Regulatory round up: Australia toughens up banking regulation

Australia has toughened up banking regulation after its upper house, the Senate, passed a law which gives its financial regulator, the Australian Prudential Regulatory Authority new powers, including the ability to cap bankers’ pay.

Under the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2018 individual bank executives can be held to account for non-compliance as well as the firms themselves. The bill states that the accountable persons must take responsibility “by acting with honesty and integrity, and with due skill, care and diligence.” Banks are also required to have a remuneration policy in force that requires that, if executives fail to comply with their duties under their accountability obligations the person’s variable pay can be reduced by in proportion to the failure and this could mean they receive no variable pay at all.

banking regulation

Australian authorities are working to restore the credibility of its banks

The Australian banking industry is under increased scrutiny because of alleged misconduct in recent years, currently centred around money laundering allegations at the Commonwealth Bank of Australia (CBA). Last August Australia’s financial intelligence and regulatory agency, AUSTRAC, initiated civil penalty proceedings in the Federal Court against CBA for what it called serious and systemic non-compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. In its recent reports and accounts, CBA said it had provided for a civil penalty of $375 million as it believed this would be the level of fine a court could impose.

Meanwhile, at the end of January, the Australian and Investment Commission (ASIC) said it was also initiating civil proceedings against CBA alleging unconscionable conduct and market manipulation in relation to CBA’s involvement in setting the bank bill swap reference rate between 31 January 2012 and October 2012. CBA said it had co-operated in ASIC’s two-year investigation and disputed the allegations made by the regulator.

The public and political concern led to the launch of a  Royal Commission into the alleged misconduct of Australia’s banks and other financial services entities last November and this is due to begin its public hearing next week (12th February) and is accepting submissions of evidence online. Separately Australia’s Productivity Commission has published a draft report into the country’s financial system. The report suggests that the market lacks competition because four banks dominate all aspects of financial services in Australia. Responses to the report are due by 20th March 2018 and the Commission is due to deliver its final report to the Australian government at the beginning of July.

UK parliament’s Treasury select committee puts FCA under pressure

The chair of the House of Common’s treasury select committee, Nicky Morgan has written to the chief executive of the Financial Conduct Authority demanding that the regulator’s report into the Royal Bank of Scotland’s treatment of small business customers in its Global Restructuring Group be published by 16th February.

This follows a recent hearing of the select committee in which MPs asked the FCA’s chief executive Andrew Bailey why the report’s publication had been repeatedly delayed. The committee had already been demanding that the report, which was originally commissioned in May 2014 and was due for completion at the end of 2015, be published when Bailey last appeared before them in October.

Morgan said: “A version of the report is in the hands of third parties, it has been selectively reported by the media, and it may enter the public domain at any time. The FCA has lost control over the timing or content of further public disclosures from it. For these reasons, the Committee has requested that the FCA publish the final definitive version of the report, or send it to the Committee, by Friday 16 February.”

Separately Bailey was asked when the FCA was likely to release its response to its consultation on changes to the premium listing regime which ended last October.  The FCA proposed a new category to cater for companies controlled by a shareholder that is a sovereign country and led to concerns about lowering corporate governance standards in the UK. It was also widely perceived as a move to make London attractive for a listing by Saudi Arabia’s oil company, Aramco.

Bailey was unable to give Morgan a date when a FCA response would be issued but stated: “We are talking to all the interested parties who have responded to it, to see how we can take those views into account and come up with something sensible.

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