Reg­u­la­tor can cap bosses' pay, de­lay bonuses over non-com­pli­ance


Aus­tralia has given its fi­nan­cial reg­u­la­tor sweep­ing pow­ers to cap bank bosses' pays, de­lay their bonuses and even ban them from the in­dus­try if found guilty of non- com­pli­ance, as it scram­bles to re­store trust in the scan­dal- hit sec­tor.

The move, plans for which were first an­nounced in May 2017, un­der­scores the im­mense pres­sure on the gov­ern­ment to rein in a sec­tor that in re­cent years has faced ac­cu­sa­tions of with­hold­ing le­git­i­mate health in­sur­ance pay­outs, giv­ing mis­lead­ing fi­nan­cial ad­vice and rig­ging in­ter­est rates.

The se­ries of scan­dals has cost Aus­tralian banks, among the most prof­itable in the world, hun­dreds of mil­lions of dol­lars in fines and trig­gered a royal com­mis­sion - an in­quiry with the power to rec­om­mend crim­i­nal charges that starts next week.

Un­der the new law passed by the Sen­ate on Wed­nes­day, banks in Aus­tralia, the world's No. 12 econ­omy, must do busi­ness with "hon­esty and in­tegrity" and their se­nior ex­ec­u­tives will be held di­rectly ac­count­able for non- com­pli­ance.

"This leg­is­la­tion is part of a broader suite of fi­nan­cial ser­vices re­forms ... to put con­sumers first, en­sur­ing Aus­tralians can have trust and con­fi­dence in the bank­ing sys­tem," Trea­surer Scott Mor­ri­son said in an emailed state­ment.

The Aus­tralian Pru­den­tial Reg­u­la­tory Au­thor­ity ( APRA) can cap and de­lay ex­ec­u­tive bonuses, dis­qual­ify ex­ec­u­tives from the in­dus­try and levy fines of up to A$ 210 mil­lion ($ 166 mil­lion).

Share­hold­ers and in­vestors have been dis­ap­pointed with the high salaries that banks' top brass con­tinue to draw amid mount­ing wor­ries about the in­tegrity of the sec­tor.

In 2017, the out­go­ing chief of Com­mon­wealth Bank (CBA.AX), which is em­broiled in a mon­ey­laun­der­ing scan­dal, saw his to­tal pay slashed by more than half to A$ 5.5 mil­lion, a re­duc­tion many thought did not go far enough.

The CEO of top in­vest­ment bank Mac­quarie Group (MQG.AX), known as the "mil­lion­aires' fac­tory" be­cause of its lofty ex­ec­u­tive pay, took home A$ 18.7 mil­lion the same year.

A spokesman for the Aus­tralian Bankers' As­so­ci­a­tion said banks "take ex­ec­u­tive ac­count­abil­ity very se­ri­ously which is why they sup­ported the gov­ern­ment's ini­tia­tive in this area".

The group was, how­ever, dis­ap­pointed the gov­ern­ment de­clined re­quests to de­lay the new laws from a July 1 start date. The Sen­ate's mea­sure comes af­ter a re­port from the coun­try's chief eco­nomic ad­vi­sory body ac­cused APRA of fail­ing to stim­u­late com­pe­ti­tion and cre­at­ing an en­vi­ron­ment that pro­moted record prof­its over the in­ter­ests of cus­tomers.

The Pro­duc­tiv­ity Com­mis­sion also said a three- decade- old law stop­ping takeovers be­tween the so- called "Big Four" banks was out­dated and should be re­moved. A spokesman for Trea­surer Mor­ri­son said the gov­ern­ment would then con­sider its re­sponse.

Aus­tralia's big banks - CBA, Na­tional Aus­tralia Bank, Aus­tralia and New Zealand Bank­ing and West­pac Bank­ing Corp - re­ported a com­bined net profit of about $ 25 bil­lion in the 2017 fis­cal year, up 6.4 per­cent on a year ago, ac­cord­ing to KPMG.

CBA, the big­gest of the "Big Four", is de­fend­ing al­le­ga­tions by Aus­tralia's anti- money laun­der­ing agency that it al­lowed thou­sands of sus­pi­cious trans­ac­tions to pass through its sys­tems, in­clud­ing fail­ing to re­port at­tempts to wire money by an in­di­vid­ual con­victed of ter­ror- re­lated of­fences. APRA said it wel­comed the Com­mis­sion's draft re­port.

"We have ac­tively en­gaged with the Com­mis­sion in the prepa­ra­tion of the draft re­port and we will con­tinue to do so as it pre­pares its fi­nal re­port," an APRA spokesman said. Shares of the "Big Four" are down this year, ex­tend­ing their losses from 2017. On Wed­nes­day, CBA stock edged down about a per­cent af­ter the lender posted a sur­prise dip in in­terim profit, cit­ing un­usual reg­u­la­tory com­pli­ance costs.

West­pac, ANZ and NAB shares ended flat, lag­ging the broader mar­ket AXJO> that rose 0.75 per­cent.

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