‘Bear’ should roar, but beware unintended bite

Accountability and trust go hand in hand. It's hard to have the latter unless you provide the former.

This is why we support the core principles of the new Banking Executive Accountability Regime for bankers, or BEAR.

Clear and transparent accountability is a fundamental part of good corporate governance. We also believe that we, and the industry, must do more to rebuild community trust after too many examples of banks and individuals not doing the right thing by their customers.

That’s why we are engaged in several initiatives to change the way we do things – many of which have already been put into place, like removing sales commissions from frontline branch staff.

The incoming BEAR should strengthen confidence in the financial sector by setting standards for banks and executives, and a framework for how banks respond when things go wrong.  

These are important changes, and must be well thought through.

After reviewing the consultation paper, we believe there are several areas where the BEAR could be improved to avoid unintended consequences and to be as effective as possible – something we need to get right.

Clarifying exactly who the BEAR will apply to, needs work.

We believe the BEAR should apply to all APRA-regulated entities, including standalone insurance and superannuation companies – to have the same governance and expectations applied to companies that do the same thing.  Care should be taken to ensure that the outcomes of the BEAR are achieved without causing a competitive disadvantage to banks by applying lighter standards to standalone insurance and superannuation companies, just because they aren’t banks.

Within Authorised Deposit-Taking Institutions, or banks, we believe the regime should apply to the ADI itself and not all of its subsidiaries (given that for Westpac these number in the hundreds).  The individuals to whom BEAR applies should be the most senior accountable persons within a particular organisation.

We mustn’t blur the roles of executives and boards, particularly non-executive directors that already operate under well-established governance and legal frameworks relating to duties and liability.  We are firmly of the view that non-executive directors should not fall within the BEAR.  

Obviously, a clear definition of “variable” remuneration will be important in complying with the pay aspects of the regime. As can be seen in our annual report, we support the deferral of variable remuneration and believe our practices leave us well placed to comply with the BEAR for group executives. We also already have – and use – tools to reduce variable remuneration if there has been misconduct in addition to taking disciplinary actions and terminating employment as appropriate.

We agree with the need for “accountability maps” to better identify and document the responsibilities of senior executives.  This will help regulators and key stakeholders understand who’s making key decisions.

Finally, no accountability measures can inspire confidence unless affected disqualified individuals have access to a court-based appeal process to determine if their disqualification was justified – this should be written into the legislation.

We agree accountability by the banks themselves is also important when things go wrong. However, given the quantum of the fines that can be imposed under the BEAR, which can potentially run into the hundreds of millions of dollars, the BEAR should clarify that these fines should only be triggered in the event of “material breaches” which would see factors such as the number and frequency of similar breaches and the actual or potential financial loss arising from the breach being taken into account in any decision to levy a penalty.

The BEAR will make a difference for banking. But what is clear is that developing and implementing the new regime will take time, thus we believe we need a minimum implementation period of 18 months after the legislation has been enacted and relevant prudential standards and guidance have been finalised.

By working with the industry and conducting quality consultation, we are confident the BEAR can make banking better for all.