The purpose of the legislation is to address recommendations to extend BEAR to registrable superannuation entities (RSEs) and Insurers off the back of the Royal Commission. It does not address recommendations to extend to AFSL holders who are non APRA regulated.
FAR will come into effect 1st July 2022 (or six months after commencement) for ADIs and 1st July 2023 for other classes of entity.
It imposes four sets of obligations:
- Accountability obligations
- Key personnel obligations
- Deferred remuneration obligations
- Notification obligations
The structure and intent of FAR will seem very familiar to readers who are across the Banking Executives Accountability Regime (BEAR). This pre-dated the Royal Commission and has impacted larger banks from 1 July 2019 and smaller banks from 1 July 2020.
However, all but the largest banks will find FAR to be a reduced burden compared to BEAR. Insurers and Superannuation Funds will be faced with a range of new obligations although many have known this reform was inevitable and have been preparing by studying the BEAR.
FAR introduces the concept of directors and most senior and influential executives as accountable persons and directly regulates those persons, not merely the entities which employ them.
Accountable entities – generally APRA regulated financial institutions (FIs) – cover Authorised Deposit-Taking Institutions (ADIs), General Insurers (GI), Life Insurers (LI), Private Health Insurers (PHI), RSEs and non-operating holding companies (NOHCs).
Significant related entities will be captured via obligations on the Accountable entities, including the need to take steps to ensure related entities comply, and require 40% of variable remuneration for directors and most senior and influential executives deferred for four years.
The requirement to prepare accountability maps and statements will apply to larger entities, however size threshold has not been specified. It appears this will be addressed by yet to be released regulations. Notification requirements apply to all entities regardless of size.
FAR will be regulated by APRA and ASIC jointly, or APRA only where the entity does not hold an AFSL or ACL. This is uncharted waters for the regulators and the practical aspects of collaborative supervision will be need to be worked through to ensure coherent coordination.