From theory to enforcement: APRA’s use of FAR in the Xinja disqualifications

The Australian Prudential Regulation Authority’s (APRA) recent decision to disqualify two directors of Xinja Bank for failing to comply with their obligations as an accountable person marks a significant milestone in the evolution of governance and accountability within Australia’s financial services sector.

This action, taken under the Financial Accountability Regime (FAR), underscores APRA’s sharpened focus on individual accountability and the practical consequences for directors and senior executives who fall short of their obligations. For corporate executives, this development is a timely reminder of the heightened expectations and the tangible risks associated with non-compliance in the current regulatory landscape.

The disqualification: context and implications

Following a lengthy investigation, APRA announced the disqualification of the two Xinja Bank directors from being or acting as accountable persons of any authorised deposit-taking institution. The action is a clear demonstration of the regulator’s willingness to exercise its enforcement powers where it identifies failures in governance and compliance. According to APRA, these individuals were disqualified because they failed to act in accordance with their duty to ensure Xinja had effective capital in place and to be open, constructive, and cooperative with APRA in reporting Xinja’s capital position. APRA described these as serious failures, and the disqualifications, the first under the FAR, reflect the gravity of this conduct. This action is not only punitive but also preventative, signalling to the broader market that APRA will intervene where it perceives a material breach of prudential standards.

FAR as a catalyst for stronger governance

The Financial Accountability Regime represents a paradigm shift in the regulatory approach to governance and accountability. Building on the changes made when the Banking Executive Accountability Regime (BEAR) was introduced in 2018, FAR imposes clear, enforceable obligations on directors and senior executives of authorised deposit-taking institutions (ADIs) and other regulated entities, requiring them to take reasonable steps to prevent breaches of prudential requirements. The regime is designed to ensure that accountability is not merely theoretical but is embedded in the day-to-day operations and culture of financial institutions.

The Xinja Bank case is a practical illustration of FAR in action. It demonstrates that the regime is not limited to setting aspirational standards but is backed by robust enforcement mechanisms. For corporate executives, this means that personal accountability is no longer a matter of reputation alone; it carries real legal and professional consequences.

Lessons for corporate executives

The implications of APRA’s action extend well beyond the individuals involved. For boards and senior management across the financial services sector, the Xinja Bank disqualifications serve as a stark warning of the need to:

• Embed accountability: Ensure that accountability frameworks are not only documented but also actively implemented, monitored, and regularly reviewed to drive genuine responsibility at all levels.

• Strengthen governance: Continuously review and update governance structures to ensure they remain robust, effective, and aligned with evolving regulatory expectations.

• Promote a culture of compliance: Foster an organisational culture in which compliance is prioritised, and directors and executives fully understand and embrace their personal obligations under FAR.

• Engage proactively and transparently with regulators: Maintain open and constructive lines of communication with regulators, ensuring that all material issues are reported promptly and candidly. Cultivate an environment where regulatory engagement is seen as a partnership, and ensure directors and executives are well-prepared to respond to regulatory inquiries with honesty, clarity, and a willingness to address concerns.

Regulatory developments and future outlook

The Xinja Bank disqualifications are part of a broader trend towards increased regulatory intervention and a more assertive approach to enforcement. APRA’s actions align with its stated priorities in its recent corporate plan, which emphasise the importance of strong governance, risk management, and accountability. As the implementation of FAR continues, corporate executives should expect further guidance and, potentially, additional enforcement actions as the regime matures.