The Australian Bankers’ Association has attacked the Turnbull government’s proposed bank accountability rules, claiming they could expose chief executives to class actions led by customers who want to make their grievances “personal”.
Aidan O’Shaughnessy, the ABA’s executive director, has warned the Coalition’s bid to make more bankers accountable could also make it harder for financial institutions to attract talent.
The treasurer, Scott Morrison, recently released draft legislation for the government’s new Banking Executive Accountability Regime (Bear), which will give the banking regulator, the Australian Prudential Regulation Authority, greater power to crack down on banks.
He gave the industry just one week to respond to the draft legislation, although he had floated the plans in his May budget.
The move has been resisted by the major banks but Malcolm Turnbull has said he will push ahead regardless, in light of the latest money-laundering allegations engulfing the Commonwealth Bank.
Under the proposed Bear regime, the government would give Apra power to cap salaries of senior bank executives and delay their bonuses by years, to prevent bonuses being paid all in one hit.
The regulator would also be given power to push directors out of the industry for bad behaviour and to force all senior banking executives to register so it could keep records of their behaviour.
O’Shaughnessy has stridently criticised the draft legislation and the one-week response time demanded by Morrison.
“Given industry support for responsible reform it is most regrettable that only one week has been allowed to comment on the complexities of the exposure draft bill and draft explanatory memorandum, this cannot be the acceptable standard for Australian public service policy design and development envisaged by the prime minister and cabinet,” O’Shaughnessy said in the ABA’s submission.
“In the short time made available, ABA have limited opportunity to fully consider the implications of the exposure draft bill.”
He warned the draft legislation had multiple problems. First, he said Apra would be given far too much power under the new regime and said the government needed to ensure Apra was subject to appropriate checks and balances.
“The ABA is deeply concerned by the lack of guidance given to Apra in exercising its power to disqualify accountable persons and the lack of checks and balances in the Bear around Apra’s powers to deregister, remove or disqualify an individual,” he said.
“We are also concerned that there may be a fundamental reversal of the onus of proof regarding a breach of the Bear expectations, contrary to Australian judicial principles.
Second, O’Shaughnessy said the new rules could expose bank chief executives to class actions.
“One can readily foresee that with this regulatory strengthening comes a real possibility that class actions and other civil litigation will be commenced against accountable persons … in relation to breaches or potential breaches of their Bear obligations,” he said.
“The ABA is concerned that unmeritorious proceedings could be commenced personally against, for example, chief executive officers of banks in order to make issues or grievances ‘personal’.”
Third, he criticised the draft legislation for failing to define who an “accountable person” would be in the event of a breach of the Bear regime.
He said “accountable persons” must be able to influence or impact the whole, or substantial part of, an authorised deposit-taking institution and its subsidiaries as a consolidated group.
“The Bear should be limited to the most senior executives only,” he said.
Morrison has said the new regulatory regime would apply from 1 July 2018 but the ABA says that does not give the industry much time.
“The Bear should have an implementation date that is the earlier of 1 January 2019, or one year from the finalisation of the legislation,” O’Shaughnessy said.
