Banking Executive Accountability Regime (Size of an Authorised Deposit-taking Institution) Determination 2021

Total asset size is the instrument’s central variable. It is not the ADI’s current total assets but a backward-looking, averaged value derived from final reports previously submitted to APRA. For a long-established ADI, total asset size is the mean of the total resident assets values reported in the three most recent final reports (section 6(5)(c)). This smoothing mechanism dampens the effect of year-to-year asset fluctuations - a feature that may benefit ADIs experiencing a temporary downturn in a single year but may also penalise ADIs that have grown sharply, as they will be classified below their true current size for up to three years. The choice of “total resident assets” as the metric, rather than global or consolidated assets, limits the regime’s scope to domestically booked exposures. This means that an ADI could be large in regulatory classification even if it has substantial offshore assets that are excluded from the calculation.

Total resident assets value is derived from line items in prescribed APRA reporting forms. The instrument specifies exactly which forms and line items to use for each reporting standard. For ARS 720.0A, the resident asset figure is computed by taking total assets including intra-group assets, then subtracting amounts due from non-residents (both total and intra-group components) (section 7(4)). This methodology reduces the reported figure by the value of cross-border claims, which can be significant for ADIs with international operations. For ARS 720.0B, the resident assets value is simply the total assets including intra-group assets (section 7(5)), so the calculation differs depending on which form an ADI uses - a nuance that practitioners must verify each year.

Indexation of thresholds applies to each of the dollar amounts in section 6(2)-(4) on each 1 January from 2022. The formula multiplies the threshold by the ratio of the latest annual nominal GDP estimate to a base GDP number, rounds down to the nearest $1 billion, and applies a floor of 1 (section 9). Because the $10 billion threshold uses a base GDP number from 2017-18 while the other thresholds use 2019-20, a period of disparate GDP growth could widen or narrow the gap between the two boundaries beyond the original arithmetic difference. The floor of 1 ensures that thresholds never fall, even during a recession when nominal GDP contracts. This ratchet effect means that over time the thresholds can only increase (or stay flat) in nominal terms, increasing the real regulatory burden for ADIs near the boundary as inflation erodes the value of the dollar but the nominal threshold does not adjust downward.

Final report is a report for the ADI’s final reporting period in a financial year submitted under one of the three listed reporting standards. The instrument uses the financial year definition from the Corporations Act 2001. For new ADIs that have never submitted a final report, the classification defaults to small regardless of their actual asset size (section 6(4)(b)). This creates an incentive for a newly licensed ADI to remain small in classification until it lodges its first final report, after which it will be classified based on that single report (section 6(5)(a)).

Replacement of reporting standards is handled by section 8, which says that if a named standard has been replaced by another with a different identifier, the instrument instead refers to the replacement standard and the corresponding line items. This is a practical provision that avoids the need to amend the instrument every time APRA updates its data-collection standards, but it introduces interpretation risk: the “corresponding material” may not be obvious, and different ADIs or the regulator may disagree on what matches.

The instrument directly affects every authorised deposit-taking institution that holds an ADI licence under the Banking Act 1959. This includes banks, building societies, and credit unions of all sizes. However, the degree of effect depends on the entity’s classification. Large ADIs (currently the Big Four banks plus perhaps Macquarie Bank) face the most extensive BEAR obligations: they must register all accountable persons, impose deferred remuneration obligations, comply with heightened accountability and reporting requirements, and have variable remuneration subject to a minimum deferral period and clawback. Medium ADIs face a subset of BEAR obligations, and small ADIs face the least onerous requirements. Because the instrument determines the classification permanently for a full financial year (based on the start-of-year total asset size), an ADI cannot change its classification mid-year even if its balance sheet shrinks or grows dramatically; the classification is locked for up to 12 months.

The instrument also indirectly affects the executives and senior managers of ADIs (the “accountable persons” under BEAR). Their regulatory obligations and the scope of their personal liability are contingent on their employer’s classification. For example, a senior manager at a large ADI is subject to stricter accountability mapping and notification requirements than a comparable manager at a small ADI. Thus the instrument shapes the career risk and compliance burden for thousands of executives.

APRA, as the regulator, is affected because it must maintain a register of which ADIs fall into each size category. This classification affects APRA’s supervisory intensity: large ADIs are subject to closer scrutiny, more frequent review of accountability statements, and more rigorous enforcement of the BEAR provisions. The instrument also affects the Australian Statistician indirectly, because its indexation mechanism relies on the annual nominal GDP series published by the ABS (section 9). Any delay or revision in GDP data could affect the threshold values for the following January.

Shareholders and creditors of ADIs are also indirectly affected. The classification determines the compliance cost profile of the institution, which in turn affects profitability and risk appetite. A medium ADI that is close to the $10 billion threshold may have a stronger incentive to manage its balance sheet growth to stay below the indexed threshold, avoiding the additional compliance costs of a large ADI classification. This could affect lending and investment decisions, with real consequences for customers and markets.

This instrument itself imposes no duties or confers no rights directly. It is a classification instrument that, by operation of Part IIAA of the Banking Act 1959, determines which BEAR duties apply to an ADI. The key duties that are triggered by the classification include:

• Accountability obligations: Under section 37C of the Banking Act, accountable persons of an ADI must conduct their responsibilities with due skill, care, and diligence, and act honestly and with integrity. These duties apply to all ADIs, but the definitions of “accountable person” and the range of covered responsibilities are broader for large ADIs than for medium or small ADIs (Banking Act s 37F). The size determination therefore indirectly determines the scope of personal liability.
• Deferred remuneration: For a large ADI, variable remuneration of accountable persons must be deferred for a minimum period (at least four years for the most senior executives) and is subject to clawback and reduction. These mandatory deferred remuneration requirements do not apply to medium or small ADIs (Banking Act s 37M). Thus the classification has a direct impact on executive pay arrangements.
• Registration of accountable persons: Large ADIs must register all accountable persons with APRA. Medium and small ADIs may have fewer obligations in this regard.
• Accountability mapping: Large ADIs are required to maintain accountability maps that clearly set out the responsibilities of each accountable person. This is a significant compliance exercise.

The instrument also creates a right for ADIs to know, through the indexed thresholds, whether they are in the small, medium, or large category. The indexation mechanism is transparent and based on publicly available GDP data, so an ADI can calculate its own classification without seeking APRA confirmation, though APRA retains the power to make its own determination based on the definitions.

One subtle point: the instrument provides that an ADI is a small ADI if it has not yet submitted a final report for any previous financial year (section 6(4)(b)). This effectively grants new ADIs a one-time “small” classification irrespective of their actual asset size. This could be exploited by an ADI that deliberately delays filing its first final report to maintain small status longer, though the Banking Act and reporting standards would likely require it to file within a reasonable period.

The instrument itself creates no penalties, as it only sets out definitions and thresholds. However, misapplication of the instrument can lead to an ADI being incorrectly classified, which could in turn trigger enforcement for non-compliance with BEAR obligations that were not applied because the ADI wrongly believed it was small. For example, if an ADI’s total resident assets value was actually above the large threshold but it failed to average correctly and classified itself as medium, it would not defer remuneration as required. APRA could then bring civil penalty proceedings against the ADI and its accountable persons for failure to comply with sections 37M and 37C of the Banking Act. The maximum civil penalty under the Banking Act for a body corporate is $10.5 million (or three times the benefit gained, or 10% of annual turnover, whichever is greater) per contravention. For individuals, the maximum is $1.05 million per contravention.

Even if the ADI’s error was inadvertent, the BEAR imposes a strict liability element for some contraventions, and the size determination is a question of fact that APRA will verify. An ADI that has not correctly calculated its total asset size using the averaging and indexation rules may also be in breach of its obligation to provide accurate information to APRA.

APRA has the power to investigate and to issue directions to an ADI to rectify its classification. Enforcement could also occur indirectly: if an ADI that should have been classified as large fails to comply with the deferred remuneration requirements, the remuneration paid to executives could be recoverable by the ADI, and APRA could take action against both the ADI and the executives. The instrument also affects the quantum of potential penalties because breaches by large ADIs tend to attract higher scrutiny.

This instrument is made under the Banking Act 1959, specifically subsection 37G(3), and must be read in conjunction with the BEAR provisions in Part IIAA of that Act. It gives operational content to the terms “large ADI”, “medium ADI”, and “small ADI” which are used throughout the BEAR. For example, section 37F of the Banking Act imposes a duty on an ADI to notify APRA of variations to accountable persons, and the ADI’s size determines the threshold for reporting. Section 37K specifies the minimum content of an accountability statement, and that content varies by size.

The instrument also interacts with the Financial Sector (Collection of Data) Act 2001 (FSCODA). The final reports that underpin the total asset size calculation are submitted under reporting standards made under FSCODA section 13. The instrument explicitly cross-references three specific reporting standards (ARS 320.0, ARS 323.0, and ARS 720.0) and provides a substitution mechanism if those standards are replaced (section 8). This means that any amendment to those reporting standards by APRA will automatically flow through to the BEAR classification, without requiring a new determination by the Treasurer. This delegation of regulatory power is efficient but means that APRA can indirectly change the BEAR size classification by altering the line items that define “total resident assets value”. An ADI cannot rely on the instrument alone; it must track changes to the relevant reporting standards each year.

The instrument also references the Corporations Act 2001 for the definition of “financial year” (section 5). This is standard and unremarkable.

The indexation mechanism uses GDP data from the Australian Statistician, so the instrument interacts with the Census and Statistics Act 1905 and the methodology decisions of the ABS. Any change in how the ABS defines or publishes the “Gross Domestic Product: Current Prices-Original” series could affect the threshold values. The instrument does not specify what happens if the series is discontinued or rebased, which is a gap.

The instrument repeals the 2018 determination (Banking Executive Accountability Regime (Size of an Authorised Deposit-taking Institution) Determination 2018). That earlier determination used a different threshold ($100 billion for large, without the $107 billion and without the indexation base year asymmetry). The repeal means that from the commencement of the 2021 determination, all ADIs must classify themselves under the new rules. Transitional provisions are not provided beyond the commencement date; an ADI that was classified as large under the old determination might be reclassified as medium under the new one (or vice versa) if its average fell below $107 billion. That shift would have immediate implications for its executive remuneration arrangements.

This instrument was made on 30 March 2021 and commenced the day after registration. It repealed and replaced the 2018 determination. The significant amendment from the 2018 determination was the change in the large ADI threshold from $100 billion to $107 billion, and the introduction of indexation with a two-tiered base year. The 2018 determination had no indexation; the thresholds were fixed nominal amounts. The 2021 determination also updated the reporting standard references to include ARS 323.0 and ARS 720.0, reflecting APRA’s revision of its data collection framework.

No subsequent amendments to this instrument are evident from the source text, but the instrument itself is structured to adjust annually through indexation, which is an automatic amendment process rather than a legislative one. Because the indexation operates by a formula set out in the instrument, each year on 1 January the thresholds change by operation of law; no new determination is needed. That said, the Treasurer could issue a new determination at any time to further amend the rules, but that has not occurred in the source material provided.

The source provides no information about any litigation involving this instrument. As a legislative instrument that is essentially mechanical and mathematical, it is less likely to be litigated than the underlying BEAR provisions. However, an ADI could theoretically challenge APRA’s classification if it disputes the calculation of total resident assets value under the reporting standards, or if it argues that the instrument is invalid because it was not properly made under the Banking Act. For example, a dispute could arise over which reporting standard version applied in a particular year given the replacement provision in section 8. No such litigation is recorded in the source, and the instrument itself has not been subject to judicial consideration in the published record. Practitioners should note that the lack of litigation history does not imply the instrument is uncontroversial; it may simply reflect that ADIs have pragmatically accepted the classification to avoid the cost and publicity of a legal challenge.

Lag in classification: The three-year averaging rule means that an ADI that doubles its assets in a year will remain classified as it was for up to three financial years, potentially understating its current size. Conversely, an ADI that shrinks by half will overstate its classification for up to three years. For a medium ADI that is close to the $10 billion threshold, a single asset decline in a year may not immediately reduce its classification if it has two earlier high-value years. This lag can cause significant compliance burden: a medium ADI that should be small based on its current balance sheet may still face medium-tier obligations for two more years.

Indexation ratchet never downward: Because the indexation factor is floored at 1 (section 9(4)), the thresholds can only stay the same or increase. In a deflationary recession where nominal GDP falls, the thresholds do not drop. This means that over time, even if an ADI’s nominal assets remain constant, it will eventually be reclassified upward as thresholds rise. This creates a real increase in compliance costs with no change in the underlying business. It also means the distinction between small and medium ADIs will become more stringent over decades, unless the Treasurer issues a new determination to reset the base.

Asymmetric base years for indexation: The $10 billion threshold is indexed from a base GDP number for FY ending June 2018, while the $107 billion threshold (and the $10 billion by reference) uses FY ending June 2020. Because GDP grew robustly from 2018 to 2020, the $10 billion threshold will be indexed from a lower base, meaning it will increase faster in percentage terms than the $107 billion threshold if GDP growth is uniform. This could cause bracket creep on the small/medium boundary more quickly, potentially dragging more small ADIs into the medium category earlier than if both used the same base year.

Reporting standard complexity: The total resident assets value calculation depends on the specific reporting standard and form used. For ARS 720.0A, the calculation requires subtracting two separate categories of amounts due from non-residents. If an ADI misidentifies which form it must use or misapplies the deduction, its total asset size will be wrong. The substitution rule in section 8 adds further interpretation risk: if ARS 720.0 is replaced by ARS 720.1, the “corresponding material” might be in a different line item, and the ADI must map it correctly. APRA may not provide guidance on every replacement.

New ADI default: An ADI that has never submitted a final report is automatically small, regardless of its actual asset size. This could be used strategically by a newly licensed ADI that is large from day one (e.g., a foreign bank subsidiary) to avoid large ADI obligations for its first year. However, once it files its first final report, it will be classified based on that single year, potentially jumping directly to large if its assets exceed the threshold.

No mid-year adjustment: The classification is fixed at the start of the financial year based on prior data. An ADI that breaches the $10 billion or $107 billion threshold during the financial year does not change its classification until the next financial year. This creates a window where an ADI may be under-regulated relative to its current size. For example, an asset acquisition in March could push a medium ADI past $107 billion, but it will remain classified as medium until the next July.

Repeal of 2018 determination: The old determination is fully repealed, with no transitional provisions. An ADI that relied on the old thresholds for its classification in the 2020-21 financial year must reclassify using the new averages and thresholds for the 2021-22 year. If the new calculation places it in a different category, its existing accountability statements and remuneration arrangements may need immediate revision.

An ADI must first determine its correct classification at the start of each financial year. Step 1: identify the three most recent final reports it has submitted to APRA under the relevant reporting standards. Steps 2-4: for each report, extract or compute the total resident assets value under section 7. Step 5: calculate the average using section 6(5) - if only one prior report, use that value; if two, average both; if three or more, average the three most recent. Step 6: compare the average to the indexed thresholds in force on 1 January of the current year. To find the indexed thresholds: for each 1 January from 2022, take the base amounts ($10 billion and $107 billion), multiply each by the ratio of the latest annual nominal GDP (first-published estimate for the most recent financial year ending before that 1 January) to the applicable base GDP number ($10 billion uses FY ending June 2018; $107 billion uses FY ending June 2020). Round down to the nearest $1 billion. If the factor is less than 1, use 1 (so thresholds stay the same). Apply the resulting threshold to the average.

The ADI must keep records of the calculations, including copies of the final reports used and the GDP data. Given that the threshold updates automatically each year, the ADI should recalculate its classification at least annually, at the start of each financial year. If the ADI changes reporting standards (e.g., from ARS 320.0 to ARS 323.0) during the averaging period, it must use the correct standard for each year’s final report. The instrument does not allow mixing standards in the same year.

Once classified, the ADI must ensure that its BEAR compliance program reflects the correct tier. If the institution is large, it must register all accountable persons, implement deferral and clawback arrangements, and maintain accountability maps. If medium, it should follow the reduced obligations specified in the Banking Act. If small, it must still comply with the baseline BEAR duties but is exempt from the more onerous registration and remuneration rules.

Monitoring is critical: any change in APRA reporting standards under FSCODA may affect how total resident assets value is calculated. The ADI should review each new reporting standard when issued to confirm that the instrument’s substitution rule captures the correct line items. Similarly, the ADI should monitor GDP data releases in the first half of each year to anticipate the indexed thresholds for the following 1 January. Because the first-published estimate is used, the threshold for a given 1 January is fixed once that estimate is released; later revisions do not retroactively change the threshold, so the ADI can lock in the figure.

If an ADI concludes that APRA has misclassified it (e.g., because APRA used a different interpretation of the total resident assets value), it should first request clarification, then consider a formal dispute under the Banking Act’s review mechanisms. The instrument itself does not provide a specific review route, but APRA’s decisions on classification would be reviewable under administrative law.

Finally, document the classification process and retain the underlying data for at least seven years. If APRA later questions the classification, the ADI will need to demonstrate how it applied the averaging, the reporting standards, and the indexation. A failure to maintain proper records could itself be a breach of the Banking Act.