The Financial Accountability Regime (FAR) Bill 2023 marks a pivotal transformation in financial sector oversight, affecting all APRA regulated financial entities in the banking, insurance and superannuation industries as well as their significant related entities.
Jointly administered by ASIC and APRA, the FAR will replace the Banking Executive Accountability Regime (BEAR), aiming to improve risk and governance cultures by imposing a strengthened responsibility and accountability framework for those financial institutions.
This will predominantly be achieved through:
Broadening the definition of accountable persons
Accountable entities’ directors and most senior executives – covering all areas of the business operations – will be identified as accountable persons and be subject to broad obligations to act with honesty, integrity, due skill, care and diligence and to prevent material contraventions of specified financial services laws.
End-to-end business coverage
All business operations of the accountable entity are subject to FAR. This includes, but is not limited to, arrangements relating to cyber security, data risk management, anti-money laundering, product governance, scams, collections and, enforcements. The regime imposes broad obligations on accountable entities and on individual accountable persons regarding the adequacy of these arrangements. Details of accountable persons responsibilities and any disqualifications will be maintained by the regulators in a register of accountable persons. Find out more.
Deferred remuneration obligations
Regardless of size or seniority of the accountable person’s role, all accountable entities will be subject to the same deferred remuneration obligations. FAR will require at least 40 per cent of the variable remuneration of accountable persons to be deferred for a minimum of four years, and reduced proportionately for any failures to comply with the accountability obligations under the regime. Additional remuneration requirements apply under APRA Prudential Standard CPS 511 Remuneration.
Increased penalty
Under FAR, the maximum civil penalty that may be imposed on an accountable entity for breaching its accountability obligations is the greater of 50,000 penalty units ($15.65m), three times the benefit derived, or detriment avoided from the contravention and 10 per cent of the entity’s annual turnover up to 2.5 million penalty units for each contravention ($782.5m). There are no individual civil penalties for accountable persons who breach their accountability obligations other than in the event of an ancillary involvement by a person in an accountable entity’s contravention of an obligation.
Notification obligations
Accountable entities are required to provide the Regulator with particular ‘core’ information about their business and accountable persons, generally within 30 days of an event occurring. Specified larger entities will have enhanced notification requirements and are required to prepare and submit accountability statements and accountability maps.
Timeline
- 5 September 2023 – Bill passed
- September 2023 – Expected Royal Assent
- March 2024 – ADIs implementation
- March 2025 – Insurers and RSEs implementation
How to be prepared
- Establish clear roles and responsibilities for FAR implementation across teams (Risk, Compliance, Legal, People & Culture, and Company Secretarial).
- Identify Accountable Persons taking into account key functions as defined by the regulators. This includes potential updates for ADIs, extending beyond senior executives as per regulatory key functions.
- Update accountability statements and map to align with FAR requirements, including possible scenarios to explore hand-offs.
- Align organisational structures, governance frameworks, charters and accountable persons job descriptions with key functions.
- Develop and update policies and procedures, and breach reporting frameworks for FAR implementation and ongoing monitoring.
- Provide comprehensive training for directors, executives and the entire organisation to ensure FAR compliance.
- Review remuneration arrangements to meet FAR and CPS 511 requirements and enhance Directors & Officers insurance coverage for FAR-related breaches.
The implementation of FAR can be daunting to new Accountable Persons. It's important for accountable entities to prioritise the emotional and mental wellbeing of these individuals during the implementation.
For more information or support in setting your business up for future success, please don’t hesitate to reach out to our expert advisors.
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