Treasury has released a consultation paper on plans to extend the Banking Executive Accountability Regime (BEAR) to insurers and other regulated financial entities as recommended by the Hayne royal commission.

The Federal Government has pledged to carry out the proposal along with every other measure the royal commission put up in its final report in February last year.

BEAR has been in place since July 2018, with large banks the first group to have to comply with higher conduct and accountability requirements.

The proposed extension to insurance companies will come under the extended Financial Accountability Regime and be administered by the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).

“The BEAR established clear standards of conduct by imposing a strengthened responsibility and accountability framework for directors and the most senior executives in authorised deposit-taking institutions,” the consultation paper says.

“The [Financial Accountability Regime} will extend this responsibility and accountability framework across all APRA-regulated industries."

The new regime “is intended to increase the transparency and accountability of financial entities in these industries and improve risk culture and governance for both prudential and conduct purposes”.

“[It] will also require financial entities to clarify responsibilities attaching to particular officers and positions. As a result, individuals will be held to account for failure to perform their obligations.”

Under the changes proposed, general insurers with at least $2 billion in total assets will be termed as “enhanced compliance” entities.

Failure to comply with the regime could result in huge financial penalties imposed by a court. In some cases, the penalties may be set at 10% of the annual turnover of the body corporate but set at a maximum monetary value of 2.5 million penalty units, which is about $525 million.

Executives also face heavy fines of up to $1.05 million if they did not comply with their obligations.

Finity Principal Raj Kanhai told insuranceNEWS.com.au today that “everyone knew it was coming so no surprises there”.

“The Government is not letting up. It wants clear lines of accountability and I guess the adage of ‘the buck stops here’ is one that they are imposing.

“If there is one thing that makes institutions and executives take notice, it’s the threat of penalties.”

Closing date for submissions is February 14.

Click here for the consultation paper.