From BEAR to FAR: Australia ushers in a new age of financial accountability

Legislation concerning the Financial Accountability Regime (FAR) has received the nod of approval from both Houses of the Australian Parliament. This milestone move in 2023 lays the groundwork for a stringent accountability structure, targeting directors and top-tier executives of financial institutions across banking, insurance, and superannuation sectors.

MyComplianceOffice (MCO) recently explored what the new Financial Accountability Regime will mean for compliance

The dual bills – the Financial Accountability Regime Bill 2023 and the Financial Accountability Regime (Consequential Amendments) Bill 2023 – cruised through Parliament unamended on 05 September 2023. Now, all eyes are on the Governor-General, who is anticipated to grant assent within the same month.

Timeline wise, the banking sector will see the FAR in action come March 2024, while insurance and superannuation sectors must wait another year, bracing for FAR’s integration in March 2025.

Delving into its origins, the precursor to FAR was the Banking Executive Accountability Regime (BEAR), limited to Authorised Deposit-Taking Institutions (ADIs). These ADIs, licensed by APRA, encompassed a range of financial institutions, from banks to building societies and credit unions. Prior to FAR’s introduction in 2021, consumer advocacy powerhouse CHOICE raised concerns over BEAR’s effectiveness, highlighting the minimal financial impact on ADIs, notably regarding fines and executive disqualifications.

Patrick Veyret’s bold assertion in an AFR article crystallised this sentiment: “If the BEAR’s impact is measured in financial terms – by the amount of executive remuneration clawed back or the amount of fines issued – then its impact has been precisely zero.”

Contrastingly, research from APRA and Macquarie University suggests BEAR’s positive influence, underlining its role in enhancing the culture and conduct within the banking realm by holding individual bankers accountable.

With FAR’s arrival, BEAR bows out, making way for an all-encompassing framework that stretches beyond ADIs to rope in entities like private health insurers, general insurers, and life insurers. Tracing its legislative journey, the inaugural FAR Bill landed in the House of Representatives on 29 October 2021. Two years on, the 2023 version of the FAR Bill retains much of its original essence, with a singular notable change focusing on crystallising the Minister’s exemption powers.

FAR’s overarching goal appears to be upping the ante on regulatory administration and compliance. This sentiment becomes evident when contrasting BEAR’s singular administration by APRA to FAR’s dual administration by APRA and ASIC. Particularly, ASIC’s dynamic enforcement history shines through, boasting 74 financial services enforcement outcomes, 18 individual criminal charges, and a whopping $109.1m in court-imposed civil penalties in the first half of 2023 alone.

Furthermore, FAR serves as a catalyst for an intensified focus on compliance obligations, encompassing a spectrum of areas such as data risk, cyber security, anti-money laundering, scams, and more. This expansive vision goes hand in hand with the new remuneration guidelines laid out under FAR, mandating that a substantial 40% of variable remuneration for accountable persons be deferred for a minimum of 4 years.

But who exactly qualifies as an “accountable person” under FAR? Essentially, it refers to those at the helm of operations – directors and the crème de la crème of executives, including the likes of Chief Executive Officers and their direct reports. In a shift from BEAR, those registered under it will transition seamlessly to FAR, given they continue to uphold their accountability.

FAR’s accountability framework demands a commitment to integrity, skill, care, and diligence. It also mandates a transparent relationship with regulatory bodies like APRA and ASIC. Breaching these tenets can lead to disqualification. Plus, robust measures, including governance, risk, and control systems, must be in place to prevent breaches.

Lastly, transitioning from BEAR to FAR presents an ideal window for financial entities to reevaluate their compliance monitoring and reporting mechanisms. RegTech solutions, such as MyComplianceOffice (MCO), offer tools to efficiently manage and report accountable persons’ duties and activities, thereby ensuring smooth compliance with regulations.

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