On 15 March 2025, significant changes commenced under the Financial Accountability Regime (FAR), impacting various entities in the financial services sector. These changes extend the scope of FAR from authorised deposit taking institutions (ADIs) to include insurance entities, their licensed non-operating holding companies (NOHCs), and superannuation entities. This article highlights the key changes and what employers need to know to ensure compliance.
Scope: Accountable Entities and Accountable Persons
As of 15 March 2025, FAR now applies to insurance entities, their licensed NOHCs, and superannuation entities (collectively referred to as Accountable Entities). This expansion means that more entities and their executives, known as Accountable Persons, are now subject to FAR's stringent requirements.1
Accountable Entities are responsible for assessing whether a person is suitable to be an Accountable Person and to register the individual accordingly. In particular, FAR requires Accountable Entities and Accountable Persons to deal with both the Australian Prudential Regulation Authority and the Australian Securities Investment Commission in an ‘open, constructive and cooperative way’.
Executive Remuneration
Deferral and Reduction
One of the critical aspects of FAR is the management of executive remuneration. The regime mandates that at least 40% of an Accountable Person's variable remuneration must be deferred for a minimum of four years if the deferred amount exceeds $50,000.2 This is targeted at incentivising Accountable Persons to appropriately manage long-term risks when making decisions that could generate long-term impacts while also creating a mechanism to hold these individuals accountable for any decisions that generate harmful long-term impacts.
The FAR also mandates Accountable Entities to have a remuneration policy that requires the Accountable Person’s variable remuneration to be reduced by an amount proportionate to any failure to comply with one or more of their accountability obligations and for the Regulator to be notified.3 Accountable entities must also ensure that the amount of the reduction is not paid or otherwise transferred to the person.4
Reasonable Steps to Ensure Compliance
Accountable Entities must take reasonable steps to ensure that their significant related entities (SREs) comply with the deferred remuneration obligations.5 This includes entities that are subsidiaries or connected entities of the Accountable Entity and have a material and substantial effect on the Accountable Entity's business.6
Significant penalties apply for not complying with these obligations.7
Disqualification of Accountable Persons
ASIC and APRA have the authority to disqualify an individual from acting as an Accountable Person if they breach their accountability obligations.8 It is an offence for Accountable Entities and SREs to allow any such disqualified individual from being or acting as an Accountable Person.9 Further, it may also contravene a civil penalty provision.10
Takeaways for Employers
To ensure compliance, employers need to review existing systems and processes in place to ensure that their internal accountability frameworks are consistent with the FAR requirements. This includes reviewing, assessing and, if necessary, amending executive contracts, incentive structures and remuneration policies to ensure appropriate remunerations structures are in place for executives and to ensure that appropriate disciplinary action can be taken against individuals who breach their accountability obligations.
Footnotes
- Section 10, Financial Accountability Regime Act 2023 (Cth) (FAR Act). This includes individuals who hold a position in the Accountable Entity or in another body corporate of which the Accountable Entity is a subsidiary or connected entity, and because of that position, the person has actual or effective senior executive responsibility for management or control of the Accountable Entity or of a significant or substantial part or aspect of the operations of the Accountable Entity or its relevant group. It also includes persons who hold one or more of the responsibilities in relation to or positions in the Accountable Entity under the Minister rules.
- Sections 25-30, FAR Act.
- Sections 25, 31 and 32, FAR Act.
- Section 25(1)(c), FAR Act.
- Section 25(1)(d), FAR Act.
- Section 12, FAR Act. This includes a body corporate that: (a) is a subsidiary of the accountable entity or connected entity of an RSE licensee; it, or its business or activities, has (or is likely to have) an effect on the accountable entity, or the business or activities of the accountable entity, that is material and substantial; it is a constitutionally covered body; and it is not an accountable entity itself. A body corporate is not a significant related entity if it is also a subsidiary of another accountable entity and that accountable entity is a subsidiary of the first accountable entity.
- Sections 80-83, FAR Act.
- Section 42, FAR Act.
- Section 44, FAR Act.
- Sections 24 and 80, FAR Act.
Disclaimer
The articles published on this website, current at the dates of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.