Regulator issues first disqualifications under Financial Accountability Regime
The Australian Prudential Regulation Authority (APRA) has disqualified Eric Wilson, former chief executive of Xinja Bank, and Craig Swanger, a former non-executive director, from holding accountable person roles at any authorised deposit-taking institution (ADI) under the Financial Accountability Regime (FAR).
Wilson has been barred for eight years, while Swanger faces a 10-year disqualification. These are the first such penalties issued under the FAR. The action follows findings that both failed to meet their accountability obligations.
Xinja, which is now in liquidation and operates as A.C.N. 618 937 054 Limited, returned customer deposits and surrendered its ADI licence to APRA in 2021.
APRA’s investigation focused on “side agreements” made between Xinja and certain investors in 2020, which affected the bank’s capital position and raised concerns about whether APRA had been misled. The regulator began its inquiry in May 2021, and the disqualifications were finalised following review processes.
Between May and August 2020, Xinja entered into agreements with three investors that were presented as raising Common Equity Tier 1 (CET1) capital. CET1 capital is regarded as the highest quality capital, as it does not create repayment or distribution obligations for the institution. However, Xinja also entered into side agreements with these investors, which included terms that undermined the status of the investments as CET1 capital and, by extension, APRA’s capital framework.
The regulator found that Wilson and Swanger’s actions breached the Banking Executive Accountability Regime, which was replaced by the FAR in March last year.
APRA determined that Swanger, as a non-executive director and accountable person in 2020, failed to act with honesty and integrity and did not deal with APRA in an open manner. He altered documents provided to APRA’s external investigator, removing information that would have revealed the incorrect classification of capital as CET1. He also participated in the side agreements knowing the capital would be misclassified, and did not take steps to correct the reporting or ensure APRA was informed.
Wilson, as CEO, was found to have failed to act with due skill, care and diligence. He did not prevent the misclassification of capital as CET1, nor did he ensure APRA was notified of the side agreements. APRA noted that Mr Wilson’s disqualification period is shorter as he was not found to have breached his obligation to act with honesty and integrity under section 37CA(1)(a) of the Banking Act 1959.
APRA requires ADIs to maintain minimum capital levels to absorb unexpected losses and support the stability of the financial system. Ensuring compliance with capital raising and reporting rules is a core duty of accountable persons at ADIs.
“An accurate understanding of banks’ capital adequacy framework is essential for APRA to protect depositors by ensuring banks have the financial resilience to withstand a crisis,” said Margaret Cole (pictured right), deputy chair at APRA. “It is vital that accountable entities and accountable persons are open and cooperative with APRA so that it may effectively discharge its responsibilities for overseeing the safety and soundness of Australia's financial system.
“These individuals failed to act in accordance with their duty to ensure Xinja had effective capital in place and to be open, constructive and cooperative with APRA in reporting Xinja’s capital position. These were serious failures and the disqualifications, which are the first under the FAR, reflect the gravity of this conduct.
“The FAR means greater accountability standards for regulated entities, their directors and senior executives, and tougher consequences for when they are not met. APRA recognises that the actions of directors and senior executives shape the conduct and operating culture of the entities they lead. Where accountable persons fall short, APRA will hold them to account.”
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