Bank executives could have their bonuses clawed back and be disqualified from working as a bank executive under new Australian Prudential Regulation Authority powers the Treasurer says will increase accountability.

As part of the government’s efforts to create “a fairer banking deal” for all Australians, several regulators and professional bodies will be given increased oversight, including the Financial Adviser Standards and Ethics Authority (FASEA).

Bank CEOs will also have 60 per cent of all bonuses held back for four years.

A publication accompanying the 2017-2018 budget papers, Guaranteeing the Essentials for Australians, names the body for raising professional standards of financial advisers – alongside the new Australian Financial Complaints Authority (AFCA) and an industry funding model for the Australian Securities and Investments Commission (ASIC) – as key measures for delivering “a better and fairer deal for consumers and businesses” from banks. FASEA and the AFCA also will be funded by industry.

More powers for APRA

Banks have been hit on multiple fronts, including a levy on approved deposit-taking institutions (ADIs) with liabilities of more than $100 billion, and the range of measures to address the accountability and responsibilities of senior bank executives.

ASIC has previously floated the idea of making bank executives accountable for the behaviour and action of the financial planners in their networks, and while the budget proposals don’t do that exactly, they do require senior bank executives to register with APRA, and they can then be disqualified.

Treasurer Scott Morrison told a press conference at Parliament House that disqualification would mean an executive could not be employed by another bank, and that in some cases an executive’s bonuses could be clawed back.

APRA will be funded and given powers to remove and disqualify bank executives, require banks to make adjustments to remuneration policies where necessary, and “enforce new obligations on bank conduct”. These include penalties of up to $200 million for large ADIs and $50 million for smaller ADIs that fail to meet those obligations.

Bank CEO bonuses in the firing line

A minimum of 40 per cent of an executive’s variable remuneration – 60 per cent for certain executives, such as the CEO – will have to be deferred for a minimum of four years, to encourage a focus on long-term decision-making.

The budget papers state the levy of 6 basis points on banks with liabilities above $100 billion, is “a fair contribution to the community from our major banks, is consistent with other advanced countries and helps foster competition from smaller banks”.

Morrison said the Australian Competition and Consumer Commission will monitor banks the levy affects to ensure that additional costs are not disguised and passed on to consumers. The ACCC will also have a permanent role in monitoring ongoing competition in the banking sector.