APRA and ASIC have issued an information package setting out their approach to their joint administration of the Financial Accountability Regime and, for authorised deposit-taking institutions, detailing the differences between the Banking Executive Accountability Regime and FAR.
ADIs will transition from BEAR to FAR in March next year, when they will have to be ready for some changes to the accountability regime.
These include the definition of accountable persons, the introduction of “enhanced notification obligations”, a requirement to identify significant related entities and stronger regulatory powers.
FAR, which was passed into law last month, extends the obligations first introduced by BEAR in 2018 to the superannuation and insurance industries, and replaces BEAR for the banking industry.
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.
Companies are to nominate executives to be responsible for areas of business operations.
The definition of accountable persons will change. Under BEAR, an accountable person is defined by reference to a list of roles and responsibilities prescribed in the legislation.
Under FAR, a longer list of roles and responsibilities may be set out in the Minister’s rules.
FAR introduces the concept of “enhanced notification obligations”. ADIs with assets of more than A$10 billion will have to prepare and submit accountability statements and “maps” to the regulators. Smaller, or core, ADIs have simpler requirements.
Accountability statements set out the responsibilities for each accountable person. Maps outline all accountable persons in the ADI, their responsibilities, and the lines of reporting and responsibility between them.
FAR requires accountable entities to identify their significant related entities. SREs are subsidiaries whose activities have a material effect on the ADI.
FAR will be regulated by APRA and ASIC, whereas BEAR was regulated by APRA alone. Accountable persons must deal “in an open, constructive and co-operative way” with both APRA and ASIC, and they must take reasonable steps to prevent matters from arising that would result in a material contravention by their accountable entity of certain financial sector laws.
FAR gives the regulators power to disqualify a person from being an accountable person for a period. It also gives them investigative powers.
FAR’s deferred remuneration obligation varies from BEAR’s. At least 40 per cent of variable remuneration of the accountable person must be deferred for a minimum of four years and remuneration will be reduced if there is non-compliance with accountability obligations. There are “enhanced” deferral arrangements for significant financial institutions.
Obligations imposed on auditors and actuaries under the Banking Act and other industry acts administered by APRA will be extended to cover FAR. This means that auditors and actuaries will have to assist APRA in performing its functions under FAR.