The Financial Accountability Regime Bill 2023 has been passed by the Senate.

This is the third legislative attempt to create a Financial Accountability Regime (FAR) to increase transparency and accountability across the financial services industry.

The Financial Accountability Regime Act 2023 commences the day after Royal Assent.

UPDATE: Royal Assent was given on 14 September 2023. 

The regime will apply to the banking industry from 15 March 2024 (six months after the commencement of the Financial Accountability Regime Act 2023) and to any new entrants beyond that, from the time they become an ADI or a non-operating holding company.

The regime will apply to the insurance and superannuation industries from 15 March 2025 (18 months after the commencement of the Financial Accountability Regime Act 2023), and to any new entrants beyond that, from the time they become licensed.

Obligations
The Financial Accountability Regime imposes four core sets of obligations:

accountability obligations—which require entities in the banking, insurance and superannuation industries and their directors and senior executives to conduct their business honesty and integrity, and with due skill, care and diligence;

key personnel obligations—which require entities in the banking, insurance and superannuation industries to nominate senior executives to be responsible for all areas of their business operations and providing that nominated accountable persons will be subject to an additional accountability obligation in relation to preventing matters from arising that may result in the entity’s material contravention of specified financial services laws;

deferred remuneration obligations—which require entities in the banking, insurance and superannuation industries to defer at least 40 per cent of the variable remuneration (for example, bonuses and incentive payments) of their directors and most senior executives for a minimum of 4 years, and to reduce their variable remuneration for non-compliance with their accountability obligations; and

notification obligations—which require:
entities in the banking, insurance and superannuation industries to meet the core notification obligations by providing the Regulator (either ASIC or APRA) with certain information about their business and their directors and most senior executives, generally within 30 days of an event occurring.

Accountable entities
The entities to which the Financial Accountability Regime applies are referred to as accountable entities.

These entities are:
• authorised deposit-taking institutions;
• authorised non-operating holding companies of authorised deposit-taking institutions;
• general insurers;
• authorised non-operating holding companies of general insurers;
• life companies;
• registered non-operating holding companies of life companies;
• private health insurers; and
• registrable superannuation entity licensees (or RSE licensees).

The accountability obligations of an accountable entity are:
(a) to take reasonable steps to conduct its business with honesty and integrity, and with due skill, care and diligence; and
(b) to take reasonable steps to deal with the Regulator in an open, constructive and cooperative way; and
(c) in conducting its business, to take reasonable steps to prevent matters from arising that would (or would be likely to) adversely affect the accountable entity’s prudential standing or prudential reputation; and
(d) to take reasonable steps to ensure that each of its accountable persons meets their accountability obligations; and
(e) to take reasonable steps to ensure that each of its significant related entities complies with each of paragraphs (a), (b), (c) and (d) as if the significant related entity were an accountable entity.

Accountable persons
While an accountable entity that breaches its accountability obligations under the FAR may be subject to civil penalties, there are no individual civil penalties for accountable persons who breach their accountability obligations.

However, the Bill does prescribe civil penalties for ancillary involvement by a person (including an accountable person) in an accountable entity’s contravention of an obligation. Specifically, it prescribes that a person (including an accountable person) must not:

• attempt to contravene a civil penalty provision of the Bill
• aid, abet, counsel or procure a contravention of a civil penalty provision of the Bill
• induce (by threats, promises or otherwise) a contravention of a civil penalty provision of the Bill
  be in any way, directly or indirectly, knowingly concerned in, or party to, a contravention of a civil penalty provision of the Bill
• conspire with others to effect a contravention of a civil penalty provision of the Bill.

In addition to potential civil penalties for ancillary involvement, an accountable person who breaches their FAR obligations also faces other deterrents such as disqualification or loss of bonus payments.

The Financial Accountability Regime will be jointly administered by APRA and ASIC.

Consultation on FAR Regulator Rules

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Author: David Jacobson
Principal, Bright Corporate Law
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About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.