How Australian company secretaries can take charge ahead of FAR compliance
Australia is sharpening its financial accountability mechanisms.
Taking effect on March 15, 2024, the Financial Accountability Regime (FAR) is set to replace the Banking Executive Accountability Regime (BEAR).
FAR is designed to improve the risk and governance cultures of Australia’s financial institutions. It pushes organisations to set robust governance frameworks, internal controls and risk management practices to prevent excessive risk-taking, unethical behaviour and misconduct. It makes directors and senior executives personally accountable and will expand the coverage of BEAR to include not just authorised deposit-holding institutions (ADIs) but also licensed non-operating holding companies (NOHCs), insurance companies, superannuation trustees and directors and senior executives.
While all APRA-regulated entities will be impacted, those outside the ADI classification will experience the biggest jump in compliance obligations. For all affected, this may be a good time to evaluate your entity management systems to make compliance with FAR and other regulatory and reporting requirements easier.
BEAR vs. FAR
FAR is meant to put in place a stronger, broader accountability framework for financial entities in the banking, superannuation and insurance industries.
Some key differences from BEAR are outlined below:
| BEAR | FAR | |
|---|---|---|
| Accountable entities | ADIs, their directors and senior executives | All APRA-regulated entities: ADIs, insurance companies, superannuation trustees, their licensed NOHCs and directors and senior executives |
| Regulators | APRA | APRA and ASIC |
| Date of effect | 1 July 2018 | 15 March 2024 for the banking industry; 15 March 2025 for the insurance and superannuation industries |
| Entity classification | Large, medium and small | Enhanced or core |
| Accountability maps and statements | All ADIs need to submit | Only enhanced entities need to submit |
| Notification obligations | Must notify APRA if accountable entity or persons breach accountability obligations | Must notify regulators if accountable entity or persons fail to comply with accountability obligations or key personnel obligations |
| Deferred remuneration | The lesser of 40-60% of the variable remuneration, or 10-40% of the total remuneration of all accountable persons for 4 years minimum, if the amount to be deferred exceeds AUD 50,000; % to be deferred is based on ADI size | 40% of variable remuneration of all accountable persons for 4 years minimum, if the amount to be deferred exceeds AUD 50,000; ADI size does not change % of deferred amount |
| Civil penalties and disqualification | Penalties are tiered based on ADI size; APRA can remove an individual from their role; Civil penalties apply | Larger maximum penalties; Max penalty is 3x the value of “benefit derived or detriment avoided by the entity,” or 10% of entity’s annual turnover (up to 2.5 million penalty units per violation), or 50,000 penalty units, whichever is greater; Regulators can disqualify an individual from being an accountable person for a certain period; Civil penalties apply |
| Submission | Direct to APRA (D2A) | APRA Connect |
To comply with BEAR, entities in the banking, insurance, and superannuation industries, along with their directors and senior executives, should submit relevant information and reports as required by the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC). As authorized deposit-taking institutions (ADIs) and their authorized non-operating holding companies (NOHCs) make the transition to FAR, providing necessary information and adhering to the strengthened responsibility and accountability framework set by APRA and ASIC is a must. The relevant information to access APRA Connect and lodge entity data can be found here.
What affected organisations need to do to transition
By now, banks should have examined how they can improve governance and make compliance easier. Steps to prepare likely covered the following:
- Plan and map accountabilities to ensure appropriate coverage, especially in cases of duplicate responsibilities across business areas and between different accountable persons
- Identify accountable persons and key personnel
- Set up processes to ensure compliance with new notification obligations
- Continue to comply with BEAR obligations as required by law
- For enhanced entities: update accountability map and statements, and identify which subsidiaries will become SREs
Non-ADIs have more time to comply, but the increase in accountability is higher and will require thorough preparation. Between now and March 2025 when FAR comes into effect for insurance, NOHCs and superannuation entities, these organisationscan:
- Start preparing to get a head start on changing company culture
- Brief senior executives and boards on FAR’s possible impacts
- Map entities, and any subsidiaries or connected entities, that will be affected
- Identify potential accountable persons
- Reflect on how FAR can improve organisational culture by highlighting individual accountability
New obligations, heavier data management requirements
These changes and additional obligations mean organisations – or more specifically their company secretary– may need to deal with a lot more corporate record data. They will have to maintain secure and accurate records of accountable persons, SREs and key personnel to make sure everything is covered, with oversight on roles and responsibilities as they relate to FAR requirements. They must meet regulators’ reporting and notification requirements, as well as their board and senior executives’ reporting requirements. Enhanced entities will also have to manage accountability statements and maps.
Corporate record management made easy
Diligent Entities, an entity and subsidiary management solution, can help make complying with FAR simpler, more efficient and more secure. Here’s how:
Accountability and obligation mapping
To properly comply with FAR requirements and ensure adequate coverage and accountability arrangements, it’s important to maintain an accurate and secure record of accountable entities, SREs, accountable persons and key personnel, as well as their responsibilities.
Diligent Entities can help by centralising compliance data requirements alongside your entire corporate record, giving you a holistic, relationship-based view and making it easier to ensure good governance across all entities and subsidiaries.
The platform’s security certifications, attestations and features such as single-sign on keep your data secure and prevent the risk of a data breach. Plus, role-based permissions ensure there are no unauthorised changes and provide every stakeholder with the right level of visibility. Detailed audit and review logs track changes and events, and allow you to reflect back and report on information based on as-at dates.
Good governance and accountability oversight
With FAR, organisations will have to identify and map roles and responsibilities to associated FAR requirements, and enhanced entities will need to prepare and maintain accountability statements and accountability maps. Promoting strong governance, risk and compliance management throughout the organisation is key, as is cultivating a culture that encourages and enables “speaking up” when incidents of non-compliance occur.
With Diligent Entities, you can create self-service dashboards and reports for internal and external stakeholders, such as tax, finance and auditors, to quickly obtain the information they need, in the format they need. It can maintain structured and templatised accountability statements and maps, send and track signature requirements with DocuSign integration, and update you on upcoming and overdue events through compliance calendars and email notifications.
Pre-built workflows and document assembly capabilities also mean that when changes occur, the correct process is followed, minimising administrative work and reducing the risk of error.
Reporting and notification obligations
FAR has strict reporting obligations, and executive teams and the board may have their own reporting requirements, too. With the right tools, you can meet these even when changes have occurred in the organisation, or an accountable person or entity has breached their obligations.
Diligent Entities enable one-click group structure visualisation to easily locate accountable persons, entities and key personnel across your entire organisational structure at any given point in time. You can use scenario modelling to assess potential or planned changes in the organisations to identify their impact on your FAR obligations.
It also turns regulatory filing preparations from a multi-step manual process into clicking just a few buttons – minimising admin and reducing the risk of human error.
Simplify FAR compliance with Diligent Entities
Australia is taking serious strides towards improved accountability and transparency, ultimately making its financial systems more stable and reliable. The more stringent regulations, however, will ask a lot of organisations, including preparing, sharing, organising, storing and securing critical business information.
To support what will likely be heavier data needs, companies affected by FAR can consider entity management systems to reduce non-compliance risk, ease administrative workloads, improve organisational efficiency and enhance overall governance.
Contact Diligent to learn how we can help.
