The government has introduced the Financial Accountability Regime Bill 2023 into the House of Representatives.
The final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry recommended extending the BEAR to all APRA regulated entities. The Morrison government’s Financial Accountability Regime Bill 2021 lapsed because of the 2022 federal election. The Albanese government introduced the Financial Accountability Regime Bill 2022 last year but has introduced the new 2023 bill this year to incorporate recommendations made by the Senate Economics Legislation Committee. The 2023 bill is substantially the same as the 2022 and 2021 bills. That said, the 2023 bill more clearly articulates the scope of the minister’s exemption power and provides for parliamentary oversight of the regime.
If passed, the bill would impose a financial accountability regime (FAR) on APRA regulated entities such as authorised deposit-taking institutions (ADIs), insurers (specifically, licenced non-operating holding companies, life and general insurance licensees and private health insurance licensees) and superannuation trustees (accountable entities). It will replace and replicate the existing banking executive accountability regime (BEAR) that applies only to ADIs.
The new regime will impose obligations on both accountable entities and the “key personnel” of those entities (accountable persons). It will impose accountability obligations, key personnel obligations, notification obligations and deferred remuneration obligations on regulated entities and conduct obligations on accountable persons.
The regime will be regulated by ASIC and APRA.
The core obligations of the FAR:
- Accountability obligations: An accountable entity must act with honesty integrity and with due skill, care and diligence. It must also deal with the regulators in an open, constructive and co-operative way. An accountable person must take reasonable steps to ensure their accountable entity complies with its licensing obligations.
- Key personnel obligations: An accountable entity must provide the regulators with an accountability map and individual accountability statements. These must show the accountable person responsible for each area of the entity’s business.
- Deferred remuneration obligations: An accountable entity must defer at least 40% of the variable remuneration of each accountable person for a minimum of four years. The entity must have a remuneration policy that sets out when this remuneration will not be paid.
- Notification obligations: An accountable entity must notify the regulators of certain matters prescribed in the legislation.
The maximum penalty for an accountable entity will be the greater of the following:
- 50,000 penalty units (currently $13.75 million);
- 3 times the benefit derived or detriment avoided by the entity because of contravention; and
- 10% of annual turnover of the body corporate, to a maximum of 2.5m penalty units (current $687.5 million)
The maximum penalty for an accountable persons will be the greater of:
- 5,000 penalty units (currently $1.375 million); and
- 3 times the benefit derived or detriment avoided because of the contravention.
The regulator may also disqualify an accountable person from participating in a regulated industry in an executive or management role.
The 2023 bill will almost certainly pass both Houses of Parliament as it is substantially the same as the 2021 bill introduced by the Morrison government.
The 2023 bill will commence the day after Royal Asset. The FAR will apply to ADIs six months after commencement and to insurers and superannuation trustees eighteen months after commencement.
If you are a regulated entity, you will need to, among other things, prepare an accountability map and individual accountability statements for your accountable persons. You must also set up a deferred remuneration process for those persons.
Need to know more?
If you have questions, or require assistance, in relation to how the FAR may impact your business, please contact our HWL Ebsworth Financial Services Advisory team.
This article was written by Michael Anastas, Partner, Byron David, Senior Associate and Claudia Just, Law Clerk.