Australia’s government has introduced legislation to establish the Financial Accountability Regime (FAR), which will extend the Banking Executive Accountability Regime (BEAR) to all Australian Prudential Regulatory Authority (APRA)-regulated entities — including superannuation trustees and related entities — as recommended by the Financial Services Royal Commission. FAR’s objective is to impose a strengthened accountability framework for the directors and most senior and influential executives of APRA-regulated entities and is aligned with the final Prudential Standard CPS 511 on remuneration released in August.

Four core sets of obligations

• Accountability obligations would require entities in the banking, insurance and superannuation sectors (accountable entities) and their directors and most senior and influential executives (accountable persons) to conduct their business in a certain manner (i.e. honestly and with care, skill and diligence).
• Key personnel obligations would require accountable entities to nominate (register) accountable persons to be responsible for all areas of their business operations.
• Deferred remuneration obligations would require accountable entities to defer at least 40% of the variable remuneration (for example, bonuses and incentive payments) of their accountable persons for a minimum of four years, and to reduce their variable remuneration for noncompliance with accountability obligations
• Notification obligations would require accountable entities to provide the Regulator with certain information about their business and their accountable persons; and for entities above a certain threshold set by the Minister (proposed to be $10 billion of fund assets for super trustees), to prepare and submit accountability statements and accountability maps.

Oversight

FAR will be jointly administered by APRA and the Australian Securities and Investments Commission, which can disqualify someone from being an accountable person of an accountable entity or direct an accountable entity to reallocate responsibilities of an accountable person to address prudential risks or systemic risks of noncompliance.

Application

FAR is scheduled to apply to the banking sector from the later of 1 Jul 2022 or six months after FAR commences, at which time the BEAR legislation will be repealed. FAR would apply to other sectors, including superannuation, from the later of 1 Jul 2023 or eighteen months after FAR commences.

Related resources

Non-Mercer resources

• Financial Accountability Regime Bill 2021 (Government)
• Explanatory Memorandum (Government)
• APRA finalizes guidance for new prudential standard on remuneration (APRA, 18 Oct 2021)

Mercer Law & Policy resource

• Australian regulator finalizes revised remuneration standard (3 Sep 2021)