The Australian Prudential Regulation Authority (APRA) has taken decisive action by disqualifying former Xinja Bank CEO Eric Wilson and non-executive director Craig Swanger from serving as accountable persons of any Authorised deposit-taking institution (ADI) for failing to meet their accountability obligations under the Financial Accountability Regime (FAR). Wilson has been banned for eight years, while Swanger faces a disqualification of ten years, marking the first instances of such penalties under the FAR.
Xinja, which has since been renamed A.C.N. 618 937 054 Limited, is currently in liquidation following its decision to return deposits and relinquish its ADI licence to APRA in 2021.
These disqualifications stem from an extensive investigation launched by APRA in May 2021, which explored the repercussions of “side agreements” between Xinja and several investors on the bank’s capital position. The inquiry scrutinised whether APRA had been misled regarding Xinja’s capital status. During the period from May to August 2020, Xinja entered into agreements that were meant to bolster CET1 capital—a category of capital regarded as the highest quality—as it does not entail any repayment obligations. However, these transactions involved side agreements that compromised the capital’s classification, misleading APRA in the process.
APRA found that both Wilson and Swanger violated the Banking Executive Accountability Regime, which was superseded by the FAR last March. The authority emphasised that it imposes stringent capital requirements on ADIs to enhance financial stability and tackle unexpected losses.
Deputy Chair Margaret Cole remarked that the disqualifications signify APRA’s commitment to imposing severe consequences on accountable individuals who fail in their duties. She highlighted the vital role of transparency in ensuring banks maintain the financial resilience necessary to safeguard depositors.
“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,” Cole stated. “These were serious failures and the disqualifications reflect the gravity of this conduct.”
Cole also noted that the FAR establishes higher accountability standards for regulated entities, their directors, and senior executives, and will generate stronger repercussions for those who fall short.
In their respective capacities during 2020, both Wilson and Swanger were found to have failed in their accountability. Swanger, for instance, was accused of dishonesty and obstructing APRA’s investigations by altering relevant documents. He was found to have obscured Xinja’s capital structure and neglected his responsibilities to uphold capital adequacy standards.
Similarly, Wilson was implicated for mismanaging capital raising efforts and not ensuring that APRA was informed of issues surrounding Xinja’s capital situation. His failure to act decisively in the presence of side agreements led to the misclassification of capital, undermining the integrity of Xinja’s financial standing.
The penalties imposed on Wilson and Swanger serve as a stark reminder of the repercussions that can arise from negligence and lack of transparency in the banking sector.
