FAR status update: FAR Bills now law

6 minute read  18.09.2023 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 – received Assent on 14 September 2023.

Key takeouts

What is the FAR?

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

Broadly, the FAR will 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.

The substantive Bill to establish the FAR is essentially unchanged

As flagged, the Financial Accountability Regime Bill 2023 is substantially the same as the previous version of the same name. We have previously provided a detailed summary of the proposed FAR.

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 and the Senate 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 FAR. The changes mean that:

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to the banking industry, ADIs and their authorised NOHCs will become accountable entities, and the BEAR will be repealed.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

Transitioning of accountable persons

  • Accountable persons of entities in the banking industry will 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, will 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, will be considered to be applications for registration under the FAR.
  • Entities will 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 will '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, will still be subject to existing BEAR remuneration requirements.
  • Despite the repeal of the BEAR, BEAR deferred remuneration obligations will 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 will 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.

When will the FAR apply?

The legislation commenced on the day after Assent was given. This means that:

  • The FAR will apply to the banking industry from March 2024 (six months after commencement of the FAR Bill will apply 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 from March 2025 (18 months after commencement of the FAR Bill and to any new entrants beyond that, from the time they become licensed)

FAR implementation – ASIC/APRA consultation on draft rules

ASIC and APRA (which will jointly administer the FAR) recently completed a four week consultation on draft Rules to support the transition from the existing BEAR to the FAR and FAR implementation. You can access our summary here: FAR status update: Regulators consult on FAR implementation

Both regulators included working to support FAR implementation in their most recent corporate plans.

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