Bills Digest No.
39, 2021–22
PDF version [595KB]
Ian Zhou
Economic Policy Section
20
January 2022
Contents
Glossary
Purpose of the Bill
Background
Committee consideration
Policy position of non-government
parties/independents
Position of major interest groups
Statement of Compatibility with Human
Rights
Structure of the Bill
Key issues and provisions
FAR Bill
Other provisions
Commencement date
Concluding comments
Date introduced: 28
October 2021
House: House of
Representatives
Portfolio: Treasury
Commencement: The
Financial Accountability Regime Bill 2021 commences the day after Royal
Assent. Schedule 2 and Part 1 of Schedule 1 to the Financial Sector Reform
(Hayne Royal Commission Response No. 3) Bill 2021 commence at the same time
as the Financial Accountability Regime Bill 2021. Part 2 of Schedule 1 to
the Financial Sector Reform (Hayne Royal Commission Response No. 3) Bill
2021 commences on the later of 1 July 2022 and six months after the
Financial Accountability Regime Bill 2021 commences.
Links: The links to the Financial
Accountability Regime Bill 2021 and the Financial
Sector Reform (Hayne Royal Commission Response No. 3) Bill 2021 can be
found on the Bill’s home page, or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent,
they become Acts, which can be found at the Federal Register of Legislation
website.
All hyperlinks in this Bills Digest are correct as
at January 2022.
Glossary
| Abbreviation |
Definition |
| ADI |
Authorised deposit-taking institution |
| APRA |
Australian Prudential Regulation Authority |
| ASIC |
Australian Securities and Investments Commission |
| Banking Royal Commissions |
Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry |
| BEAR |
Banking
Executive Accountability Regime |
| FAR |
Financial Accountability Regime |
| SELC |
Senate Economics Legislation Committee |
| Regulators |
APRA or ASIC |
| RSE |
Registrable
superannuation entities |
Purpose of the Bill
This Bills Digest relates to two Bills comprising:
• Financial
Sector Reform (Hayne Royal Commission Response No. 3) Bill 2021.
The purpose of the FAR Bill is to replace the existing Banking
Executive Accountability Regime (BEAR) and establish the Financial
Accountability Regime (FAR) that expands on, and strengthens BEAR-like
accountability requirements across the financial services sector for
- certain
entities in the banking, insurance and superannuation industries and
- their
directors and most senior and influential executives.[1]
To this end, the FAR Bill imposes four fundamental sets of
obligations:
- accountability
obligations: requiring accountable entities and accountable persons to conduct
their business in a certain manner.
- key
personnel obligations: requiring accountable entities to nominate accountable
persons to be responsible for all areas of their business operations and
providing that nominated accountable persons will be subject to an additional
accountability obligation (in other words, not included in existing BEAR
obligations) in relation to preventing matters from arising that may result in
the entity's material contravention of specified financial services laws.
- deferred
remuneration obligations: all accountable entities will be subject to the same
deferred remuneration obligations, regardless of size or seniority of the accountable
person’s role.
- notification
obligations: accountable entities are required to provide the Regulator with
particular ‘core’ information about their business and accountable persons,
generally within 30 days of an event occurring. Specified larger entities
will have enhanced notification requirements, and are required to prepare and
submit accountability statements and accountability maps.[2]
The Financial Sector Reform (Hayne Royal Commission
Response No. 3) Bill 2021 makes consequential amendments to various
Commonwealth laws and provides for transitional arrangements relating to the
repeal of the Banking Executive Accountability Regime under the Banking Act 1959.[3]
Background
Accountability regime in the financial services industry
There has been a growing perception, particularly since
the 2008 Global Financial Crisis, that senior executives of financial
institutions have not been held accountable for the numerous financial scandals
that have harmed the community.[4]
As a result, the Australian Government has enacted
legislation designed to increase transparency and accountability across the
financial services industry. For example, in October 2017 the Australian
Government introduced the Bill for the Treasury Laws
Amendment (Banking Executive Accountability and Related Measures) Act 2018
to establish the Banking
Executive Accountability Regime (BEAR) to strengthen the accountability framework of the
banking sector.[5]
Scott Morrison, then Treasurer, said:
Given the critical roles banks play within the community,
bank directors and executives need to be held to an especially high standard of
accountability…
The BEAR ensures that where these community expectations are
not met, appropriate consequences will follow. It makes clear individual
accountabilities so that it is clear where the buck stops in decision making
and responsibility.[6]
The BEAR puts in place a strengthened accountability
framework for the senior executives of authorised deposit-taking institutions
(ADIs). ADIs include banks, credit unions and building societies (for
simplicity ADIs are hereafter referred to as ‘the banking sector’).[7]
The BEAR does not apply to financial institutions outside
the banking sector. For example, the accountability obligations set out in the
BEAR do not apply to senior executives of insurance companies or superannuation
funds.[8]
Many stakeholders, including the Senate Standing
Committees on Economics, have argued that while the heightened accountability
regime of the BEAR is a welcome start, the scope of the BEAR should be extended
to non-ADI firms in the financial sector.[9]
This aligns with the recommendations of the Banking Royal Commission.
Recommendations of the Banking Royal Commission
In December 2017, the Australian
Government established the Royal Commission into Misconduct
in the Banking, Superannuation and Financial Services Industry (the Banking
Royal Commission or Hayne Royal Commission) to inquire into and report on
misconduct in the financial services industry. The Banking Royal Commission’s interim
report and final
report were tabled in Parliament on 15 October 2018 and 12 February 2019
respectively.[10]
The Banking Royal Commission found evidence of conduct by
many financial institutions that caused substantial loss to many customers.[11] The conduct of
these financial institutions often broke the law or fell short of community expectations.[12]
The Banking Royal Commission made several recommendations
to extend the scope of the BEAR to all entities regulated by the Australian
Prudential Regulation Authority (APRA). The APRA regulates entities in the
banking sector, the general insurance sector, the life insurance sector, the
private health insurance sector, and the superannuation sector.[13]
The Banking Royal Commission’s recommendations include:
- Recommendation
3.9 – over time, provisions modelled on the BEAR should be extended to all RSE
(registrable superannuation entities) licensees[14]
- Recommendation
4.12 – over time, provisions modelled on the BEAR should be extended to all
APRA-regulated insurers[15]
- Recommendation
6.6 – the Australian Securities and Investments Commission (ASIC) and APRA
should jointly administer the BEAR
- Recommendation
6.7 – accountability obligations should make clear that ADIs and accountable
persons (for example, a senior executive of a bank) must deal with APRA and
ASIC in an open, constructive and cooperative way
- Recommendation
6.8 – over time, provisions modelled on the BEAR should be extended to all
APRA-regulated financial services institutions and APRA and ASIC should jointly
administer those new provisions.[16]
The Government’s response to the Banking Royal Commission
On 4 February 2019, the Government released its response to the
Banking Royal Commission Final Report, which committed, amongst other
things, to taking action on the recommendations listed above.[17]
In his second reading speech for the FAR Bill, Alan Tudge
(Minister for Education and Youth) said:
The Bill underscores the Government's commitment to take
action in response to the Royal Commission, which uncovered too many
instances of misconduct across the financial sector, and highlighted that
industry practices were too often not meeting community expectations.
The new Financial Accountability Regime extends the existing
banking sector responsibility and accountability framework to the insurance and
superannuation sectors.[18]
(emphasis added)
The FAR Bill (along with Bills that establish the
Compensation Scheme of Last Resort)[19]
represents the final tranche of legislation to implement the recommendations
made by the Banking Royal Commission.[20]
Table 1 below shows the legislation that has been enacted in response to the
Banking Royal Commission’s recommendations.[21]
Table 1: legislation addressing
the recommendations of the Banking Royal Commission
|
Recommendations addressed
|
Relevant legislation
(in chronological
order)
|
|
6.1, 6.2
|
Financial Sector
Reform (Hayne Royal Commission Response—Stronger Regulators (2019 Measures))
Act 2020
|
|
1.2, 1.3, 4.2, 4.7
|
Financial Sector
Reform (Hayne Royal Commission Response—Protecting Consumers (2019 Measures))
Act 2020
|
|
1.6, 1.15, 2.7, 2.8, 2.9, 3.1, 3.4, 3.8, 4.1, 4.2,
4.3, 4.4, 4.5, 4.6, 4.8, 6.3, 6.4, 6.5, 6.9, 6.11, 7.2
|
Financial Sector
Reform (Hayne Royal Commission Response) Act 2020 and Corporations (Fees)
Amendment (Hayne Royal Commission Response) Act 2020
|
|
2.1, 2.2, 3.2, 3.3
|
Financial Sector
Reform (Hayne Royal Commission Response No. 2) Act 2021
|
|
6.13, 6.14
|
Financial
Regulator Assessment Authority Act 2021 and Financial
Regulator Assessment Authority (Consequential Amendments and Transitional
Provisions) Act 2021
|
|
|
Financial Sector
Reform (Hayne Royal Commission Response—Better Advice) Act 2021
|
|
3.9, 4.12, 6.6, 6.7, 6.8, 7.1
|
Financial
Accountability Regime Bill 2021
Financial
Sector Reform (Hayne Royal Commission Response No. 3) Bill 2021
Financial
Services Compensation Scheme of Last Resort Levy Bill 2021
Financial
Services Compensation Scheme of Last Resort Levy (Collection) Bill 2021
|
Has the BEAR gone too FAR?
If passed, the FAR Bill will establish the Financial
Accountability Regime (FAR). The FAR will replace the BEAR and extend similar
accountability obligations to all APRA-regulated entities.
The entities to which the FAR applies are referred to as accountable
entities. These entities include ADIs, insurance companies and
superannuation funds.[22]
The directors and senior executives who are regulated
under the FAR are referred to as accountable persons. The definition of
an accountable person is discussed below in the ‘Key issues and provisions’
section.
There are divided opinions about the FAR. While some
industry stakeholders welcome the FAR and believe it will increase transparency
and accountability across the financial services industry, others argue there
are major deficiencies in the FAR that will render it ineffective, or that the
FAR overreaches and imposes unduly onerous obligations (discussed below).
Committee
consideration
Senate
Standing Committee for the Scrutiny of Bills
The Senate Standing Committee for the Scrutiny of Bills
raised several concerns regarding the FAR Bill. At the time of writing, the
Government has not responded to the issues raised by the Committee.
Significant matters in delegated legislation
The Committee raised concern that there are significant
matters pertaining to the FAR Bill that will be specified in delegated
legislation rather than the primary legislation.[23]
Clause 15 of the FAR Bill requires accountable
entities to comply with the obligations set out in the Bill (details of the
obligations are discussed further below). However, the Minister may exempt an
accountable entity or classes of entities from compliance (clause 16).
The Committee noted that:
insufficiently defined administrative powers, such as those
granted under clause 16, may be exercised arbitrarily or inconsistently and may
impact on the predictability and guidance capacity of the law, undermining
fundamental rule of law principles. [24]
Consequently, the Committee requested the Treasurer’s
advice as to:
- why
it is considered necessary and appropriate to provide the Minister with a broad
power to provide exemptions to the Financial Accountability Regime under clause
16 and
- whether
the Bill can be amended to include guidance on the exercise of the power on the
face of the primary legislation, noting the potential for a broad,
unconstrained exemption power to undermine the Financial Accountability Regime.[25]
Furthermore, clause 37 of the FAR Bill provides
that APRA and ASIC must enter into an arrangement outlining their general approach
to administering and enforcing the FAR within 6 months of the commencement
of the Bill.[26]
If the regulators fail to reach an agreement, the Minister may determine an
arrangement for this purpose.
However, the Bill contains no requirement that an arrangement
entered into under clause 37 be tabled in the Parliament. The Committee noted:
tabling documents in Parliament is important to parliamentary
scrutiny, as it alerts parliamentarians to the existence of documents and
provides opportunities for debate that are not available where documents are
not made public or are only published online. Tabling reports on the operation
of regulatory schemes promotes transparency and accountability. [27]
As such, the Committee requested the Treasurer's advice as
to:
- whether
the Bill can be amended to provide that an arrangement entered into under
clause 37 of the Bill is required to be tabled in each House of the
Parliament and
- why
it is considered necessary and appropriate to leave details relating to
provisions that must be included within a clause 37 arrangement to delegated
legislation. [28]
No-invalidity clauses
The Committee noted that the FAR Bill contains
no-invalidity clauses that require further scrutiny.
|
Explainer: what are
no-invalidity clauses?
As the name suggests, no-invalidity
clauses are legislative provisions that specify ‘an act done or decision
made in breach of a statutory requirement or other administrative law norm does
not result in the invalidity of that act or decision’.[29]
No-invalidity clauses can
potentially restrict a person’s capacity to seek judicial review of the
relevant act or decision.[30]
Professor Leighton McDonald
of the Australian National University explains:
To the extent that, in general,
judicial review remedies are only issued on the basis of jurisdictional
errors, no-invalidity clauses may be read as converting errors that would
otherwise be jurisdictional in nature and result in invalidity into errors which
are made within the decision-maker’s powers and will not justify a remedy. In
this way, no-invalidity clauses expand the decision-maker’s powers to make
legally valid decisions.[31]
[emphasis added]
Limiting judicial review is
‘a serious matter’ and therefore any legislative provision that potentially
restricts a person’s right to seek judicial review would require further
scrutiny.[32]
|
Clause 36 of the FAR Bill provides that the
Financial Accountability Regime will be administered by both APRA and ASIC. As
discussed above, clause 37 provides that APRA and ASIC must enter into
an arrangement outlining their general approach to administering and enforcing
the FAR within 6 months of the commencement of the Bill. Clause 38
provides that in general, neither APRA nor ASIC may perform a function, or
exercise a power, under the Bill without the agreement of the other.[33]
The Committee noted that the following three clauses are
no-invalidity clauses:
Subclause 36(2) provides that ASIC is only to perform
functions and powers in relation to accountable entities that hold a financial
services licence, significant related entities, or accountable persons.
However, a failure to do so does not invalidate the performance or exercise of
the function or power by ASIC. Similarly, subclause 37(5)
provides that a failure to comply with requirements relating to entering into
an administrative agreement does not invalidate the performance or exercise of
a function or power by either APRA or ASIC. Finally, subclause 38(4)
provides that a failure by either APRA or ASIC to receive agreement prior to
performing or exercising a function or power does not invalidate the
performance or exercise of the function or power. [34]
Put simply, subclauses 36(2), 37(5) and 38(4) are
no-invalidity clauses because they specify that actions taken by ASIC or APRA
are not invalid even if they are not in accordance with the statutory
requirements outlined in clauses 36, 37 and 38. The Committee was concerned
that these clauses ‘may limit the practical efficacy of judicial review to
provide a remedy for legal errors’:
For example, as the conclusion that a decision is not invalid
means that the decision-maker had the power (i.e. jurisdiction) to make it,
review of the decision on the grounds of jurisdictional error is unlikely to be
available. The result is that some of judicial review’s standard remedies will
not be available.[35]
The Committee requested the Treasurer’s advice as to why
the Government considered it necessary and appropriate to include no-invalidity
clauses in the Bill.[36]
Reversal of evidential burden of proof
The Committee noted that the FAR Bill seeks to establish
several defences which reverse the evidential burden of proof.[37]
|
Explainer: what is reversal
of the evidential burden of proof?
The right to be presumed
innocent is a fundamental principle of the Australian legal system.
Normally, the right to be presumed innocent requires the prosecution to
prove all elements of an offence.[38]
Consequently, when
legislative provisions require a defendant to raise evidence about a matter,
or positively prove a matter relating to one or more elements of an offence,
it is regarded as a reversal of the evidential burden of proof.[39]
|
The Committee noted that clause 68 of the FAR Bill
makes it an offence for an accountable entity, significant related entity or
accountable person to disclose information covered by the secrecy provision at clause
67. However, subclause 68(3) provides an exception (also known as
defence) to this offence whereby the offence does not apply if the disclosure
was authorised by clauses 69–75 of the Bill or was required by the order
or direction of a court or tribunal.[40]
Similarly, subsection 56(2) of the Australian Prudential
Regulation Authority Act 1998 provides that it is an offence if a
person discloses protected information. However, subclause 72(2) of the
FAR Bill provides an exception to this offence if the disclosure of protected
information was authorised by clauses 69-75 of the Bill.[41]
The defendant bears an evidential burden of proof in
relation to both exceptions or defences listed above. In other words, the
defendant who wishes to rely on the exception or defence will bear the burden
of adducing or pointing to evidence that suggests a reasonable possibility that
they are authorised by clauses 69-75 of the Bill to disclose protected
information. If a defendant discharges his or her evidential burden, the
prosecution must then discharge its legal burden to disprove the relevant
matters beyond reasonable doubt.[42]
The Committee said:
There is no explanation within the explanatory materials for
reversing the evidential burden of proof in relation to the exception set out
in subclause 68(3), with the explanatory memorandum merely re-stating the
operation of the provision.[43]
Given the explanatory materials do not address this issue,
the Committee requested the Treasurer’s advice as to why it is proposed to use
offence-specific defences in this instance.[44]
The Committee also found that the Financial
Sector Reform (Hayne Royal Commission Response No. 3) Bill 2021 seeks to
establish several defences which reverse the evidential burden of proof and
again sought the Treasurer’s advice on the appropriateness of this approach.[45]
Immunity from liability
Clauses 101 and 102 of the FAR Bill provide
that a person is generally not liable for the performance of powers, functions
or duties under the FAR Bill, if done in good faith and without negligence.[46]
The Committee noted that the immunities provided for under
clauses 101 and 102 would remove any common law right to bring an action to
enforce legal rights (for example, a claim of defamation), unless it can be
demonstrated that lack of good faith is shown.[47]
Given that ‘the courts have taken the position that bad faith can only be shown
in very limited circumstances’, the Committee stated that it expects that
provisions that attempt to establish immunity from civil and criminal liability
to be ‘soundly justified’.[48]
As such, the Committee requested the Treasurer’s advice as
to why it is considered necessary and appropriate to confer immunity from civil
and criminal liability on persons under clauses 101 and 102 of the Bill.[49]
Incorporation of external materials existing from time to
time
Certain accountable entities are required to comply with enhanced
notification obligations set out in the FAR Bill. The threshold to determine
which accountable entities will need to comply with the enhanced notification obligations
will be specified in rules to be made by the Minister. For example, the
Minister may determine that entities that have asset values above a certain
threshold are required to comply with enhanced notification obligations.
Subclause 31(5) of the FAR Bill specifies that
despite subsection 14(2) of the Legislation Act 2003,[50]
the Minister’s rules that prescribe the circumstances in which an accountable
entity meets the enhanced notification threshold may incorporate, by reference,
any matter published on a website maintained by ASIC or APRA as in force or
existing from time to time.[51]
The Committee advised that it has scrutiny concerns where
provisions in a Bill allow the incorporation of legislative provisions by
reference to other documents outside the Bill.[52]
This is because the Committee believes, as a matter of general principle, any
member of the public should be able to freely and readily access the terms of
the law.
The Committee said:
While in this case incorporated material must be published on
a website maintained by the Regulator there is nothing on the face of the bill
to require that this material is freely and readily available.[53]
Put simply, the Committee is concerned that not everyone
interested in the law will be able to access the documents published on the
ASIC or APRA websites. For examples, the documents published by the regulators
may be difficult to locate on their websites, or the documents may be in a
particular format that requires software which is not readily available.
Additionally, the Committee expressed particular concern
that an incorporated document could operate to change the circumstances when an
accountable entity meets the enhanced notification threshold without any
involvement from the Parliament.[54]
Consequently, the Committee requested the Treasurer’s
further advice as to why it is considered necessary and appropriate to
incorporate external materials as in force or existing from time to time.[55]
At the time of writing this Digest, the Committee has not
received a response from the Treasurer.[56]
Senate Economics Legislation Committee
The Bills have been referred to the Senate Economics
Legislation Committee for inquiry and report by 15 February 2022. Details
of the inquiry are at the inquiry
webpage.
Policy
position of non-government parties/independents
Official position
At the time of writing, non-government parties and
independents have not made official comments on the Bills.
Media speculation
The Australian Financial Review published an
article on 9 November 2021 which reported that Liberal Senator Gerard
Rennick, One Nation Senator Malcolm Roberts, United Australia Party leader
Craig Kelly and parliamentarians from the Australian Greens have expressed an
intention to amend the FAR Bill to reinstate civil penalties (of up to $1.05
million) for senior executives who breach their accountability obligations
under the FAR.[57]
The Australian Financial Review also reported that:
While Labor is still determining its position on the
legislation, the Party’s financial services spokesman, Stephen Jones, told the Financial
Review he supported putting financial penalties in the Bill.[58]
The FAR Bill does not impose civil penalties on
accountable persons for breaches of their accountability obligations. This is a
departure from the policy position taken by the Treasury in an earlier proposal paper.[59]
However, individuals will be liable for a civil penalty if they aid or abet an
accountable entity to contravene its obligations under the FAR.[60]
Earlier
reports from the Australian Financial Review speculated the removal
of civil penalties was due to intense industry lobbying.[61]
Lawyers from Clayton Utz (a law firm) also speculated that ‘early indications
suggest that there may be some pressure applied to re-introduce individual
penalties.’[62]
Position of
major interest groups
Various stakeholders made their submissions to the Senate Economics
Legislation Committee (SELC) to comment on the FAR Bill.
Consumer advocacy groups
Seven consumer advocacy groups made a joint submission,
which criticised the FAR Bill.[63]
They argued:
the FAR bill is deficient in many important areas. As
drafted, this law will be unlikely to hold finance executives to account for
their actions, nor will it significantly improve corporate culture in
Australia. Without amendment, members of the community remain vulnerable to
decision-making that trades off consumer welfare for excessive profits, and we
are likely to see a repeat of the same harmful corporate practices that
resulted in the Banking Royal Commission.[64]
[emphasis added]
Specifically, the consumer advocacy groups recommended
that the FAR Bill should be amended to:
- expand
accountability obligations to include all executives and senior managers of
financial institutions (typically only senior executives are considered to be
within the scope of the FAR)
- reinstate
the civil penalties under the FAR for people who break the law (see ‘Media
speculation’, above)
- bolster
the proposed deferred remuneration obligations
- legislatively
require executives and senior managers to treat customers fairly.[65]
The consumer advocacy groups argued that ‘without these
changes, the Bill fails in its primary objective of establishing an
“accountability regime”’.[66]
|
Explainer: what are the
deferred remuneration obligations?
Under the FAR, accountable
entities and their significant related entities will be required to defer at
least 40% variable remuneration (for example, bonuses and incentive
payments) for each of their accountable persons for a minimum of four years,
if the variable remuneration is above $50,000.[67] The deferred remuneration
obligations under the FAR will remain largely the same as under the BEAR.[68]
The rationale for the
deferred remuneration obligations is that the deferred remuneration can be reduced
(or ‘clawed back’) in the event that the individual fails to satisfy their
accountability obligations.[69]
The threat of ‘claw back’
should in theory incentivise the accountable person to satisfy their accountability
obligations. However, according to the consumer advocacy group CHOICE, since
the BEAR was enacted three years ago no banks had been fined, no executives had
been disqualified, and no bonuses had been clawed back under the regime,
therefore:
If the BEAR’s impact is measured
in financial terms – by the amount of executive remuneration clawed back or
the amount of fines issued – then its impact has been precisely zero.[70]
|
Australian Banking Association
The Australian Banking Association
(ABA), an industry association that comprises of 21 banks from across
Australia,[71]
said it supports the passage of the FAR Bill and ‘welcomes the key provisions
of the bill to strengthen accountability and transparency in the financial
system.’[72]
In contrast to the policy position taken by the consumer
advocacy groups, the ABA believes that potential amendment to reinstate civil
penalties for individual accountable persons is unnecessary. The ABA said:
The ABA has consistently taken the view that the FAR should
build on the key strengths of the existing BEAR regime rather than replace it.
In line with this, we welcome the decision not to proceed with a civil
penalty for individual accountable persons under the regime, given the clear
and substantial consequences for individuals provided for in the existing BEAR
regime.
The ABA considers the potential for disqualification as an
Accountable Person impacting future employment in the banking industry,
together with the potential for those individuals to lose significant variable
remuneration under the current BEAR creates significant and effective
incentives to improve conduct and ensure adequate sanctions for not meeting
requisite standards. There is no evidence to suggest that the current BEAR
enforcement options are ineffective. As acknowledged in APRA’s Enforcement
Strategy Review, disqualification is a very significant sanction and further
penalties are unnecessary.[73]
[emphasis added]
Superannuation industry
The Association of Superannuation Funds of Australia
(ASFA) and the Australian Institute of Superannuation Trustees made separate
submissions to comment on the FAR Bill.[74]
They expressed concerns over several aspects of the FAR Bill.
According to an
article in the Australian Financial Review, the CEO of ASFA,
Dr Martin Fahy, said the Government’s plan to extend the scope of the BEAR
to include the superannuation sector is ‘overkill and risked unintended
consequences’, especially given that the ‘sector doesn’t have a history of
misconduct and the changes will weigh on investor returns.’[75]
Reportedly Dr Fahy said:
We need to be careful that it [the FAR] doesn’t drive out
innovation, discourage funds from taking appropriate risks and prevent us from
attracting the best people.[76]
Both superannuation organisations also criticised specific
clauses of the FAR Bill. These criticisms are discussed below in the ‘Key
issues and provisions’ section of this Digest.
Australian Institute of Company Directors
The Australian Institute of Company Directors (AICD)
supports the passage of the FAR Bill in its current form.[77]
However, the AICD also said:
the [FAR] Bill
represents a material divergence from the BEAR and what was contemplated under
the Royal Commission recommendations. The FAR is in effect a new accountability
regime with expanded obligations on entities and accountable persons…
Expansion of
the BEAR, rather than extension, is contrary to the recommendations of
Commissioner Hayne…
The AICD urges
that the [Senate Economics Legislation] Committee approach with caution any consideration of further
departure from the recommendations of the Royal Commission.[78]
Specifically, the AICD said it would not support potential
changes to the FAR Bill to introduce civil penalties on accountable persons for
breaches of accountability obligations.[79]
Law Council of Australia
The Law Council of Australia said the optimal way to
achieve the recommendations of the Banking Royal Commission is to extend the
BEAR in its existing form to all APRA-regulated entities, rather than replacing
the BEAR completely with the broader FAR.[80]
This is because:
The challenges for Australia, as with other countries, as we
seek to maintain strong economies in the face of ongoing impacts of the
pandemic, are substantial. As the Government has acknowledged in its
deregulatory agenda, it is important to ensure that new regulation does not
impose as disproportionate impost on business which may divert from those
efforts…
If the BEAR is
seen as having any shortcomings, it would be open, and more efficient, to make
incremental changes to that regime rather than replace it with the completely
new FAR.[81] [emphasis added]
The Law Council of Australia also expressed concerns
regarding specific provisions of the FAR Bill. These concerns are discussed in
the ‘Key issues and provisions’ section of this Digest, below.
Australian Financial Markets Association
The Australian Financial Markets Association (AFMA), an industry
association that represents members in the wholesale banking and financial
markets, is generally supportive of the FAR Bill in its current form.[82]
In particular, the AFMA said it supports the removal of
civil penalties for individuals who breach their accountability obligations.
The AFMA said:
AFMA supported the removal of the originally drafted civil
penalties for Accountable Person (AP) employee breaches of the accountability
obligations from the FAR legislation.
AFMA understands from media
reports that there is interest in some quarters in reintroducing the
penalties for breaches without a requirement for intent by AP employees that
were considered earlier in the consultation process.
Our view is that this is not necessary or appropriate as the
Bill as introduced retains a substantial penalty regime.[83]
Business Council of Australia
The Business Council of Australia (BCA), an industry
association that represents some of Australia’s largest employers, expressed
support for the overall intent of the FAR Bill.[84]
However, the BCA also expressed concerns that ‘the Bill as
introduced contains several anomalies that are not necessary to achieve its
objectives, and which will have adverse consequences for business.’[85]
The BCA’s two major concerns regarding the FAR Bill are:
- unintended
overreach of the FAR to impose obligations on significant related entities of
accountable entities (the definitions of ‘accountable entities’ and their
‘significant related entities’ are discussed in the ‘Key issues and provisions’
section, below) and
- no-fault
penalty regime.
Unintended overreach of the FAR
The BCA said while the accountability obligations
introduced by the FAR are appropriate for financial entities in the banking,
insurance and superannuation industries:
the FAR Bill goes further than necessary by also extending
these obligations to “significant related entities” of Accountable Entities and
to the Accountable Persons of these entities.
For Registered Superannuation Entities (RSE licensees),
“significant related entities” is defined broadly and in a manner that will
inadvertently apply the FAR regime to a range of non-financial entities that do
not fall within the intended scope of the new regime…
The Bill as currently drafted will extend the FAR regime to
businesses in a wider range of industries beyond the financial services sector,
simply by virtue of them having their own corporate superannuation fund. This
was never the intent of the FAR reforms.[86]
No-fault penalty regime
While the FAR Bill does not impose civil penalty for
contraventions of accountability obligations by accountable persons; under clause
81 of the FAR Bill, individuals will be subject to an ancillary liability
regime which will deem them liable if they aid or abet an accountable entity to
contravene its obligations under the FAR.[87]
The BCA believes this ancillary liability should not be
imposed without establishing the accountable person’s intent. In other words,
this ancillary liability should only apply after proving the individual’s
intention, knowledge or recklessness in aiding or abetting an accountable
entity to contravene its obligations.[88]
As such, the BCA recommended that:
The Explanatory Memorandum should also clarify that ancillary
liability requires evidence of intention, knowledge or recklessness.
Civil penalties under the Bill should not be imposed
without intent and this should be put beyond doubt in the explanatory
materials.[89] [emphasis
added]
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the
Bill’s compatibility with the human rights and freedoms recognised or declared
in the international instruments listed in section 3 of that Act. The
Government considers that the Bill is compatible.[90]
Parliamentary
Joint Committee on Human Rights
The Parliamentary Joint Committee on Human Rights had no
comment on the Bills.[91]
Structure of the Bill
The FAR Bill is divided into three chapters:
- Chapter
1 is titled Introduction and provides definitions of key terms used
throughout the Bill
- Chapter
2 is titled Obligations under the Financial Accountability Regime and
imposes accountability obligations on accountable persons and entities and
- Chapter
3 sets out the Administration provisions, which include prescribing
that APRA and ASIC will have the regulatory powers to jointly administer the
FAR (although there will be some division of responsibilities).[92]
Key issues and provisions
FAR Bill
Chapter 1 – Introduction
Clause 3 states that the object of the Bill is to
provide for a strengthened accountability framework for APRA-regulated
financial entities.
Clause 7 specifies that this Bill, once enacted,
will extend to conduct outside Australia.
|
Commentary from the
Explanatory Memorandum
There is a presumption that
generally the Parliament does not intend Australian legislation to apply
outside of Australia.[93]
However, this presumption can be rebutted by clear words to the contrary.[94]
Clause 7, by express words, specifies that this Bill will extend
to conduct outside Australia once it is enacted. The Explanatory Memorandum
to the FAR Bill explains the rationale for the extraterritorial application
of the Bill:
An accountable entity’s
significant related entities can include entities that are incorporated and
operate outside of Australia, as well as entities within Australia. This
approach recognises that financial services are often provided by large
international corporate businesses and the activities of foreign entities
can have a significant effect on the provision of services in Australia.[95]
|
Clauses 8 to
13 provide definitions of key terms used throughout the Bill.
Regulator means either APRA or ASIC. If the
context requires the reference to be particularly to one of those bodies, then
Regulator means that body (clause 8).
Definition of accountable entities
Clause 9 defines accountable entities
as APRA-regulated entities authorised by the Regulator to carry on a banking,
insurance or superannuation business. If passed, the FAR will impose
accountability obligations on senior executives of accountable entities.
Accountable entities must be constitutionally covered bodies,
that is:
Accountable entities include:
Financial institutions may be a part of a larger
conglomerate. For example, the Macquarie Group Limited is the non-operating
holding company of Macquarie Bank Limited (an ADI).[98]
However, only the Macquarie Bank Limited is allowed by the Regulators to take
deposits and conduct certain banking businesses. The accountability obligations
imposed by the FAR will apply to both the NOHC and the ADI.
These obligations would also apply to foreign accountable
entities (in the banking or insurance sectors) but only to the operations of
their Australian branch (paragraph 15(2)(b) of the FAR Bill).
Additionally, the obligations apply to the same extent to an accountable person
of such an entity or any of its significant related entities (paragraph
15(2)(b) and subclause 18(3)).
Definition of accountable persons
Clauses 10 and 11 sets out the definition of accountable
person. Accountable persons in accountable entities will be subject to
the accountability obligations under the FAR and to potential sanctions for
non-compliance with those obligations.
The general principle is that an accountable person is
someone who has actual or effective senior executive responsibility for the
management or control of accountable entities or of a significant or
substantial part of the entities (paragraph 10(1)(b)).
In addition to the general principle test, an accountable
person is someone who holds a prescribed responsibility and position in an
accountable entity that is of a kind prescribed in the rules by the Minister (subclauses
10(2) – (4)).
According to the Policy
Proposal Paper[99]
released by the Treasury, the prescribed positions will include:
- all
Board members of the accountable entity
- Chief
Executive Officer or a similar position
- Chief
Financial Officer or similar
- Chief
Risk Officer or similar
- Chief
Operations Officer or similar
- Chief
Information/Technology Officer or similar
- Head
of Internal Audit or similar
- Head
of Compliance or similar
- Head
of Human Resources or similar
- senior
executive responsible for anti-money laundering.[100]
The full list of proposed prescribed responsibilities and
positions is in Attachment A of the Policy Proposal Paper.[101]
For foreign entities, an accountable person’s responsibilities relate only to
the entity’s operating Australian branches (subclause 10(5)).
The Policy
Proposal Paper clarifies that in respect to the proposed prescribed
positions:
The extended list [of prescribed functions] is not
intended to capture middle or lower management who may only have day-to-day
responsibility for certain parts or aspects of the accountable entity or its
significant related entities.[102]
[emphasis added]
Furthermore, the Explanatory Memorandum explains:
accountable person
may also be employed by a body other than the accountable entity or one of its
significant related entities.[103]
The FAR Bill requires that all accountable persons be
registered with the Regulators (discussed further below).
Definition of significant related entities
The FAR requires accountable entities to take reasonable
steps to ensure their ‘significant related entities’ comply with certain accountability
obligations. For banks and insurance companies, their significant related
entities are typically their subsidiary companies. However, the definition of
‘significant related entities’ could capture entities that are not subsidiaries
of an RSE (registrable superannuation entity).[104]
Chapter 2—Obligations under the Financial Accountability
Regime
The Bill proposes to impose obligations on accountable
entities and accountable persons within an accountable entity.
Compliance with obligations by accountable entities
Clause 15 requires accountable entities to comply
with the obligations set out in the Bill (details of the obligations are
discussed further below). However, the Minister may exempt an accountable
entity or classes of entities from compliance (clause 16).
Furthermore, APRA and ASIC may also exempt an accountable
entity from all or part of an obligation to the extent that it is inconsistent
with a foreign law that applies to the entity (clause 17).
Compliance with obligations by accountable persons
Subclause 18(1) requires an accountable person of
an accountable entity to comply with the obligations set out in Part 3 of
Chapter 2 of the Bill. For foreign entities, an accountable person’s obligations
relate only to the entity’s operating Australian branches (subclause 18(3)).
An accountable person is not required to comply with the
accountability obligations if the Minister has exempted the accountable entity
in which the person holds a position from compliance under clause 16 (subclause
18(2)). APRA and ASIC may also exempt an accountable person from all or
part of an obligation to the extent that it is inconsistent with a foreign law
that applies to the entity (clause 19).
Clause 20 outlines the accountability obligations
of an accountable entity. The accountable entity must take reasonable steps to:
- conduct
its business with honesty and integrity, and with due skill, care and diligence
(paragraph 20(a))
- deal
with APRA and ASIC in an open, constructive and cooperative way (paragraph 20(b))
- prevent
matters arising that would affect the accountable entity’s prudential standing
or reputation and (paragraph 20(c))
- ensure
that each accountable person and significant related entity meets their
accountability obligations (paragraphs 20(d) and (e)).
Accountability obligations of an accountable person
Clause 21 outlines the accountability obligations
of an accountable person of an accountable entity. The accountable person must:
- act
with honesty and integrity, and with due skill, care and diligence (paragraph 21(1)(a))
- deal
with APRA and ASIC in an open, constructive and cooperative way (paragraph 21(1)(b))
- take
reasonable steps to prevent matters from arising that would (or would be likely
to) adversely affect the prudential standing or reputation of the accountable
entity (paragraph 21(1)(c))
- take
reasonable steps in conducting responsibilities to prevent matters from arising
that would (or would be likely to) result in a material contravention by the
accountable entity of specified Commonwealth laws (paragraph 21(1)(d)).
Clause 22 provides guidance by way of a
non-exhaustive list of what constitutes ‘the taking of reasonable steps’,
including having appropriate governance, control and risk management
strategies, and safeguards and procedures for identifying and remediating
problems that arise or may arise.
|
Commentary from stakeholders
Paragraph 21(1)(c) requires an accountable person to take reasonable steps
to prevent matters from arising that would (or would be likely to)
adversely affect the prudential standing or reputation of the accountable
entity.
Deloitte commented:
While on the face of it, this
appears to extend the existing obligation, it may not have significant
implications in practice. The nature of the existing obligation,
through reference to ‘would’, already contemplates the hypothetical,
forward-looking view that inclusion of ‘would be likely to’ attempts to
address. It remains to be seen whether this wording change is flagging an
intention on the part of the regulators to take action where an AP
(accountable person) has failed to act with the relevant foresight, even
where no adverse impact has actually materialised.[107] [emphasis added]
The Law Council of Australia
said the new accountability obligations imposed by clause 21 are the ‘most
onerous’ of the FAR and ‘may not necessarily result in enhanced compliance
outcomes’:
The most onerous new aspect
proposed for FAR compared to BEAR is the new accountability obligation imposed
on individuals in proposed paragraph 21(1)(d) to take reasonable steps in
conducting the responsibilities of their position as an accountable person
to comply with a long list of laws - including all the financial services
laws and any regulations, other instruments, directions or other orders made
under each of them.
Regulated entities, of course,
are obliged to comply with all those laws and regulations, not just to take
reasonable steps to do so. Even for a sophisticated financial institution
with significant resources at its disposal, this is an onerous task…
This new accountability
obligation will add additional costs in assisting accountable persons to
demonstrate their reasonable steps which may not necessarily result in
enhanced compliance outcomes, but rather risk encouraging an incremental
‘box-ticking’ exercise.[108]
[emphasis added]
|
Key personnel obligations
Clause 23 sets out the key personnel
responsibilities for accountable entities. An accountable entity is required to
ensure all accountable persons in the entity have been registered and have not
been disqualified (discussed further below in clauses 40 and 42).
Deferred remuneration obligations
Clauses 25 and 26 introduce a requirement
that a proportion of an accountable person’s variable remuneration be deferred
so that it can be reduced (‘clawed back’) in the event that the individual
fails to satisfy their accountability obligations.
Specifically, subclause 25(1) sets out the
remuneration obligations of an accountable entity, which are:
- requiring
at least 40% of an accountable person’s variable remuneration be deferred for a
minimum period of four years (except in limited circumstances) (paragraph
25(1)(a), subclause 27(1) and clause 28). The
Explanatory Memorandum states that four year deferral is intended to align with
provisions of APRA’s prudential standard to regulate remuneration in regulated
industries (Final
Prudential Standard CPS 511 Remuneration).[109]
In addition to the same period of deferral, APRA's prudential standard CPS 511
Remuneration also requires a deferral of at least 40% of variable remuneration
for senior managers and executive directors of significant financial
institutions, and requires a higher deferral of at least 60% of the total
variable remuneration for CEOs.[110]
APRA has indicated (CPG 511 Remuneration) that entities are expected to comply
with both FAR and CPS 511[111]
- to
have a remuneration policy in force which provides that if an accountable
person fails to comply with their accountability obligations, then the person’s
variable remuneration is reduced by an amount that is proportionate to the
failure (paragraph 25(1)(b))
- to
ensure that if an accountable person’s variable remuneration is required to be
reduced under the remuneration policy, then the amount of the reduction is not
paid to the person (paragraph 25(1)(c))
- to
take reasonable steps to ensure that if the variable remuneration is payable to
an accountable person of a subsidiary of the accountable entity, that the
subsidiary also complies with the obligations (paragraph 25(1)(d)).
Paragraph 25(2)(a) provides that a reduction in an
accountable person’s variable remuneration can occur in any period, not only
the period in which the person failed to meet their accountability obligations.
Paragraph 25(2)(b) provides that variable remuneration may be reduced to
zero.
Paragraph 26(1)(a) defines ‘variable remuneration’
as an accountable person’s remuneration that is conditional on achievement of
objectives (for example, bonuses and incentive payments) and that is not
remuneration of a kind prescribed in the rules. Subclause 26(3) allows
the regulators (APRA and ASIC), by written notice to an accountable entity, to
determine whether a particular type of remuneration is, or is not, variable
remuneration.
Subclause 27(1) prescribes that all accountable
entities and their significant related entities are required to defer at least
40% of the variable remuneration for each of their accountable persons.
Clause 28 sets out the minimum deferral period in
relation to variable remuneration of an accountable person. The minimum
deferral period is four years or a shorter period in certain circumstances or
when approved by the regulators.
|
Commentary from stakeholders
The Association of
Superannuation Funds of Australia commented:
There is misalignment between
the requirements of the FAR legislation and APRA CPS
511 as it applies to deferred remuneration. It is imperative
that these requirements are aligned and consistent to prevent duplication
and ensure the regime operates efficiently.
One of the key issues of concern
is that the FAR legislation is backward looking in its approach to the
determination of the deferral period and CPS 511 considers forward looking
performance measures when calculating the deferral period. Secondly there is
difference between CPS 511 and the FAR in the calculation methodology for
determining what constitutes variable remuneration. Finally, there is a significant
difference in the minimum amount of variable remuneration that is required
to be deferred and the timeframe for deferral, between CPS 511 and the FAR.[112] [emphasis added]
|
If a person ceases to be an accountable person because
they have died or are suffering serious incapacity, serious disability or
serious illness, the period of deferral of their variable remuneration ceases
on the day that they cease to be an accountable person if the accountable
entity is satisfied on reasonable grounds that the person has complied with
their accountability obligations. If the accountable entity is not so satisfied
on that day, the deferral period ends on the day that the entity is satisfied
that the accountability obligations have been complied with, or if the
accountable entity is never so satisfied, on the conclusion of the default
period of four years (subclause 28(4), Table item 2).[113]
A shorter deferral period will apply in circumstances
determined by the Regulator. A determination that applies to a particular
entity will be given by written notice (subclause 28(4), Table item 2
and subclause 28(5)). A determination that applies to a class of entity
will be set out in the Regulator rules (subclause 28(4), Table item 3).[114]
Subclause 29(1) provides that the deferral
requirements do not apply to variable remuneration amounts less than $50,000,
or an amount determined by the Minister.
|
Commentary from stakeholders
The Australian Institute of
Superannuation Trustees (AIST) expressed concerns regarding the scope of the
Minister’s power:
The draft legislation includes a
wide-ranging set of Minister rules which mean that the Minister will
determine fundamental parameters for the operation of the FAR. This includes
the threshold metric for enhanced obligations and the list of ‘prescribed
positions’….
It is unclear what the rationale
is for the Minister to have the scope to propose these important changes to
the operation of the FAR…
AIST believes that the scope
of the Ministerial Rules should be reduced with the aim of creating greater
clarity and certainty of FAR’s application to the superannuation sector and
prescribed roles within the sector.[115] [emphasis added]
|
Notification obligations
Core notification obligations
The Bill proposes to apply core notification obligations
on all accountable entities under clause 31. In other words, all
accountable entities have obligations to notify the regulators (APRA or ASIC)
of any of the following events under clause 32:
- a
person ceasing to be an accountable person
- the
dismissal or suspension of an accountable person due to failure to comply with
their accountability obligations under clause 21
- the
reduction of the variable remuneration of an accountable person of the entity
(or of a significant related entity) because the person failed to comply with
one or more of their accountability obligations under clause 21
- the
accountable entity becoming aware or having reasonable grounds to believe that
the entity breached its accountability obligations under clauses 20 or
23
- the
accountable entity becoming aware or having reasonable grounds to believe that
an accountable person of the entity or of significant related entity, has
breached their accountability obligations under clause 21
- a
material change occurs to information included on the register of accountable
persons about an accountable person.
Generally, the notification must be provided to the
regulators within 30 days of the event occurring (subclause 31(6)).
However, the regulators can prescribe a different timeframe in the rules.[116]
Furthermore, accountable entities must take reasonable
steps to ensure their significant related entities comply with the core
notification obligations (paragraph 31(1)(b)).
Enhanced notification obligations
All accountable entities are required to comply with the core
notification obligations listed above. Additionally, a subset of accountable
entities is required to comply with enhanced notification obligations.
Enhanced notification obligations include:
– an
accountability map must contain: the names of all accountable persons in an
accountable entity and its significant related entities, the responsibilities
of each accountable person and the lines of reporting and responsibility
between those accountable persons, and any other matters determined in the
Regulator rules.[118]
Furthermore, accountable entities must take reasonable
steps to ensure their significant related entities comply with the requirement
to provide and update an accountability statement (paragraph 31(2)(e)).
The threshold to determine which accountable entities will
need to comply with the enhanced notification requirements will be specified in
rules to be set out by the Minister. Subclause 31(5) specifies that
despite subsection 14(2) of the Legislation Act 2003, [119]
the Minister’s rules that prescribe the circumstances in which an accountable
entity meets the enhanced notification threshold may incorporate, by reference,
any matter published on a website maintained by ASIC or APRA as in force or
existing from time to time.[120]
Table 2 below shows the metrics currently proposed to be
used to determine the entities that must comply with enhanced notification
obligations. Put simply, it is proposed that entities with asset values above
the threshold must comply with enhanced notification obligations.
Table 2: proposed metrics used to determine enhanced
notification threshold [121]
|
Entity type
|
Metric used to determine
enhanced notification threshold
|
|
ADIs
|
Total assets > $10 billion
|
|
General insurers
|
Total assets > $2 billion
|
|
Life insurers
|
Total assets > $4 billion
|
|
Private health insurers
|
Total assets > $2 billion
|
|
RSE licensees
|
Total assets > $10 billion
(This refers to combined total assets of all RSEs under the trusteeship of a
given RSE licensee)
|
|
Commentary from stakeholders
The Financial Services
Council recommended that when an accountable entity increases its asset
values above the enhanced notification threshold (see Table 2 above), the
entity should have a ‘buffer’ or grace period to meet its enhanced
notification obligations. The Financial Services Council said:
We note that under the FAR, in
addition to the core notification obligations, accountable entities that
meet the enhanced notification threshold are required to provide the
regulator with an accountability statement for each of its accountable
persons and an accountability map. According to the table in the Q&A,
exceeding a stated level of total assets is the determinant of whether an
entity meets the enhanced notification threshold.
We recommend that
consideration should be given to providing for a ‘buffer’ where an entity in
a particular period exceeds a core compliance threshold and/or a grace
period during which an entity can progress to the enhanced compliance entity
level.[122] [emphasis added]
|
Chapter 3 – Administration
General administration
As recommended by the Banking Royal Commission’s final
report,[123]
the FAR will be jointly administered by ASIC and APRA (subclause 36(1)).
Subclause 36(2) prescribes that ASIC will only be
able to perform functions and exercise powers under the provisions listed in a
table in that subclause in relation to accountable entities that hold an
Australian financial services licence or an Australian credit licence, their
significant related entities, and accountable persons of these entities.
However, ASIC will:
be able to maintain the register of accountable persons,
share information, and make legislative instruments (Regulator rules) with APRA
in relation to all accountable entities and persons.[124]
APRA will administer and enforce the FAR in relation to
other entities, their significant related entities and the accountable persons
of those entities.
Clause 37 provides that APRA and ASIC must enter
into an arrangement outlining their general approach to administering and
enforcing the FAR within 6 months of the commencement of the Bill.[125]
If the regulators fail to reach an agreement, the Minister may determine an
arrangement for this purpose.
Clause 38 specifies that the regulators must agree before
making certain decisions or exercising certain enforcement powers. For example,
the regulators must agree prior to making a decision to disqualify an
accountable person. However, according to the Explanatory Memorandum:
… a failure by the Regulators to reach an agreement, or by
ASIC to adhere to the scope of its enforcement powers towards certain entities,
does not invalidate the performance or exercise of the relevant function or
power. [126]
Information sharing between ASIC and APRA
Subclause 39(1) provides that APRA and ASIC may
share information that is obtained, produced, or disclosed for the purposes of
FAR.
The Explanatory Memorandum explains:
APRA and ASIC are also required to share certain information
necessary to enable the joint administration and enforcement of the regime.
These arrangements are in addition to information‑sharing frameworks
available to APRA and ASIC under other legislation.[127]
Register of accountable persons
Subclause 40(1) prescribes that the regulators must
establish and keep a register of accountable persons. This register must
include details of the responsibilities of accountable persons and details of
any accountable person’s disqualification (paragraphs 40(4)(d) and (f)).
Subclause 40(5) provides that the regulators may
make any of the information contained in the register available for public
inspection on the internet. The Explanatory Memorandum explains:
Information from the register may be made public at the
discretion of APRA and ASIC. This allows the regulators to balance the need for
confidentiality of sensitive information about financial services businesses
with the need for public accountability and transparency.[128]
According to the Treasury’s Information
Paper on the FAR, APRA and ASIC will support the implementation of the FAR
by:
- establishing
a single portal to receive applications for registration of accountable people
- establishing
a single point of contact for accountable entities to raise any queries or
requests they may have
- determining
the appropriate form for registration.[129]
|
Commentary from stakeholders
The Law Council of Australia
said the ability to make information in the register of accountable persons
public could cause problems:
The addition of proposed subsection
40(5), which allows the Regulator to make any of the information
contained in the register of accountable persons available for public
inspection on the internet, is not supported.
As was seen in the reporting of
the Royal Commission and several subsequent investigations or proceedings,
there is the real potential for inaccurate reporting. Consequentially, there
is often misunderstanding in the community regarding the causes of, and
individual culpability regarding, issues which arise in the financial
services sphere.
It is submitted that publishing
on the Internet details of the individuals who are accountable for different
areas of a company risks imposing unfair pressure on accountable persons by
individuals who may be personally disgruntled with the ADI or other
regulated entities. It is not hard to envisage that disgruntled persons
(like vexatious litigants) may target accountable persons personally – and
unfairly - for alleged failings of the ADI or regulated entity.[130] [emphasis added]
|
Registration of a person as an accountable person
Subclause 41(1) provides that an accountable entity
may apply to APRA or ASIC to register a person as an accountable person.
Subclause 41(2) prescribes that the application
must comply with certain requirements. For example, the application must be in
the form approved in writing by the regulator and the application must contain
the information that the form requires.
Subclause 41(4) clarifies that APRA and ASIC must
register a person as an accountable person if the application meets the
requirements.
|
Commentary
Lawyers from Minter Ellison
noted that the APRA
Capability Review and the Treasury’s
policy document proposed to give APRA a new ‘veto’ power over the
appointment of directors and senior executives ‘where APRA holds existing
relevant information regarding a particular person that conflicts with the obligations
that would be placed on him or her as an accountable person’.[131]
However, this ‘veto’ power is
not included in the FAR Bill. Subclause 41(4) provides that APRA and ASIC must
register a person as an accountable person if the application meets the
requirements.
|
Disqualification of an accountable person
Subclause 42(1) provides that the regulators may
disqualify an individual from being or acting as an accountable person if the
regulators are satisfied that:
- the
individual has failed to comply with their accountability obligations and
- the
non-compliance is sufficiently serious to justify the disqualification.
The regulators may disqualify a person from being or
acting as an accountable person for a particular accountable entity, a class of
accountable entities or any accountable entity, or any significant related
entity of these (subclause 42(2)).
The regulators may vary or revoke a disqualification on
its own initiative or following an application by the disqualified person (subclause
43(1)). Decisions made by the regulators to disqualify an accountable
person are subject to merits review (discussed below).
Examination powers
The Bill provides APRA and ASIC with examination powers to
investigate breaches of the FAR.
Subclause 45(1) prescribes that APRA and ASIC may,
in writing, appoint an investigator to investigate an accountable entity or its
significant related entity if the regulators have reasonable grounds to believe
that the accountable entity or an accountable person of the entity may have
contravened their accountability obligations.
Subclause 47(1) compels an individual to cooperate
with an investigator by producing books, accounts or documents relevant to the
investigation if the investigator reasonably believes the person has custody or
control of the books, accounts or documents. A maximum penalty of 30 penalty
units ($6,660) applies if the person refuses to provide a book, account or
document on request (subclause 47(3)), and a maximum penalty of up to 2
years imprisonment applies if the person conceals or destroys a document
relevant to an investigation, intending to delay or obstruct the investigation
(clause 48).[132]
If an examination or investigation is conducted, the
person being examined may be required to take an oath or make an affirmation
and to answer questions (subclause 50(1)). Failure to comply with these
requirements is an offence punishable by a maximum penalty of 30 penalty units
($6,660) (clause 53).
A written record of the examination must be prepared and
provided to the examinee. The investigator may place conditions on the use of
the record, which the examinee must comply with. A penalty of up to six months
imprisonment applies if the person fails to comply with these conditions (subclause
52(4)).
The regulators’ power to issue directions for
non-compliance
Subclause
64(1) allows APRA and
ASIC to give an accountable entity a direction if they have reasonable grounds
to believe that a contravention of a provision of the Bill has or is likely to
occur.
Subclause
64(2) specifies the kinds
of direction that the regulators may issue.
Clause 65 prescribes that APRA and ASIC may give a
direction to an accountable entity to reallocate responsibilities as between
accountable persons if the regulators have reasonable grounds to believe that
the current allocation has given rise to, or is likely to give rise to a
prudential risk or a risk of significant and systemic non-compliance.
|
Commentary from stakeholders
Subclause 64(2) provides APRA and ASIC with powers to issue directions
to cause an accountable entity or its significant related entities to:
-
take a specific action
-
undertake an audit
-
make changes to internal systems and
practices
-
reconstruct, amalgamate or otherwise
alter part of the entity’s structure or that of its relevant group
-
not take a specific action.[133]
The Explanatory Memorandum
states that the power to issue a direction under clause 65 to reallocate
responsibilities between accountable persons is:
… designed to be used
in exceptional circumstances to direct an accountable entity to
reallocate the responsibilities of accountable persons of its relevant group
in order to minimise prudential risk or risks of serious non-compliance. A
similar power exists under the Banking Executive Accountability Regime, with
the power in the Financial Accountability Regime expanded to cover serious
non-compliance risks.[134]
[emphasis added]
Lawyers from Ashurst (a law
firm) commented:
The directions that may be given
[by APRA and ASIC] are wide-ranging, and include directions to make changes
to systems, business practices or operations or to make organisational
changes. The directions power under FAR may be broader in its reach than,
for example, ASIC’s existing power to impose license conditions on holders
of an Australian financial services licence.[135]
|
Secrecy provisions
Clause 67 provides that APRA and ASIC may determine
if a direction is covered by secrecy provisions. Secrecy provisions are
provisions that impose confidentiality obligations on individuals or entities.
Subclause 68(1) prescribes that if a person
discloses information covered by the secrecy provisions, a penalty of
imprisonment of up to 2 years will apply (save for limited exceptions described
in subclause 68(3)).
|
Commentary from stakeholders
The AIST expressed concerns
regarding the secrecy provisions:
The proposed directions power
and related secrecy provisions indicate that the Regulator may determine
that secrecy arrangements apply to a direction given under the Bill. This
can be done if the Regulator considers it is necessary to ‘protect certain
customers of accountable entities, or to promote financial system
stability.’
AIST is concerned about how the
secrecy provisions might be used in the context of superannuation and we
believe that these should be reconsidered in light of the APRA Capability
Review which recommended that APRA depart from a ‘closed door’ approach. The
proposed directions power and related secrecy provisions do not seem
consistent with the APRA Capability Review nor with the overall increased
expectation of transparency in the sector.[136][emphasis added]
|
Civil penalties
Civil penalties apply in relation to contravention of
obligations by an accountable entity under the FAR (clause 80).
Furthermore, subclause 81(1) prescribes that a
person (a body corporate or a natural person) must not:
- attempt
to contravene a civil penalty provision of the Bill
- aid,
abet, counsel or procure a contravention of a civil penalty provision of the
Bill
- induce
(by threats, promises or otherwise) a contravention of a civil penalty
provision of the Bill
- be
in any way, directly or indirectly, knowingly concerned in, or party to, a
contravention of a civil penalty provision of the Bill
- conspire
with others to effect a contravention of a civil penalty provision of the Bill.
Civil penalties for bodies corporate
Subclause 83(2) provides that if a body corporate
(for example, an accountable entity or significant related entity) breaches a
civil penalty provision (that is, subclause 80(1) or 81(1)) then the
maximum penalty that may be imposed on the body corporate is the greatest of:
- 50,000
penalty
units (equivalent of $11.1 million) [137]
or
- 3
times the value of the benefit derived/detriment avoided because of the
contravention or
- 10%
of the annual turnover of the body corporate for the 12-month period preceding
the contravention, up to 2.5 million penalty units ($555 million).
The Explanatory Memorandum states:
In practice, it is intended that a court would determine
which method provides the greatest penalty, and then use discretion to impose
an appropriate penalty up to that amount.[138]
Civil penalties for accountable persons
Subclause 83(3) provides that if a person other
than a body corporate (for example, an accountable person) breaches a civil
penalty provision (that is, subclause 80(1) or 81(1)), then the person
would incur a maximum civil penalty of the greater of either:
- 5,000
penalty units (equivalent of $1.1 million) or
- 3
times the value of the benefit derived/detriment avoided because of the
contravention.
|
Commentary from stakeholders
While an accountable entity
that contravenes its accountability obligations under the FAR may be subject
to a civil penalty (subclause 80(1)), there is no civil penalty for
contraventions by accountable persons of their accountability obligations.
However, the Bill does
prescribe civil penalties for ancillary involvement by a person (including
an accountable person) in an accountable entity’s contravention of an
obligation (subclause 81(1)). The Explanatory Memorandum to the
FAR Bill explains:
A person can face a civil
penalty if they assist another person to contravene a civil penalty
provision under the Financial Accountability Regime. An example of such an
ancillary contravention is an accountable person aiding an accountable
entity to contravene its accountability obligations.[139]
In other words, individuals
will be subject to an ancillary liability regime which will deem them liable
if they aid or abet an accountable entity to contravene its obligations
under the FAR.
In addition to potential
civil penalties for an ancillary involvement, an accountable person who
breaches their FAR obligations also faces the possibility of
disqualification or a reallocation of their responsibilities.[140]
The Law Council of Australia
recommended that the penalty for an individual who is an accessory should
not be the same as for a body corporate:
If proposed section 81
is included, it is submitted that the penalty for an individual who is an
accessory should not be the same as for a body corporate. Rather, the usual
convention should apply where the individual penalty is 1/5 that of a body
corporate.[141]
[emphasis added]
As noted above, there is
media speculation that some members of Parliament wish to amend the FAR Bill
to impose civil penalties on accountable persons for breaches of their
accountability obligations.[142] Some stakeholders such as the Australian Institute of
Company Directors said they would not support an amendment to impose civil
penalties.[143]
|
Merits review of decisions made by the regulators
Clause 91 provides for a list of decisions made by
the regulators (APRA and ASIC) that can be subject to merits review (known as
reviewable decisions). Where a decision is reviewable, the regulators must give
all persons affected by the decision the reasons for the decision and
information about the person’s review rights (clause 91 and subclause
92(1)).[144]
To seek review, a person affected by a reviewable decision
may first apply for the regulator that made the original decision to reconsider
the decision. The regulator must reconsider the decision within 60 days and
notify the applicant of the outcome by written notice. If the regulator does
not notify the applicant in that time, the decision is taken to be affirmed (clauses
93 and 94).[145]
A notice to an affected person of a reviewable decision,
or of a reconsideration decision, may contain conditions relating to disclosure
of information about the reasons for the decision. A penalty of up to 2 years
imprisonment will apply if a person does not comply with a condition in a
notice that relates to disclosure of information (subclauses 94(4) and
(5)).[146]
As noted above, contravention of five provisions of the
Bill (clauses 48, 52, 68, 92 and 94) could potentially incur a
penalty of imprisonment.
In the Exposure Draft of the FAR Bill, there was a
requirement that ‘the Minister must cause a review of the operation of this Act
to be undertaken as soon as possible after the fifth anniversary of the
commencement of this Act.’[147]
This provision does not appear in the FAR Bill.
|
Commentary from stakeholders
The Law Council of Australia
recommended that the requirement to review the FAR legislation should be
reinstated:
It is submitted that the
original section 98, which required that the Minister review the Act in five
years, should be retained. This review would provide an important avenue to
test whether this level of regulation is necessary or no longer strikes the
correct balance, and would allow for timely further review and amendment of
the legislation if required.[148]
|
Other provisions
The Financial Sector Reform (Hayne Royal Commission
Response No. 3) Bill 2021 amends the following legislation to support the FAR
and enable transitional arrangements from the BEAR to the FAR:
- Australian
Prudential Regulation Authority Act 1998
- Australian
Securities and Investments Commission Act 2001
- Banking
Act 1959
- Financial
Regulator Assessment Authority Act 2021
- Financial
Sector (Transfer and Restructure) Act 1999
- Insurance
Act 1973
- Life
Insurance Act 1995
- Private
Health Insurance (Prudential Supervision) Act 2015
- Superannuation
Industry (Supervision) Act 1993.[149]
Commencement date
The FAR Bill 2021 commences the day after Royal Assent.[150]
The regime will apply to the banking industry on 1 July 2022 or six months
after Royal Assent, whichever is later. The regime will apply to the insurance
and superannuation industries on 1 July 2023 or 18 months after Royal Assent,
whichever is later.[151]
Concluding comments
The FAR Bill proposes to give effect to the Government’s
commitment to implement the recommendations of the Banking Royal Commission by
extending the scope of the BEAR to all APRA-regulated entities.
There are divided opinions about the effectiveness of the
proposed FAR, while some stakeholders argue that the Bill is ‘overkill’ that
places unnecessary burden on the financial services industry,[152]
others believe the Bill is deficient in many important areas and ‘will be
unlikely to hold finance executives to account for their actions’.[153]
Potential points of contention of the FAR Bill include:
- the scrutiny concerns raised by the Senate Standing Committee for
the Scrutiny of Bills
- the effectiveness of the obligations (for examples, deferred remuneration
obligations and key personnel obligations) imposed by the FAR
- whether there are adequate penalties (civil and criminal) for contraventions
of accountability obligations by accountable persons.
[1]. A
Tudge, ‘Second
reading speech: Financial Accountability Regime Bill 2021’, House of
Representatives, Debates, 28 October 2021, p. 10273; Explanatory
Memorandum, Financial Accountability Regime Bill 2021, p. 10.
[2]. Explanatory
Memorandum, Financial Accountability Regime Bill 2021, pp. 8–9.
[3]. A
Tudge, ‘Second
reading speech: Financial Sector Reform (Hayne Royal Commission Response No. 3)
Bill 2021’, House of Representatives, Debates, 28 October 2021, p. 10274.
[4]. Senate
Economics References Committee, 'Lifting the
fear and suppressing the greed': penalties for white-collar crime and corporate
and financial misconduct in Australia, The Senate, Canberra, March
2017.
[5]. Parliament
of Australia, ‘Treasury
Laws Amendment (Banking Executive Accountability and Related Measures) Bill
2018 homepage’, Australian Parliament website.
[6]. S
Morrison, ‘Second
reading speech: Treasury Laws Amendment (Banking Executive Accountability and
Related Measures) Bill 2017’, House of Representatives, Debates, 19
October 2017, p. 11270.
[7]. An
authorised deposit-taking institution (ADI) is a corporation authorised by the
Australian Prudential Regulation Authority (APRA) under the Banking Act
to take deposits, make advances of money or undertake other financial
activities specified in Regulations under the Act. They include banks, credit
unions, building societies, branches of foreign banks, subsidiaries of foreign
banks and payments system operators. See section 9 and the definitions of authorised
deposit‑taking institution and banking business in
section 5 of the Banking
Act 1959 and Australian Prudential Regulation Authority (APRA), Register
of authorised deposit-taking institutions, APRA website.
[8]. See Part
IIAA of the Banking
Act 1959, which establishes the BEAR.
[9]. Senate
Economics Legislation Committee, Treasury
Laws Amendment (Banking Executive Accountability and Related Measures) Bill
2017 [Provisions], The Senate, Canberra, 24 November 2017, p. 29.
[10]. Royal
Commission into Misconduct in the Banking, Superannuation and Financial
Services Industry (Banking Royal Commission), Interim
report, v. 1, Banking Royal Commission, Canberra, 2018; Senate, Documents, Tabling,
‘22. Misconduct in the banking, superannuation and financial services
industry—Royal Commission—Interim report’, 15 October 2018, p. 7200.
Royal Commission into Misconduct in the
Banking, Superannuation and Financial Services Industry (Banking Royal
Commission), Final
report, v. 1, Banking Royal Commission, Canberra, 2019; Senate,
Documents, Tabling,
‘47. Misconduct in the banking, superannuation and financial services
industry—Royal Commission—Final report’, 12 February 2019, p. 186.
[11]. Banking
Royal Commission, Final report,
op. cit., p. 1.
[12]. Ibid.
[13]. Australian
Prudential Regulation Authority (APRA), ‘About APRA‘, APRA website, n.d.
[14]. Banking
Royal Commission, Final report,
op. cit., p. 30.
[15]. Ibid.,
p. 34.
[16]. Ibid.,
p. 39.
[17]. Australian
Government, Restoring
trust in Australia’s financial system: the Government response to the Royal
Commission into Misconduct in the Banking, Superannuation and Financial
Services Industry, Department of the Treasury, Canberra,
February, 2019, pp. 20, 26 and 33.
[18]. Tudge,
‘Second
reading speech: Financial Accountability Regime Bill 2021’, op. cit., p. 10273.
[19]. Recommendation
7.1 of the Banking Royal Commission’s Final report
relates to the Compensation Scheme of Last Resort. Recommendation 7.1 is
discussed in I Zhou, ‘Financial
Services Compensation Scheme of Last Resort’, FlagPost, Parliamentary
Library blog, 25 November 2021.
[20]. J
Frydenberg (Treasurer) and J Hume (Minister for Superannuation, Financial
Services and the Digital Economy), Government
meets legislative commitments in response to Hayne Royal Commission,
media release, 28 October 2021.
[21]. P
Pyburne, Financial
Sector Reform (Hayne Royal Commission Response No. 2) Bill 2020, Bills
digest, 46, 2020–21, Parliamentary Library, Canberra, 2021, p. 4.
[22]. Explanatory
Memorandum, Financial Accountability Regime Bill, p. 9.
[23]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, 17, 2021, The Senate, Canberra, 24 November 2021, pp. 14–21.
[24]. Ibid.,
pp. 14–15.
[25]. Ibid.,
p. 14.
[26]. Explanatory
Memorandum, op. cit., p. 30.
[27]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, op. cit. p. 15.
[28]. Ibid.,
p. 16.
[29]. Ibid.,
p. 17.
[30]. Standing
Committee for the Scrutiny of Delegated Legislation, Guidelines,
1st edn, The Senate, Canberra, February 2020, p. 25.
[31]. L
McDonald, ‘The
entrenched minimum provision of judicial review and the rule of law’, Public
Law Review, 21, 2010, pp. 14–39, 15–16.
[32]. Standing
Committee for the Scrutiny of Delegated Legislation, Guidelines,
op. cit., p. 25.
[33]. Senate Standing Committee for the Scrutiny of Bills, Scrutiny
digest, op. cit., p. 16.
[34]. Ibid.,
pp. 16–17.
[35]. Ibid., p. 17.
[36]. Ibid.
[37]. Ibid.,
pp. 17–19.
[38]. Standing
Committee for the Scrutiny of Delegated Legislation, Guidelines,
op. cit., p. 22.
[39]. Ibid. See
also Attorney-General’s Department, A guide to
framing Commonwealth offences, infringement notices and enforcement powers,
Canberra, September 2011, pp. 50–51.
[40]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, op. cit., p. 17.
[41]. Ibid.
[42]. Criminal Code Act
1995, section 13.3.
[43]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, op. cit., p. 18.
[44]. Ibid.,
p. 19.
[45]. Ibid.,
pp. 22–24.
[46]. Explanatory
Memorandum, op. cit., pp. 50–51.
[47]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, op. cit., pp. 19–20.
[48]. Ibid.,
p. 20.
[49]. Ibid.
[50]. Subsection
14(2) of the Legislation
Act 2003 says ‘Unless the contrary intention appears, the legislative
instrument or notifiable instrument may not make provision in relation to a
matter by applying, adopting or incorporating any matter contained in an
instrument or other writing as in force or existing from time to time.’
[51]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, op. cit., p. 20.
[52]. Ibid.
[53]. Ibid.,
p. 21.
[54]. Ibid.
[55]. Ibid.
[56]. Senate
Standing Committee for the Scrutiny of Bills, ‘Ministerial
Responses’, Parliament of Australia, as at 17 January 2022.
[57]. M
Read, ‘Million-dollar
fines for bankers possible as LNP senator goes rogue’, Australian
Financial Review, (online), 9 November 2021.
[58]. Ibid.
[59]. Treasury,
Implementing
Royal Commission Recommendations 3.9, 4.12, 6.6, 6.7 and 6.8 – Financial
Accountability Regime, Proposal Paper, Treasury, Canberra, 22 January
2020, p. 9.
[60]. Details
of clauses 81 to 83 of the FAR Bill are discussed below in the ‘Key issues and
provisions’ section of this Digest.
[61]. J
Frost, ‘Million-dollar
fines removed from accountability regime’, Australian Financial Review,
(online), 19 July 2021.
[62]. Clayton
Utz, ‘One
step closer to FAR: more details known of the Financial Accountability Regime
Bill’, Clayton Utz website, 11 November 2021.
[63]. CHOICE,
Consumer Action Law Centre, Financial Counselling Australia, Financial Rights
Legal Centre, Super Consumers Australia, Uniting Communities Consumer Credit
Law Centre SA, and Victorian Aboriginal Legal Service (for simplicity these
organisations will be collectively referred to as ‘consumer advocacy groups’), Joint
submission to the SELC, Inquiry into Financial Accountability Regime
Bill 2021 [Provisions] and Financial Services Compensation Scheme of Last
Resort Levy Bill 2021 [Provisions] and related bills (for simplicity the
Inquiry will be referred to as ‘Inquiry into the FAR Bill), [Submission
no. 2], December 2021.
[64]. Ibid.,
p. 6.
[65]. Ibid.,
p. 7.
[66]. Ibid.
[67]. Clause
15 and Part 5 of Chapter 2 of the FAR Bill are discussed below in the ‘Key
issues and provisions’ section.
[68]. See Division
4 of Part IIAA of the Banking Act 1959.
[69]. P
Hawkins and H Portillo-Castro, Treasury
Laws Amendment (Banking Executive Accountability and Related Measures) Bill
2017, Bills digest, 70, 2017–18, Parliamentary Library, Canberra, 2018,
p. 12.
[70]. J
Frost, ‘‘Precisely
zero’ bank executives held accountable by BEAR’, Australian Financial
Review, (online), 22 September 2021.
[71]. ‘The ABA’, Australian
Banking Association (ABA).
[72]. ABA,
Submission
to the SELC, Inquiry into the FAR Bill, [submission no. 19], 17 December
2021, p. 3.
[73]. Ibid.
[74]. Association
of Superannuation Funds of Australia (ASFA), Submission
to the SELC, Inquiry into the FAR Bill, [Submission no. 10], 17
December 2021; Australian Institute of Superannuation Trustees (AIST), Submission
to the SELC, Inquiry into the FAR Bill, [Submission no. 26], 22 December
2021.
[75]. J
Frost, ‘Super
funds say new laws are overkill’, Australian Financial Review, 6
February 2021.
[76]. Ibid.
[77]. Australian
Institute of Company Directors (AICD), Submission
to the SELC, Inquiry into the FAR Bill, [Submission no. 29], 17 December
2021, p. 1.
[78]. Ibid.,
p. 2.
[79]. Ibid.,
pp. 2–3.
[80]. Law
Council of Australia (LCA), Submission
to the SELC, Inquiry into the FAR Bill, [Submission no. 13], 17 December
2021, p. 5.
[81]. Ibid.,
pp. 5–6.
[82]. Australian
Financial Markets Association (AFMA), Submission
to the SELC, Inquiry into the FAR Bill, [Submission no. 22], 17 December
2021, p. 1.
[83]. Ibid.,
p. 2.
[84]. Business
Council of Australia (BCA), Submission
to the SELC, Inquiry into the FAR Bill, [Submission no. 27], December
2021, p. 2.
[85]. Ibid.
[86]. Ibid., pp.
3–4.
[87]. Details
of clauses 81 to 83 are discussed below in the ‘Key issues and provisions’
section of this Digest, below.
[88]. BCA,
Submission,
op. cit., p. 4.
[89]. Ibid.
[90]. The
Statement of Compatibility with Human Rights can be found at page 101 of the
Explanatory Memorandum to the Bill.
[91]. Parliamentary
Joint Committee on Human Rights, Human
rights scrutiny report, 13, 2021, Australian Parliament, 10 November
2021, p. 32.
[92]. Basically,
ASIC will be administering or enforcing the FAR in relation to accountable
entities that hold an Australian financial services licence or an Australian
credit licence, their significant related entities, and accountable persons of
these entities (clause 36). APRA will enforce and administer the FAR in
relation to other entities, their significant related entities and the
accountable persons of those entities. ASIC and APRA will jointly
establish and administer the register of accountable persons. Clauses 36-39
of the FAR Bill provide further detail of the collaboration between ASIC and
APRA.
[93]. Acts Interpretation
Act 1901 (Cth), paragraph 21(1)(b).
[94]. Ibid.,
subsection 2(2); Re Maritime Union of Australia; ex parte CSL Pacific
Shipping (2003) 214 CLR 397, [2003]
HCA 43 at [43].
[95]. Explanatory
Memorandum, op. cit., p. 13.
[96]. Constitutional
corporation is defined at clause 8 of the FAR Bill as ‘a corporation to
which paragraph 51(xx) of the Constitution
applies’. Paragraph 51(xx) covers foreign corporations, and trading and financial
corporations formed within the limit of the Commonwealth.
[97]. Constitutionally
covered body is defined at clause 13 of the FAR Bill. Also see Explanatory
Memorandum, op. cit., p. 12.
[98]. Australian
Prudential Regulation Authority (APRA), ‘Register
of non-operating holding companies’, APRA website,
7 September 2021.
[99]. Treasury, Financial
Accountability Regime – List of prescribed responsibilities and positions,
Policy Proposal Paper, Treasury, Canberra, 16 July 2021.
[100]. Ibid., pp.
6–7.
[101]. Treasury,
Financial
Accountability Regime, op. cit., pp. 6–9.
[102]. Ibid.,
p. 2.
[103]. Explanatory
Memorandum, op. cit., p. 17.
[104]. Significant
related entity is defined at clause 12 of the FAR Bill.
[105]. ASFA,
Submission,
op. cit., p. 1.
[106]. AIST,
Submission,
op. cit., pp. 3–4.
[107]. Deloitte,
‘FAR
(is) out’, Deloitte website, 19 July 2021.
[108]. LCA,
Submission,
op. cit., pp. 6–7.
[109]. Explanatory
Memorandum, op. cit., p. 26.
[110]. APRA, Final
Prudential Standard CPS 511 Remuneration, August 2021, paragraph 39.
See also: MinterEllison, APRA
releases final remuneration standard: CPS 511, MinterEllison website, 8
September 2021.
[111]. APRA, Prudential
practice guide: CPG 511 Remuneration, 18 October 2021, p. 4.
[112]. ASFA,
Submission,
op. cit., p. 2.
[113]. Explanatory
Memorandum, op. cit., p. 26.
[114]. Ibid.
[115]. AIST,
Submission,
op. cit., pp. 2–3.
[116]. Explanatory
Memorandum, op. cit., p. 28.
[117]. Clause
33 of the FAR Bill; Explanatory
Memorandum, op. cit., p. 28.
[118]. Ibid.
[119]. Subsection
14(2) of the Legislation Act 2003 says ‘Unless the contrary intention
appears, the legislative instrument or notifiable instrument may not make provision
in relation to a matter by applying, adopting or incorporating any matter
contained in an instrument or other writing as in force or existing from time
to time.’
[120]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, op. cit., p. 20.
[121]. The
Treasury, Exposure
Draft Legislation Q&A – Financial Accountability Regime, Treasury,
Canberra, 16 July 2021, p. 2.
[122]. Financial
Services Council (FSC), Submission
to the SELC, Inquiry into the FAR Bill, [Submission no. 25], p. 8.
[123]. Banking
Royal Commission, Final report,
op. cit., Recommendation 6.6, p. 39.
[124]. Explanatory
Memorandum, op. cit., p. 30.
[125]. Ibid.
[126]. Ibid.,
pp. 30–31.
[127]. Ibid.,
p. 31.
[128]. Ibid.,
p. 32.
[129]. The
Treasury, Joint
administration of the Financial Accountability Regime between APRA and ASIC,
Information Paper, Treasury, Canberra, 16 July 2021, p. 4.
[130]. LCA,
Submission,
op. cit., p. 8.
[131]. MinterEllison,
‘Financial
Accountability Regime Status update: FAR Bill introduced’, MinterEllison
website, 29 October 2021.
[132]. The value of a
penalty unit is currently $222. See section 4AA of the Crimes Act 1914
and the Notice of
Indexation of the Penalty Unit Amount.
[133]. Explanatory
Memorandum, op. cit., p. 39.
[134]. Ibid.,
p. 40.
[135]. Ashurst,
‘Financial
Accountability Regime Bill introduced in Parliament’, Ashurst website, 9
November 2021.
[136]. AIST,
Submission,
op. cit., p. 3.
[137]. The
value of a penalty unit is currently $222. See section 4AA of the Crimes Act 1914
and the Notice of
Indexation of the Penalty Unit Amount.
[138]. Explanatory
Memorandum, op. cit., p. 46.
[139]. Ibid.,
p. 45.
[140]. Clauses 42
and 65 of the FAR Bill.
[141]. LCA,
Submission,
op. cit., p. 8.
[142]. M
Read, ‘Million-dollar
fines for bankers possible as LNP senator goes rogue’, Australian
Financial Review, (online), 9 November 2021.
[143]. AICD, Submission,
op. cit., pp. 2–3.
[144]. Explanatory
Memorandum, op. cit., p. 51.
[145]. Ibid.
[146]. Ibid.
[147]. The
Exposure Draft of the FAR Bill is available at the Treasury website.
See clause 98 of the Exposure Draft of the FAR Bill.
[148]. LCA,
Submission,
op. cit., p. 8.
[149]. Schedule
1 to the Financial
Sector Reform (Hayne Royal Commission Response No. 3) Bill 2021; A Tudge, ‘Second
reading speech: Financial Sector Reform (Hayne Royal Commission Response No. 3)
Bill 2021’, op. cit., p. 6.
[150]. Clause 2 of
the Financial
Accountability Regime Bill 2021.
[151]. Ibid.,
subclauses 9(2) and (4); Explanatory
Memorandum, op. cit., p. 3.
[152]. J
Frost, ‘Super
funds say new laws are overkill’, Australian Financial Review, 6
February 2020.
[153]. Consumer
advocacy group, Joint
submission, op. cit., p. 6.
For copyright reasons some linked items are only available to members of Parliament.
© Commonwealth of Australia
Creative Commons
With the exception of the Commonwealth Coat of Arms, and to the extent that copyright subsists in a third party, this publication, its logo and front page design are licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia licence.
In essence, you are free to copy and communicate this work in its current form for all non-commercial purposes, as long as you attribute the work to the author and abide by the other licence terms. The work cannot be adapted or modified in any way. Content from this publication should be attributed in the following way: Author(s), Title of publication, Series Name and No, Publisher, Date.
To the extent that copyright subsists in third party quotes it remains with the original owner and permission may be required to reuse the material.
Inquiries regarding the licence and any use of the publication are welcome to webmanager@aph.gov.au.
Disclaimer: Bills Digests are prepared to support the work of the Australian Parliament. They are produced under time and resource constraints and aim to be available in time for debate in the Chambers. The views expressed in Bills Digests do not reflect an official position of the Australian Parliamentary Library, nor do they constitute professional legal opinion. Bills Digests reflect the relevant legislation as introduced and do not canvass subsequent amendments or developments. Other sources should be consulted to determine the official status of the Bill.
Any concerns or complaints should be directed to the Parliamentary Librarian. Parliamentary Library staff are available to discuss the contents of publications with Senators and Members and their staff. To access this service, clients may contact the author or the Library‘s Central Enquiry Point for referral.