The Australian Prudential Regulation Authority (APRA) has released Information Paper: Implementing the Banking Executive Regime (Information Paper) setting out its expectations of authorised deposit-taking institutions (ADIs) when meeting their obligations under the Banking Executive Accountability Regime (BEAR). Please click here to see our client alert on BEAR released earlier in May 2018.

The Information Paper is intended to clarify APRA’s approach to implementing the accountability regime and refines and enhances certain aspects of the BEAR regime. APRA’s enforcement of breaches of the regime is not covered in the Information Paper.

Summary of the Information Paper
Elements of the accountability regime APRA guidelines
Accountability obligations - accountable persons APRA did not provide a recommendation as to the appropriate number of accountable persons of an ADI. The appropriate number will also vary with the size and complexity of the ADI eg. it would not be unusual for small ADIs to nominate a few individuals (other than directors) as accountable persons.
Registration APRA encourages institutions to engage early with their APRA supervisors in advance of submitting any registrations for new accountable persons. The application to register an accountable person must include a signed declaration (by the chair of the relevant board committee, or a person delegated to sign on the board’s behalf) that the ADI is satisfied that the person is suitable to be an accountable person.
Accountability statements APRA expects accountability statements to:
  • clearly articulate what an accountable person is accountable for with respect to the ADI, covering all areas of responsibility of an accountable person;
  • align with the actual practices and governance arrangements of the ADI; and
  • when considered collectively, articulate and delineate accountability across an ADI or ADI group.
APRA expects individual accountable persons to sign their accountability statement with a brief acknowledgement that they have read, understood and accepted that the areas of accountability and accountability obligations, has occurred.
Accountability map APRA has not provided a suggested template for an accountability map but expects that it would include, where relevant, reporting lines to and from each accountable person. Currently, APRA does not plan to make any legislative instrument in relation to an accountability map.
Remuneration APRA expects an ADI's focus to be not only to meet the minimum deferral requirement, but also on establishing performance-based incentive structures for accountable persons and other key personnel that align remuneration outcomes with good risk management and the ADI's long-term soundness.
Notification obligations APRA expects ADIs to: (i) establish an internal process to keep accountability statements and maps current and consistent with the operations of the institution; and (ii) understand where accountability sits across registered accountable persons. This internal process should consider when a change to an accountability statement or map is necessary.

How does this affect you?

BEAR came into effect 1 July this year with respect to the largest ADIs. It will apply to all other ADIs from 1 July 2019.

Although APRA has yet to release an information paper regarding its enforcement of the breaches of the regime, we urge all banks to commence complying with BEAR to avoid any pecuniary penalties or disqualification of an accountable person by APRA.

For other ADIs that are not yet subject to the BEAR regime but will be caught by the next 2019 deadline, there should be the commencement of an internal review of the current remuneration schemes and policies in place, if this has not already been done so. You would then need to enact the next steps of identifying which policies and systems require amendment and an analysis of the efforts that would be involved to be compliant. There should also be consideration of the following factors (but not limited to):

  • the scope of employees that would be impacted by compliance with BEAR and discussions with them in advance to prepare them for such changes;
  • the costs that would be incurred to the organisation in compliance with the BEAR regime, including upgrades to systems and technologies and an increase in internal and external resources; and
  • whether your organisation has current infrastructure in place that requires updates or replacement.

Want to find out more?

If you would like further advice on whether your institution is BEAR compliant or what further actions you may need to take to become compliant, please contact the Financial Services and Funds team.