FAR from BEAR - Make sure you comply with the Financial Accountability Regime (FAR)

FAR reaching 

The Financial Accountability Regime (FAR) commenced on 15 March 2024 bringing in new obligations for authorised deposit-taking institutions, with insurers and superannuation funds to follow suit one year later. FAR is driving renewed focus on obligations management as accountable entities take steps to implement FAR…But why is that the case?  

Some banks had hoped that FAR was simply a rebranding of the previous accountability framework, the Banking Executive Accountability Regime (known as BEAR) and that compliance with BEAR would satisfy the numerous FAR obligations by default. However, the new regime introduced new obligations across a legislative patchwork consisting of the FAR Act, FAR Minister Rules, FAR Regulator Rules, and FAR Transitional Rules, with each piece of the regulatory puzzle containing mandatory and overlapping responsibilities described as 'prescribed responsibilities', 'primary areas of focus' (PAFs) and 'key functions'. And the regime has now been extended to other prudentially regulated institutions. A closer examination of those responsibilities will reveal that they are enshrined in comprehensive and complex obligations arising under financial services laws, ASIC Regulatory Guides and APRA Prudential Standards. The devil is most certainly in the detail. If you do not know your obligations under the relevant financial services laws, there is a high risk you will not comply with the FAR accountability obligation to take reasonable steps to prevent contraventions of these laws. 

Despite the former regime being called the 'BEAR', it is FAR that really has teeth with not one, but two regulators (APRA and ASIC) administering and enforcing FAR jointly. FAR is designed to leave no gaps in end-to-end accountability with prescribed responsibilities, PAFs and key functions signaling where the Regulators will take enforcement action if accountability obligations are not met. 

Implementing the new regime requires focused regulatory change management, and in particular, businesses will need to be able to evidence that accountable persons, including senior management and Board directors, take reasonable steps to meet their FAR accountability obligations. 

Don't fall FAR behind 

Accountable entities cannot afford to presume that they have everything covered. The new regime focuses directly on individuals, with the spotlight squarely on Board directors and senior executives who will be personally accountable for failing to take reasonable steps to prevent contraventions of financial services laws. It is this higher standard of 'proactive compliance' that is driving accountable entities to revisit the foundations of their compliance management frameworks, starting with obligations management. 

Reasonable steps encompasses a range of actions, such as delegations, decision-making frameworks, escalation points, policies, procedures, processes and other measures to ensure compliance with obligations. Accountable persons need to ask themselves: 

• "What am I doing that specifically addresses each obligation?" 
• "What do I do periodically? What do I do on a daily basis?"
• "What do I do when there is a problem?" 

Accountable persons need to get comfort that they are meeting the accountability obligations which require them to take – and demonstrate – 'reasonable steps' and in particular, the accountability obligation that requires them to take reasonable steps to prevent matters from arising that would (or would be likely to) result in a material contravention of financial services laws. Notably, reasonable steps include taking appropriate action in response to non-compliance, or suspected non-compliance. A methodical and comprehensive approach will be needed to: 

• map obligations to prescribed responsibilities, PAFs and key functions to enable a more comprehensive assessment of reasonable steps to meet accountability obligations;
• develop categorisation, materiality and compliance guidance to assist with implementation and assessment of controls to comply with obligations; and 
• trace reported breaches of obligations to prescribed responsibilities, PAFs and key functions so the right accountable person is in front of the issue and doing what they need to manage accountability risk arising from breaches. 

With a range of fresh responsibilities, stronger penalties, increased accountability, and extended regulatory oversight, it's more important now than ever for entities and, more specifically, their Board directors and executives, to be on top of their obligations. It's everyone's responsibility to know their responsibilities, and to ensure individual and entity-wide compliance under the FAR.  

Want to know more to future proof your business? 

Read our previous articles in this series:

• "Are you future proof? How to keep on top of a rapidly changing risk and compliance landscape", 5 April 2024.
• "The perils and pitfalls of managing compliance obligations", 9 May 2024 

We will continue to share more insights on successful obligation management and how to manage obligations, as well as how to use data to inform your approach to obligation management. 

To learn about how Ashurst can support you to navigate the complex regulatory landscape, please contact us or visit our OMS web page. 

For more information, please contact our Ashurst FAR experts: Samantha Carroll, Miriam Kleiner and Elizabeth K Hristoforidis Mousamas.

Authors: Sam Carroll, Partner; Morgan Spain, Partner; Chris Baker, Partner, Risk Advisory; Nicholas Dennis, Senior Associate.