Who is an 'accountable person'? Responsibilities and positions in-scope of the FAR

Part 2 of the Rules prescribes the 'responsibilities and positions which cause a person to be an accountable person of an accountable entity' under the FAR.

Cross sector responsibilities and positions

Sections 5 and 6 of the Rules list a number of responsibilities and positions which apply across all regulated sectors – ie ADIs, general insurers, life insurers, private health insurers and RSE licensees - that are not foreign entities or NOHCs.

Under section 5(2), persons with senior executive responsibility for the following will be 'accountable persons':

• management or control of the business activities of the accountable entity and its significant related entities (if any);
• management or control of the accountable entity’s financial resources or operations;
• management of the accountable entity’s overall risk controls or overall risk management arrangements;
• management of the accountable entity’s information management (including information technology systems);
• management of the accountable entity’s: internal audit function; or compliance function; or human resource function; or dispute resolution function (whether internal or external, or both)
• management of the accountable entity’s client or member remediation programs (including hardship arrangements);
• management of the accountable entity’s breach reporting;
• management of the accountable entity’s anti‑money laundering function' if the accountable entity is a reporting entity for the purposes of the Anti‑Money Laundering and Counter‑Terrorism Financing Act 2006.

The Explanatory Statement suggests that this means that the following positions may be in-scope: Chief Risk Officer, Chief Information or Technology Officer, and the Head of Human Resources.

Under Section 6(2) members of the board of directors (or equivalent) of the accountable entity are prescribed – ie each member of the accountable entity’s board of directors would be an accountable person under the FAR.

'Carrying out the activity or function' is not enough

Importantly, the Rules state (s5(3)) that

'For the purposes of subsection (2), a person does not have senior executive responsibility for management of an activity or function merely because the person is carrying out the activity or function'.

The Explanatory Statement offers some further explanation around this:

'Subsection 5(3) clarifies that the prescribed responsibilities capture senior executive responsibility for management of an activity or function, distinct from a (typically lower level) responsibility for carrying out or executing the activity or function. This gives effect to the intent to capture senior executives who are responsible for development, maintenance and review (rather than execution) of a framework'.

This is also the case for the sector-specific positions/responsibilities prescribed in the Rules outlined briefly below.

Sector-specific positions/responsibilities

Sections 7-11 set out additional responsibilities (ie in addition to the cross-sector responsibilities set out in section 5) for each sector, for foreign accountable entities and for NOHCs.

Insurers (that are not foreign accountable entities/NOHCs): Under s7(2) of the Rules, accountable persons will include individuals that hold senior executive responsibility for management of either:

• actuarial function; and/or
• claims handling function.

RSE Licensees: Under s8 (d) of the Rules, accountable persons will include individuals that hold senior executive responsibility for management of any of the following:

• member administration operations;
• investment function;
• financial advice service;
• insurance offerings.

Prescribed responsibilities for accountable entities that are foreign accountable entities

Section 9(2) of the Rules prescribes the following four responsibilities which 'cause a person to be an accountable person of an accountable entity that is a foreign accountable entity for the purposes of paragraph 10(2)(b) of the Act'.

'(2) Each of the following responsibilities, relating to a foreign accountable entity, are prescribed:
 (a) senior executive responsibility for conduct of the activities of a branch of the foreign accountable entity that is operating in Australia;
 (b) if the foreign accountable entity is a foreign ADI or a foreign general insurer—responsibility for overseeing the operation of a branch operating in Australia as a senior officer outside Australia with delegated authority from the board of directors (or equivalent) of the foreign accountable entity;
 (c) if the foreign accountable entity is an eligible foreign life insurance company—responsibility for oversight of the foreign accountable entity as a member of its Compliance Committee for the purposes of section 16ZF of the Life Insurance Act 1995;
 (d) if the foreign accountable entity is a foreign general insurer—responsibility as an agent in Australia for the purposes of section 118 of the Insurance Act 1973'.

Prescribed responsibilities/positions for accountable entities that are NOHCs

Section 11(1) provides that accountable persons of NOHCs of an ADI, general insurer of life insurer will be individuals that hold senior executive responsibility for any of the following:

• management or control of the business activities of the accountable entity and all significant related entities of the accountable entity;
• management or control of the accountable entity’s financial resources;
• management of the accountable entity’s overall risk controls or risk management arrangements; and
• management of the accountable entity’s internal audit function.

The Explanatory Statement states that these prescribed responsibilities are intended to cover persons such as the accountable entity’s Chief Executive Officer, Chief Financial Officer, Chief Risk Officer, and Head of Internal Audit.

Subsection 11(2) prescribes the position of a member of the accountable entity’s board of directors (or equivalent). This means each member of an authorised or registered NOHC’s board of directors would be an accountable person under the Act. The Explanatory Statement states that

'such a person is likely to have oversight of the accountable entity’s activities and functions and is therefore appropriate to be an accountable person'.

Enhanced notification thresholds (for entities other than foreign accountable entities)

Part 3 of the Rules sets out the thresholds for determining when accountable entities (other than foreign accountable entities) meet the 'enhanced notification threshold'. This means that foreign accountable entities are not subject to enhanced notification, regardless of size.

For context, entities that meet the 'enhanced notification threshold' have additional disclosure obligations including requirements to provide an accountability statement for each accountable person and an accountability map to APRA/ASIC. Entities not subject to enhanced notification requirements are still required to undertake an accountability mapping exercise internally in order to meet other FAR obligations.

• ADIs: Section 13(2) of the Rules states that the accountable entity 'meets the threshold at a particular time during a financial year of the entity if the entity’s total assets value, as reported in the entity’s relevant final report, exceeds $20 billion'
• General insurers: Section 16(2) of the Rules states that the accountable entity 'meets the threshold at a particular time during a financial year of the entity if the entity’s total assets value, as reported in the entity’s most recent final report, exceeds $10 billion'.
• Life insurers: Section 19(2) of the Rules states that the accountable entity 'meets the threshold at a particular time during a financial year of the entity if the entity’s total assets value, as reported in the entity’s most recent final report, exceeds $10 billion'.
• Private Health Insurers (PHIs): Section 22(2) of the Rules states that the accountable entity 'meets the threshold at a particular time during a financial year of the entity if the entity’s total assets value, as reported in the entity’s most recent final report, exceeds $3 billion'.
• RSE Licensees: Section 25(2) of the Rules states that the accountable entities 'meets the threshold at a particular time during a financial year of the entity if the entity’s total assets value, as reported in the entity’s most recent final report, exceeds $30 billion'.

Related accountable entities in the same corporate group

Section 28 of the Rules provides that when one accountable entity in a corporate group meets the enhanced notification threshold, all other accountable entities in the group will also be taken to meet the enhanced notification threshold.

Timing

The Rules commence on 15 March 2024 when the FAR commences for ADIs.