In the news: Watching the watchdog

Following the banking Royal Commission in Australia, the regulator is consulting on proposals to clean up the sector, while having its own capability scrutinised by the government
By Bethan Rees


Australia’s finance sector is in a state of flux following an inquiry into misconduct, which determined that remuneration and incentives were the root cause of wrongdoing, according to Peter Vercoe for Bloomberg.

The Australian Prudential Regulation Authority (APRA) has proposed that bank executives be made to wait up to seven years to receive their bonuses and that financial performance measures must not comprise more than 50% of the criteria for such bonuses. It is hoped that the proposed changes will encourage senior management to focus more on non-financial risks, for example culture and governance.

Vercoe refers to a statement from APRA, in which John Lonsdale, deputy chair of the regulator, says: “APRA has observed an over-emphasis on short-term financial performance and a lack of accountability when failures occur, especially among senior management. This has contributed to a series of damaging incidents that have undermined trust in both individual institutions and the financial sector more broadly. These incidents have damaged not only institutions’ reputations, but also their financial positions.”

APRA is starting a three-month consultation (closing 22 October 2019) on its proposals and is hoping to release the prudential standard before the end of the year and implement it in 2021.  

Bloomberg article

A royal intervention

APRA’s actions are a response to the banking royal commissioner Kenneth Hayne’s inquiry, set up in December 2017, looking into misconduct in the financial services sector. Former watchdog, Professor Allan Fels says that there could be a rare public intervention from Hayne, and this could be with the intention of ensuring his recommendations are not “watered down by financial sector lobbying”, according to Clancy Yeates reporting for The Age.

According to Yeates, upon the publishing of a capability review of APRA by the Australian government, APRA chairman Wayne Byres “appeared to sit on the fence” in response to some of the 24 recommendations, explaining that some would require more funding and others could lead to more red tape. He did, however, say he broadly backed all the recommendations.

Hayne backed the review, saying it is consistent with his report – a move seen as “significant” by observers, writes Yeates. He quotes Professor Fels, who says, “It’s very unusual for a royal commissioner, especially a former High Court judge, to speak after a report, but he probably is concerned about weak implementation of his report due to enormous pressure from the financial institutions, an enormously powerful lobby.”

Dr Andy Schmulow, a senior lecturer at the school of law at the University of Wollongong in Australia, said that he thinks Hayne was frustrated at APRA's response to the capability review, being "so fed up” that “he has broken his own silence” to publicly support the capability review in an attempt to get Mr Byres to pay attention.

The Age article

Dig deep

Following the banking Royal Commission, the financial sector in Australia was feeling charitable, according to Maggie Coggan for Pro Bono News. She refers to the second annual GivingLarge report, which finds that the financial sector gave AUS$39m to charity in 2018, an increase of 28% from 2017.

The largest increases came from three banks: Commonwealth Bank of Australia, National Australia Bank and Australia and New Zealand Banking Group. The funds went towards education, health and medical research and financial literacy and inclusion, Coggan says.

Jarrod Miles, the director of Strive Philanthropy, says the inquiry was a driving force behind the increase in charitable giving. He explains: “As the Royal Commission conducted countless hearings, interviews and audits into the finance sector, our results suggest that our top companies took this opportunity to reach further into their deep pockets to give greater amounts to the community.” 

Pro Bono Australia article 

 What are your thoughts on developments in Australia? Leave your comments below.

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Published: 26 Jul 2019
  • News
  • The Review
  • Ethics
  • Regulation
  • Banking
  • Royal Commission
  • Australia

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