FAR: Your key insurance and indemnity questions answered

5 minute read  02.05.2024 Kemsley Brennan; Emma Farrell

With the FAR coming into effect across banking, insurance and superannuation sectors, we cover details for accountable entities and persons gearing up for implementation.


Key takeouts


  • A significant related entity or body corporate in the same corporate group cannot indemnify, or pay premiums insuring, an accountable entity against the consequences of breaching FAR, except in respect of cover for legal costs.
  • A D&O policy is unlikely to cover civil penalties against the accountable entity, or such penalties against insured persons where there is intentional wrongdoing or if a penalty is criminal or otherwise uninsurable at law.
  • Accountable entities and persons must assess the cover available and deeds of indemnity, ensuring these do not contravene FAR insurance and indemnity constraints. Deeds of indemnity should be consistent with and complement the D&O policy.

The Financial Accountability Regime (FAR) has applied to the banking industry from 15 March 2024 and to the insurance and superannuation industries from 15 March 2025. Information on the nature and features of FAR can be found in MinterEllison's earlier update, but this update focusses specifically on insurance and indemnity considerations for accountable entities and persons implementing FAR.

What constraints does FAR impose on indemnities and insurance?

FAR permits civil penalties to be imposed on accountable entities and against persons (including accountable persons) in connection with contraventions of FAR. Specifically:

  • an accountable entity can receive a civil penalty for failure to comply with its obligations (Section 80). The maximum penalty is the higher of the following:

50,000 penalty units ($15.65 million at the time of writing);

3x the amount of benefit derived and detriment avoided because of the contravention; or

either of 10% of annual turnover in the lead up to the contravention, or if that amount is greater than an amount equal to 2.5 million penalty units, 2.5 million penalty units ($782.5 million) (Section 83(2));

  • a person (including an accountable person) can receive a civil penalty for 'ancillary contravention', being an attempt to contravene a FAR civil penalty provision, aiding/abetting/counselling/procuring such a contravention, inducing or conspiring with others to effect a contravention, or being in any way (directly or indirectly) knowingly concerned in or party to a contravention of a FAR civil penalty provision (Section 81).

The maximum penalty for a body corporate is the same as referred to above, but for other persons the maximum is the higher of the following:

5,000 penalty units ($1.565 million); or

3x the amount of benefit derived and detriment avoided because of the contravention (Section 83(3)).

The prospect of civil penalties, amongst other repercussions for contraventions of FAR, gives rise to the question of whether (and to what extent) an accountable entity or persons can be indemnified such contraventions.

An accountable entity cannot be indemnified by a significant related entity or body corporate in the same corporate group against the consequences of breaching FAR, except in respect of cover for legal costs. This includes paying insurance premiums insuring the accountable entity against those consequences (Section 97(1) and (4)). These prohibitions are the same as those under the previous Banking Executive Accountability Regime (BEAR).

However, Treasury has indicated this is not intended to restrict the accountable entity itself from taking out its own insurance (and paying its own premiums) to cover breaches of FAR.

Unlike with BEAR, under FAR there is no prohibition against indemnification or payment of insurance premiums in respect of accountable persons. This means that the accountable entity can indemnify its accountable persons (i.e. Directors) and take out insurance (and pay premiums) on behalf of those persons.

What cover can be obtained under an insurance policy?

Accountable entities and persons would most commonly look to their directors and officers (D&O) liability policy, as well as their professional indemnity or statutory liability policies for cover in connection with FAR-related claims. A D&O policy generally provides cover to insured persons (i.e. Directors), and to companies where they have agreed to indemnify insured persons, for amounts which the insured person is legally obligated to pay (e.g. damages, compensation and settlements) as well as defence costs and other costs and expenses resulting from a claim (e.g. written demands, proceedings and administrative or regulatory proceedings) against the insured person made during the policy period and in respect of wrongful acts.

A professional indemnity policy generally provides cover to the company, directors and employees, for amounts which they become legally liable to pay (e.g. damages and settlements) as well as defence costs resulting from a claim (e.g. written demands for compensation or originating legal or arbitral process) made during the policy period for civil liability, arising out of failure or neglect to perform specified professional services. We note that these policies typically exclude cover where the insured person acts in the capacity of a director or officer (that cover being provided under a D&O policy).

A statutory liability policy generally provides cover to the company, directors' and employees' penalties and other amounts payable to a regulatory authority as well as defence costs arising from a notice received during the policy period, alleging a contravention of or offence under a legislated Act that attracts liability to pay a penalty.

Whether a FAR-related claim is covered will depend on the specific circumstances and terms of cover under the policy. With regard to a D&O policy, it is unlikely that such a policy would cover civil penalties against the accountable entity. These (and other) policies also typically exclude cover for civil penalties against insured persons, where there is intentional wrongdoing or the penalty is a criminal penalty or is otherwise uninsurable at law. For example, section 199B of the Corporations Act prohibits a company or related body corporate from paying a premium for an insurance policy covering an officer or auditor of the company against liability arising out of conduct involving wilful breach of duty in relation to the company or a contravention of sections 182 or 183 of the Corporations Act.

What other considerations need to be taken into account?

There are a range of other insurance and indemnity related considerations for accountable entities and persons when implementing FAR. These include:

  • Assessing the coverage available under insurance policies and deeds of indemnity to determine how these might respond in the event of an alleged contravention, investigation or other regulatory or enforcement action connected with FAR. This includes ensuring that policies provide cover to all accountable persons, who may (depending on the policy terms) need to be expressly included as named insureds.
  • Reviewing the terms of deeds of indemnity and insurance policies to ensure these do not contravene the insurance and indemnity constraints in FAR. In particular, with regard to the prohibition against a significant related entity or body corporate in the same corporate group paying for insurance for the accountable entity against the consequences of breaching FAR, it will be important for the accountable entity to ensure that it alone obtains and pays the premium for insurance policies. Similarly, it will be important for the accountable entity to ensure that it alone provides the indemnity afforded by the deed of indemnity.
  • Reviewing the terms of deeds of indemnity to ensure these are not inconsistent with and complement the D&O insurance policy. As part of this, it is vital to ensure that the policy meets the indemnities provided under the deed of indemnity and that the definition of a director under the deed sufficiently aligns to the definition of an insured under the policy.

As part of your implementation of FAR, we can help you by reviewing your insurance program and deeds of indemnity. For more information, please contact our team.

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