As the financial sector waits for the Australian Prudential Regulation Authority (APRA) to fully awaken the Banking Executive Accountability Regime (BEAR) through the provision of further guidelines, there is already a lot of chatter as to whether BEAR should be extended beyond its initial coverage of APRA-regulated Authorised Deposit-taking Institutions (ADIs).

The Parliamentary Joint Committee on Corporations and Financial Services (Joint Committee) has recently recommended that BEAR should also apply to life insurance and life insurers.   In its report on the Life Insurance Industry released in March 2018 (full text available here), the Joint Committee noted that while BEAR is currently designed to enhance the accountability of banks and their directors and senior executives for the prudential conduct and culture within their organisations, it does not cover conduct in relation to customers or shareholders which are matters that come under the watchful eye of the Australian Securities and Investments Commission (ASIC).

This aspect of BEAR is considered to be a slight contrast from the United Kingdom’s Senior Managers and Certification Regime (SM&CR).

With this in mind, the Joint Committee expressed its support for extending the scope of BEAR to cover consumer and investor matters and for ASIC to have the requisite power to take action on conduct in relation to those matters. The Joint Committee is of the view that this would create positive outcomes for consumers and investors.

Further, the report referenced the acknowledgment of the former Chair of ASIC, Mr Greg Medcraft, that “while the BEAR legislation probably needed to start with banks, it should then be broadened to include insurance companies”.

Such comment comes on the back of ASIC’s recognition that in the United Kingdom, the SM&CR applies to financial services more generally.

In fact, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry that is currently underway scrutinises the behaviour of not only banks and ADIs, but also that of superannuation funds, insurers and other financial service providers.

Additionally, given the comments by the current Chair of ASIC, Mr James Shipton, focusing on the need to “maintain trust” in the financial system, there appears to be a growing appetite for the claws of BEAR to be extended:

• beyond APRA-regulated prudential matters to also include consumer and investor matters that fall within ASIC’s sphere of governance; and
• beyond ADIs to also include trustees of superannuation funds, life insurers and other financial service providers.

That said, the Joint Committee recognised that “widening the scope of BEAR will not happen immediately and that the proposed regime first needs to be bedded down”.

We anticipate that with the Joint Committee’s recommendations, BEAR may ultimately transform into the Financial Executive Accountability Regime (FEAR). The wider financial industry should be prepared to face its FEAR!

In the meantime, we continue to be focused on assisting clients with the implementation of BEAR which is due to start growling at “large ADIs” on 1 July 2018. “Small” and “medium” ADIs have a bit longer to prepare. For more information on how we can assist you with getting ready for BEAR, please contact us.