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The prudential regulator has made its decision on how the BEAR applies to variable remuneration arrangements for small and medium-sized ADIs following a four-week consultation.
The Australian Prudential Regulation Authority (APRA) has finalised how the Banking Executive Accountability Regime (BEAR) applies to variable remuneration arrangements for small and medium-sized authorised deposit-taking institutions (ADIs).
Under the BEAR, which came into effect for the big four banks on 1 July 2018, banks are expected to establish a remuneration policy requiring that a portion of executives’ variable remuneration be deferred for a minimum of four years and reduced commensurate with any failure to meet their obligations to act in the best interests of customers.
Before the regime comes into effect for other ADIs on 1 July 2019, the prudential regulator proposed that “only the portion of the individual’s variable remuneration that relates to the accountable person role would be subject to the deferral requirements” regardless of an ADI’s organisational structure or whether they’re locally or internationally incorporated.
APRA has released a final schedule outlining what it would not consider variable remuneration. For ADIs, non-variable remuneration is any amount that:
- is paid or payable to the accountable person by a related body corporate of the ADI or subsidiary
- relates only to the accountable person holding a position in one or more related bodies corporate of the ADI or subsidiary
- the related bodies corporate referred to in (a) or (b) are not ADIs or subsidiaries of ADIs
For foreign ADIs, non-variable remuneration is any amount that:
- is paid or payable to the accountable person by the foreign ADI or a related body corporate of the foreign ADI
- relates only to the activities of the foreign ADI outside of Australia or the accountable person holding a position in an Australian-incorporated non-ADI related body corporate of the foreign ADI
According to APRA, none of the seven submissions received raised any major concerns around its proposal and therefore did not result in any material changes to the wording of the schedule.
The only change in wording that was made was to clarify that “where an accountable person of a foreign ADI holds a position in a non-ADI related body corporate which does not relate to his/her accountable person role, the portion of this individual’s variable remuneration that does not relate to his/her accountable person role should be excluded from the definition of variable remuneration”.
In a letter to ADIs, the prudential regulator noted that it can only exempt ADIs from having to comply with certain BEAR obligations if the ADI can demonstrate that compliance would result in a violation of corresponding foreign laws.
“It has been APRA’s longstanding position that administrative challenges [are] not an adequate reason for granting exemptions from any obligations under the BEAR,” the letter states.
The final legislative instrument will be published before the BEAR comes into effect for small and medium-sized ADIs in the new financial year.
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