The Financial Accountability Regime Bill 2021 and the Financial Sector Reform (Hayne Royal Commission Response No. 3) Bill 2021 have been introduced into the House of Representatives to establish the new financial accountability regime framework for financial entities in the banking, insurance and superannuation industries.
It is not identical to the exposure draft discussed here.
The Financial Accountability Regime will apply to the banking industry on 1 July 2022 or six months after Royal Assent, whichever is later. The Banking Executive Accountability Regime will be repealed as the obligations under the Financial Accountability Regime apply to the banking industry.
The regime will apply to the insurance and superannuation industries on 1 July 2023 or 18 months after Royal Assent, whichever is later.
The Financial Accountability Regime imposes four core sets of obligations:
- accountability obligations—which require entities in the banking, insurance and superannuation industries and their directors and senior executives to conduct their business honesty and integrity, and with due skill, care and diligence;
- key personnel obligations—which require entities in the banking, insurance and superannuation industries to nominate senior executives to be responsible for all areas of their business operations;
- deferred remuneration obligations—which require entities in the banking, insurance and superannuation industries to defer at least 40 per cent of the variable remuneration (for example, bonuses and incentive payments) of their directors and most senior executives for a minimum of 4 years, and to reduce their variable remuneration for non-compliance with their accountability obligations; and
- notification obligations—which require:
- entities in the banking, insurance and superannuation industries to meet the core notification obligations by providing the Regulator (either ASIC or APRA) with certain information about their business and their directors and most senior executives; and
- for entities above a certain threshold, which will be determined rules made by the Minister, to meet the enhanced notification obligations, by preparing and submitting accountability statements and accountability maps.
The entities to which the Financial Accountability Regime applies are referred to as accountable entities.
These entities are:
• authorised deposit-taking institutions;
• authorised non-operating holding companies of authorised deposit-taking institutions;
• general insurers;
• authorised non-operating holding companies of general insurers;
• life companies;
• registered non-operating holding companies of life companies;
• private health insurers; and
• registrable superannuation entity licensees (or RSE licensees).
The accountability obligations of an accountable entity are:
(a) to take reasonable steps to conduct its business with honesty and integrity, and with due skill, care and diligence; and
(b) to take reasonable steps to deal with the Regulator in an open, constructive and cooperative way; and
(c) in conducting its business, to take reasonable steps to prevent matters from arising that would (or would be likely to) adversely affect the accountable entity’s prudential standing or prudential reputation; and
(d) to take reasonable steps to ensure that each of its accountable persons meets their accountability obligations under section 21; and
(e) to take reasonable steps to ensure that each of its significant related entities complies with each of paragraphs (a), (b), (c) and (d) as if the significant related entity were an accountable entity.
The Financial Accountability Regime also provides for the regulation of the directors and most senior and influential executives of accountable entities who:
• have actual or effective senior executive responsibility for management or control of the accountable entity or its relevant group or of a significant or substantial part or aspect of the operations of the accountable entity; or
• hold particular responsibilities and/or positions prescribed in the rules to be made by the Minister.
The directors and senior executives who are regulated under the Financial Accountability Regime are referred to as accountable persons.
The list of ‘prescribed responsibilities’ or positions of accountable persons (including end-to-end product responsibility) has not been finalised.
The accountability obligations of an accountable person of an accountable entity, or of a significant related entity of an accountable entity, are to conduct the responsibilities of their position as an accountable person:
(a) by acting with honesty and integrity, and with due skill, care and diligence; and
(b) by dealing with the Regulator in an open, constructive and cooperative way; and
(c) by taking reasonable steps in conducting those responsibilities to prevent matters from arising that would (or would be likely to) adversely affect the prudential standing or prudential reputation of the accountable entity; and
(d) by taking reasonable steps in conducting those responsibilities 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 following:
(i) this Act;
(ii) the Banking Act 1959;
(iii) the credit legislation (within the meaning of the National Consumer Credit Protection Act 2009);
(iv) the Financial Sector (Collection of Data) Act 2001;
(v) the financial services law (within the meaning of section 761A of the Corporations Act 2001);
(vi) the Insurance Act 1973;
(vii) the Life Insurance Act 1995;
(viii) the Private Health Insurance (Prudential Supervision) Act 2015;
(ix) the Superannuation Industry (Supervision) Act 1993;
(x) regulations, instruments, directions or orders made under a law referred to in any of subparagraphs (i) to (ix).
The Financial Accountability Regime requires accountable persons be registered, and gives the Regulator power to disqualify someone from being an accountable person of an entity or a class of entities regulated by the regime. The Regulator may also direct an accountable entity to reallocate the responsibilities of its accountable persons to address prudential risks or risks of significant and systemic non-compliance.
The Financial Accountability Regime will be jointly administered by APRA and ASIC.
If you found this article helpful, then subscribe to our news emails to keep up to date and look at our video courses for in-depth training. Use the search box at the top right of this page or the categories list on the right hand side of this page to check for other articles on the same or related matters.
Author: David Jacobson
Principal, Bright Corporate Law
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.