FAR: a catalyst for accountability and stronger governance

It is almost six months since the Financial Accountability Regime (FAR) officially commenced for the superannuation and insurance sectors, following its rollout for Authorised Deposit-taking Institutions (ADIs) almost 18 months ago. Having worked through the initial burden of establishing a FAR compliance framework, now is the time for organisations to capitalise on that momentum, reaping the benefits that can come from embedding and maturing those frameworks.

Many industry leaders will recognise FAR's value as a tool to clarify roles, responsibilities, and governance structures. As experienced CRO Nigel Williams noted, "The FAR implementation process has created clarity for many organisations... it’s not just about meeting regulatory requirements; it can create clarity of decision rights and accountability that should speed up the organisation's meetings and decision making."

Building the foundation – key implementation priorities under FAR

As a baseline for compliance with FAR, entities need to focus on the following:

• Accountability statements and maps: These should be current, complete, and operationalised. Regulators will expect to see clear documentation that aligns with actual practices.

• Reasonable steps: Accountable persons must be able to demonstrate they have taken "reasonable steps" to meet their obligations.

• Record-keeping: Robust systems must be in place to maintain records that effectively demonstrate compliance.

FAR compliance is not a "set and forget" exercise. Regular reviews and updates are essential, and if not already in place, training programs should be implemented to ensure accountable persons and staff understand their obligations, and the consequences of non-compliance. However, regulated entities must ensure they are not only compliant but also prepared to demonstrate accountability at every level.

The scope of a regulated entity's FAR rollout therefore needs to also ensure that boards and other decision-making bodies are structured and operating a way that supports the organisation's individual accountability framework.

Beyond compliance: embedding accountability

Building on the changes made when the Banking Executive Accountability Regime (BEAR) was introduced in 2018, FAR embeds a significant shift in mindset for the financial services industry and its regulators. Drawing parallels with the UK’s Senior Managers and Certification Regime, where the FCA has used skilled persons reviews to assess governance failures and organisational culture, we can anticipate that any future FAR investigations will be broad and far-reaching. We expect APRA and ASIC will not only want to assess whether the required accountability frameworks are in place but also scrutinise how deeply accountability has been embedded into the fabric of an organisation.

Through the FAR implementation process, organisations have the opportunity to gain a clearer understanding of their internal governance structures and decision-making pathways. The regime encourages organisations to take a holistic view of their operations, ensuring that boards and other decision-making bodies are structured and functioning in a way that supports individual and collective accountability. This exercise not only helps meet regulatory expectations but also strengthens the organisation’s ability to operate transparently and effectively.

Red flags that could attract regulatory attention

APRA’s recent use of accountability statement requests in its supervision interactions highlights the practical application of FAR in regulatory oversight. This underscores the importance of having well-prepared and operationalised accountability statements that reflect the organisation’s governance and decision-making processes.

Even with a well-established FAR framework, weaknesses or misalignments in execution may still draw the attention of regulators. Potential red flags include:

• Delays in reporting: Failing to notify regulators of material changes to accountable persons’ responsibilities in a timely manner could signal underinvestment in FAR compliance.

• Over-reliance on joint accountability: While joint accountability can be appropriate in some cases, excessive reliance on shared responsibilities may be seen as an indication that the core principles underlying FAR have not been understood.

• Incomplete mapping: While ensuring each individual's accountability statement is clear and accurate, regulators will also expect regulated entities to take an organisational level view to ensure comprehensive coverage of critical operations and functions.

• Inconsistencies in documentation and practice: Misalignment between accountability statements and how responsibilities are operationalised through policies, risk and control ownership, and governance structures could raise concerns.

• Weak alignment with incentives and consequence management: A lack of integration with remuneration or incentive structures, or organisation-led conduct oversight and enforcement frameworks may suggest that accountability is not fully embedded in the organisation’s culture.