Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Hansard source

Firstly, I would like to thank those senators who have contributed to this debate. The Banking Executive Accountability Regime, which this government is implementing, represents part of the most significant reform to our financial sector in a generation. The Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2018 will increase the accountability of banks, as authorised deposit-taking institutions, and their most senior executives and directors, helping to restore the community's trust and confidence in the institutions that play such a central role in our financial system and the wellbeing of all Australians.

Schedule 1 to the bill introduces the Banking Executive Accountability Regime, which imposes new heightened accountability obligations for authorised deposit-taking institutions and their accountable persons. These obligations are focused on matters such as conducting business with honesty, integrity, due skill, care and diligence, being open and cooperative in dealings with the Australian Prudential Regulation Authority and preventing matters arising that would adversely affect the authorised deposit-taking institution's prudential, reputation or standing. These accountability obligations go to the heart of the ensuring that the community can have trust in authorised deposit-taking institutions and the way they conduct their business. Authorised deposit-taking institutions will be required to register their accountable persons with the Australian Prudential Regulation Authority prior to appointment, ensuring that the Australian Prudential Regulation Authority has greater visibility over the individuals taking up the roles that shape the conduct of authorised deposit-taking institutions. Those authorised deposit-taking institutions will also be required to provide accountability statements and accountability maps to the Australian Prudential Regulation Authority, ensuring there's a clear allocation of responsibility for authorised deposit-taking institutions' functions to individual accountable persons.

The bill also increases the consequences for authorised deposit-taking institutions and accountable persons that fail to meet the new heightened accountability obligations. These increased consequences will ensure that authorised deposit-taking institutions and their accountable persons have strong incentives to ensure they meet their obligations. Accountable persons will have a minimum amount of their variable remuneration deferred for at least four years, with the amount to be deferred based on the size of the authorised deposit-taking institution. Authorised deposit-taking institutions will also be required to include, in their remuneration policies, provisions for the nonpayment of deferred variable remuneration where an accountable person fails to comply with their accountability obligations. Ensuring there are financial consequences for accountable persons who do not meet their obligations will increase their focus on the long-term outcomes of their decisions.

The Australian Prudential Regulation Authority will also be provided with stronger disqualification powers by being able to disqualify an accountable person directly rather than applying to the Federal Court. The Australian Prudential Regulation Authority disqualification decisions will be subject to merits and judicial review; however, the more streamlined powers will ensure that the Australian Prudential Regulation Authority can more readily respond where an accountable person does not comply with their accountability obligations.

The bill also introduces substantial new civil penalties for authorised deposit-taking institutions which breach any requirements of the Banking Executive Accountability Regime which relate to prudential matters. These penalties will range from up to $10.5 million for small authorised deposit-taking institutions to up to $210 million for large authorised deposit-taking institutions. These civil penalties will put in place strong financial incentives for authorised deposit-taking institutions to ensure they meet their obligations under the Banking Executive Accountability Regime.

Finally, schedule 2 to the bill introduces a number of powers to allow the Australian Prudential Regulation Authority to examine witnesses. These powers will apply in relation to the entire Banking Act, and will particularly support the Australian Prudential Regulation Authority's enforcement of the Banking Executive Accountability Regime. They broadly replicate powers that the Australian Prudential Regulation Authority already has in relation to other institutions, including the superannuation sector.

Australia's financial system is strong and resilient. However, the series of scandals in recent years has demonstrated that it is not immune from problems. Banks have not acted with the highest levels of integrity and accountability at all times which the community expects of them, and this has eroded trust in these institutions. That is why it is important that the Banking Executive Accountability Regime commence as soon as possible, to ensure that accountability gaps in the banking sector are addressed promptly. For this reason, the Banking Executive Accountability Regime will commence on 1 July 2018. That said, the government has provided for transition arrangements for elements which will require longer to implement, such as the remuneration requirements and accountability documentation.

Following meetings with the Australian Prudential Regulation Authority, the government has been developing additional transitional arrangements which would have provided APRA with the flexibility it needs to allow staged implementation for small authorised deposit-taking institutions and provide additional time, until at least 1 January 2019, for these entities to comply with the Banking Executive Accountability Regime. This would allow the Australian Prudential Regulation Authority to focus on implementing the Banking Executive Accountability Regime for large authorised deposit-taking institutions—our key priority, because of how many Australian customers are touched by these institutions.

The opposition has informed the government that they're proposing to delay the commencement of the BEAR for small and medium authorised deposit-taking institutions until 1 July 2019. In order to facilitate the expeditious passage of these critical reforms, the government has agreed to this. It is vital that Australians see these reforms implemented and these rules legislated as soon as possible. These Turnbull government reforms are too important to play politics with.

Whilst we're reluctant to see unnecessary delay to the Banking Executive Accountability Regime, our first priority is protecting Australian banking customers and enshrining appropriate protections in legislation. This bill will ensure that the banks, as the heart of the financial sector, meet the community's expectations by clarifying accountability obligations, clarifying the responsibilities of senior executives and imposing more significant consequences where these obligations are not met. The Banking Executive Accountability Regime will ensure the banks shift their focus from profit at all costs to outcomes for all Australians. I commend this bill to the Senate.