The Federal Government has released draft laws that will extend a strengthened banking executive accountability regime to insurers, in line with Hayne royal commission recommendations aimed at improving corporate culture and conduct.

The more stringent Financial Accountability Regime (FAR) will apply to firms licensed by the Australian Prudential Regulation Authority (APRA), their directors and the most senior and influential executives

“A key objective of the FAR is to improve the operating culture of entities in the banking, insurance and superannuation sectors and to increase transparency and accountability across these sectors, both in relation to prudential matters and conduct-related matters,” documents released today say.

The proposed legislation, to enter Federal Parliament in the spring sittings, will apply to banks from next July, or six months after taking effect, with an extension to insurers and superannuation licensees from the latter of July 2023 or 18 months after the start.

The draft laws require a minimum four-year deferral for at least 40% of bonus and incentive payments and reduced variable remuneration when accountability obligations are breached.

The regulator will have the power to disqualify someone from being an accountable person and may direct a firm to reallocate responsibilities to address prudential or systemic non-compliance risks.

For a foreign firm in the insurance sector, the accountable person’s responsibilities will relate to the Australian branch.

The Australian Securities and Investments Commission and APRA will administer the arrangements, which replace the Banking Executive Accountability Regime (BEAR) that has been in place since July 2018.

Treasurer Josh Frydenberg and Financial Services Minister Jane Hume say the strengthened framework recognises “that decisions taken by directors and the most senior executives of financial institutions are significant for millions of Australians” and the economy.

The Government today also released draft legislation to ensure consumers receive compensation decided by the Australian Financial Complaints Authority even if a financial firm involved in a dispute has become insolvent.

The Compensation Scheme of Last Resort, which will be funded by financial services industry levies, was recommended by the Ramsay Review and the Hayne royal commission.

The Government says the scheme will “support ongoing confidence in the financial system’s dispute resolution framework”.

The compensation offered would generally be the amount AFCA decides in their adjudication, up to a maximum of $150,000, explanatory documents say.

Submissions on the draft legislation for both the FAR and CSLR are due by August 13. More details are available here.