FAR status update: Regulators consult on FAR implementation

4 mins 24.07.2023 Kate Hilder, Siobhan Doherty, Gordon Williams, Jennifer Dornan

The Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) have opened a four week consultation on draft rules to support the transition from the existing BEAR to the Financial Accountability Regime (FAR) and implementation of the FAR. Here’s what you need to know.

Key takeouts

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.
If the Bills are passed by the Senate during the 31 July - 10 August sittings (and receive Assent in August), the earliest possible date from which the FAR would apply (for the banking sector) is February 2024 (and for the insurance and superannuation sectors) February 2025. You can read more about the FAR here: FAR status update: FAR Bills delayed (again).
Ahead of the expected passage of the Bills, APRA and ASIC (which will jointly administer the FAR) have opened a four week consultation on draft Rules. The draft Rules prescribe information for inclusion in the register of Accountable Persons (APs) under the FAR, including the 'key functions' that have been assigned to the AP. The 'key functions' for ADIs are prescribed by the draft Rules and each must be assigned to at least one AP. This differs from the approach under BEAR, where APRA has provided 'guidance' as to the key functions for ADIs to consider when developing accountability statements. The list of ‘key functions’ under FAR is also considerably broader than under the BEAR.
Though the focus of the consultation is on ADIs, the regulators suggest that superannuation funds and insurers ‘may wish to consider’ the draft Regulator Rules in particular (which include the information that every responsible entity would need to submit for inclusion in the register of accountable persons).
The due date for submissions is 17 August 2023.

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.

As flagged, legislation to establish the proposed FAR is currently before the Senate.

The FAR will (if legislated in its current form) apply to ADIs six months after Assent and to insurers and superannuation funds 18 months after Assent.

Unlike the BEAR (which is administered by the Australian Prudential Regulation Authority (APRA) only), FAR will be jointly administered by APRA and the Australian Securities and Investments Commission (ASIC) (the regulators).
For more on the FAR see: FAR status update: FAR Bills delayed (again).

Regulators open consultation on important aspects of FAR implementation

In jointly administering the FAR, the Regulators will be required to establish and maintain a register of APs. FAR contemplates that the content of this register can include additional relevant information prescribed by the Regulator rules.

The draft Regulator rules are divided into two parts:

a list of data items that all ADIs, superannuation and insurance entities would need to provide to the regulators about their APs; and
a list of key functions, relevant to accountable entities that are ADIs or authorised non-operating holding companies (NOHCs) of an ADI.

The regulators have also released a document (that is not part of the draft Rules) providing further context around these proposed ‘key functions’, and plan to consult separately on ‘key functions’ for insurers and superannuation funds.

We’ve summarised the key points below.

Information proposed to be included in the AP Register (for all Responsible Entities)

The draft Regulator Rules include a list of ‘prescribed information’ for inclusion in the AP Register which the regulators have indicated is ‘relevant to all accountable entities’. This information is proposed to include:

personal identification details
details of employment status
‘key functions’ information (ie the ‘key function’ or ‘key functions’ they have been assigned and the date they assumed responsibility for that function/s)
reporting lines
requirement to notify the regulators of suspension of the AP in certain circumstances.

Under proposed transitional rules to apply to ADIs, this information would be required to be submitted in electronic form via APRA Connect within 30 days of the FAR applying to ADIs.

‘Key functions’

In a departure from the existing BEAR, the draft Regulator Rules include a prescribed list of ‘key functions’ that ADIs (and their authorised NOHCs) would need to assign at least one AP against (though ADIs would have discretion to assign more than one AP‘if this reflects different responsibilities in relation to that function’).

The list of ‘key functions’ included is both much broader than under the existing BEAR and, as flagged, is not proposed to be an indicative/non-exhaustive source of guidance, but rather a requirement. The list includes for example:

data management
product design and distribution obligations
recovery and exit planning and resolution planning
scam management
technology management and risk culture
whistleblower policy and process

A full list (together with additional guidance around the application of each) is included in a separate document (which is not part of the draft Regulator Rules) read ADI key functions descriptions.

The list of ‘key functions’ in the draft Regulator Rules is proposed to apply to ADIs only. The regulators plan to consult separately on a list of specific key functions for insurers and superannuation funds ‘in due course’ but in the meantime insurance and superannuation entities are encouraged to consider the concept of 'key functions' and review the draft Regulator rules.

Timing

Consultation on the draft Rules closes on 17 August 2023.
It is not clear how quickly the legislation to establish the FAR will be enacted.
The Senate is not due to sit again until 31 July 2023. Even though the FAR Bills are listed on the latest Senate Notice Paper, it is not certain that the Bills will be considered or passed during the 31 July - 10 August sittings.
If the Bills are passed and Assent is given in August 2023, the earliest possible date from which the FAR would apply (for the banking sector) is February 2024 (and February 2025 for the insurance and superannuation sectors).

[Source: Financial Accountability Regime - Proposed Regulator rules and Transitional rules]

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