7.3 An accountability regime

The essential thesis that informs the BEAR is that a sound risk culture coupled with effective corporate governance and the imposition of stronger consequences will improve accountability. Improved accountability ultimately translates to improved performance.

APRA has said that the establishment and continuance of a strong risk culture requires:[1]

  • a clear, transparent and common understanding within an institution of where accountability lies within the senior executive team for any particular part or aspect of the institution’s business;
  • a clear, transparent and common understanding within an institution of how a given individual meets his or her obligations as the accountable individual including, for example, by making decisions, serving as a point of review or challenge, or escalating matters as appropriate; and
  • for those accountable individuals, direct and proportionate consequences of failure to meet their obligations within their area of accountability, whether it is by inappropriate action or failure to act.

The concept of risk culture is as applicable to a statutory authority as it is to a financial services entity. The 2003 Review of Corporate Governance of Statutory Authorities and Office Holders (the Uhrig Report) noted that ‘accountability frameworks are an essential part of governance’.[2]

In the United Kingdom, the two regulators with joint responsibility for the Senior Managers Regime have chosen to apply the core elements of the regime to both agencies. The FCA has said:[3]

[The Senior Managers Regime is a] formal expression of the common sense, good governance practice that any organisation should adhere to. It was created against the backdrop of a clear and shared understanding that a culture of personal responsibility must be embedded at the heart of financial services. This is true of firms and regulators alike. We are not formally subject to the regime but we uphold the highest professional values and our stakeholders, including Parliament and the Treasury Select Committee rightly expect us to do so. In line with this, we have decided to apply the fundamental principles of the regime to our senior staff.

When asked if ASIC proposed to apply the BEAR principles to its senior staff, Mr Shipton said that he thought it ‘an excellent suggestion’ and that he was ‘minded to apply this form of rigour’ to ASIC. He also said that he thought the preparation of accountability maps ‘was just plain good practice of good governance’.[4]

Mr Shipton also referred to the ‘hypocritical risks of a regulator’ and added, ‘If we expect something of the regulated community, we must be holding that – that standard to ourselves’.[5] I agree.

There are many ways that an accountability regime could be put into force. For example, a specific statutory regime could be designed or parts of the BEAR could be adapted and applied by analogy.

At least as an initial step, I recommend that both APRA and ASIC apply the core tenets of the BEAR to their management structure. The rigour required to produce accountability maps and statements would oblige each regulator to consider its internal arrangements carefully.

The application of the BEAR should be undertaken in consultation with the external oversight body that I recommend below. That role of that body, in so far as the application of the BEAR principles to the regulators is concerned, should be analogous to that of APRA under the current regime. For example, accountability maps should be lodged with the oversight authority and that authority should generally superintend compliance with the BEAR principles.

Recommendation 6.12 – Application of the BEAR to regulators

In a manner agreed with the external oversight body (the establishment of which is the subject of Recommendation 6.14 below) each of APRA and ASIC should internally formulate and apply to its own management accountability principles of the kind established by the BEAR.

[1] APRA, Information Paper: Implementing the Banking Executive Accountability Regime, 17 October 2018, 67.

[2] John Uhrig, Review of the Corporate Governance of Statutory Authorities and Office Holders, June 2003, 52.

[3] Exhibit 7.78, Undated, Senior Management Regime, 3.

[4] Transcript, James Shipton, 23 November 2018, 7016.

[5] Transcript, James Shipton, 23 November 2018, 7016.