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Date: 4 April 2024
Australia Finance Alert

On 15 March 2024, the Financial Accountability Regime (FAR) came into effect for authorised deposit-taking institutions (ADIs), replacing the Banking Executive Accountability Regime (BEAR). Unlike the BEAR, application of the FAR will be extended to insurers and registrable superannuation entity licensees. To provide insurance and superannuation entities with time to develop and implement new reporting frameworks and compliance procedures, the FAR will not apply to these industries until 15 March 2025.

New Guidance

On 14 March 2024, the Australian Prudential Regulatory Authority (APRA) and the Australian Securities and Investments Commission (ASIC) released an information package relevant to all industries affected by the FAR. The information package includes:

  • An overview of the FAR, including information on obligations imposed on entities and their accountable persons;
  • An updated accountability statement guide and template for entities with enhanced notification obligations;
  • Detailed instructions for the reporting of FAR breaches; and
  • A consultation relevant to insurance and superannuation entities.

An Overview of FAR Obligations

Under the FAR, insurance and superannuation entities will be required to comply with a range of accountability, key personnel, notification, and deferred remuneration obligations. Any obligation imposed on an entity under the FAR will also extend to any ‘significant related entity’. 

The accountability obligations govern how an entity is to conduct their business. This involves acting with honesty, integrity, and due care, skill, and diligence. Accountable entities must also be transparent and cooperative when dealing with APRA and ASIC (the Regulators). An accountable person has similar accountability obligations. Under the key personnel obligations, an entity must ensure that all relevant prescribed roles and responsibilities, including any applicable key business functions, are assigned to an accountable person (either solely or jointly with another accountable person).

All accountable entities will be required to comply with the core notification obligations. These require accountable entities to notify the Regulators of certain events impacting the entity’s accountability framework and suspected FAR breaches. Entities meeting the enhanced notification thresholds in Table 1 below have additional notification obligations.

Table 1
Accountable entity Total asset value greater than or equal to:
ADIs AU$20 billion
General insurers and life companies AU$10 billion
Private health insurers AU$3 billion
Superannuation entities  AU$30 billion

The deferred remuneration obligations require an accountable entity to defer at least 40% of an accountable person’s variable remuneration for a minimum of four years unless an exemption applies. Where an accountable person fails to comply with their FAR obligations, their variable remuneration must be reduced.

Accountability Statements

Under the FAR, accountable entities meeting the enhanced notification threshold are required to provide the Regulators with an accountability statement for each of its accountable persons. These statements must set out the key areas of responsibility attributed to each accountable person.

The recently published accountability statement guidance includes a template and details about the minimum information to be included in an accountability statement.

Reporting Form Instruction Guides

Under the FAR, accountable entities are required to report certain information to the Regulators. To assist entities in fulfilling their reporting obligations appropriately, the Regulators have released a series of instruction guides for:

  • Providing entity profile information;
  • Submitting an accountability map (required for enhanced entities only);
  • Registering an accountable person;
  • Notifying the Regulators of a change to an accountable person;
  • Reporting a breach by an entity; and
  • Reporting a breach by an accountable person.

Each instruction guide includes an approved template as well as instructions on how the form is to be completed.

Insurers and Superannuation Entities

The FAR legislation is accompanied by Minister’s Rules and Regulator Rules. The Regulators have commenced a joint consultation process on proposed amendments to the Regulator Rules and draft key functions descriptions for insurers and superannuation entities. Written submissions on the proposals will be accepted for a period of five weeks ending 19 April 2024.

The final Regulator Rules for the insurance and superannuation industries are expected to be published in the second quarter of 2024. This will provide lead-time for insurers and superannuation entities to establish and implement new reporting frameworks and compliance procedures prior to the FAR commencement date of 15 March 2025.

How Can K&L Gates Help?

K&L Gates is here to help you work through the FAR legislation and the accompanying Minister’s Rules and Regulator Rules and assist you in implementing a FAR system that is best suited to your organisation. We have extensive experience assisting both APRA and ASIC regulated clients to draft or review compliance and prudential policies as well as compliant senior executive employment agreements. K&L Gates is also well-equipped to support regulated entities and their directors in responding to investigations by ASIC and APRA. 

We acknowledge the contributions to this publication from our seasonal clerk Tamsyn Sharpe.

This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. Any views expressed herein are those of the author(s) and not necessarily those of the law firm's clients.

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