5.2 The BEAR

Another overlap between conduct matters and prudential matters arises from the Banking Executive Accountability Regime (BEAR). It will be recalled that the regime came into effect for large ADIs on 1 July 2018 and contains accountability obligations for both ADIs and ‘accountable persons’, as well as other obligations such as those associated with deferred remuneration. ADIs are required to conduct their business with honesty and integrity, and with due skill, care and diligence.[1] Accountable persons have a similar obligation in the way they conduct the responsibilities of their position.[2] But the BEAR also requires ADIs to take reasonable steps to prevent matters from arising that would adversely affect the ADI‘s prudential standing or prudential reputation.[3] An equivalent obligation applies to the way accountable persons conduct their responsibilities.[4]

The BEAR, therefore, has both a conduct and prudential outlook. So much is clear from the second reading speech, which emphasised that when community expectations are not met, appropriate consequences should follow for those accountable.[5] This is one reason ASIC should have a role to play in regulating and commencing proceedings in respect of the accountability obligations. Another is that the key accountability obligations reflect the obligations of AFSL holders under section 912A of the Corporations Act. As a practical matter, ASIC must be able to deal with both breaches together.

There should therefore be co-regulation or joint administration of the BEAR by ASIC and APRA. ASIC should be charged with overseeing those parts of Divisions 1, 2 and 3 that concern consumer protection and market conduct matters, and APRA should be charged with the prudential aspects of Part IIAA. That would mean that ASIC would be responsible for bringing any civil penalty proceeding against a contravention of Divisions 1, 2 or 3 to the extent that it related to conduct matters. And APRA would be responsible for bringing any civil penalty proceeding for a contravention of Part IIAA under section 37G to the extent it concerned prudential matters. It would be prudent to enable both ASIC and APRA to seek disqualification of accountable persons if they are satisfied that an accountable person has breached his or her accountability obligations, although I would expect that the power would ordinarily be exercised by APRA.[6]

Subject to what follows, I do not otherwise consider there to be a need for the obligations in the BEAR to be expanded, although consequential changes may be necessary in light of what I have said above. For example, sections 37C and 37CA should be amended to make clear that both ADIs and accountable persons must deal with ASIC in an open, constructive and co–operative way, as well as with APRA. And practical amendments should be made to provisions such as sections 37K and 37G(1) so that joint administration can be carried out.

Lastly, provisions modelled on the BEAR should be extended to all APRA‑regulated financial services institutions. After medium and small ADIs have complied with the BEAR in accordance with the current timetable, the largest RSE licensees should also be required to comply with like provisions. Thereafter, the provisions should be applied to the balance of RSE licensees. After that, they should apply to the largest insurers and, thereafter, the balance of insurers.

These changes cannot and should not be made at once. They must be made sequentially and they will take time. There would be evident advantage in giving notice to all concerned of the general timetable that is proposed but implementation will depend upon how the changes play out and satisfaction that the changes made are proving effective.

[1] Banking Act s 37C(a).

[2] Banking Act s 37CA(a).

[3] Banking Act s 37C(c).

[4] Banking Act s 37C(c).

[5] Commonwealth, Parliamentary Debates, House of Representatives, 19 October 2017, 11270 (Scott Morrison, Treasurer).

[6] Banking Act s 37J.