Our article on 9 May 2022 (see HERE) confirmed that the Financial Accountability Regime Bill (FAR) was stopped in its progress to Royal Assent and ‘lapsed at dissolution’ when Parliament was prorogued for the election.
The FAR Bill was reintroduced into Parliament on 8 September with no substantial changes from the FAR Bill 2021. The Bill is the government’s response to fully address the recommendations of the Hayne Financial Services Royal Commission.
Given the passage of time, a quick and concise refresher follows.
The FAR imposes greater accountability obligations for APRA-regulated financial institutions:
- the banks,
- insurers, and
- superannuation entities.
These institutions are referred to as accountable entities within the regime.
The FAR regulates the ‘accountable persons’ in the accountable entities. These accountable persons are the directors and the most senior and influential executives of accountable entities.
The FAR imposes four core sets of obligations on accountable entities and accountable persons. They must:
- conduct their business in a proper manner including acting with honesty and integrity and with due skill, care and diligence
- deal with APRA and ASIC in an open, constructive and cooperative way
- prevent adverse impact on the accountable entities’ prudential standing; and
- prevent breaches of certain specified financial services laws by their accountable entity.
Further, accountable entities must ensure clear identification of accountabilities for accountable persons in the organisation across key areas of operation.
At least 40 per cent of the variable remuneration of accountable persons must be deferred for a minimum of four years.
Variable remuneration will be reduced where accountability obligations are breached. The purpose of the FAR is to increase the focus of accountable entities and persons on the long-term outcomes of their decisions by ensuring there are financial consequences for accountable persons who do not meet their obligations.
The FAR will be supported by the imposition of notification obligations that require accountable entities to provide APRA and ASIC with certain information, such as information relating to the responsibilities of their accountable persons or breaches of certain obligations by accountable entities or their accountable persons.
APRA has released CPS 511 and CRS 511 for consultation on the extensive disclosure and reporting requirements for APRA-regulated entities.
The FAR will apply to the banking industry six months after the legislation receives Royal Assent, and will apply to the insurance and superannuation sectors 18 months after Royal Assent. So, it is expected to have first effect around mid 2023.© Guerdon Associates 2023 Back to all articles