Financial Accountability Regime (FAR) Exposure Draft Bill and ancillary documentation
Ms Ly Reeve
Director, Regulatory Powers and Accountability Unit
Financial System Division
Markets Group
Treasury
Langton Crescent
Parkes ACT 2600
via email: FAR@treasury.gov.au
Dear Ms Reeve
This letter responds to the consultation on the Exposure Draft Bill and ancillary documentation for the Financial Accountability Regime (FAR Package).
The Finance Industry Council of Australia (FICA) brings together the leading financial services industry associations in Australia – Australian Banking Association (ABA), Australian Finance Industry Association (AFIA), Australian Financial Markets Association (AFMA), Australian Securitisation Forum, Customer Owned Banking Association (COBA), Financial Services Council (FSC), and the Insurance Council.
FICA members represent a diverse range of financial services businesses operating across the breadth of Australia’s financial services industry. All have an interest in a competitive and innovative financial services industry, which consistently delivers positive outcomes for consumers and supports the Australian economy.
At a macro level, FICA members consider effective and proportionate governance processes with clear accountabilities within industry participants as an important means to achieving those outcomes.
Certain FICA member sectors already have experience of the Banking Executive Accountability Regime (BEAR) and bring the learnings from its implementation when providing their submissions on the FAR Package. For other FICA member sectors, the integration of FAR governance processes into existing governance processes will be a challenging new experience.
Individual FICA members have provided their own detailed submissions, and these highlight a number of specific issues relevant to their membership. However, the purpose of this letter is to outline some key areas of common agreement between our members in relation to the FAR Package.
1. Ensure proportionate senior executive individual accountability is delivered
All FICA members welcome the Federal Government’s decision not to proceed with a civil penalty regime for individual accountable persons under the FAR. This is proportionate and takes account of the consumer benefit in the Australian financial services industry continuing to have the capacity to mattract and retain talented senior executives both locally and internationally.
However, FICA members remain concerned that this policy of proportionate senior executive individual accountability may be undermined through:
the incorporation of residual personal liability via the ancillary liability provisions in the Exposure Draft Bill which incorporate the Regulatory Powers (Standard Provisions) Act 2014. FICA members recommend that this should be removed or limited (e.g. like the regime under the Corporations Act 2001)
the new obligation imposed on accountable persons to take reasonable steps to ensure that accountable entities comply with the listed laws (including regulations and ministerial direction) in clause 19(1)(d) of the FAR Exposure Draft Bill – this is arguably excessive in scope given the other related obligations in the Bill, and
ambiguities in the operation of the joint and several liability provisions.
Specific comments on these matters are made in individual FICA member submissions and collectively, we ask that these be reviewed and modifications be made to the Exposure Draft Bill to ensure the
policy intent translates into practice without undue legal and regulatory complexity.
2. Reduce complexity and inconsistency to improve the benefit of the reform
Alignment with APRA standards and guidance
FICA members welcome Treasury’s approach of seeking to broadly align the Exposure Draft Bill with APRA’s remuneration prudential standards and guidance (draft CPS 511 and CPG 511), noting that industry continues to engage with APRA on issues of concern prior to those documents being finalised.
Individual FICA member submissions provide, in some detail, specific examples where further work will be required for effective alignment, for example, in relation to overlapping role categories, inconsistent key variable remuneration definitions, compliance dates, etc.
We note that ensuring alignment and minimising inconsistencies reduces legal and regulatory complexity. However, it also ensures the Australian market remains competitive with its regional counterparts, notably Singapore and Hong Kong (who have less regulation and shorter variable remuneration deferral periods).
End-to-end product responsibility
It is important to reduce complexity, minimise duplication, and improve clarity and fairness by improving how end-to-end product responsibility will operate practically within the new legal and regulatory framework (not only FAR, but other new legislation, notably DDO, with which there is considerable overlap).
We note that the organisational structures of FICA members do not always reflect what Treasury was envisioning when it provided its guidance, and reducing the scope of end-to-end product responsibility, as well as its complexity and potential for unnecessary overlap would be welcome.
Regulatory arbitrage
It is important to limit the potential for regulatory arbitrage by ensuring that when ASIC and APRA provide details about arrangements for joint administration, that regulatory guidance:
Establishes a clear governance framework, with examples and guidance outlining the approach both regulators will take when administering FAR – this will ensure certainty and consistency in regulatory expectations
Articulates scenarios where ASIC and APRA may have divergent views – this will ensure clarify about the process to be undertaken as well as regulatory expectations
Streamlines information requests related to the FAR obligations, i.e. through APRA Connect
Provides clarity on how both regulators will conduct surveillance activities, monitor compliance, and pursue enforcement action, e.g. both regulators should not be able to pursue enforcement action for the same breach or offence, and
Allows adequate time for consultation with industry, given significant details will be contained in regulatory guidance that will impact on compliance systems, policies and procedures, and operations across financial institutions.
Specific comments on these matters are made in individual FICA member submissions and collectively, we ask that these be reviewed and modifications be made to the Exposure Draft Bill to ensure the FAR delivers the intended governance and accountability outcomes.
3. Extend the timeframes for implementation
As outlined in the introductory remarks, FICA members span the breadth of the financial services industry. For some financial institutions, implementation of the FAR will be an extension of the BEAR, for others it will be the implementation of a completely new legal and regulatory regime.
Given this, we ask that the timeframes for implementation be extended to reflect the varying states of readiness, but also in recognition of the continued pressure across the industry as it supports Australians through the impact of the COVID global pandemic and continued lockdowns as well as implement the significant raft of legislative reforms due to commence in October 2021.
Thank you for the opportunity to make this submission.
Yours sincerely
Diane Tate
Chair
Finance Industry Council of Australia