At Norton Rose Fulbright, we have commented on a number of occasions that we expect the Banking Executive Accountability Regime (BEAR) to be extended beyond just authorised deposit-taking institutions (ADIs) and so as to cover other areas of the financial services sector.  Such move, which we have previously informally nicknamed “FEAR” (Financial Executive Accountability Regime), may now happen sooner than we had originally expected.

In response to revelations by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission), Treasurer Scott Morrison has, this week, confirmed that:

“One of the reasons I introduced the Banking Executive Accountability Regime was to create direct personal consequences for senior people, starting in the banks but clearly that will need to extend to other places which was always an intention.”

The political sensitivities of the Royal Commission’s revelations means that, in our opinion, an expanded accountability regime will feature strongly as part of the Government’s arsenal to tackle and protect Australian consumers from misconduct unveiled by the Royal Commission.

We note that the BEAR, which gives the Australian Prudential Regulation Authority (APRA) unprecedented powers to police the appointment, behaviours and remuneration of senior executives, will come into play for “large” ADIs on 1 July 2018 (with APRA to set transitional arrangements) and a year later for “small” and “medium” ADIs.  It was predicted that the possible expansion of BEAR to cover other financial services providers would then be considered following further stakeholder consultation.

However, given the context in which the Treasurer made the above comments and noting that 2019 will be a Federal election year, we now anticipate that the Government will significantly fast-track the expansion of BEAR to cover other financial service entities, and we would be surprised if the Government waits for the Royal Commission to conclude before making such a move.

As a result, we now predict that the Government is likely to table legislation to amend the Corporations Act (based on the BEAR legislation that has amended the Banking Act) to impose a similar accountability regime on financial services entities regulated by the Australian Securities and Investments Commission (ASIC) in Parliament in the coming months.

Our view comes in the wake of the Treasurer announcing that ASIC’s powers will also be significantly increased through:

  • expanding ASIC’s ability to ban individuals from performing any role in a financial services entity where they are found to be unfit, improper, or incompetent;
  • strengthening ASIC’s powers to refuse, revoke or cancel financial services and credit licences where the licensee is not fit and proper; and
  • boosting ASIC’s tools to investigate and prosecute serious offences by harmonising their search warrant powers to provide them with greater flexibility to use seized materials, and granting ASIC access to telecommunications intercept material.

The Government also announced new penalties of up to 10 years’ imprisonment and heftier fines (up to the larger of $945,000 and 3 times the benefits for individuals, and the larger of $9.45 million and 3 times the benefit or 10% of annual turnover for corporations) for breaches of the Corporations Act in order to “effectively deter, prosecute, and punish those who do the wrong thing, to improve community confidence and outcomes for consumers and investors in the financial services and corporate sector”.  This applies to all financial services entities regulated by ASIC.  We note that corporations can be fined up to $210 million for breaching BEAR obligations.

Accordingly, we strongly recommend all financial services providers (not just ADIs and banks) to start considering and preparing for the, now, very likely and expedited expansion of such accountability regime to include them.