Related Knowledge
The Financial Accountability Regime Bill (the FAR Bill), was introduced to the House of Representatives on 28 October 2021 confirming its likely implementation for ADIs from 1 July 2022, and for insurers and RSE Licensees from 1 July 2023.
The FAR Bill is substantially the same as the draft Proposal Legislation, but with a handful of notable differences which will require careful consideration by ADIs, insurers and RSE Licensees as part of their transition and implementation plans.
"Ensuring" compliance with relevant laws
- Accountable Person obligation: It is no longer a proposed requirement (as it was in the draft Proposed Legislation) that an Accountable Person take reasonable steps in conducting their responsibilities to "ensure that the accountable entity complies with" a prescribed list of relevant laws. Instead, the Accountable Person must take reasonable steps to "prevent matters from arising that would (or would be likely to) result in a material contravention by the accountable entity of any of the" prescribed list of relevant laws. The introduction of "material" contraventions of the relevant laws is a threshold consistent with what one would expect to be the focus for someone in an Accountable Person position.
- Definition of "reasonable steps": A similar change has been made to the definition of what is required to take reasonable steps – removing the reference to "taking appropriate action to ensure compliance". The definition retains the proposal that taking reasonable steps in relation to a matter may include "taking appropriate action in response to non-compliance, or suspected non-compliance, in relation to that matter".
These amendments appear to acknowledge that there is a limit on the extent to which Accountable Entities and Accountable Persons can "ensure" that an entity complies with legal obligations, and instead focus on having appropriate governance, risk management and compliance processes, both to prevent issues from occurring and to swiftly address them when they arise. A question still exists about the interpretation of what circumstances would constitute "likely" material contraventions or "suspected non-compliance".
Publication of information regarding Accountable Persons
The Bill introduces the power for the regulators to make information on the register of Accountable Persons available on the internet. The discretionary power is said to allow "the regulators to balance the need for confidentiality of sensitive information about financial services businesses with the need for public accountability and transparency".
It is not clear from the Explanatory Memorandum the extent to which it is intended that all information on the register be made public and in what circumstances. It may be the case that information from the register would only be published if there has been a breach of an obligation. Alternatively, the intention may be more closely aligned with the Senior Managers and Certification Regime in the United Kingdom where the Financial Conduct Authority publishes and maintains a directory of certified and assessed persons on the Financial Services Register so consumers and professionals can check the details of key individuals.
Alignment with new Breach Reporting obligations under the Corporations Act 2001 (Cth)
The notification threshold for Accountable Entities to report possible breaches of FAR obligations has been modified to align with the new breach reporting obligations under the Corporations Act 2001 (Cth). The language “has reasonable grounds to believe” replaces “reasonably believes”. Entities will now be able to more closely align their breach reporting policies under the FAR with those already in place.
Individual liability
The draft Proposed Legislation did not include civil penalties for breaches by Accountable Persons of their accountability obligations, which had been a feature of earlier proposals. It did however contain a cross-reference to section 92 of the Regulatory Powers Act which apparently imported individual liability for ancillary contraventions of civil penalty provisions.
Rather than rely on this cross-referencing, the FAR Bill has incorporated an express provision for ancillary contraventions of civil penalty provisions by individuals which makes it clear that if an individual were to be deliberately involved in the contravention of an Accountable Entity's obligations under the regime (in the manner described below) then they will be subject to a civil penalty. That is, a person will be liable to a civil penalty if he or she:
- attempts to contravene a civil penalty provision;
- aids, abets, counsel or procure a contravention of a civil penalty provision;
- induce (by threats, promises or otherwise) a contravention of a civil penalty provision;
- is in any way, directly or indirectly, knowingly concerned in, or party to, a contravention of a civil penalty provision of this Act; or
- conspires with others to effect a contravention of a civil penalty provision.
This is consistent with Schedule 2 of the Banking Act 1959 which applied to the Banking Executive Accountability Regime (BEAR). There remains no civil penalty for contraventions by Accountable Persons of their accountability obligations.
We will continue to monitor the progress of the legislation through the Houses of Parliament. Early indications suggest that there may be some pressure applied to re-introduce individual penalties, and we will report with any major developments through the legislative process. If you would like to understand how the changes in the FAR Bill will affect you, or need help to manage the transition, please contact us.