Banking (executive accountability regime) determination No. 1 of 2019

Overview

The Banking (executive accountability regime) determination No. 1 of 2019, made by the Australian Prudential Regulation Authority (APRA) under paragraph 37EA(4)(b) of the Banking Act 1959, aims to ensure consistency in the application of the deferred remuneration obligations of the Banking Executive Accountability Regime (BEAR) across various corporate structures. This determination addresses the issue where the BEAR's deferred remuneration obligations could inadvertently apply to a broader scope of an accountable person’s variable remuneration depending on the corporate structure of the authorised deposit-taking institutions (ADIs). The determination seeks to align the application of these obligations more closely with the intended scope, preventing any ADI from being disadvantaged due to their corporate group structure. APRA consulted with relevant stakeholders from 1 April 2019 to 30 April 2019, receiving seven submissions, though none raised significant concerns leading to substantial changes in the proposal. The instrument commenced on 1 July 2019, and APRA has affirmed its compatibility with human rights as per the Human Rights (Parliamentary Scrutiny) Act 2011.

Scope and Application

The Banking (executive accountability regime) determination No. 1 of 2019, made by the Australian Prudential Regulation Authority (APRA) under the Banking Act 1959, is designed to refine the application of the Banking Executive Accountability Regime (BEAR) by ensuring that the deferred remuneration obligations are correctly applied to the variable remuneration of accountable persons within authorised deposit-taking institutions (ADIs). This instrument applies to ADIs, which include banks, credit unions, building societies, and other financial institutions authorised to accept deposits. The instrument is intended to ensure that the deferred remuneration obligations are consistently applied across different corporate structures, preventing any ADI from being disadvantaged due to their corporate setup. Furthermore, it aims to align the application of these obligations more closely with the intent of the BEAR, particularly in relation to foreign ADIs, ensuring that the obligations do not inadvertently apply to a broader scope of remuneration than intended. The instrument does not introduce new substantive obligations but rather clarifies the scope of existing obligations, ensuring that they are applied in a manner that is fair and consistent across all ADIs.

Key Provisions

The Banking (executive accountability regime) determination No. 1 of 2019 (the instrument) was made by the Australian Prudential Regulation Authority (APRA) under the Banking Act 1959 (the Act), specifically pursuant to paragraph 37EA(4)(b) of the Act. The instrument aims to ensure that the deferred remuneration obligations under the Banking Executive Accountability Regime (BEAR) are applied consistently across different organisational structures, thereby preventing any authorised deposit-taking institution (ADI), including foreign ADIs, from being disadvantaged due to their corporate structure. The instrument commenced on 1 July 2019. Under the BEAR, ADIs are required to defer a specified minimum portion of the variable remuneration of their accountable persons for a prescribed period. The instrument refines this requirement by ensuring that only the portion of an accountable person's variable remuneration directly related to their role as an accountable person is subject to these deferred remuneration obligations. This means that if an individual holds multiple roles, only the remuneration linked to their accountable person role will be deferred, excluding any remuneration from other roles. This clarification aims to align the application of the BEAR more closely with its intended purpose and to avoid any unintended broader application of the deferred remuneration obligations due to the varied remuneration practices within the financial services sector. APRA undertook a public consultation on the proposed schedule to the determination from 1 April 2019 to 30 April 2019. The feedback received from ADIs, industry bodies, and other interested parties did not raise any significant concerns and did not result in material changes to APRA's proposal. Furthermore, the Office of Best Practice Regulation advised that a Regulation Impact Statement was not required for this legislative instrument. The instrument imposes obligations on ADIs to ensure that only the variable remuneration directly attributable to the accountable person's role is subject to the deferred remuneration obligations under the BEAR. This requirement is intended to ensure fairness and consistency across different corporate group structures, preventing any ADI from being disadvantaged based on its organisational setup. The instrument aims to align the application of these obligations with the intent of the BEAR, ensuring that they are applied consistently and effectively across the sector. In terms of penalties or consequences for non-compliance, the explanatory statement does not specify any particular offences, penalties, or civil/criminal consequences. However, it is important to note that non-compliance with the obligations imposed by the Act could potentially lead to regulatory action by APRA, which may include enforcement actions, fines, or other regulatory sanctions. The specific penalties for non-compliance would depend on the nature and severity of the breach, and would be determined in accordance with the relevant provisions of the Banking Act 1959 and other applicable laws.