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What’s the background?

The Financial Accountability Regime is the government’s response to recommendations made by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry to extend the Banking Executive Accountability Regime (BEAR) to strengthen the responsibility and accountability of the directors and most senior and influential executives of financial institutions.

The FAR aims to improve the operating culture of entities in the banking, insurance and superannuation sectors and to increase transparency and accountability across these sectors - in relation to both prudential matters and conduct-related matters.

The FAR commenced for authorised deposit-taking institutions (ADIs) and their authorised non-operating holding companies (NOHCs) on 15 March 2024. It will apply to insurance entities, their licensed NOHCs, and superannuation trustees on 15 March 2025. 

What are the biggest changes? 

The Minister Rules

The Minister Rules support the FAR by prescribing:

• the responsibilities of accountable entities in each sector which cause an individual to be an ‘accountable person’ and therefore subject to the FAR; and

• the thresholds (based on total asset value) above which an accountable entity meets the enhanced notification requirements and must submit accountability statements and maps to the Regulators.

The key change between the draft and final Minister Rules is the increase in the threshold for determining when accountable entity is subject to enhanced notification requirements:

• ADIs: increased from $10bn to $20bn

• General insurers: increased from $2bn to $10bn 

• Life insurers: increased from $4bn to $10bn 

• Health insurers: increased from $2bn to $3bn 

• RSE licensees: increased from $10bn to $30bn 

The final Minister Rules also include other updates such as clarification on the calculation of total asset value to be used when determining when accountable entity is subject to enhanced notification requirements. 

Regulator Rules, Transitional Rules and Reporting Form Instructions 

Following a period of consultation, several refinements were made from the draft rules, and additional clarification was provided with respect to the collection of personal information and other data items, and the concept and application of the ADI Key Functions. For example, ‘risk culture’ and ‘financial services regulatory engagement’ were removed as Key Functions, and ‘monitoring representatives and staff’ and ‘training of relevant staff and representatives’ have been merged into one Key Function. 

The information released by the Regulators also includes descriptions of ADI Key Functions to assist entities in the allocation of key functions, and reporting form instructions to assist entities in providing the required information to the Regulators.

You can view the final Regulator Rules, Transitional Rules and ADI Key Functions descriptions on the APRA website. For full information about the changes made refer to the Regulator’s response letter to consultation submissions.

What should I do next?

As an ADI:

• Ensure you are ready for FAR commencement on 15 March 2024

• Review the recent updates and information package, and consider if you need to make any changes to your FAR implementation

• Lodge registrations and notifications as early as possible and no later than 30 June 2024

As an insurer or RSE:

• Continue on your FAR implementation journey (or look to commence if you have not done so already)

• Understand the changes to the core or enhanced notification requirement thresholds in the final Minister Rules to determine the category you fall into 

• Consider other regulatory change initiatives like CPS 230 Operational risk management, as you look to implement FAR and leverage applicable artefacts or learnings. 

• Engage with the Regulators during the consultation on key functions.