The Australian Prudential Regulation Authority (APRA) and the Australian Securities Investment Commission (ASIC), together the Regulators, have addressed a letter to all APRA-regulated entities on their observations on the registration and notification lodgements made by authorised deposit taking institutions (ADIs) since the commencement of the Financial Accountability Regime (FAR) to the banking industry on 15 March 2024. The letter is welcomed by the insurance and superannuation industries, who are busy implementing FAR ahead of the commencement date of the regime to those sectors on 15 March 2025.
The letter is accompanied by a cautionary warning that where entities fail to comply with their obligations under FAR, the Regulators may take further action, including when FAR commences for insurers and super funds.
What the Regulators are saying
The Regulators have identified areas requiring further consideration by ADIs and emphasise specific aspects of FAR, as described in previous regulatory guidance, for all industries to consider.
Notably, the Regulators have indicated:
Accountable entities should have robust frameworks in place to ensure registration and notification submissions are complete and comply with applicable obligations under FAR.
Reminder for insurance and superannuation entities
18 November – 20 December 2024: Insurers and superannuation entities must submit their FAR entity profile.
13 February – 22 February 2025: Insurers and superannuation entities must register their accountable persons.
For more guidance on how to complete the forms for submitting an entity profile and registering an accountable person, please refer to the Regulator’s FAR presentations here.
The accountable entity’s Board are expected to demonstrate appropriate oversight and be prepared to attest to the adequacy of the entity’s FAR framework and its compliance with FAR obligations.
The Regulators’ observations
We have summarised what the Regulators have observed on the banking industry’s implementation of FAR about general and prescribed responsibilities, key functions and other aspects, as well as provided our own suggestions for consideration.
General and prescribed responsibilities
Regulators’ observation | Further consideration for accountable entities | G+T’s food for thought | |
Possible gaps in the assignment or notification of prescribed responsibilities, including responsibilities associated with prescribed positions | The Regulators refer to the key personnel obligations in section 23(1)(a)(ii) – (iii) of the Financial Accountability Regime Act 2023 (FAR Act). That is, the obligation on the accountable entity to ensure that the responsibilities of accountable persons cover each of the prescribed responsibilities and prescribed positions outlined in the Financial Accountability Regime Minister Rules 2024 (Minister Rules). All prescribed responsibilities must be covered by an accountable person. | Regulatory Guide 279 Financial Accountability Regime: Information for accountable entities (RG 279) states ‘the allocation of responsibilities is expected to appropriately reflect the size and nature of an accountable entity’s business and to accurately reflect the way those responsibilities are held’. A full list of the prescribed responsibilities and positions is provided at the end of this article. | |
Consideration of general responsibilities | Accountable entities must consider whether an individual holds general responsibilities that cause them to be an accountable person under s10(1) and 10(6) of the FAR Act. Accountable persons who have general and prescribed responsibilities must identify this in the FAR forms. | We would encourage accountable entities to consider how general responsibilities are reflected in accountability statements, including which areas of responsibility are applicable on an enterprise-wide basis. | |
Possible gaps in the assignment or notification of accountable persons for and with responsibility in respect to SREs | Where accountable entities have significant related entities (SREs), it must identify any accountable persons of the SRE, consistent with the requirement in section 10(6) of the FAR Act. | Accountable entities should reflect on their accountability maps, including the group structure of the entity and composition of the Boards and senior executive teams that sit on each company in the group structure. This may assist in identifying potential individuals that meet the threshold of being an accountable person of an SRE. | |
Multiple accountable persons jointly holding prescribed responsibilities | The Regulators consider individual accountability to be the clearest form of accountability. Apart from board members, jointly held responsibilities should be kept to a minimum. Where there is currently joint accountability, entities should consider whether:
| Joint accountability should be avoided. We encourage accountable entities to consider who the framework owner may be with respect to the prescribed responsibility. Having a clear understanding of framework and risk ownership is helpful in determining individual accountability. |
Key functions
Regulators’ observation | Further consideration for accountable entities | G+T’s food for thought | |
Notification of applicable key functions | Accountable entities should notify the Regulators about the allocation of key functions which is required for the register of accountable persons. Entities must also notify the Regulators if there is any change to this allocation. | We emphasise that there are requirements in allocating a key function. These are:
A list of key functions across the industries is provided below. | |
Inappropriate allocation of key functions | Key functions should not be allocated to directors or senior officers outside Australia who have no senior executive responsibility, as key functions are senior executive responsibilities. | Allocation of key functions should only be for senior executives. We encourage accountable entities to map out the allocation of key functions (whether this is in their accountability map or internal FAR arrangement documents), so there is a birds-eye view of this allocation. Caveats such as limitations and exclusions, should also be provided for each allocation should there be multiple accountable persons holding that key function. |
Other
Regulators’ observation | Further consideration for accountable entities | G+T’s food for thought | |
Ceasing of accountable persons and material changes to their responsibilities | Accountable entities must submit timely notifications to the Regulators, via the approved FAR forms, when persons cease to be an accountable person under FAR or when there is any material change to their responsibilities.
Where there is any transfer of business or licence revocation, the Regulators expect entities to submit their FAR notifications before this. | We encourage accountable entities to have a robust process for notifying the Regulators of the notifiable events in section 32 of the FAR Act:
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How we can help
If you require assistance with your implementation of FAR or the making of enhancements to your existing governance, risk management, compliance and other arrangements, please let us know.
We have implemented Banking Executive Accountability Regime (BEAR) and FAR for a significant number of institutions in the banking, insurance and superannuation sectors and have led several internal BEAR investigations.
We routinely provide strategic advice to Boards and executives on the management of potential exposures under the regime.
Our capability extends to the implementation of the related APRA CPS 511 Remuneration.
For more information or assistance, contact our experts:
List of prescribed responsibilities and positions
Industry | Responsibilities / Position | Reference | |
All entities |
| Minister Rules, section 5(2) | |
| Minister Rules, section 6(2) | ||
Insurance |
| Minister Rules, section 7(2) | |
Superannuation |
| Minister Rules, section 8(2) | |
Foreign accountable entities |
| Minister Rules, section 9(2) | |
Non-operating holding companies (NOHCs) |
| Minister Rules, section 10(2) | |
| Minister Rules, section 11(2) |
List of key functions
ADI | Insurance | Superannuation | |
ADI Key Function means each of the following key functions only if the ADI Key Function Requirements apply to a particular key function: | Insurance Key Function means each of the following key functions only if the Insurance Key Function Requirements apply to a particular key function: | Registrable superannuation entity (RSE) licensee Key Function means each of the following key functions only if the RSE licensee Key Function Requirements apply to a particular key function: | |
Capital management | Capital management | ||
Collections and enforcement (default, debt collections and recovery) | Collections and enforcement (default, debt collections and recovery) | ||
Conduct risk management | Conduct risk management | Conduct risk management | |
Credit risk management | |||
Data management | Data management | Data management | |
Financial and regulatory reporting | Financial and regulatory reporting | Financial and regulatory reporting | |
Hardship processes | Hardship processes | Hardship processes | |
Investment management | |||
Liquidity and funding management | Liquidity management | ||
Market risk management | |||
Marketing and advertising | |||
Member outcomes | |||
Operational risk management | Operational risk management | Operational risk management | |
Product design and distribution obligations | Product design and distribution obligations | Product design and distribution obligations | |
Product origination | Product origination | Product origination | |
Recovery and exit planning and resolution planning | Recovery and exit planning and resolution planning | Recovery and exit planning and resolution planning | |
Reinsurance management | |||
Scam management | Scam management | Scam management | |
Technology management | Technology management | Technology management | |
Training and monitoring of relevant representatives and staff | Training and monitoring of relevant representatives and staff | Training and monitoring of relevant representatives and staff | |
Underwriting | |||
Whistleblower policy and process | Whistleblower policy and process | Whistleblower policy and process |