Financial Accountability Regime: Final rules and guidance before FAR commencement

Introduction

The Regulators, APRA and ASIC, have published a suite of final rules and guidance before FAR commences for banks on 15 March 2024. While there's a time-critical focus for banks, some of these updates will be relevant to Insurers and RSE Licensees as well, as they look further ahead to commencement in March 2025.

Key developments

1. Regulator and Minister Rules covering three core components to operationalise FAR:
   • Prescribing responsibilities (for all sectors) that make people FAR Accountable Persons;
   • Setting asset value thresholds (for all sectors) that make an accountable entity reach the enhanced notification threshold, increasing their reporting requirements to Regulators (as summarised below, the Regulators have materially increased the threshold causing an entity to meet enhanced notification requirements compared with the draft Minister Rules. This will significantly reduce the administrative burden for those entities whose asset value is now beneath the threshold.);
   • Describing the information to be provided to Regulators by ADIs for the register of Accountable Persons.
2. The Regulators' updated information package, published on 14 March 2024, includes the following guidance materials relevant to all industries:
   • an information paper to assist entities and their accountable persons in understanding and complying with their obligations under the FAR;
   • an updated accountability statement guide and template to help entities subject to the FAR enhanced notification obligations to prepare accountability statements; and
   • reporting form instructions to assist entities in reporting FAR breaches to APRA and ASIC.
3. For Insurers and Superannuation providers, the Regulators have also:
• opened a consultation on the "Key Function Descriptions" for those industries. Key Functions will be included on the Regulators' register of Accountable Persons. Submissions are due to the Regulators by 19 April 2024;
• released a letter outlining the actions insurance and superannuation entities should take ahead of FAR commencement.

The balance of this article provides further information in relation to the first key development identified above.

Regulator and Minister Rules covering three core components to operationalise FAR

The commencement of the regime on 15 March 2024 for ADIs has been a long time coming, with the Financial Accountability Regime Act 2023 enacted in October 2023, several years after the original draft FAR Bill was released for consultation in July 2021.

An interdependency between the Regulator Rules and the Minister Rules meant the Regulators could not publish key operational guidance until after the Minister Rules were finalised. In recognising that the delayed release of the Minister Rules and associated Regulator guidance would have an impact on ADIs' (and their NOHCs') ability to comply with components of FAR on the 15 March 2024 commencement date, on 5 February 2024, the Regulators signalled that additional time may be needed to finalise compliance in relation to submitting applications for registration of new accountable persons and complying with core or enhanced notification obligations. The Regulators expect entities to submit registration applications and make relevant notifications as promptly as possible, and by no later than 30 June 2024. Entities will be able to act on these requirements with the release of the rules outlined in this article.

Prescribed responsibilities making people FAR "Accountable Persons"

Financial Accountability Regime (Minister) Rules 2024 (5 March 2024)

Link to website

What FAR requirement do these rules relate to? A person will be an accountable person of an accountable entity under FAR if they hold a position prescribed by the Minister Rules (section 10(2) to (4) of the FAR Act 2023) [or if they meet the other requirements of section 10]

What do the rules do? The Minister Rules list the prescribed responsibilities and positions for all sectors, including ADIs, insurers, RSE Licensees, and their NOHCs.

For entities that are required to submit Accountability Statements, they will need to report to the Regulators which prescribed responsibilities an Accountable Person holds.

Material changes from draft Rules There are no material changes to the list of prescribed responsibilities when compared with the draft Financial Accountability Regime (Minister) Rules 2022, although some clarity has been brought to the drafting.

Threshold to become an "Enhanced" notification entity

Financial Accountability Regime (Minister) Rules 2024 (5 March 2024)

Link to website

What FAR requirement do these rules relate to? If the accountable entity meets enhanced notification thresholds set by Minister Rules, it will have additional notification requirements to the Regulators including to submit Accountability Statements and an Accountability Map, and to inform the Regulators of material changes to those documents. (section 31(2) of FAR Act 2023).

What do the rules do? The Minister Rules prescribe thresholds for identifying Enhanced Notification entities – those required to submit Accountability Statements and Accountability Maps to the Regulators. Thresholds are set by reference to the entity's total assets value as reported.

Material changes from draft Rules When compared with the draft Financial Accountability Regime (Minister) Rules 2022, there have been material increases to the total asset values that make the entity subject to enhanced notification requirements:

• ADIs: total asset value has doubled from $10 to 20 billion;
• General insurers: total assets value has increased five fold from $2 to 10 billion;
• Life companies: total assets value has more than doubled from $4 to 10 billion;
• Private health insurers: total assets value has increased from $2 to 3 billion;
• RSE Licensees: total assets value has tripled from $10 to 30 billion.

Information for Register of Accountable Persons – for ADIs

Financial Accountability Regime Act (Information for register) Regulator Rules 2024 (6 March 2024)

Link to website

What FAR requirement do these rules relate to? The Regulators are required to keep a register of Accountable Persons containing a list of information about them as set out in both the FAR Act 2023 (section 40) and as prescribed in the Rules.

The Regulators have issued a reporting form instruction guide for submitting information required for the register.

What do the rules do? The information on the register includes personal identifying details, employment status, reporting lines and information about the key functions of the individual (see ADI Key Functions Descriptions below).

While the scope of the information to be shared may seem significant, the Regulators have importantly signalled their intention that the information collected via the register of accountable persons will only be made publicly available in circumstances where they disqualify an individual.

Material changes from draft Rules There are no material changes to the draft Financial Accountability Regime Act (Information for register) Regulator Rules that were published for consultation in July 2023, with the exception of the ADI Key Function changes referred to separately in this article.

Financial Accountability Regime (Consequential Amendments) Transitional Rules 2024 (6 March 2024)

Link to website

What FAR requirement do these rules relate to? These rules apply to all ADIs subject to Banking Executive Accountability Regime (BEAR) that become accountable entities under FAR on 15 March 2024. These rules relate to the collection of information for the register of Accountable Persons.

What do the rules do? ADIs must provide the Regulator with information in respect of each person who is an accountable person for the purpose of BEAR, who will become an accountable person for the purpose of FAR. That information includes personal identification details, employment status, reporting lines, responsibilities information and key functions information.

Material changes from draft Rules In addition to the ADI Key Function changes referred to separately in this section, the personal identification details that are required to be provided have been reduced compared with the draft rules published in July 2023. The accountable entity is no longer required to provide the former names of the accountable person, their place of birth, country of birth or state of birth (if applicable).

ADI Key Functions Descriptions (7 March 2024)

Link to website

What FAR requirement do these rules relate to? This guidance document provides further description of the ADI Key Functions that are required to be provided to the Regulators for inclusion on the register of Accountable Persons.

This requirement is provided for in each of the Financial Accountability Regime (Consequential Amendments) Transitional Rules 2024 and Financial Accountability Regime Act (Information for register) Regulator Rules 2024.

What do the rules do? Entities need to identify which of the ADI Key Function(s) (if any) an Accountable Person holds for the register of Accountable Persons.

The accountable entity is not required to undertake each ADI Key Function or to assign each ADI Key function to an accountable person. However, if there is an individual (or individuals) within the entity who undertake / have responsibility for the function, then that needs to be recorded on the register.

Material changes from draft Rules The Regulators have reduced the list of ADI Key Functions from 20 to 17: "financial services regulatory engagement" and "risk culture" have been removed (given submissions noted that these would need to be allocated to most, if not all, accountable persons), and "monitoring representatives and staff" and "training of relevant staff and representatives" have been merged into one.