Clyde & Co has described the incoming Financial Accountability Regime (FAR) as “easy to understand in theory but difficult to implement”. 

The comments are included in the first of a three-part series outlining the things insurers and other financial services providers should take note of as part of their compliance preparations. 

The structure of FAR requires insurers, banks and superannuation funds to identify directors and senior executives, detail their specific responsibilities in “accountability statements” and conduct their activities in accordance with broader obligations. 

These obligations cover areas like integrity, skill and co-operation with the Australian Securities and Investments Commission and Australian Prudential Regulation Authority (APRA). 

“If they don’t, they can be personally liable, as can the organisation,” Clyde & Co says. “The Financial Accountability Regime is arguably the most significant change to Australia’s financial services regulatory landscape in a generation. 

“FAR is very simple in theory, and devilishly hard to implement in practice.” 

The FAR legislation has already passed the House of Representatives and is awaiting clearance in the Senate. It is a Hayne royal commission proposal and expands the previous Banking Executive Accountability Regime (BEAR) to cover all APRA-regulated entities including insurance. 

“Implemented with the right combination of technical skill, experience and emotional intelligence, it serves to protect executives, and assists the proper functioning of the organisation,” Clyde & Co says. 

The law firm outlines the practical pitfalls to avoid during the implementation of FAR. 

At its most basic, for each director/executive, organisations need to create a new artefact setting out the separate requirements which constitute “reasonable steps” under the FAR legislation such as delegations of responsibility. 

“The point here is the importance of good corporate governance – employees need to know where responsibility lies and who to report to in any given scenario,” the law firm says. 

Executives and directors need to also ensure they have the right information to make decisions and “control” to fix any problems which arise in their area. 

“Ignorance or ‘decision by committee’ is no defence under FAR. It is specifically designed to attribute liability to one person, irrespective of whether they are directly responsible for the failure or not,” the law firm says. 

Click here for the Clyde & Co article.