FAR status update: FAR Bills (still) not passed

6 minute read  17.05.2023 Kate Hilder, Siobhan Doherty

Legislation to introduce the long-awaited FAR - the Financial Accountability Regime (Consequential Amendments) Bill 2023 and Financial Accountability Regime Bill 2023 – is currently before the Senate.  Our update on the key points is below.

Key takeouts

  • The Financial Accountability Regime Bill 2023 and the Financial Accountability Regime (Consequential Amendments) Bill 2023 have passed the House of Representatives without amendment.  The Bills are currently before the Senate.  
  • The Senate is not due to sit again until 13 June 2023 (though it is not certain that the Bills will necessarily be considered/passed during the June sittings) 
  • If the Bills are passed by the Senate in June (and receive Assent in June), the earliest possible date from which the FAR would apply (for the banking sector) is December 2023 (and December 2024 for the insurance and superannuation sectors).  

What is the FAR?

The Financial Accountability Regime (FAR) would replace and expand on the existing Banking Executive Accountability Regime or BEAR.

Broadly, the FAR would extend strengthened, but BEAR-like accountability requirements to other APRA-regulated entities and to the directors/senior executives of those entities in accordance with the government's response to several Hayne Commission recommendations (Hayne Recommendations 3.9, 4.12, 6.6, 6.7 and 6.8).

The aim of the FAR is ultimately to strengthen and increase individual and entity level accountability across the financial services sector, including for non-financial conduct risk.

Status update

  • On 8 September 2022, the government introduced two Bills – the Financial Accountability Regime Bill 2022 (2022 FAR Bill) and the Financial Sector Reform Bill 2022 (FS Reform Bill) - which together would establish the proposed Financial Accountability Regime (FAR).
  • The Financial Sector Reform Bill 2022 which also contained reforms intended to strengthen the consumer protection framework for consumers of small amount credit contracts and consumer leases, received Assent on 12 December 2022. Importantly, the Bill was amended in the Senate to remove both consequential amendments to support the proposed Financial Accountability Regime (FAR) and the proposed Compensation Scheme of Last Resort (CSLR). The government has indicated (here and here) that the policy intent behind the removal of the FAR and CSLR related amendments was to enable more time for further consultation on the implementation of both schemes without holding up the consumer credit reforms included in Schedule 4 of the Financial Sector Reform Bill 2022.
  • The substantive 2022 FAR Bill which had progressed to second reading stage in the senate, the Senate Committee having recommended (summary of the Senate Committee Report) its passage, is not proceeding.
  • On 8 March 2023 the government (re)introduced two new Bills:

The substantive Bill to establish the proposed FAR is essentially unchanged

As flagged, the Financial Accountability Regime Bill 2023 is substantially the same as the previous version of the same name. You can access our detailed summary of the proposed FAR here.

The one change flagged by the Assistant Treasurer in his second reading speech is that the 2023 FAR Bill has been amended:

'to incorporate an amendment, previously circulated by Senator David Pocock, to articulate more clearly the scope of the minister's exemption power [ie the Minister's power to provide an exemption to an accountable entity] and to provide for parliamentary oversight of the exercise of that power'.

No individual civil penalties included

The Financial Accountability Regime Bill 2023 does not include individual penalties for breaches of accountability obligations (as recommended by the Greens in the Senate Report on the 2022 Bill). This is because the government considers that:

'The government's bill already contains effective measures to address executive failures to comply, including disqualification, loss of deferred bonuses, and individual civil penalties for assisting in an entity's contravention of its obligations. That is to say, the bill already contains instances where individual civil penalties apply. These sanctions are on top of penalties for misconduct already in place in other financial services laws.

These measures are finely balanced to improve, on the one hand, executive conduct and accountability in the financial services sector without adversely impacting the sector's efficiency. Adding individual civil penalties on top of those that are already extant within the general law and within this bill is not likely to substantially increase the level of deterrence that already exists, noting that the removal of access to deferred remuneration acts as a financial penalty on individual accountable persons under the regime. So, while it may impact on firms seeking to attract and retain the best executive talent, it would not add to the already extant penalties in a meaningful way'.

Attempts by the Greens to introduce amendments in the House to include civil penalties were unsuccessful.

What's included in the Financial Accountability Regime (Consequential Amendments) Bill 2023?

Transitional arrangements for the banking sector

The FAR Consequential Amendments Bill sets out the transitional arrangements for the banking sector to transition from the BEAR to the proposed FAR. If legislated in its current form, the changes would mean that:

  • Once the Financial Accountability Regime starts applying to the banking industry, ADIs and their authorised NOHCs would become accountable entities, and the BEAR would be repealed.
  • Accountability statements provided to APRA under the BEAR would automatically transition to become accountability statements under the FAR.
  • APRA and ASIC would be able to jointly make rules prescribing transitional arrangements.

Transitioning of accountable persons

  • Accountable persons of entities in the banking industry would automatically have their registration transitioned from the BEAR to the new FAR (though the transition from the BEAR to the FAR will likely result in changes to the details of the responsibilities of accountable persons which will need to be flagged with the regulator).
  • A person who became an accountable person under the BEAR on a temporary basis, would be taken to be a new temporary accountable person when the FAR starts to apply to the banking sector.
  • Any applications to register accountable persons under the BEAR that are pending when the FAR commences, would be considered to be applications for registration under the FAR.
  • Entities would be able to register new accountable persons in the 30 days prior to the FAR applying to the banking sector.

Deferred remuneration

  • The FAR deferred remuneration obligations for the banking industry would 'apply when the decision to provide remuneration occurs in first financial year that begins six months after the Financial Accountability Regime applies to the banking industry'.
  • Remuneration that was decided to be provided to an accountable person before this, would still be subject to existing BEAR remuneration requirements.
  • Despite the repeal of the BEAR, BEAR deferred remuneration obligations would continue to apply to accountable persons who do not transition to the proposed FAR until the period for the deferral finishes.

Transitional arrangements for insurance and superannuation industries

  • The FAR would apply in full (including deferred remuneration obligations) to the accountable entities in the insurance and superannuation industries 18 months after commencement of the Financial Accountability Regime Bill 2022.
  • For clarity, deferred remuneration obligations under the proposed FAR would apply to remuneration that was determined after the start of the first financial year after the Financial Accountability Regime applies to the insurance and superannuation industries.

Planned commencement of the proposed FAR

The planned timing of the reforms is unchanged.

If legislated in its current form, the FAR Bill will commence on the day after it receives Assent.

  • the FAR will apply to the banking industry six months after commencement of the FAR Bill and to any new entrants beyond that, from the time they become an ADI or a non-operating holding company (NOHC).
  • the FAR will apply to the insurance and superannuation industries 18 months after commencement of the FAR Bill and to any new entrants beyond that, from the time they become licensed.

Outlook

  • It is not clear how quickly the legislation to establish the FAR will be enacted.  
  • The Bills were not considered by the end of the May Senate sittings.  The Senate is now not due to sit again until 13 June 2023.  As flagged, though the FAR Bills are listed on the latest Senate Notice Paper, it is not certain that the Bills will necessarily be considered or passed during the June sittings.  
  • Assuming the passage of the legislation, and assuming Assent is given in June, the earliest possible date from which the FAR would apply (for the banking sector) is December 2023 (and December 2024 for the insurance and superannuation sectors).

Interested in this (and similar) topics?

Subscribe to alerts and our weekly wrap up of key financial services, risk, regulatory and ESG developments.

eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJuYW1laWQiOiI0ZGZkZmE4MS0zYWUyLTQyOTctODEyNy1iNzQ3YmYxNTdhYjkiLCJyb2xlIjoiQXBpVXNlciIsIm5iZiI6MTY4NTk4NDM4NywiZXhwIjoxNjg1OTg1NTg3LCJpYXQiOjE2ODU5ODQzODcsImlzcyI6Imh0dHBzOi8vd3d3Lm1pbnRlcmVsbGlzb24uY29tL2FydGljbGVzL2Zhci1zdGF0dXMtdXBkYXRlLW5ldy1iaWxsLXdpdGgtYWRpLXRyYW5zaXRpb25hbC1wcm92aXNpb25zLWludHJvZHVjZWQiLCJhdWQiOiJodHRwczovL3d3dy5taW50ZXJlbGxpc29uLmNvbS9hcnRpY2xlcy9mYXItc3RhdHVzLXVwZGF0ZS1uZXctYmlsbC13aXRoLWFkaS10cmFuc2l0aW9uYWwtcHJvdmlzaW9ucy1pbnRyb2R1Y2VkIn0.-uNpRFdxI53wQ6LGFuoYAJqBgQOT-ks74dD4kk8OJbQ
https://www.minterellison.com/articles/far-status-update-new-bill-with-adi-transitional-provisions-introduced