The Financial Accountability Regime-consultation on the Regulator rules and Transitional rules

The Financial Accountability Regime (FAR), which will be established under the Financial Accountability Regime Bill 2023 (the Bill) and Schedule 1 and Schedule 2 of the Financial Accountability Regime (Consequential Amendments) Bill 2023, aims to improve accountability standards in APRA-regulated entities, drive reform in operating culture and reinforce the standards of conduct expected by the Australian community. The FAR will apply to authorised deposit-taking institutions (ADIs) six months after the Bill receives Royal Assent, and to insurance and superannuation entities 18 months following Royal Assent.

Today APRA and ASIC (the Regulators) have released draft Regulator rules and Transitional rules for consultation. The draft Regulator rules prescribe information for inclusion in the register of accountable persons under the FAR. To complement these rules, the draft Transitional rules prescribe information to be provided by ADIs to the Regulators when transitioning from the Banking Executive Accountability Regime (BEAR) to the FAR.

The draft Regulator rules and Transitional rules are based on the Bill, which was introduced into Parliament on 8 March 2023, and is still under consideration by Parliament. The rules will be reviewed if amendments to the Bill occur before it is enacted, and those changes impact on the rules. 

Consultation on the Regulator rules

In jointly administering the FAR, the Regulators are required to establish and maintain a register of accountable persons. The content of this register can include additional relevant information prescribed by the Regulator rules. These rules are intended to enable the Regulators to effectively administer the FAR by prescribing items that are required or necessary to carry out or give effect to the regime: see s105(1) of the Bill. 

• The draft Regulator rules are divided into two parts:
  
  
  
  - a list of data items, relevant to all ADIs, superannuation and insurance entities; and
  
  - a list of key functions, relevant to accountable entities that are ADIs or authorised non-operating holding companies (NOHCs) of an ADI.

Further information on key functions

In implementing the BEAR, APRA provided guidance on typical key functions for ADIs to consider when developing accountability statements. This list of key functions was non exhaustive, but reflected areas an ADI was expected to consider carefully when refining and clarifying areas of accountability. 

The term ‘key functions’ has a different meaning under the FAR than it has under the BEAR. Under the FAR:

• key functions are prescribed in the Regulator rules;
  
   
• each key function that is applicable to the ADI must be assigned to at least one accountable person and recorded in the FAR register; and
  
   
• changes to this information on key functions are considered material changes and must be reported under the FAR notification obligations.

The concept of key functions does not expand the definition or scope of responsibilities of accountable persons under the Minister rules and s10 of the FAR Bill. Key functions are intended to help the Regulators assess whether accountable entities are adequately assigning accountability across all operational areas to their accountable persons (i.e. key functions can only be assigned to accountable persons).

ADIs have discretion about which key functions are assigned to which accountable persons, as long as it reflects actual practices. One accountable person may have no key functions assigned to them, while another accountable person may have multiple key functions. 

ADIs can assign a key function to more than one accountable person if this reflects different responsibilities in relation to that function (i.e. there may be different responsibilities relating to the key function along the end-to-end value chain). Joint accountability does not necessarily apply where multiple accountable persons have been assigned the same key function, given those accountable persons do not necessarily have end-to-end accountability in relation to that key function.

Attachment B provides supporting detail and descriptions about each ADI key function contained in the draft Regulator rules. Attachment B does not form part of the draft Regulator rules. 

Note for insurance and superannuation entities

The Regulators will consult on the list of specific key functions for insurance and superannuation entities in due course. However, insurance and superannuation entities may wish to consider the concept of key functions and review the Regulator rules, particularly as the list of data items for inclusion in the Register (which are set out in the Regulator rules) are relevant to all accountable entities.

Consultation on the Transitional rules

To facilitate the transition from the BEAR to the FAR, the Regulators have prepared draft Transitional rules. These rules prescribe additional information, not currently captured under the BEAR, for ADIs to submit to the Regulators: see item 34 of Schedule 2 to the Financial Accountability Regime (Consequential Amendments) Bill 2023. 

Consultation process

The draft Regulator and Transitional rules will be subject to a four-week public consultation.

Written submissions on the proposals should be sent to the Regulators’ single point of contact mailbox far@apra.gov.au by 17 August 2023 and be addressed to:

Stuart Bingham

General Manager

GCRA, APRA

The Regulators seek to release the final Regulator rules and Transitional rules after the Bill receives Royal Assent.

The Regulators request that all interested stakeholders use this consultation to provide feedback or information on:

• the proposed list of data items and the ADI key functions within the draft Regulator rules (Attachment A), and supporting detail about the ADI key function descriptions (Attachment B);
  
   
• the proposed list of data items within the draft Transitional rules (Attachment C);
  
   
• the compliance impact of the proposed changes; and
  
   
• any other substantive costs associated with the changes.

Compliance costs are defined as direct costs to businesses of performing activities associated with complying with government regulation. Specifically, information is sought on any increases or decreases to the compliance costs incurred by businesses as a result of the Regulators’ proposal.

Consistent with the Australian Government’s approach, the Regulators will use the methodology behind the Regulatory Burden Measurement Tool to assess compliance costs. This tool is designed to capture the relevant costs in a structured way, including a separate assessment of upfront costs and ongoing costs. It is available at the Commonwealth Regulatory Burden Measure page of the Office of Impact Analysis website.

Respondents are requested to use this methodology to estimate costs to ensure that the data supplied to the Regulators can be aggregated and used in an industry-wide assessment. When submitting their cost assessment to the Regulators, respondents are asked to include any assumptions made and, where relevant, any limitations inherent in their assessment. Feedback should address the additional costs incurred as a result of complying with the Regulators’ requirements, not activities that entities would undertake regardless of regulatory requirements in their ordinary course of business.

Attachments

The below documents can be found on the consultation page here.

Attachment A: Draft Regulator rules

Attachment B: ADI key functions descriptions

Attachment C: Draft Transitional rules

Yours sincerely,

Important disclosure notice—publication of submissions

For security reasons, all information considered as sensitive or confidential—such as signatures, email addresses and personal numbers—will be redacted from the submissions provided before uploading the documents onto the Regulators’ websites. If preferred, entities may provide to the Regulators an already redacted version of their submissions. Requests for submissions to remain in confidence are to be clearly marked on the first page of the submission. Automatically generated confidentiality statements in emails do not suffice for this purpose. Respondents who would like part of their submission to remain in confidence should provide this information marked as confidential in a separate attachment. Submissions may be the subject of a request for access made under the Freedom of Information Act 1982 (FOI Act). The Regulators will determine such requests, if any, in accordance with the provisions of the FOI Act. Information in the submission that is not in the public domain may be protected by s56 of the Australian Prudential Regulation Authority Act 1998 or s127 of the Australian Securities and Investments Commission Act 2001 and may therefore be exempt from production under the FOI Act.

Please refer to APRA’s privacy policy and ASIC’s privacy policy for more information on how APRA and ASIC handle personal information, your rights to seek access to and correct personal information, and your right to complain about breaches of privacy by APRA or ASIC.