The Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) have commenced joint consultation on their proposed Regulator rules, Transitional rules and ADI key functions descriptions to support the implementation of the Financial Accountability Regime (FAR) for Authorised Deposit-taking Institutions (Banks, credit unions and building societies).

The FAR will replace the Banking Executive Accountability Regime (BEAR) and it is designed to improve the risk and governance cultures of all APRA-regulated entities by imposing a strengthened responsibility and accountability framework for those financial institutions. Background.

The FAR will apply to authorised deposit-taking institutions (ADIs) 6 months after the Bill receives Royal Assent, and to insurance and superannuation entities 18 months following Royal Assent.

The draft Regulator rules are divided into two parts:
– a list of data items, relevant to all ADIs, superannuation and insurance entities; and
– a list of key functions, relevant to accountable entities that are ADIs or authorised non-operating holding companies (NOHCs) of an ADI.

The rules will be reviewed if amendments to the FAR Bill occur before it is enacted, and those changes impact on the rules.

Key functions
The term ‘key functions’ has a different meaning under the FAR than it has under the BEAR.

Under the FAR:

• key functions are prescribed in the Regulator rules;
• each key function that is applicable to the ADI must be assigned to at least one accountable person and recorded in the FAR register; and
• changes to this information on key functions are considered material changes and must be reported under the FAR notification obligations.

The concept of key functions does not expand the definition or scope of responsibilities of accountable persons under the Minister Rules and section 10 of the FAR Bill.

There are 20 key functions as varied as Capital Management, Collections and enforcement (default, debt collections, and recovery), Conduct risk management. Financial and regulatory reporting, Hardship processes and Scam management.

Key functions are intended to help the Regulators assess whether accountable entities are adequately assigning accountability across all operational areas to their accountable persons (i.e. key functions can only be assigned to accountable persons).

ADIs have discretion about which key functions are assigned to which accountable persons, as long as it reflects actual practices. One accountable person may have no key functions assigned to them, while another accountable person may have multiple key functions.

ADIs can assign a key function to more than one accountable person if this reflects different responsibilities in relation to that function (i.e. there may be different responsibilities relating to the key function along the end-to-end value chain). Joint accountability does not necessarily apply where multiple accountable persons have been assigned the same key function, given those accountable persons do not necessarily have end-to-end accountability in relation to that key function.

The regulators will consult on the list of specific key functions for insurance and superannuation entities in due course. However, these entities may wish to review the Regulator rules as their key functions are likely to be similar to the list included for ADIs.

The list of data items for inclusion in the FAR Register, which are set out in the Regulator rules, are relevant to all accountable entities.

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