Financial Accountability Regimes (BEAR and FAR)

Article

Financial Accountability Regimes (BEAR and FAR)

Preparing for Accountability regimes in superannuation, insurance and beyond

The Banking Executive Accountability Regime (BEAR) applies to Authorised Deposit-taking Institutions in Australia. By mid-2021, it is expected that legislation will be introduced into Parliament to pass the Financial Accountability Regime (FAR).

FAR will absorb 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
  • Introducing new responsibilities including an end-to-end product accountability that will need to be allocated to senior executives
  • A potential civil penalty regime for individuals
  • ASIC will join APRA as a co-regulator under FAR, and we should expect a corresponding focus on conduct such as through potential new accountability obligations like taking reasonable steps to comply with licensing obligations.

What should APRA-regulated entities do now?

Since FAR will be based on BEAR, there will be numerous similarities in terms of implementation and approach. This means that organisations can start on 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 potentially significant or substantial subsidiaries 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 individualised reasonable steps frameworks and activities
  • 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 is, and identifying improvements
  • Considering potential changes to remuneration, including how the impact of proposed CPS 511 on remuneration may interact with FAR

Understanding how FAR will impact you now will help you to prepare for and respond to consultations from Treasury on the draft legislation, and ASIC/APRA on the draft responsibilities and other requirements.

What should ADIs do now?

If you are already regulated under the BEAR regime, you will be transitioned to the FAR regime when it commences for ADIs. The main aspects you should consider now include:

  • What changes might FAR bring to your organisation? For example, how might the new particular 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.
  • 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?

Download our BEAR and FAR summary guides.

Financial Accountability Regimes (BEAR and FAR)

Download the guides
Did you find this useful?