For context, the FAR has applied to the banking sector from March 2024 (replacing the previous Banking Executive Accountability Regime) and will apply to the insurance and superannuation sectors from March 2025. For more on the FAR read: FAR status update: FAR Bills now law.
ASIC and APRA (which will jointly administer the FAR) have now released:
- an amendment to the Regulator rules, which prescribe key functions information for inclusion in the FAR register of accountable persons for insurance and superannuation industries; see Financial Accountability Regime Regulator Rules Amendment Instrument No. 1 of 2024 and Financial Accountability Regime Act (Information for register) Regulator Rules 2024;
- a joint ASIC and APRA letter summarising key issues raised during consultation and their response, including the concept and application of key functions;
- an updated information paper to assist entities and their accountable persons in understanding and complying with their obligations under the FAR, with changes made to reflect the final list of key functions and their descriptions;
- an updated accountability statement guide and template to help entities subject to the FAR enhanced notification obligations to prepare accountability statements; and
- reporting form instructions to assist insurance and superannuation entities in providing the required information to ASIC and APRA.
The release of these materials follows a joint public consultation on the draft amendment to the Regulator rules and draft key functions descriptions for the insurance and superannuation industries.
Changes to Insurance and Superannuation Key Functions
In response to feedback during the consultation, there have been changes to the Insurance and Superannuation Key Functions.
There are no new Insurance Key Functions, but some have been removed and others amended. In summary:
- the ‘collections and enforcement (default, debt collections and recovery)’ key function has been removed;
- the descriptions of the ‘product origination’ and ‘training and monitoring of relevant representatives and staff’ have been amended to remove references that are not specific to insurance;
- the description of the ‘insurance risk management’ key function has been refined with a view to removing overlap with other key functions; and
- the description of the ‘scam management’ key function has been amended to include references to ‘fraud’.
The Regulators have also clarified in the FAR information paper that some Insurance Key Functions may not be applicable to private health insurers (PHIs).
There are no new RSE licensee Key Functions, but some have been amended as follows:
- the key function descriptions for ‘member outcomes and member engagement’ and ‘product origination’ have been amended to remove overlap with other RSE licensee Key Functions;
- the key function description for ‘scam management’ and ‘marketing and advertising’ have been tightened to be more specific to superannuation entities’ operations; and
- the ‘investment management’ key function description has been clarified.
Joint Letter
In response to feedback during the consultation, the Joint Letter seeks to provide further guidance on the allocation of the Key Functions to accountable persons.
- The Letter confirms that Key Functions should only be notified where one of more of an entity’s accountable persons have relevant responsibility for one or more key functions.
- The Regulators also note that the key functions apply at the accountable entity level but not ‘significant related entities’ (SREs). An accountable person could have senior executive responsibility for the same key function across multiple accountable entities within the same corporate group if this aligns with actual practices.
- The Regulators have confirmed their view that the Key Functions do not expand the scope of responsibilities of accountable persons under FAR, with the allocation of Key Functions intended to assist the Regulators to have visibility over and greater clarity of accountability for those functions for an accountable entity.
What now for insurers and superannuation entities?
Insurers and superannuation entities have until March 2025 to prepare for the commencement of FAR. Key activities include:
- the identification of accountable persons and SREs
- accountability mapping, including the preparation of accountability statements and maps
- preparing the information needed to register accountable persons
- reviewing and updating the remuneration policy and relevant remuneration arrangements
- uplifting, preparing and operationalising policies and frameworks to ensure ongoing compliance with:
- the accountable entity and accountable person accountability obligations; and
- the accountable entity key personnel, deferred remuneration and notification obligations, including breach reporting.
FAR implementation can require a revisiting of existing governance, risk management and compliance frameworks, to test whether the frameworks are fit for purpose to support ongoing compliance with FAR in a demonstrable way.