BEAR will impact bank wealth divestments
The Government’s Bank Executive Accountability Regime looks certain to impact the plans of the major banks to offload the wealth management and insurance arms of their operations, particularly if they intend to retain a stake in the operations.
As the ANZ contemplates floating elements of its wealth division, the Commonwealth Bank considers the future of its business and as National Australia Bank (NAB) retains a stake in MLC Life, the BEAR legislation explanatory memorandum makes clear that they may still be captured.
The wording of the explanatory memorandum suggests the safest route for the banks may be a total exit of some operations in circumstances where it said “consumers often associate the wide range of financial services and activities provided by subsidiaries under an ADI’s [bank’s] brand.
“Poor behaviour in a subsidiary can have a negative effect on the ADI’s brand and public standing and has the potential to undermine confidence in the ADI itself. Where the activities of a subsidiary are significant, then an accountable person should have responsibility for that subsidiary.”
The explanatory memorandum then explicitly states: “This is intended to capture, for example, large insurance or wealth management arms of an ADI. If an ADI’s wealth management arm acts in breach of BEAR obligations, then it may adversely affect the prudential standing or reputation of the ADI”.
The explanatory memorandum also makes clear that the new legislation will also capture foreign-owned banks, stating: “The BEAR applies to foreign ADIs. A foreign ADI is not subject to the BEAR for its offshore operations or for any locally incorporated non-ADI subsidiaries”.”
Given the breadth of the new legislation, the major banks are complaining that a seven day consultation period is not long enough for them to give their views on the draft legislation.
The Australian Bankers’ Association (ABA) chief executive, Anna Bligh has complained that the seven-day consultation period around the bill is “grossly inadequate” and represents “playing fast and loose with a critical sector of the economy”.
Urging the Government to extend the consultation period, Bligh said this was necessary to allow proper due diligence to ensure the objective of improving senior executive accountability was met.
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