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Conduct Oversight for BEAR?

Monday 16 April 2018

Regulation

The Thomson Reuters Australian Regulatory Summit began by establishing the challenge organisations have with meeting regulatory obligations—demonstrated by the fact that, when polled, 81% of attendees admitted to suffering from regulatory fatigue.
 
In his keynote address, David Coleman MP talked about ‘good’ regulation and ‘bad’ regulation. According to Coleman, the BEAR was one of the more positive developments to create that sense of accountability in the financial services.
 
“One of the key issues, identified in recent times, has been the lack of executive accountability, particularly from senior executives,” he said. “The fact is that, despite all of the poor behaviour from the banking sector, very few senior executives have been held accountable.”
 
Yet, only one regulator has oversight on this piece of regulation. And when, at the end of ASIC Chair, James Shipton’s speech, he was asked whether the BEAR regime would be applied retrospectively, he replied that the BEAR regime was being prudentially applied, and so he could not comment on its application.
 
Shipton was, however, willing to comment on its underlying principles and community expectations.
 
“Generally, I believe community expectation is a prism through which all of us need to look when assessing actions inside financial institutions and actions inside the financial system,” he said. “I think it’s also fair to say that perhaps it has not been a prism or a lens through which analysis has been made, which is why we find ourselves in the current situation where we have the Royal Commission, and new rules like BEAR coming into place.”
 
But is APRA up to the task of administering BEAR effectively? This question was explored through the TR poll questions (paraphrased here), which asked:
 
What best describes your view of the forthcoming Banking Executive Accountability Regime?
 
  • All noise, no teeth; 
  • It's more Humphrey than grizzly
  • I feel like a camper in Yellowstone with backpack full of biltong.
  • Nice idea, but APRA needs to come out of hibernation first.
  • Where’s ASIC? A group of bears is called a ‘sleuth’ for a reason.
  • I can’t bear any more of these terrible puns.  

It was the perception of 38% of the room that APRA needed to first come out of hibernation.
 
 

What about the ‘sleuth’ or regulatory collaboration?
Throughout the discussion, several of the panellists laid bare their concerns about the conduct regulator having no oversight over accountability.
 
Why, they asked, is APRA the only entity bearing responsibility for this regime?
 
Panellist Professor Justin O’Brien from Monash University compared the BEAR to the senior manager regime in the UK, and said they came to the conclusion that, if accountability was what the regulators really wanted to look at, then it was conduct they should be observing.
 
However, O’Brien pointed out that APRA is not a conduct regulator. “Who is going to look at conduct?” he asked, adding that this was “…a profound structural failure.”
 
Another panellist, Anatoly Kirievsky, Optiver Head of Compliance, Asia Pacific, said that, at the moment, the BEAR sits between the Responsible Manager Regime, which has not had a big impact on managers, and the
Manager In Charge (MIC) regulation, which is being passed in Hong Kong.
 
“I would have thought that the Responsible Manager Regime (RMR) would have been the starting point for something similar to a conduct obligation,” he pointed out. “That didn’t happen that way.”
 
He added that organisations are going to have to wait and see how it will be implemented, including who will be the test case.
 
Similarly, while it has been expressed that conduct-related issues can be related, the question of oversight and the processes around that remains largely unanswered.
 
Like Kirievsky, Lara Douglas, Head of Regulatory and Conduct Risk at ANZ, also represents the organisational side that will be affected by the new regime. She expressed concerns about how its implementation on 1 July will play out for organisations.
 
“The daily actions are happening in a thousand different places,” she said. “So how is a regime like BEAR actually going to hold those people personally accountable? Potentially, this regulation is career-ruining.”
 
According to Douglas, regulation should not be prescriptive as that requires for ‘a rule for every single step of the process and situation’. Then, there would need to be visible consequences.
 
“Actually, it can be outcomes-focussed,” she said. “And, if you are clear on the outcome, then people don’t need the rule to guide their daily decisions. AML is always an easy one to explain because the outcome’s purpose is to make it hard for criminals to misuse the financial system.”