The government has followed up the introduction of the Financial Accountability Regime Bill 2022 last week with the release of a draft of Minister Rules for the regime, and has called for submissions. FAR extends the obligations first introduced in the Banking Executive Accountability Regime in 2018 to the superannuation and insurance industries and replaces BEAR for the banking industry. The BEAR legislation will be repealed when FAR is passed.
Like BEAR, FAR imposes obligations on directors and senior executives to conduct their business honestly and with care, skill and diligence. The aim is to improve the risk and governance cultures of financial institutions and to promote improved performance and stability of the financial system.
The obligations cover directors and senior and influential executives. Companies are to nominate executives to be responsible for areas of business operations.
A deferred remuneration obligation is designed to ensure remuneration is reduced if accountability obligations are not met.
At least 40 per cent of variable remuneration of the accountable person must be deferred for a minimum of our years and will be reduced if there is non-compliance with accountability obligations. There are “enhanced” deferral arrangements for significant financial institutions.
Companies and accountable persons will be required to take action in response to non-compliance. Companies will have to report breaches and there may be civil penalties for contraventions.
The Minister Rules give the relevant minister power to prescribe particular responsibilities and positions that cause a person to be subject to FAR.
The minister can also prescribe when an accountable entity meets the enhanced notification threshold, which means certain organisations (usually large ones) will have to supply more information about their accountability arrangements.
The extension of BEAR to cover other financial sectors was a recommendation of the Hayne royal commission and the Coalition had its own FAR bill before Parliament when the May election was called. The Coalition bill had bipartisan support.
In a note to clients Minter Ellison said the Labor bill was “essentially the same” as the Coalition Bill. Gadens said it was “identical”.
One significant change in the shift from BEAR to FAR is that, while BEAR was administered by APRA, FAR will be administered by ASIC and APRA.
The regulators have power to disqualify someone from being an accountable person of an entity or a class or entities regulated by the regime. They also have the power to direct an accountable entity to reallocate the responsibilities of its accountable person to address a risk of non-compliance.
The regulators also have information gathering and investigation powers. Obligations imposed on auditors and actuaries under the Banking Act and other industry legislation will be extended to FAR, so that auditors and actuaries will have the assist the regulators with their investigations into FAR breaches.
The regulators can accept enforceable undertakings.
Another change from BEAR to FAR is that, while BEAR captured all subsidiaries of an ADI, FAR will extend only to “significant related entities”.