Financial Accountability Regime (FAR)

The Banking Executive Accountability Regime (BEAR) applies to Authorised Deposit-taking Institutions (ADIs) in Australia. The Financial Accountability Regime (FAR) Bill 2023 passed through both chambers of Parliament on 5 September 2023 with no material changes to the legislation as compared to its 2021 counterpart.  As part of that, the commencement date was noted as follows:

• For ADIs and NOHCs: Go-live is proposed to be 6 months after the commencement of the Act; and
• For other APRA regulated entities: Go-live is proposed to be 18 months after the commencement of the Act.

FAR will replace the BEAR requirements and make a number of changes, including:

• Applying to all APRA-regulated entities, including insurers, RSE licensees, Non-Operating Holding Companies, and later extend to apply to entities that are solely regulated by ASIC under AFSLs and ACLs;
• Extending the obligations under FAR to apply to the accountable entities’ subsidiaries and significant related entities - potentially expanding the number of entities in a group for which accountabilities need to be considered;
• Introducing new responsibilities that will need to be allocated to senior executives as well as specific responsibilities to be allocated dependent on the type of entity; and
• ASIC will join APRA as a co-regulator under FAR, and there will be a corresponding focus on conduct such as through new accountability obligations like taking reasonable steps to prevent matters that would (or would be likely to) result in a material contravention of specified laws (including “financial services law” as defined in the Corporations Act).

What should ADIs do now?

For ADIs and their NOHCs, there is now less than 6 months to transition over to the new and changed requirements under FAR or extend to entities not previously captured. We recommend starting now in order to be appropriately prepared for 2023, and to overcome some of the nuances that weren’t contemplated under BEAR. The main aspects you should consider now include:

• What changes might FAR bring to your organisation? For example, how might the new prescribed responsibilities look, and which Accountable Persons will need to take accountability for them?
• If you have other APRA and ASIC-regulated entities in the Group, who might your APs of those entities be? What choices may be available to you about who the APs are, particularly for subsidiaries, and how does that align with existing BEAR accountabilities?
• Can you commence your engagement and reasonable steps for the implementation of FAR now? This may have benefits, including reinforcing a culture of accountability. Given the swift rollout of BEAR, do you need to revisit your entity’s reasonable steps and BAU processes?
• Reflecting on your BEAR implementation and the impacts that BEAR has had on your culture, how can you position FAR to deliver improved cultural outcomes for the organisation and its stakeholders?

What should other APRA-regulated entities do now?

Whilst other APRA-regulated entities have until 2025 to implement the requirements, experience tells us that the sooner you get started – the better. Ideally the organisation is operating in a FAR-ready state in advance of “go-live” and has had an opportunity to test business-as-usual (BAU) processes in a BAU environment without the risk of breaching any of the FAR obligations.

If your FAR project is well underway, there are advantages to pushing forward and achieving FAR readiness in advance of the legislation “go-live” date including benefits for organisation culture and maintaining momentum, and business efficiencies. If you’ve not yet commenced your FAR project, you can get underway with a number of “no regrets” activities now in order to prepare for FAR implementation. This includes:

• Briefing Boards and Senior Leaders on the likely reach of FAR, and the learnings from both implementation of BEAR by ADIs, and also the UK Senior Managers & Certification Regime (the UK pre-curser to BEAR). This is a personal accountability regime, so they need to be regularly and actively engaged in how the reform and implementation is progressing.
• Consider how FAR can help drive cultural improvements, such as through emphasising individual accountability, or the alignment with the organisation’s values. This is because FAR isn’t just a compliance exercise; it’s about uplifting personal accountability and conduct across the industry. 
• Identifying the entities that will be directly regulated by FAR, and any significant related entities (including subsidiaries or connected entities) that could be impacted by it.
• Identifying the likely individuals who will be Accountable Persons.
• Starting to define what those Accountable Persons are responsible for through the preparation of Accountability Statements.
• Supporting those Accountable Persons through development of reasonable steps frameworks and guidance, and reasonable steps assessments and activities, including scenario testing, particularly given the importance emphasised in APRA’s post-implementation review of BEAR.
• Considering how the entity or entities impacted will approach their own reasonable steps, through activities such as reviewing and improving governance, risk, controls and other key frameworks.
• Considering how strong and effective subsidiary governance and oversight of significant related entities is and identifying improvements.
• Considering potential changes to remuneration, including how CPS 511 on remuneration may interact with FAR.

How can Deloitte help?

We have assisted with the implementation and post-implementation of BEAR across large, medium and small ADIs. We are also already supporting many clients, including life insurers, general insurers, wealth managers and RSE trustees, with implementation of the FAR.,

We understand both the regulatory and the practical implications of implementing BEAR / FAR, and how it should run in a BAU environment. Importantly, one thing that differentiates us from many of our peers is that we have provided in-depth, end-to-end support for our BEAR and FAR clients, and since 2017, we have invested in understanding BEAR and FAR and its implication – and this shows in our delivery and insights.

Reach out for assistance and download our FAR summary guide.