore be opposing it entirely.

Chris Ketter (Queensland, Australian Labor Party) Share this | Link to this | Hansard source

I rise today to speak on the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2018. Labor isn't against this bill and won't stand in its way. In fact, the bill is a welcome move, an acknowledgement from the other side that the market can't sort everything out and that there is a proper role for government in making sure that the financial sector serves the interests of everyday Australians. There's a need for our banking executives to take responsibility for the scandals and the rip-offs that have occurred. However, I am concerned that this bill doesn't go far enough; it's light on policy and heavy on politics.

This measure was announced on budget night last year and was used by the likes of the Treasurer and the Minister for Revenue and Financial Services to hold off calls for a banking royal commission—and we know how that worked out. We saw the world's biggest backflip last year. At ten minutes to midnight the Prime Minister and Treasurer were finally brought kicking and screaming to accepting a royal commission. But even then it was only after the big banks twisted their arms. The long-awaited acknowledgement that we need a royal commission is a strong indication that this bill doesn't go nearly far enough to changing the culture in the big banks. In fact, the policy process of this bill and the royal commission seem to show that the government is still running its protection racket for the big banks. More has to be done with changing the culture, and I welcome the royal commission, particularly on behalf of those everyday consumers and small businesses who endured rip-off after rip-off while the banks rode roughshod over all and sundry.

Of course, I note that the royal commission has commenced communications with the banks. I won't pre-empt its next steps, but I must point out that consumers are ready and willing to give evidence, and the sooner the process through which that can happen is made public the better the level of public confidence and the sooner we can begin to put to bed some of the recent banking scandals. In the meantime, I note that the ACTU and Choice are gathering submissions via their websites to submit to the royal commission. Consumers who have a story to tell may like to visit www.actu.org.au or https://campaigns.choice.com.au/royalcommissionbanks.

In terms of the bill itself, the Senate Economics Legislation Committee, of which I'm the deputy chair, conducted the inquiry into this legislation, and you can believe me when I say that this bill is no substitute for a banking royal commission. As Choice said in its submission to the inquiry, what we've got is a bit of a teddy bear, when what Australia really needs, in the way of banking reform, is a grizzly bear. This is what Labor told the government for 601 days, and finally they got the message. But they haven't got the message about the flaws in the BEAR legislation, and I will outline some of the key concerns now.

The first thing to mention about this bill is that it seems that the Treasurer has hand-picked another element of the UK system without the supporting structure. I want to make it known to senators that the UK reviewed their own regulatory arrangements after the global financial crisis, and that resulted in the Senior Manager and Certification Regime, or SMCR. A number of stakeholders to the inquiry praised the UK approach, in which they took a holistic view and took their time to properly consult and develop their accountability regime. In contrast, the BEAR is not holistic; nor was the proper time given to consult—far from it. The UK harmonised their regulatory framework, making sure that the prudential regulator and the conduct authority were able to competently handle both prudential and non-prudential matters. The UK reforms ensured that there were no regulatory gaps and that regulatory responsibility was clear. As Choice succinctly put it:

Our take generally is that the UK system has been really constructive—that it has involved both regulators working together to define the limits of powers for each one and make sure that there aren't gaps. Because this was developed in tandem it just means that you don't end up with those awkward gaps between regimes that can happen when you split regulatory powers between a prudential and a consumer regulator.

Yet here we have a bill that talks only about APRA and says nothing about ASIC's powers. The Treasurer has again botched the policy process. He tried to copy the UK's approach, and he couldn't get it right. He is clearly out of his depth.

There's much more I can say on this matter, but it's clear that Australia should follow the UK's approach and conduct a holistic review of the banking and financial services sector. The government's royal commission could have gone closer to doing this very thing if the opposition had been properly consulted. That way we could have had a bipartisan set of recommendations that complemented and enhanced each other. It's my view that taking that teamwork approach would have given the public the highest level of confidence that the real problems in the industry would be properly dealt with. But of course we know that the Prime Minister is not big on teamwork. The very way in which he was dragged kicking and screaming to the royal commission is evidence of this fact, with the Nationals having to finally break ranks to get him over the line. And we saw a bizarre situation of a divided coalition and a divided government, with the likes of the Treasurer and the Minister for Finance, both Liberals, resisting calls for an inquiry—quite unsuccessfully, as we now know—whilst the Nationals members finally found their voice and a desire to hold the banks to account.

As welcome as it was to see the Nationals coming to their senses, let us not forget that it was very late in the day. I don't think that should be forgotten when we look back on this debate, because the Nationals sat back for almost 600 days and let the very farmers they purport to represent get ripped off by the banks. I've lost count of the number of stories I've heard about farmers losing everything when the banks moved in. And, while the Nationals sat back in Queensland, where was 'Team Queensland'? Labor was leading the charge, standing up for farmers in rural and regional Queensland who had been mistreated by the banks. And while Senator O'Sullivan finally found his voice to stand up for Queenslanders on financial reform—and I commend him for that—where, might I ask, was the federal member for Maranoa?

We've read a lot in the media about Mr Littleproud since he replaced Mr Chester in the ministry. We know that he has a background in banking and that he prides himself on the number of farmers' kitchen tables he has sat around. Surely then, he's heard some stories about banking misconduct and the impact on our farmers. But we weren't reading in the media then about any calls for a royal commission from the member for Maranoa. No, like most of his colleagues he remained silent, not wanting to rock the Prime Minister's boat, no matter how many banking scandals came to light. No, the National Party is no real friend of the bush.

On the issue of scandals, the explanatory memorandum cites six scandals set out in the Coleman report to justify this bill. I quote from the EM:

The Coleman Report referred to a number of instances where participants in the financial sector have been treated inappropriately by banks and other related financial institutions:

• the provision of poor financial advice at NAB;

• the mishandling of life insurance claims at CommInsure;

• NAB’s failure to pay 62,000 wealth management customers the amount that they were owed;

• the poor administration of hardship support at CBA;

• ANZ’s OnePath improperly collecting millions of dollars in fees from hundreds of thousands of customers; and

• ANZ improperly collecting fees from 390,000 accounts that had not been properly disclosed.

Yet with the very simple question of: 'Would this bill have prevented this scandal or would it have triggered the BEAR's penalties?', both APRA and Treasury were unable to give a definitive yes. APRA said, 'In the course of our inquiry we cannot definitely say what the outcome would be.' And Treasury said, 'I don't think Treasury is in a position to do an analysis and to look back as to whether a law would have applied in particular circumstances.'

It seems very strange that the government seeks to use these scandals to justify the passage of this bill when it's far from clear that this bill would have made a meaningful difference. Much of this legislation's reform success also hinges on how APRA will define prudential. This bill limits APRA's remit to prudential standing and prudential reputation, and there are many concerns that the scandals I mentioned previously would not have triggered anything in the BEAR, as the scandals which ripped off ordinary customers were not at a level to threaten the prudential standing of the bank. The Consumer Action Law Centre said:

We've one clear ask of the committee, and that is to give this BEAR real teeth. Treasury has restricted the application of the proposed BEAR so that it will apply to poor conduct or behaviour that is of a systemic and prudential nature. This misses the crucial element of the United Kingdom model that ties accountability measures to poor consumer outcomes, not just prudential matters.

In fairness to the public servants, I understand the difficulty in advising on the impacts of legislation had it been in place during the time that the events occurred. However, when you consider that both Treasury and APRA can give no promises that the BEAR legislation would have made a difference and that the government clearly decided to limit the BEAR's remit to prudential matters, no-one can be blamed for just being a tad cynical about the approach of this government and whether this bill will actually match its tough talk.

I want to talk a little about the fact that the consultation process on this bill was extremely rushed. This is something that stakeholders have picked up on during the course of our inquiry. We did have quite a diverse group of stakeholders. Firstly, you had the Bankers' Association saying:

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.

You would expect the ABA to make those comments. You had the Governance Institute of Australia in its Treasury submission putting it in much more polite terms:

Due to the comprehensive nature of the proposed legislative regime and the timeframe given to provide a submission, we have not responded to each of the detailed questions set out in the consultation paper but have confined our comments to the following issues.

The obvious question here is: what did they and others have to leave out? During the inquiry, Dr Wardrop and Dr Wishart said that, in fact, their views about it changed depending on the time they had to look at it. Also, their comments about some words used imply, without stating directly, they might be the result of the swift development process of the bill.

But, if you don't want to take their word for it, just see what the Prime Minister's own department said. The Office of Best Practice Regulation made it quite clear. The OBPR considered that to only provide one week for affected stakeholders to consider and comment on draft legislation was a significant departure from best practice. So we have a Treasurer out of his depth, playing fast and loose with policy development. The Finance Sector Union has also raised concerns about the bill and about the disjoint in the accountability regimes. We now face the situation of having the BEAR in place, a possible ASIC senior managers ban and the Australian Bankers' Association's conduct background check for frontline workers. There are three schemes and there seems to be no acknowledgement from the government that this is an issue and that we need to consider the overlap or gaps that might exist. For example, the FSU made it clear that these arrangements are inequitable, particularly the fact that executives would have an appeals process under the BEAR while frontline workers would have no appeal mechanism under the ABA conduct background check.

As a starting point, the ABA should introduce an appeals mechanism. Further, what really needs to be considered, in my opinion, is an accountability scheme that doesn't create a cultural divide between frontline workers and executives. Again, this is just typical of the piecemeal approach the Prime Minister and the Treasurer have brought to reform in the financial services sector for so long when what we really need is a holistic approach—something that a proper royal commission can bring.

Coming back to consultation, the explanatory memorandum mentions that the major banks met with the government in February last year, before the announcement in May, discussing the accountability gaps. We have media reports that Mr Gonski was instrumental in gaining an appeal mechanism in the BEAR as a concession. However, the small and medium ADIs were not afforded similar early access to policy discussion or concessions. The Customer Owned Banking Association raised concerns about the additional regulatory work that needs to be done alongside other reforms underway, often implemented by the same small teams in the banks. The Treasurer talks big talk about standing up for the smaller banks, but the reality is that he is still standing up for the major banks. The royal commission is the icing on the cake. It says everything about the Prime Minister and his Treasurer that he only agreed to Labor's royal commission when the banks told him they had to.

The government has always been on the side of the banks. I'm still a bit cynical and a bit concerned that the government's protection racket for the banks isn't over yet. But there has been some good news for the small and medium ADIs. Labor has lobbied hard for an amendment to this bill: to delay the start date by 12 months to ease the burden on small and medium ADIs and to give them appropriate time to prepare. I understand that the Treasurer has finally followed Labor's lead on this and Labor's amendment has passed the House of Representatives. I also note the Treasurer chose to support Labor over the chair of the Senate Economics Legislation Committee to make this happen. That was one of the recommendations in the Labor senators' additional comments report. I congratulate Mr Morrison on recognising when Labor has policy right and admitting, through that amendment, that the Liberals got it wrong. I'm proud that Labor is once again supporting small businesses—small banks in this case—and making their lives a little bit easier.

I note from the inquiry that the Customer Owned Banking Association made it very clear to us that the regulatory compliance burden is a critical factor. They made it clear that, in fact, regulatory compliance is a competitive advantage that the major banks have because they have vastly greater resources and capacity than smaller competitors to cope with the new regulatory obligations. So I want to make it very clear that we support that change to help out small businesses.

I will conclude my speech where I started and indicate that Labor will not stand in the way of this bill, but it is, as I said, disappointing to see that, once again, we have a Treasurer releasing substandard legislation. This bill was more of a political fix for the Treasurer, but, day by day, week by week, we saw the fix unravel. This bill couldn't stop the government calling a banking royal commission. Labor knew this bill was a political fix. Government senators in the inquiry saw the problems and shortcomings with the bill, and comments from other government backbenchers made it clear that the bill was no substitute for a royal commission. We've heard this legislation described as a 'teddy bear'—and who doesn't like a teddy bear? So I will support the bill, but, importantly, Labor fully recognises that the consultation process was inadequate and that the transition time will disadvantage smaller operators. So we have sought an amendment to delay the start date to help small and medium ADIs. I hope that the Prime Minister and Treasurer continue to follow Labor's lead in making this improvement. This bill is a baby step and I conclude by reiterating: it is the royal commission that will really deliver the much-needed change in this sector.

Finally, while I have the floor, I hope that the government is taking note of the calls in the media this week that action is urgently needed for improved consumer protection laws around payday lending. These laws, which the government has been dragging its feet on, are needed to prevent another financial crisis affecting Australian families. The Turnbull government has a lot to answer for because it's a government that's, for far too long, stuck its head in the sand on financial reform.

Lee Rhiannon (NSW, Australian Greens) Share this | Link to this | Hansard source

The system we live under and work under is rigged, and the banks are a big part of the problem. The economy works for the rich and this bill does nothing to change that. Big bank CEOs are the flag-bearers of this rigged system. These CEOs fail to protect their customers, they fail to properly manage financial risks and they fail to report changes and where they've gone against the law. Time and time again, these CEOs are letting the public down. They fleece the public with excessive fees and other charges, all to boost their profits. That's what's going on here. While there are complexities in the system, on one level it's very simple: it's about boosting profits.

The annual pay packets of the CEOs of the banks illustrate that so effectively. I will put on record what they are to illustrate how out of control the system is and the depth of failure of the bill currently before us, the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2018. CBA CEO Ian Narev received a $12.3 million salary package in 2016, off a base salary of $2.65 million—an absolute shame. NAB's Andrew Thorburn received a $6.7 million salary package, off a base salary of $2.4 million. ANZ's Shayne Elliott received $5.07 million, off a base salary of $2.1 million. Westpac's Brian Hartzer received $6.7 million, off a base salary of $2.8 million. Macquarie's Nicholas Moore received $18.7 million, off a base salary of $818,000. The system is deeply broken. I said it's rigged—it's just rotten to the core. Why is the essence of this whole system about profits? It is because that is how the CEOs make their money. It's not about how they treat customers or if they're helping to make housing more affordable, ensuring young people can get a start in life or assisting people to get loans for their small businesses. That's not how they're judged. It's all about the massive profits they're making, and that's what flows through to these obscene wages—and that's what should be dealt with here today.

And these profits are obscene. In 2015, Australian banks made the highest profits anywhere in the world as a share of GDP. The privilege the banks have in this country because of the way the government runs the system should be what we're dealing with here, because the way the banks are run—the extreme salaries that these CEOs take home—is driving the inequality in this country. It's getting much larger, and I will come back to it. This issue of wages and salaries is right in the news at the moment because wages for the majority of people in this country have stalled. In the meantime we have an opportunity with this legislation here to do something about the super-rich, and nothing is being delivered.

As I said, the key issue the government should deal with is excessive bank CEO salaries. CEOs should be judged to be doing a good job and should be paid more if shareholders are gaining more returns because of banks' high profits. That's the basis of the very sick system we're living in at the moment and we need to change how banking executives are paid. The bill barely covers that key aspect—why? It doesn't cover that key aspect because the Liberals and the Nationals are mates. This is actually a class system here: the Nationals and the Liberals are looking after their class. They're looking after the very rich. They're out to protect them. That's why they're just nibbling around the edges.

This legislation has come before us because the government does at least note that there is outrage amongst the public about what is going on and about how out of touch so many banks are with their needs. The salaries are excessive, but they won't actually deal with them. Why don't they deal with them? Because they're mates—they'll probably have to get a job with them one day. It is a really sick system when you have a government that is there to advance privilege and not use the power and the responsibility it has to make our society more equal and more fair. So, as I said, it's not surprising that the bill before us barely touches on the issue of salary.

If this legislation goes through in its current form, CEOs can continue to pay themselves these huge amounts of money because their salaries are linked to the profit basis of their banks. It also illustrates the closeness of the major parties to the banks. Why the major parties are soft on the banks is the issue of political donations. I will come to the fact that recently—and, again, because they were getting such a bad name for themselves—some of the banks did come out with a position: 'We're not going to take donations anymore.' You need to look at the 'anymore' closely.

But, firstly, let's look at the culture that has been around for many years. In 2013-14 and 2014-15, the four big banks gave $1.3 million in political donations to the Liberals, the Nationals and Labor over those two financial years, with the bulk of it going to the Liberals and the Nationals. That again is a very unhealthy culture. It's said, 'We just want to be able to talk to people,' or 'We want to help the democratic process.' That's what some of the big CEOs have said. But, again, it is part of the corrupting culture that is really turning people off how politics works in this country.

Now, I do acknowledge that the National Australia Bank, in 2016, announced it would stop giving money to political parties. That decision is a remarkable turnaround and it's a good turnaround—I certainly acknowledge that. It is an important turnaround and a reminder why the Turnbull government should get its act together and bring in some electoral funding law that limits, bans or puts strict caps on all corporate donations.

I will put on the record what the National Australia Bank had been doing just before it changed its position. It had given more than $500,000 to the major parties over three years, and it also sponsored a major fundraiser for Liberal frontbencher Kelly O'Dwyer in her re-election campaign for the seat of Higgins. It's interesting that the bank was right there, in a very generous way, up to the point it made its decision. But its decision isn't watertight. The NAB's manifesto actually still allows for there to be exceptions to what appears to be a strict policy. Political donations can still be made, but they need to be cleared by the board of directors.

But, at any rate, I still congratulate NAB. They've taken that position, and other banks are also moving in that direction. But I go back to the position that for a long time there's been this culture of closeness, of attending the big, fancy, expensive fundraisers and giving generously, particularly to the Liberals and Nationals. That creates an unhealthy culture. It's a culture that's been identified in a High Court case about political donations that I've spoken about many times in the House, and I will continue to do so, because it identified that with political donations it's not just about quid pro quo—giving money and expecting something in return. It's about the damaging influence this money has on how the legislators, the politicians in this place, operate. They start to, maybe subconsciously—who knows; I'm not one of them—adjust their culture to deliver for the big donors. So, if there's legislation, maybe we should think about how that works for that sector that we spend a lot of time with.

The corrupting influence of political donations is well on the record, and I believe it's part of what's going on here—that there is a closeness between the major parties and in this case the big banks, the big donors, so that they don't really do the job properly. A proper job would be taking on the CEOs and limiting their salary. It infuriates people. These salaries are now publicly known. People are insulted when they hear about how much money these CEOs effectively award to themselves—millions and millions of dollars—and it is a driver of inequality. Inequality is bad for the economy, it's bad for our society and it's so serious for individuals who are just trying to scrape things together.

There really is no reason that bank CEOs should have an income that's more than 10 times the average national wage. And I want to congratulate my colleague Senator Peter Whish-Wilson. He's done extensive work in this area. He spoke very clearly about this bill before us, and his amendments are to be supported. We should support these amendments, which are in fact very mild. They're not going to stop these CEOs being millionaires, but they're responsible amendments that would show that this place, our Senate, has got some backbone, is looking out for all Australians and isn't just playing Mickey Mouse games with legislation so the government can go out to the media with their headline, 'Senator Cormann is very effective,' making out that they're doing something when they're not. The Liberal-Nationals are not. They're protecting their own people, their own mates. And that's why I very warmly congratulate Senator Peter Whish-Wilson on these amendments and draw the Senate's attention to how important they are and that they should be supported. I really regard them as absolutely essential amendments.

Again, I want to emphasise, when we move into committee to consider this debate, let's keep at the front of our minds one of the big debates this week, and that is about the wages of the majority of Australians. So many people see their wages going backwards because the cost of living is going up so fast and their wages are not keeping up with it. Again, if you're sincere about doing something about that—and surely that should be the bread and butter of all of us in this place, ensuring that people aren't worse off—you would actually bring the excessive CEO salaries into line. It's time that bank CEOs are paid a fair wage, not an indecent and obscene wage—well, they don't even call it a wage; they call it 'salary remuneration' or whatever words they come up with. But it's indecent. It's obscene. It's really, really ugly, and something needs to change.

This bill needs teeth, and that's what the Greens amendments provide. They put some oomph, some guts, into this bill which is so urgently needed. We know that the majority of Australians want this—absolutely. The reason I'm saying that so emphatically is because of some very impressive research. I congratulate the Australia Institute. They have done some excellent research in really showing how out of control the banking system is in this country, particularly with regard to the four banks. One of their very extensive research projects polled over 1,400 Australians in 2016, at the time when there was a push for a royal commission. It found that 76 per cent of these people agreed that the big four banks should put customers ahead of shareholders. That is the essence of what I'm talking about and what Senator Peter Whish-Wilson's amendments go to. They go to what Australians want to see. All they're after is a fair system. How many times do you hear the politicians on the conservative side talk about fairness? It's just words to them. Well, this is an opportunity to do the right thing. I very much congratulate Senator Peter Whish-Wilson, and I look forward to the debate in the committee stage.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

Firstly, I would like to thank those senators who have contributed to this debate. The Banking Executive Accountability Regime, which this government is implementing, represents part of the most significant reform to our financial sector in a generation. The Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2018 will increase the accountability of banks, as authorised deposit-taking institutions, and their most senior executives and directors, helping to restore 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 to the bill introduces the Banking Executive Accountability Regime, which imposes new heightened accountability obligations for authorised deposit-taking institutions and their accountable persons. These obligations are focused on matters such as conducting business with honesty, integrity, due skill, care and diligence, being open and cooperative in dealings with the Australian Prudential Regulation Authority and preventing matters arising that would adversely affect the authorised deposit-taking institution's prudential, reputation or standing. These accountability obligations go to the heart of the ensuring that the community can have trust in authorised deposit-taking institutions and the way they conduct their business. Authorised deposit-taking institutions will be required to register their accountable persons with the Australian Prudential Regulation Authority prior to appointment, ensuring that the Australian Prudential Regulation Authority has greater visibility over the individuals taking up the roles that shape the conduct of authorised deposit-taking institutions. Those authorised deposit-taking institutions will also be required to provide accountability statements and accountability maps to the Australian Prudential Regulation Authority, ensuring there's a clear allocation of responsibility for authorised deposit-taking institutions' functions to individual accountable persons.

The bill also increases the consequences for authorised deposit-taking institutions and accountable persons that fail to meet the new heightened accountability obligations. These increased consequences will ensure that authorised deposit-taking institutions 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 authorised deposit-taking institution. Authorised deposit-taking institutions will also be required to include, in their remuneration policies, provisions for the nonpayment 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.

The Australian Prudential Regulation Authority will also be provided with stronger disqualification powers by being able to disqualify an accountable person directly rather than applying to the Federal Court. The Australian Prudential Regulation Authority disqualification decisions will be subject to merits and judicial review; however, the more streamlined powers will ensure that the Australian Prudential Regulation Authority can more readily respond where an accountable person does not comply with their accountability obligations.

The bill also introduces substantial new civil penalties for authorised deposit-taking institutions which breach any requirements of the Banking Executive Accountability Regime which relate to prudential matters. These penalties will range from up to $10.5 million for small authorised deposit-taking institutions to up to $210 million for large authorised deposit-taking institutions. These civil penalties will put in place strong financial incentives for authorised deposit-taking institutions to ensure they meet their obligations under the Banking Executive Accountability Regime.

Finally, schedule 2 to the bill introduces a number of powers to allow the Australian Prudential Regulation Authority to examine witnesses. These powers will apply in relation to the entire Banking Act, and will particularly support the Australian Prudential Regulation Authority's enforcement of the Banking Executive Accountability Regime. They broadly replicate powers that the Australian Prudential Regulation Authority already has in relation to other institutions, including the superannuation sector.

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

Following meetings with the Australian Prudential Regulation Authority, the government has been developing additional transitional arrangements which would have provided APRA with the flexibility it needs to allow staged implementation for small authorised deposit-taking institutions and provide additional time, until at least 1 January 2019, for these entities to comply with the Banking Executive Accountability Regime. This would allow the Australian Prudential Regulation Authority to focus on implementing the Banking Executive Accountability Regime for large authorised deposit-taking institutions—our key priority, because of how many Australian customers are touched by these institutions.

The opposition has informed the government that they're proposing to delay the commencement of the BEAR for small and medium authorised deposit-taking institutions until 1 July 2019. In order to facilitate the expeditious passage of these critical reforms, the government has agreed to this. It is vital that Australians see these reforms implemented and these rules legislated as soon as possible. These Turnbull government reforms are too important to play politics with.

Whilst we're reluctant to see unnecessary delay to the Banking Executive Accountability Regime, our first priority is protecting Australian banking customers and enshrining appropriate protections in legislation. This bill will ensure that the banks, as the heart of the financial sector, meet the community's expectations by clarifying accountability obligations, clarifying the responsibilities of senior executives and imposing more significant consequences where these obligations are not met. The Banking Executive Accountability Regime will ensure the banks shift their focus from profit at all costs to outcomes for all Australians. I commend this bill to the Senate.

Barry O'Sullivan (Queensland, National Party) Share this | Link to this | Hansard source

The question is that the amendment moved by Senator Whish-Wilson be agreed to.

Question negatived.

Original question agreed to.

Bill read a second time.