Lawbreaking bankers need to pay up – consumer groups

Consumer groups are calling for civil penalties against bankers to be reintroduced to the new Financial Accountability Regime (FAR), lobbying for fines of up to $1 million to deter potential lawbreakers.

Alan Kirkland, chief executive of consumer association Choice, told a Senate Estimates committee that he was shocked to see that the civil penalties portion of the FAR bill had been excised when the legislation was introduced to Parliament in October, The Australian reported.

“When the government first consulted on this scheme in January 2020, it proposed civil penalties in effect of up to $1 million, bringing the penalties under this regime into line with the new maximum penalties that the government has introduced under the Corporations Act, the ASIC Act, the Insurance Contracts Act and the National Consumer Credit Protection Act,” Kirkland said. “We welcomed that proposal from the government in 2020 because it just made sense. Obligations without consequences, without penalties, are worthless. We were therefore shocked when that provision was deleted from the bill that was introduced to Parliament. So, we strongly encourage the committee to recommend that the bill be amended to include penalties in line with the government’s original proposal.”

Kirkland was speaking on behalf of Choice and several other consumer groups.

In October, the Morrison government introduced legislation into Parliament to establish the Financial Accountability Regime and the Compensation Scheme of Last Resort, The Australian reported. It was the last tranche of legislation based on the recommendations of the Hayne Royal Commission.

FAR supersedes the standards of conduct established by the Banking Executive Accountability Regime and expands those standards to include all entities regulated by the Australian Prudential Regulation Authority. Treasurer Josh Frydenberg said at the time that the new regime would mean more accountability for directors and senior executives.

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But the legislation was heavily watered down after a lobbying blitz by the banking industry, and the prospect of $1 million fines for lawbreaking bankers was excised from the final bill, The Australian reported.

Kirkland told the Senate committee that executives themselves were unlikely to pay the penalties even if they were included in the bill, thanks to indemnity from employers or insurance coverage. However, he said including the penalties would still discourage bank executives from flouting the law.

“I would argue there’s still a significant deterrent effect from having individual penalties,” Kirkland said. “The fact that an individual executive – and bear in mind this would only occur in the case of significant misconduct and breach of accountability obligations – but to have a court make a decision that an executive has breached a legal obligation and has an individual penalty, regardless of who ends up paying it, that’s still a significant black mark against that executive. And rightly so, if they’re found to have breached these obligations. I think regardless of who pays, it will still have a significant individual deterrent effect.”