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Financial services industry bosses to have their bonuses held back for years by regulators

by Lewis Panther | 28 Mar 2018
Bonuses for CEOs and other financial industry bosses could be held back four years to make sure their business does not break the law.

That's one of the ways Australian regulators are looking at dealing with the under-fire financial services industry (FSI) during 2018, according to a new report by Deloitte.

Codes of conduct and how banks need to become more customer focused are also high on the agenda, says the firm’s partner Kevin Nixon.

His report for the Centre for Regulatory Authority makes salutary reading especially when seen alongside the details emerging from the Financial Services Royal Commission.

It is clear from his 52-page report the whole industry is still on the back foot and trying to rebuild its reputation following a damaging double whammy — 10 years after the global financial crisis and 20 years after the Asian financial crisis.

But it is also clear that the industry is already making inroads with plans for a more customer friendly FSI — one that is shown to be well-regulated with robust codes of conduct aimed at the Australian walking into the branch or who is on the phone trying to get a mortgage.

Where this is most evident is under the Banking Executive Accountability Regime (BEAR) which is due to come into force in July.

Plans to withhold up to 60 per cent of the bonuses due to big players in the industry — deemed to be accountable persons — will be greeted either with raised eyebrows or an ‘about time’ attitude depending on your view.

Mr Nixon's report says: “A portion of an accountable person’s variable remuneration to be deferred for at least four years and can be clawed back if BEAR is breached.

“Amount depends on size of ADI, and the person’s role and total annual remuneration (e.g. 60% for CEOs of large ADIs).

“ADIs and accountable persons must act honestly, with due skill, care and diligence, be open and constructive with the regulator, and take reasonable steps to prevent matters that would adversely affect prudential standing or reputation.”

If they don’t, the regulator wants to be able to impose other penalties as well as the stringent financial measures regarding withholding bonuses.

It says the regulator should be notified of “appointment of accountable persons, given maps of roles and responsibilities, and be notified of BEAR breaches.

It adds that the “regulator can direct an ADI to reallocate responsibilities of accountable persons, disqualify accountable persons, and require adjustments to remuneration policies.”

Though these stringent measures are just part of a raft of measures here — and around the world — to combat the fatigue with the FSI after years of bad press.

Strengthening individual accountability is one of the ongoing areas where regulators are looking to achieve this, according to the report.

He says: "Significant steps have been taken to enhance individual accountability in Asia Pacific.

“These will need to be embedded within firm governance frameworks.

“This is part of a global trend to increase individual accountability and responsibility for conduct, particularly for senior management.”

Professionalism -—a watchword here at FINSIA — is also an ongoing area where regulators are making sure more is done.

Mr Nixon adds in his report that “alongside regulatory initiatives, ‘soft law’ techniques are being enlisted, such as ‘naming and shaming’, promoting compliance with ‘voluntary’ industry codes and encouraging greater professionalism within industry.

"Many regulators have expressed the view that prioritising customer outcomes is at the heart of improving culture and conduct.

“There is a focus on providing suitable products and services, appropriate to circumstances."

But banks should not bend over backwards to give customers everything they want, Mr Nixon’s report says.

He says: “It is essential that messaging does not run the risk of being interpreted as ‘do anything the customer wants’ or ‘do anything to obtain customer business’.

Do you think the BEAR measures go too far?


  • | May 22, 2018

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