New FAR close to implementation for APRA entities

The Financial Accountability Regime (FAR), recently established by the long-awaited Financial Accountability Regime Act 2023 (Cth) (the Act), will come into effect for the banking industry in March 2024, and the superannuation and insurance industries in 2025.

In a media release published on 3 October 2023 the Australian Prudential Regulation Authority (APRA) confirmed that implementing the Financial Accountability Regime (FAR) fulfils recommendations made by the financial services Royal Commission that provisions modelled on the Banking Executive Accountability Regime (BEAR) be extended to all APRA-regulated entities.

In fact, the FAR replaces the BEAR, which commenced on 1 July 2018 and was administered by APRA. In addition to authorised deposit-taking institutions (ADIs), the FAR will apply to insurance companies, superannuation trustees and licensed non-operating holding companies (NOHCs). Additionally, the FAR introduces conduct-focused prescribed responsibilities, and will be jointly administered by APRA and the Australian Securities and Investments Commission (ASIC).

According to s 3 of the Act, its objects are:

(a)  to provide for a strengthened accountability framework for:

(i)  financial entities in the banking, insurance and superannuation industries; and

(ii)  persons who hold certain positions, or have certain responsibilities, related to those financial entities; and

(b)  to confer on APRA and ASIC functions and powers (including information gathering, investigation and enforcement powers) that:

(i)  relate to obligations under that framework; and

(ii)  can be performed and exercised in aid of their functions and powers under other laws.

In turn, s 4 outlines that the framework is to ensure that accountable entities take reasonable steps:

(a)     to conduct their business with honesty and integrity, and with due skill, care and diligence; and 

(b)     to deal with APRA and ASIC in an open, constructive and cooperative way; and 

(c)     to prevent adverse effects on their prudential standing or prudential reputation; and 

(d)     to ensure that their senior executives and other key personnel (called accountable persons) meet those same standards of conduct, and take reasonable steps to ensure compliance with applicable laws; and 

(e)     to ensure that related entities whose business and activities materially and substantially affect the accountable entities (called significant related entities) comply with the framework in the same way as the accountable entities themselves.

The provision goes on to note that accountable entities are subject to a series of obligations that enable oversight and enforcement by APRA and ASIC and that accountable persons are also subject to obligations, which can be enforced by accountable entities through reduction of deferred remuneration, or by the Regulator through disqualification.

The October media release by the Regulators also included:

  • details of the Joint Administration Agreement between APRA and ASIC setting out the framework within which the regulators will work together to administer the FAR. At point 4 of the Agreement, it is noted that: “The role each Regulator plays under the FAR is consistent with their broader purpose under the twin peaks model for financial regulation in Australia. In administering the FAR, ASIC’s role is to focus on impacts to market integrity and consumer protection in the financial system and payments system; APRA’s role is to focus on impacts to the prudential soundness of regulated entities as well as the financial stability of the overall system.” In addition, the Agreement addresses:  Oversight of arrangements and co-administration; Monitoring and supervision under the FAR; FAR reporting; Exercising powers; Investigations and enforcement of the FAR; Industry communication; and Information sharing and management.
  • a joint information paper providing guidance for ADIs on transitioning from the BEAR to the FAR, supported by the ADI accountability statement guidance and template. The Executive Summary of paper notes the differences between the Bear and the FAR and that the FAR:
    • expands the regime to authorised NOHCs of ADIs;
    • expands the regime to include superannuation and insurance entities and their licensed NOHCs;
    • expands the regime to include a conduct focus;
    • requires accountable entities to identify their significant related entities (SREs); and
    • introduces the concept of ‘enhanced notification obligations’, where only enhanced entities must prepare and submit accountability statements and maps to the Regulators. As currently proposed under the draft Financial Accountability Regime Minister Rules 2022, ADIs subject to enhanced notification obligations include those with an asset size greater than $10 billion.

The FAR will commence for the banking industry on 15 March 2024 and for the superannuation and insurance industries on 15 March 2025.

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