BEAR trap or honeypot?

Sarah Hofman, Financial Services Partner, Regulation February 2018

The reality of the new accountability regime aimed at the financial services sector is starting to bite. But with the right mindset, boards can turn what could be just another compliance exercise into an opportunity for strengthening governance, risk and culture.

Legislation underpinning the Banking Executive Accountability Regime (BEAR) was passed on 7 February and from 1 July 2018 all major authorised deposit-taking institutions (ADIs) will have to comply with BEAR. The date for compliance for small and medium ADIs is 1 July 2019. 

For those needing to comply by 1 July this year, that doesn’t leave boards much time to get themselves – and management – ready for new rules that significantly up the ante around personal accountability. 

While some consider BEAR to be yet another regulatory burden, others see it as a chance to get a better understanding of precisely who is responsible for what in their organisation.

With reputational risk on the rise, boards increasingly want to know who they should be calling to explain ‘what happened’ when something goes wrong. 

Properly preparing for BEAR will assist them to do just that.

A snapshot of BEAR

BEAR is part of the Government’s push to clamp down on what it sees as a lack of accountability for poor behaviour in the financial services sector.

The regime requires organisations to identify ‘accountable persons’ – the population of senior executives who are responsible for making key decisions in the business. This group will likely include the board and C-suite as well as other top executives. For most organisations, dozens of individuals will be affected.

Under the regime, these accountable persons are required to “take reasonable steps to prevent matters from arising that would adversely affect the ADI’s prudential standing or reputation.”

For senior executives, minimum deferral of variable remuneration and changes to remuneration policies will be required. APRA will have enhanced examination powers to investigate matters and there will be a stronger penalty regime with fines of between $10.5 and $210 million depending on the size of the organisation.

How it can help

While it might appear like a chore, there are substantive benefits to undertaking a process that clarifies lines of accountability.

First, it helps boards take corrective action if or when something goes wrong.  We’re aware of examples from banks in the UK – which implemented the senior manager’s regime “SMR” at the beginning of 2016 – where improved clarity led to quicker decision-making.

Second, if the process is communicated and implemented effectively, it can reinforce or create a ‘culture of accountability’ within the business. It sends the message that accountability matters, that you need to take it seriously.

Third, it can strengthen governance by ensuring accountability for each and all of the critical risk factors facing an organisation. And if done well, it can also enhance collaboration by making different parts of the business sit down together and work out ‘where the buck stops’.

Actions for boards

The most important action for boards is to make sure management are well underway with their preparations for BEAR, and are doing so with the right mindset.

Here are some questions to put to management to make sure everything is on track:

  • Have you formed a working group to implement the new regime?
  • Have you got the right people involved? (it’s important to get representation from across the business; have you thought about HR, legal, compliance, company secretarial, key business heads for example?)
  • Have you reviewed job descriptions and committee terms of reference to make sure they are up to date?
  • Have you communicated with the rest of the organisation about what the regime is, why it’s important and what you’re doing about it?
  • Have you spoken to the key people that might be affected by the regime and do you have their buy-in (some executives may resist what they see as being given ‘more accountability’)
  • Are you comfortable that you have the appropriate Reasonable Steps in place to comply with the new regime including governance, control, risk management, delegations and remediation procedures?

Find more information here about BEAR and how to get ready.

Contact us

Sarah Hofman

Partner, Risk & Regulation, PwC Australia

Tel: +61 (2) 8266 2231

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