FAR waiting for royal assent
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The Financial Accountability Regime (FAR) Bill 2023 passed both houses on 5 September and is now awaiting royal assent.
Last year, the FAR Bill 2022 was reintroduced to parliament and moved to a second reading on the same day.
Banks will have six months after the royal assent before the legislation applies to them, and insurance and superannuation will have 18 months.
If the Royal Assent is granted this month, for banks, this can be as soon as March 2024.
On the passage of the FAR 2023 Bill, Employment and industrial relations lawyer Ryan Murphy posts the importance of reconsidering remuneration schemes:
FAR is here!
The Financial Accountability Regime bill has passed; Royal Assent is expected soon. If you're an employer in banking, insurance, or superannuation, you will likely be impacted. If you haven't started preparing yet, here is your reminder to get going.
We have published an article to outline what you need to know, at a high level. Although (and I feel like I'm saying this regularly, lately) there is a lot in this.
For employers in these industries, a key element will be ensuring your deferred remuneration schemes are appropriate to comply with the new law.
Deferred remuneration obligations are one of four core obligations under the new bill. It will be compulsory for relevant entities to defer a minimum of 40 per cent of the variable remuneration of senior executive pay for a minimum of four years.
In a recent Interview with Adder Rock Consulting, Principal Richard Sheldon stressed the relevance of CPS 511 Remuneration and CPS 230 Operational Risk Management to the FAR regime.
"In the new regime, there might be consequences for your remuneration results. And if it is not clear that you weren't accountable for that, that can have repercussions."
Connected the accountability question to the APRA presentation at the GRC2023 Conference, which predominantly focused on CPS 230.
"You know, this whole thing about accountability and making sure that the board is clear as to who has accountability for operational resilience."
For the Greater Good
While the new bill increases the cost of compliance, ultimately, greater executive accountability will improve company conduct and consumer outcomes.
A paper published in March this year found that accountability does have a material impact on conduct.
At the time of publication of the below academic paper, FAR was still sitting before parliament.
In the paper titled Does executive accountability enhance risk management and risk culture? by Macquarie Business School Professor Elizabeth Sheedy and Dominic S. B. Canestrari-Soh found that accountability can help senior executives overcome biases.
They write, "To avoid possible shame and financial sanctions, executives adopt a more rigorous and careful system."
The authors of the paper stress that the positive impact is greater than the financial sector:
The study has practical implications for many industries, not just financial services, where risk management plays an important role. It suggests that measures to enhance clear individual accountability in the senior executive are beneficial for risk management and should be embraced. Regulators in other jurisdictions and industries may consider adopting BEAR-like regulations to promote better risk management. We urge the Australian government to legislate the FAR as promised, extending the benefits of executive accountability to a wider group of financial institutions.
This topic will be further explored in the next edition of the GRC Professional Magazine.
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