APRA Disqualifies Former Xinja Bank Executives
In a landmark move by the Australian Prudential Regulation Authority (APRA), two former executives of Xinja Bank have been disqualified from being or acting as accountable persons of any authorised deposit-taking institution under the Financial Accountability Regime. This significant decision marks APRA’s first enforcement action under the Financial Accountability Regime, potentially setting a precedent for future sanctions by the banking regulator. Eric Wilson, the former chief executive, and Craig Swanger, a former director, were found to have failed to comply with their accountability obligations.
Disqualification Periods and Reasons
Following an extensive investigation, APRA has disqualified Eric Wilson and Craig Swanger for eight and ten years respectively. Xinja Bank, now known as A.C.N. 618 937 054 Limited, is currently in liquidation after returning deposits and surrendering its ADI licence to APRA in 2021. The bank’s failure marks the first banking failure in Australia in numerous decades.
The investigation by APRA began in May 2021 and focused on the impact of ‘side agreements’ between Xinja and some of its investors on the bank’s capital position during 2020. The regulator also examined whether it was misled about the bank’s capital position.
Accountability Obligations and Violations
According to APRA, Wilson and Swanger failed to comply with their accountability obligations by not acting with due skill, care, and diligence in regards to Xinja’s capital raising. APRA stated that Wilson was aware, or should have been aware, that the raised capital could not be considered as CET1 capital, but it was misclassified and reported as such. Furthermore, APRA was not informed about or provided with the side agreements relating to the capital raising.
APRA also accused Wilson of not dealing with the regulator in an open, constructive, and cooperative manner. Wilson did not inform APRA about the side agreements and the concerns within Xinja about these agreements’ impact on the raised capital.
Understanding CET1 Capital
Between May and August 2020, Xinja entered into agreements with three investors, claiming to raise CET1 capital. Xinja represented to APRA that this capital was CET1 capital. However, the bank also entered into side agreements with the investors, which contained additional terms that undermined the investments’ status as CET1 capital, thereby undermining APRA’s capital regime.
This case highlights the importance of maintaining transparency and compliance with regulatory authorities in the financial sector. It serves as a strong reminder to all authorised deposit-taking institutions of the consequences of failing to meet their accountability obligations.
With the first enforcement action under the Financial Accountability Regime, APRA has underscored its commitment to ensuring the integrity and stability of the Australian financial system. It’s a clear signal that breaches of accountability obligations will not be tolerated.
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