Financial Services Update 

ASIC and APRA consult in relation to proposed FAR regulator and transitional rules

On 20 July 2023, APRA and ASIC (Regulators and each a Regulator) released a package of documents to support the implementation of the Financial Accountability Regime (FAR). The documents contain important details regarding the key functions to be reported to the Regulator.

Whilst the FAR bill has not yet been passed, it would be wise for accountable entities to:

• consider whether their proposed FAR accountability statements include all relevant key functions; and
• use the time available prior to implementation to ensure that all relevant key functions are appropriately covered.

Submissions on the documents released can be made up until 17 August 2023.

ADI Key Functions

The Regulator rules prescribe the key functions for which one or more accountable persons must be responsible. The key functions have a different meaning under FAR than they had under BEAR as:

• they are prescribed by the Regulator rules;
• each key function must be assigned to at least 1 accountable person; and
• material changes to key functions must be reported to the Regulator under FAR notification obligations.

The proposed key functions are:

Although an ADI will likely already include a number of the relevant functions in their BEAR accountability framework, there are some additional functions proposed under FAR. Further, changes are likely to be required to ADIs' frameworks due to the more prescriptive approach proposed under the FAR to key functions.

The more prescriptive approach under the FAR will inevitably increase the focus on directors and senior executives with responsibility for these key functions, including a focus on how they will be able to demonstrate reasonable steps in discharging their responsibilities with respect to the key functions. In addition, there is likely to be a cross-over between some key functions (for example the design and distribution function) which will require careful consideration.

The concept of key functions does not expand the definition or scope of responsibilities of accountable persons under the ministerial rules or under section 10 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).

The Regulators will consult on the list of specific key functions for insurance and superannuation entities in due course. However, the Regulators have suggested that these entities may wish to review the current draft of the Regulator rules as their key functions are likely to be similar to the list of key functions included for ADIs.

Aside from the key functions, the Regulator rules also include a requirement to disclose particular data items such as whether an accountable person has been suspended.

Transitional Rules

To facilitate the transition from the BEAR to the FAR, the Regulators have prepared draft transitional rules (Transitional Rules). These Transitional Rules prescribe additional information, not currently captured under the BEAR, for ADIs to submit to the Regulator which reflect the requirements for information in the Regulator rules. 

An ADI which is subject to the BEAR and which becomes an accountable entity under the FAR at the banking start time must provide the Regulator with the relevant personal information of each accountable person within 30 days of the banking starting time.

Authors: Samantha Carroll, Partner; Jonathan Gordon, Partner; Miriam Kleiner, Partner.