Global Trustee and Fiduciary Services News and Views Issue 50

Global Trustee and Fiduciary Services News & Views | Issue 50 | 2018 39 Australia On 1 July 2018, the Banking Executive Accountability Regime (BEAR) came into force for Authorised Deposit-Taking Institutions (ADIs). The obligations set out in the BEAR began to apply to large ADIs from 1 July 2018 — for small and medium ADIs, they will apply from 1 July 2019. The BEAR imposes a heightened accountability regime on ADIs and people, known as accountable persons, with significant influence over the conduct and behaviour of an ADI. It requires these people to conduct themselves with honesty and integrity and to effectively carry out the business activities for which they are responsible. A particular aspect of the BEAR is that ADIs must set remuneration policies which defer a specified proportion of the variable remuneration of accountable persons for a minimum period. This is intended to create an incentive for these individuals to make decisions taking account of the longer term effects. The proportion of an accountable person’s remuneration that must be deferred depends on the size of the ADI where the person works. The BEAR also includes civil penalties where an ADI fails to meet its obligations under the BEAR. The maximum penalty that may be applied by a court is also determined with reference to the size of the ADI. Against the backdrop of the BEAR proposals and the ongoing work of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, James Shipton, who became Chair of the Australian Securities and Investments Commission (ASIC) in February 2018, delivered a 17 May speech entitled “The Trust Deficit and Corporate Australia”. 13 In the speech, Shipman says there is a “trust deficit” in corporate Australia and that firms had “jeopardised the regulatory structure”. He also says that conflicts-of-interest challenges in the financial sector were “verging on a systemic issue”. Shipman further develops this theme in a 26 July speech, “The Trust Deficit and Superannuation”. 14 While there are specific comments addressed to those in the superannuation industry, Shipman comments more widely, further outlining his perspective on what he thinks “all leaders in the financial sector need to do to address this deficit.” In the speech, he shares three suggestions: • There needs to be wholesale review of conflicts of interests in firms, sectors and markets. • There must be greater senior management attention to conduct issues that lead to poor consumer outcomes. • And industry leaders can refresh — or if necessary, create — their strategy for dealing with regulators. Shipman urges the industry that now is the time, in rebuilding trust, “to move from rhetoric to reality.” The potential impact for asset management firms in Australia is that where improvements are not made, then the BEAR may be extended, as we have seen in the UK, to other areas of the financial services sector. Ireland The question of culture in financial services firms is high on the agenda of the Central Bank of Ireland (CBI). While the specific context relates to the CBI’s Tracker Mortgage Examination, the CBI is due shortly to provide a report on culture in the major retail banks to the Minister of Finance. 15 Gerry Cross, Director of Policy and Risk at the CBI, states in a 20 March speech that “we will, however, be looking at the issue for financial firms more widely and it will remain a key topic of focus for some time to come.” 16 One of the challenges identified by Cross “is how to avoid the risk that the more rules you have the more firms adopt a ‘compliance’ rather than an ’outcomes’ mindset and culture. That firms comply because they are required to rather than because they have internalised the outcomes sought.” 17 The CBI considers that one of the ways to address this challenge is the “possible introduction of a senior manager accountability framework for Irish firms.” Cross notes the