The Federal Government intends to introduce legislation by the end of the year for a new conduct regime that would apply to insurers and other regulated financial services providers, as recommended by the Hayne royal commission.

Last year Canberra pledged to take up the royal commission’s suggestion to extend the Banking Executive Accountability Regime (BEAR) to the rest of the financial services sector.

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

Treasury has released a paper seeking submissions for the proposed extended Financial Accountability Regime, which will be administered by the Australian Securities and Investments Commission 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 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.”

Wotton + Kearney Partner Cain Jackson says the new conduct regime “represents a fundamental shift in the regulation” of insurers.

“It will challenge insurers’ organisational structures and impose personal responsibilities on senior executives at a functional, divisional and end-to-end product management level,” he told insuranceNEWS.com.au.

“The indicative list of particular responsibilities attached to the proposal is a must read for insurers as it provides an insight into the magnitude of the changes and the organisational challenges it is likely to create.”

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.

The Financial Rights Legal Centre says the proposed measure means insurers and senior management “will be more accountable” for their organisations’ activities.

“The new obligations impose strict consequences for those who fail to perform their roles with competence, honesty or integrity. It’s clear that the culture inside some of these big firms needs to change if community expectations around insurance are going to be met,” Director of Casework Alexandra Kelly told insuranceNEWS.com.au.

“If the threat of penalties is what it takes for that culture to take hold from the top down, then we support them.”

Closing date for submissions is February 14.

Click here for the consultation paper.