ATM whitewash: The news banks didn’t want reported this weekend

James Fernyhough
Sep 25, 2017, updated Sep 25, 2017

Australia's 'big four' banks ANZ, Westpac, CBA, and the NAB.

On Sunday, the big four banks engineered a public relations triumph when they finally scrapped ATM fees – and managed to distract the media’s attention from a much more damaging bit of news in the process.

The news related to the multi-million-dollar salaries paid to big bank executives, specifically a new measure taken by the government targeting these fat salaries.

On Friday evening, Treasurer Scott Morrison released draft legislation that will see bank CEOs have huge chunks of their salary snatched away if they fail to prove that they have acted with “honesty and integrity”.

The idea behind the move is to make bank bosses more accountable for the long-term effects of the decisions they make.

It was confirmation of a key budget promise, and showed Labor isn’t the only party that wants to curb the excesses of the big banks.

Normally, the news might have taken a prominent place in the Monday papers. But in the event the ATM move was much bigger news – because it had a direct effect on people’s hip pockets.

But now the dust has settled on the ATM bombshell, we thought it was worth explaining how the new rules will work, and whether they will make things better for consumers.

The new rules explained

The new legislation, which amends the Banking Act and goes by the name ‘Banking Executive Accountability Regime’ (BEAR), requires senior banking executives to become ‘accountable persons’.

The government has been fairly vague about exactly what these ‘accountable persons’ will have to do under the new regime, leaving much of the detail to its regulatory policeman, the Australian Prudential Regulation Authority (APRA).

In general, though, the new rules will require executives “to conduct themselves with honesty and integrity and to ensure the business activities for which they are responsible are carried out effectively”.

CEOs of the big banks will now have up to 40 per cent of their total pay deferred for four years. If they violate their new responsibilities under BEAR, they will lose part or all of this deferred pay.

The legislation specifies the amount withheld must “be proportionate to the severity and consequences of the breach”.

They will also risk losing their ‘accountable person’ status – which amounts to losing their job.

The new rules don’t just target the ‘accountable persons’ in the bank. They also target the banks themselves. If the banks fail to fulfil their duties under BEAR, they could be fined as much $250 million.

How much money are we talking?

A lot.

Last year, CBA chief executive Ian Narev took away a massive $12.3 million in total pay. Under the new rules, up to 40 per cent – or $4.8 million – of that could be deferred for four years.

Westpac chief executive Brian Hartzer and NAB chief executive Andrew Thorburn, who each earned $6.7 million in 2016, could see $2.7 million deferred. ANZ chief executive Shayne Elliott, meanwhile, could see $2 million deferred.

Will this help consumers?

According to consumer advocate CHOICE and the Consumer Action Law Centre, not really.

In a joint submission to the government, the two groups pointed out that these rules only applied to prudential matters – that is, matters relating to systemic financial integrity. They did not apply to consumer matters.

The difference between the two is best understood as follows: the global financial crisis was essentially a prudential crisis. Overseas banks were lending more than they could afford, and (to put it simply) they ran out of money.

The CBA financial advice scandal, meanwhile, was a consumer issue. It involved bank representatives doing the wrong thing by customers.

CHOICE and the Consumer Action Law Centre urged the government to imitate similar laws in the UK, and extend the BEAR to consumers. That would mean bringing in the consumer watchdog ASIC as well as the prudential watchdog APRA.

But the draft legislation reveals the government has not done this. It has also crafted loopholes that allow both itself and the regulator freedom to relax the rules in special (unspecified) circumstances.

These moves suggest the government isn’t quite as tough on banks as it would have the public believe.