Posted: 17 Dec. 2021 15 min. read

Too FAR ?

Financial Accountability Regime Bill is referred to the Senate Economics Legislation Committee for consideration

On 25 November 2021, provisions of the Financial Accountability Regime Bill 2021 (the Bill) were referred to the Senate Economics Legislation Committee (the Committee) for further consideration. The Committee presented a number of detailed administrative and scrutiny issues for consideration in the Scrutiny Digest 17 of 2021 (the Digest). Amongst the matters for further consideration were the exemption powers afforded to the Minister under clause 16 of the Bill and the immunity provided from civil and criminal liability on persons under clauses 101 and 102 of the Bill. The fundamental elements of the Financial Accountability Regime (the Regime) are unlikely to change, despite the referral to the Committee. At this time, we expect minimal impacts on existing programs of work and recommend organisations continue to prepare for the implementation of the Regime.

Are the discretionary powers too broad?

The Bill outlines that a Minister may exempt an individual accountable entity, or class of accountable entities, from obligations under the Regime.[1]  In the Digest, the Committee noted that the broad discretionary exemption provided to the Minister is insufficiently defined and “…may be exercised arbitrarily or inconsistently and may impact on the predictability and guidance capacity of the law, undermining fundamental rule of law principles”.[2]

The Committee requested the Treasurer’s advice as to why it is considered necessary and appropriate to provide the Minister with a broad exemption power, and whether the Bill can be amended to include guidance in relation to the exercise of such exemptions. From the comments in the Digest, it appears the Committee may be apprehensive that the Minister will inappropriately and inadequately wield their powers granted under the Regime. There is a clear concern that allowing broad exemption powers could impact the intended application and restrictions to apply as was intended by Commissioner Hayne.

While the outcome from such a request may be that the Minister’s powers are amended, the administrative nature of this decision means that fundamental changes for financial services organisations captured under the Regime are unlikely.

Are the immunity clauses too generous?

The Bill provides general protection from liability by outlining that a person is not subject to liability under the Regime in respect of actions done, or omitted, in good faith and without negligence.[3] It further notes that criminal or civil action does not lie against a person if in good faith the person complied with a direction under the Bill, it was reasonable, and the person is an officer, senior manager, employee, agent or member of the accountability entity.[4]

The Committee identified in the Digest that these immunities effectively remove the common law right to bring an action to enforce legal rights unless lack of good faith is demonstrated.[5] The Committee noted the inherent difficulties demonstrating bad faith in the context of judicial review and that courts have historically taken the position “…that bad faith can only be shown in very limited circumstances”.[6]

The Committee requested the Treasurer’s advice as to why it is considered necessary and appropriate to confer civil and criminal immunity in these circumstances.[7]  While the result of this request may adjust the immunities provided, the outcome is unlikely to impact the way organisations are implementing their FAR programs.

What other issues have arisen?

Other items raised by the Committee include tabling administrative arrangements between APRA and ASIC in Parliament;[8] potentially revising the presence of no-invalidity clauses;[9] justifying the presence of offence-specific defences (which reverse the evidential burden of proof);[10] and, reviewing the rules where an accountable entity, that meets the enhanced notification threshold, may incorporate any matters published on a website maintained by the Regulator.[11] The Committee raised concerns that incorporation of external materials from time to time may result in changes to the law without Parliamentary scrutiny and create uncertainty surrounding the terms of the law.

What happens now?

A response from the Senate Economics Legislation Committee is due in report form on 15 February 2022.

At this time we do not expect to see any changes to the Bill in a substantive way. Rather, we expect changes to the Bill and the explanatory memorandum will clarify the instances or criteria by which the Minister might exercise their power, and provide justification as to why certain immunity has been provided under the Bill.

What should we do next?

Fears that the Bill will become a piece in a political game of chess leading up to the next Federal election are being echoed across the banking, insurance and superannuation industries. Organisations want clarity about when the Regime will become effective so that they can adequately prepare their regulatory change projects. In lieu of final legislation, organisations should start to think about how they are best able to:

  1. Prioritise activities in the lead up to Christmas to invest in no-regrets work such as reviewing accountability statements to cover all aspects of the value chain;
  2. Develop and execute an interim stakeholder engagement and communication plan to appropriately update and inform the business;
  3. Maintain momentum following the implementation of various regulatory change pieces;
  4. Best use approved budgets to optimise project delivery, especially in an environment where certainty surrounding specific provisions can be ascertained.

While the Regime narrative is still unfolding, we have seen time and time again organisations closing the book only to open again at a later chapter. Rather than bookmarking programs of work, we recommend that organisations continue to write their story and effectively embed the Regime ahead of go-live. As the Regime is about embedding a culture of accountability within an organisation, we believe progressing with programs already on foot can only be a good thing for business.

References:

[1] Financial Accountability Regime Bill 2021, clause 16.
[2] Scrutiny Digest 17 of 2021, clause 1.37.
[3] Financial Accountability Regime Bill 2021, clause 101.
[4] Ibid, clause 102.
[5] Scrutiny Digest 17 of 2021, clause 1.58.
[6] Ibid.
[7] Ibid, clause 1.60.
[8] Ibid, clauses 1.40-1.45.
[9] Ibid, clauses 1.46-1.49.
[10] Ibid, clauses 1.50-1.55.
[11] Ibid, clauses 1.61-1.66.

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Rosalyn Teskey

Rosalyn Teskey

Partner, Audit & Assurance

Rosalyn is a partner in Deloitte's Melbourne office in the Governance, Regulation and Conduct practice. She specialises in supporting firms to design and assess frameworks to treat customers fairly, including the development of conduct, product governance, sales practices and complaints handling frameworks. Rosalyn co-leads our Accountability practice and leads Deloitte’s Design and Distribution and product governance offering.

Julia Younger

Julia Younger

Senior Analyst, Audit & Assurance

Julia is a Senior Analyst in the Governance, Regulation and Conduct practice based in Brisbane. She specialises in large and small transformation projects, uplifting frameworks, practices, policies and procedures to effectively embed regulatory change. Julia also has experience in commercial litigation in Australia and England.

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Caroline Hodkinson

Caroline Hodkinson

Partner, Audit & Assurance

Caroline is a Partner in Deloitte’s Sydney office in the Governance, Regulation and Conduct practice. She has over 15 years’ experience as a governance specialist and lawyer in financial services, having worked with major banks, superannuation trustees and responsibility entities. Caroline’s key areas of practice are corporate governance, regulatory compliance and corporate conduct.

​Sarah Russo

​Sarah Russo

Partner, Audit & Assurance

Sarah is a partner in Deloitte's Brisbane office in the Governance, Regulation and Conduct practice. Sarah is a highly qualified and experienced risk, assurance, regulatory and governance professional, having worked as a financial services lawyer, risk manager and with both APRA and ASIC. Sarah works predominantly with financial services clients assisting with governance, regulation and conduct matters including BEAR/FAR implementation, Design and Distribution Obligations, regulatory reviews and change programs, remediation, breach reviews and internal audit programs.