Expanded regime may alter role of corporate counsel

By Tony Zhang|11 February 2020

Corporate counsel may see changes in their unique role in light of the 2020 proposed model of the expanded Banking Executive Accountability Regime (BEAR).

On 22 January 2020, the Treasury released the Morrison government’s proposed model for the expanded BEAR to most APRA-regulated entities e.g. banks, insurance and superannuation firms. 

Gadens financial services regulatory lawyer Liam Hennessy spoke to Lawyers Weekly exclusively, saying the changes, if implemented, will heighten the unique role that corporate counsel perform in those companies. 

BEAR currently applies to all banks and requires executives and directors (called “accountable persons”) to set out their responsibilities in writing in “accountability statements”. Many of the responsibilities are prescribed in legislation e.g. head of anti-money laundering. 

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Mr Hennessy said the increase in personal liability, deeply interpretational nature of the new obligations and recent hawkish regulatory enforcement activity may understandably give rise to concern.  

“One challenge corporate counsel face is early engagement with executives in developing their accountability statements, amending their employment agreements e.g. for information access rights if they depart the company and then come under review and supporting them in undertaking “reasonable steps reviews” of their function areas to help them demonstrate they are compliant,” Mr Hennessy said.

The bank must also provide an “accountability map” to APRA of all these individuals. These accountable persons are required to conduct their responsibilities in line with various personal conduct obligations. For example, they must act “with honesty and integrity, and with due skill, care and diligence”. 

The changes proposed by the government under the new Financial Accountability Regime (FAR), BEAR’s replacement, are significant and include:

  • an ability for APRA to be able to veto director and senior executive appointments;
  • additional prescribed responsibilities, for example responsibility for dispute resolution (internal/external) and also for breach reporting;
  • additional personal obligations to take “reasonable steps” to ensure that the company complies with its “licensing obligations” and also to “deal with ASIC in an open, constructive and cooperative way”; and
  • individuals face disqualification and steep civil penalties ($1.05 million) if they breach their obligations.

Speaking to Lawyers Weekly, Mr Hennessy stated that: “Tensions can sometimes run high given the impact on personal livelihoods, so corporate counsel perform a critical role in managing the process and defusing any potential issues in advance… From my perspective, they also have a wonderful opportunity to enhance their businesses’ governance and risk framework and limit ‘paper waterfalls’ of compliance attestations created by executives justifiably seeking to protect themselves.”

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Once the FAR regime comes into effect – legislation will be introduced by the end of 2020 – the broad nature of the conduct laws applying to entities and individuals may also make things tricky for corporate counsel in providing advice.

In the UK, the Financial Conduct Authority considers the Senior Managers & Certification Regime (upon which BEAR is based) can be used to target non-financial matters such as sexual harassment. 

“Only time and more precedents will tell how APRA and ASIC view their new mandates, so until then corporate counsel may need to operate in new territory,” Mr Hennessy said.   

The consultation period for the proposed FAR ends on 14 February 2020.

 

Interested in the issues shaping the roles of in-house lawyers? Don’t miss your chance to hear from local and global in-house legal powerhouses at the Corporate Counsel Summit 2020!

Expanded regime may alter role of corporate counsel
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