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Financial accountability regime to be extended

A consultation has opened on extending BEAR obligations to all APRA-regulated entities, including insurers and superannuation entities, under the new Financial Accountability Regime.

The Morrison government has released a proposals paper for consultation, which seeks to extend the Banking Executive Accountability Regime (BEAR) to all entities regulated under the Australia Prudential Regulation Authority (APRA).

Both APRA and the Australian Securities and Investments Commission (ASIC) would oversee the administration of the new regime, which is intended to extend the responsibility and accountability framework established under the BEAR to all APRA-regulated entities, including life insurers, private health insurers, superannuation entities and licensed non-operating holding companies.

The extension of BEAR obligations to non-bank entities aims to engage with a similar framework to that of the BEAR, under the name of the Financial Accountability Regime (FAR), which, according to the Treasury, addresses recommendations 3.9, 4.12, 6.6, 6.7 and 6.8 contained in the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. 

Similarly to the BEAR, the FAR will impose the following obligations:

  • accountability obligations;
  • key personnel obligations;
  • accountability map and accountability statement obligations;
  • notification obligations; and
  • deferred remuneration obligations.

According to the Treasury, these obligations would ensure that senior executives of these financial entities are more accountable for the activities of the organisation for which they are responsible and, consistent with the BEAR, impose strict consequences for those who fail to perform their roles with competence, honesty or integrity.

While FAR adopts the same essential structure as the BEAR, the main differences to note are:

  • APRA and ASIC will jointly administer the regime, and many detailed aspects will be set by APRA and ASIC to allow greater flexibility in recognition of the broader range of industries and number of entities subject to the FAR; and
  • the commencement of the stronger penalty framework for corporate and financial sector misconduct.

The implementation of the new FAR framework would be applied on a staggered basis to the relevant entities, according to the Treasury.

Consultations are now open for the proposed FAR model, with feedback on how the model should be implemented being accepted until 14 February 2020.

The government intends to consult on and introduce legislation by the end of 2020 to introduce the model.

BEAR delayed for non-major ADIs

The implementation of BEAR obligations to the non-major lenders was placed on hold to coincide with the extension of the framework into APRA-regulated entities, including insurers and superannuation entities.

In June 2019, APRA commenced consultation on its proposed approach to implementing the banking royal commission’s recommendation to determine an end-to-end product responsibility for all authorised deposit-taking institutions (ADIs) that are subject to BEAR obligations.

Under the BEAR, banks are expected to establish a remuneration policy requiring that a portion of executives’ variable remuneration be deferred for a minimum of four years and reduced commensurate with any failure to meet their obligations to act in the best interests of customers.

The BEAR came into effect for the big four banks on 1 July 2018 and was expected to be enforced on all remaining ADIs on 1 July 2019.

However, in a letter to ADIs on 28 June 2019, APRA revealed that it intended to delay its decision on the proposed product responsibility requirements under the BEAR regime, with the date revised from December 2019 to the “first half of 2020”.

At the time, APRA said its decision was designed to time implementation with the government’s proposals to extend the BEAR scheme into APRA-regulated entities, which it said would reduce implementation costs for ADIs.

[Related: APRA delays implementation of BEAR reforms]

Financial accountability regime to be extended

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