Opportunity to consult with the Regulators on FAR

Ross McInnes, Katie Wood, Gabrielle Scott-Jones and Rhys Williams
27 Jul 2023
Time to read: 4 minutes

APRA and ASIC (the Regulators) are inviting industry consultation by 17 August 2023 on proposed Regulator rules and Transitional rules which will support the implementation of the Financial Accountability Regime once the Federal Government enact the Financial Accountability Regime Bill 2023 (FAR Bill).

This article identifies key components of the consultation materials:

  • the draft Regulator rules prescribe information for inclusion in the register of accountable persons under FAR;
  • the draft Transitional rules prescribe information to be provided by ADIs to the Regulators when transitioning from the Banking Executive Accountability Regime (BEAR) to the FAR.

If you would like advice on the potential implications of the proposals for your organisation and/or assistance with engagement with the Regulators during this consultation process, please contact one of our experts.

Draft Regulator Rules – information to be contained in register of accountable persons

The Regulators will be required to establish and keep a register of accountable persons. The FAR Bill provides that the Regulator may make any of the information contained in the register available for public inspection on the internet.

Under the FAR Bill, the register must contain for each accountable person:

  1. the person's name;
  2. the date of the person's registration as an accountable person;
  3. the date the person ceases to be an accountable person;
  4. details of any disqualification of the person, and of any variation or revocation of that disqualification;
  5. for each accountable entity and each significant related entity in respect of which the person is registered as an accountable person – details of the responsibilities that cause the person to be an accountable person of the entity;
  6. any information prescribed by the Regulator rules; and
  7. any other information the Regulator considers appropriate to include in the register and is relevant to the person's registration as an accountable person.

The Draft Regulator Rules propose the following additional information be included in the register of accountable persons:

  • Personal identification details: The accountable person's date of birth, direct phone number, and direct email address, and dates to any changes of these details.
  • Employment status: The accountable person's position title (role title), start and end date of the position title (role title), employer name, start date and end date of employment with the employer.
  • Key functions information: Each ADI Key Function (if any) of the accountable person and the dates the accountable person assumed, and ceased to have, responsibility for each ADI Key Function. The Regulators have separately issued a list of ADI Key Function Descriptions.

This introduces a new categorisation requirement for accountable persons. In addition to identifying their responsibilities, including which prescribed responsibilities they hold under the Minister Rules, the entity will need to identify which Key Functions individuals hold.

The proposed rules include only Key Functions for ADIs but the Regulators have signalled that they intend to issue Key Functions for insurers and RSE licensees in due course and for the time being those entities should consider the ADI Key Functions in the consultation process.

  • Reporting lines: Position title of the person the accountable person reports to and the dates the accountable person started, and ceased, to report to that person.
  • Suspension: Where a person is suspended because they have failed to comply with one or more of their accountability obligations, the start and end date of that suspension.
Matters for potential consideration in consultation process

  • Would the public availability of any of this information deter qualified individuals from accepting a role as an Accountable Person?

    While matters such as the person's employment status are likely to be available on internet platforms such as LinkedIn, the personal identification details may not currently be available. Entities may query the relevance of the individual's date of birth to their role as an accountable person.

  • What is the likely administrative burden to the entity of keeping this information updated with the Regulators?
    Are there any components which materially increase the administrative burden? Could this be reduced by the introduction of a reporting cadence in the Draft Regulator rules?
  • Does the "enhanced notification threshold" under the FAR Bill remain meaningful?

    Given the requirement to report Key Function Information, in addition to the details of the responsibilities that cause the person to be an accountable person of the entity already required by the FAR Bill, in practice will all entities be submitting Accountability Statements and Accountability Maps to the regulators?

  • Is the additional layer of categorisation through the introduction of ADI Key Functions likely to increase clarity of accountabilities in line with the purpose of the regime given the lack of alignment between the prescribed responsibilities and the ADI Key Functions?

    Taking one of many examples, to demonstrate the lack of alignment, the prescribed responsibilities for accountable entities in the proposed Financial Accountability Regime Minister Rules 2022 includes identifying the person(s) with senior executive responsibility for management or control of the accountable entity’s financial resources.

    Under the Draft Regulator Rules the ADI Key Functions that are likely to be relevant to this individual include: (a) capital management; (b) collections and enforcement (default, debt collections, and recovery); (d) credit risk management; (i) liquidity and funding management; and (j) market risk management (amongst others).

    Those ADI Key Functions are also likely to be relevant to other Accountable Persons such as the senior executive with responsibility for management of the accountable entity’s overall risk controls or overall risk management arrangements, amongst others.

  • What is the benefit of the ADI Key Functions and does that benefit outweigh the increased administrative burden?
  • Do the Key Functions of the "Product Design and Distribution Obligations" and "Product Origination" align with entity's operations?
    Note the Prescribed Responsibilities under FAR initially proposed to include an end-to-end product responsibility (see 16 November 2021 Policy Proposal Paper providing a list of prescribed responsibilities and positions). The proposal posed significant operational complications given the common split between product design and product distribution functions. The FAR Minister Rules 2022 Exposure Draft does not include such a responsibility, or any specific reference to product design, distribution or origination. 

Draft Transitional Rules

The Draft Transitional Rules propose the following information be provided to APRA, to facilitate the transition from BEAR to FAR, within 30 days after the Financial Accountability Regime (Consequential Amendments) Bill 2023 receives Royal Assent. For each person who is, at the time of transition, an accountable person under BEAR and will become an accountable person under FAR:

  • Personal identification details: Former given name(s) (if applicable), former middle name(s) (if applicable), former family name(s) (if applicable), place of birth (town/city), country of birth, state of birth (if applicable), director identification number (if applicable, and subject to section 1270N of the Corporations Act 2001), direct phone number; and direct email address.
  • Employment status: The start date of the accountable person's position title (role title) and start date of employment with the employer.
  • Reporting lines: Position title of the person the accountable person reports to and the dates the accountable person started, and ceased, to report to that person.
  • Responsibilities information: Details of each General or Prescribed Responsibility or Position that cases the person to be an accountable person. [This should be available from their BEAR Accountability Statements.]
  • Key functions information: Each ADI Key Function (if any) of the accountable person and the dates the accountable person assumed responsibility for each ADI Key Function.
Matters for potential consideration in the consultation process

  • What is the purpose of the extensive disclosure of personal identification details e.g. former names, place of birth etc. and why is it not aligned with the disclosure of personal identification details required by the draft Regulator Rules?
  • Will 30 days be sufficient time to generate this reporting?
  • See above for matters for potential consideration in relation to the ADI Key Functions.

Online Learning Hub

We also look forward to soon launching our FAR e-Learning Hub, which will contain easy to follow videos and resources with more detail in relation to the Financial Accountability Regime.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.