The Banking Executive and Accountability Regime (BEAR) has been heralded as a significant piece of legislation and will have a positive impact on the challenges of culture and conduct by making senior managers accountable.
The first phase of the BEAR came into effect at the ‘larger end of town’ in July last year; Phase II, which will capture smaller ADIs, is due to come into effect next month.
Following that, the recommendations from the Hayne Royal Commission promise the remit of BEAR or BEAR-like legislation that will then capture all Australian Financial Services Licenses (AFSL) holders and will be mandated by the Australian Securities and Investments Commission (ASIC).
However, there still seems to be some confusion around the concept of accountability and how an organisation identifies an accountable person within their ranks.
At the Refintiv Australian Regulatory Summit, the panel discussion sought to establish the impact the BEAR could have on the Australian financial services sector and how challenging it will be for organisations to implement it effectively.
Swineburn Law Lecturer, Helen Bird, said that when it comes to the application of the BEAR, the ‘devil was in the details’. She believes this applies as much to the UK’s Senior Managers Regime (SMR) as it does to the BEAR.
According to Bird, at the higher levels in both the Australian and British regimes, it is possible pinpoint a responsible person.
“That was the great criticism coming out of the financial crisis [Global Financial Crisis]— there was no one responsible for the conduct you could actually point to.”
She added that, while it [the regime] can be good thing, there are also some challenges.
“What we might see is that people might not want to admit to particular levels of responsibility.”
Bird’s question around accountability is not so different from the questions raised by Carolyn Hanson, GRC Institute Director. Hanson said that, in her experience of trying define ‘accountability’ under the BEAR, she found many different people came up with many different definitions.
Bird noted that while there has been an impact on remuneration and a shift away from variable remuneration in the UK, there are still issues with variable income.
Accountability and hierarchy
Guy Boyd, Group General Manager for Financial at ANZ, said the issue as he saw it was that the BEAR isn’t always clear on what the accountabilities of senior managers are. According to Boyd, one of the critical issues with both the SMR and the BEAR is that both presuppose a certain level of hierarchical structures within banks and other ADIs that might be disappearing.
Another issue highlighted in the panel discussion is that the banking industry is constantly juggling the ‘volume of change’. Regulation that pinpoints accountability is just another part of a raft of current changes, including the better use and leveraging of technology.
“From my perspective, the challenge is that you’ve got a growing world business dynamic of less hierarchical business structures and more collaborative business models, and then you superimpose a hierarchical ‘single point of accountability’ regime onto that and it doesn’t gel very easily,” said Boyd.
He suspects there they are lot of organisations trying to figure out how to get their complex hierarchies to meet the BEAR’s regulatory obligations.