The Financial Accountability Regime Bill is back

After a hiatus during the change in government, the Financial Accountability Regime Bill 2022 (FAR Bill) was introduced to the lower house on Thursday 8 September 2022 in substantially the same form as the proposed legislation introduced by the former Government in October 2021.

The only substantive changes were to the FAR Bill’s Explanatory Memorandum (EM), largely in response to the report issued on 15 February 2022 by the Senate Economics Legislation Committee. A couple of points of interest:

• No additional civil liabilities for individuals: The question whether, in order to have teeth, the regime must incorporate civil liability for accountable persons who breach their accountability obligations has been a subject of controversy since the FAR was proposed.

  The FAR Bill continues to maintain the same civil liability for accountable persons as currently exists for ADIs under the Banking Executive Accountability Regime (BEAR). The only civil liability provision for an individual in the FAR Bill is section 81 which is the ancillary liability provision, “intended to deter an accountable person from aiding an accountable entity to contravene its accountability obligations”. The EM records that continuing the approach of the BEAR provides continuity of expectations on executives.

• Significant Related Entities (SREs): The EM now expressly provides (see additions at 1.35 and 1.45) that the following factors, which continue to exist in section 12(4) of the FAR Bill, are relevant to determining whether the relationship between an accountable entity and another entity is sufficiently material and substantial to make the other entity a significant related entity:
  • the nature and scale of the entity’s business or activities,
  • any interdependency between the entity and the accountable entity,
  • any organisational, financial or administrative arrangements between the entity and the accountable entity, and
  • any other relevant factor.

  Given the diversity of entities captured by the FAR Bill it is unsurprising that this description remains at a high level in the EM. We encourage entities to develop a set of reasoned criteria for each of these factors, with thresholds that can be consistently applied across the Group to be deployed in the absence of more specific guidance from ASIC and/or APRA.

  As with the implementation of the BEAR, it may be that detailed regulatory guidance will follow the commencement of the regime and be modelled off the approaches taken by industry in the initial roll-out of the FAR.

• Exemptions from the regime: The EM explains in more detail the power of the Minister to exempt an accountable entity or class of accountable entities from the regime. The power is to ensure the regime can operate flexibly and avoid unintended consequences. An example is given that “there may be instances where the Financial Accountability Regime may act as a barrier to entry for some small new entrants and the ability to exempt entities or classes of entities from the regime may facilitate competition in the market”.

The FAR Bill will come into effect for ADIs six months after its passage into legislation and a further 12 months later for insurers and superannuation providers.

With greater certainty that the FAR Bill is likely to proceed without substantial amendment, entities can start their implementation plans in earnest.