This month’s Federal Budget introduced significant new consumer protections that will hopefully herald the beginning of the end of calls for a Royal Commission into the financial services industry.
Despite more than a decade of intense scrutiny and a raft of continuous reform, including over 15 reviews and inquiries, the Government has announced more stringent measures and new powers for the prudential regulator.
There will also be a one stop shop for consumers to raise complaints about financial institutions.
Following this significantly increased regulatory oversight of financial institutions, the FSC calls for an end to the politicisation of the financial services industry by all political parties.
Partially hidden from view by the headline $6 billion levy on Australia’s five largest banks, the Budget also contained a significant new reform package called the Banking Executive Accountability Regime.
The regime includes:
- New registration requirements: prior to appointing senior executives and directors Authorised Deposit-taking Institutions (ADIs) will need to advise the Australian Prudential Regulation Authority (APRA). Upon appointment, these people must be registered with APRA and a map of the role and responsibilities of the ADI’s senior executives provided to the regulator;
- New powers and penalties: additional expectations will be established for how banks and their executives conduct their business consistent with good prudential outcomes, with a new civil penalty enforced by APRA for ADIs that fail to meet those expectations; stronger powers will also be given to APRA to remove the disqualify senior executives and directors from all APRA-regulated institutions; and
- The civil penalty will be a maximum of $200 million for larger ADIs and $50 million for smaller ADIs; and
- APRA will also be able to impose penalties if ADIs do not appropriately monitor suitability of their executives to hold senior positions.
- Remuneration: a requirement for a minimum of 40 per cent of an ADI executive’s variable remuneration – and 60 per cent for certain executives such as the chief executive – to be deferred for a minimum period of four years to ensure executives are more accountable; and stronger powers for APRA to require ADIs to review and adjust their remuneration policies when APRA believes such policies are producing inappropriate outcomes.
The remuneration measures will apply to non-ADI businesses within an ADI group structure, including superannuation funds and life insurance businesses.
Stand-alone superannuation funds not in a group structure will not be captured by the package, with the exception of APRA’s increased powers to disqualify directors and executives.
The Financial Services Council (FSC) has urged the Government to consult with industry before implementation of the Bank Executive Accountability Regime. These powers are without precedent and unintended consequences must be carefully avoided.
The FSC welcomed, however, the introduction of a one-stop shop for consumers to resolve disputes between consumers and financial services companies, the Australian Financial Complaints Authority (AFCA).
AFCA will commence operation from 1 July 2018. It will be industry funded with the expected cost still to be confirmed.
The AFCA will absorb the Financial Ombudsman Service (FOS) and the Superannuation Complaints Tribunal (SCT), however the FSC understands that matters brought to the AFCA will be treated in the same way as comparable matters currently brought before those existing organisations.
For example, superannuation related matters determined by the AFCA will be binding, as they are at the SCT.
Collectively, this new authority and the executive accountability regime lays out a blueprint for strengthening consumer trust in the financial services industry.
Whilst the devil will be in the detail, the FSC is pleased that once finalised, this unprecedented and stringent package of reforms may bring an end to the politicisation of the financial services industry.
Blake Briggs is senior policy manager at the Financial Services Council.