Many of the executive suites of our banking and financial services institutions are inhabited by Australian CEOs, but unlike their colleagues across the Tasman, they do not work under an executive accountability regime. That may soon change, writes Lynn Grieveson.
Yesterday’s report into the life insurance sector has proved the final straw for the Government, which has promised to fast track tougher new financial regulation that may include a management accountability regime covering banking and insurance executives, similar to Australia’s BEAR.
The “Banking Executive Accountability Regime” came into force for the largest banks in Australia last year, and will apply to all other deposit-taking institutions from July this year. It is modelled on the UK’s Senior Managers and Certification Regime (SMCR).
Under BEAR, directors and senior executives are responsible for a bank’s overall health and well-being and must be registered with the regulator, APRA, as “accountable persons”.
Statutory obligations apply to these accountable persons, requiring them to act with honesty and integrity, with due skill, care and diligence, and to deal with APRA in an open, constructive and cooperative way.
Each executive has their own specific “accountability statement”, setting out the aspects of the bank’s operations for which they are directly accountable.
The BEAR also requires banks to hold back a proportion of its executives’ bonuses and incentive payments (or “variable remuneration”). The minimum amount is generally 40 percent for executives, or 60 percent for the CEO, of a large bank – for a minimum of four years. It also requires banks and other deposit takers to provide for a reduction in variable remuneration should an executive fail to comply with their obligations.
Disqualifying bank executives
As well as the potential financial sanction, a bank executive who is proven to have acted without due care or skill, or without honesty and integrity, can be disqualified by the regulator – removed as an “accountable person” and in the most extreme cases, prevented from taking on any similar role in the industry in the future.
Back here in New Zealand, the Government announced this week it would fast track the tightening of financial regulation in response to repeated calls from the current two regulators – the Financial Markets Authority and the Reserve Bank – for more teeth.
“It is an ambitious timeframe but my intent is to have … legislation in Parliament by mid-2020, because it is time to ensure consumers get protection that is clearly needed,” Commerce and Consumer Affairs Minister Kris Faafoi said.
‘Give us more power and regulators’
Earlier FMA chief executive Rob Everett told a media conference held for the release of the report into the life insurance sector that, unlike in other jurisdictions, in New Zealand there are relatively few specific requirements around financial services conduct. He repeated the call for more powers and funding for the regulators.
“The point we are making to the Government is that in most modern supervisory regimes the regulators have to be able to go in and monitor and check even in the absence of a potential piece of wrongdoing or misconduct, and that just doesn’t exist here.
“We have also talked about the prospect of a management accountability regime similar to what some other jurisdictions have put in place as a way of making sure that not only boards are put on the spot for how they treat their customers, but senior management as well,” he said.
If the regulators get their way, executives working in the Kiwi subsidiaries of the big Australian banks will have the same responsibilities and potential sanctions as their colleagues in Australia.
Finance Minister Grant Robertson said it was a sector that had been under-regulated for far too long, and needed an “appropriately resourced regulator”.
Asked if this could be a new regulator (along the lines of APRA in Australia) to take over the responsibilities of the RBNZ and FMA, or possibly a merged entity, Robertson said the Government was open to those possibilities, but no decisions would be made until after consultation.
He would not detail how much more funding that had been suggested by the FMA or RBNZ.