House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP)

Glossary

This Explanatory Memorandum uses the following abbreviations and acronyms.

General outline and financial impact

Financial Accountability Regime

Outline

The Financial Accountability Regime Bill 2023 introduces a new accountability regime for the banking, insurance and superannuation industries.

The Financial Accountability Regime (Consequential Amendments) Bill 2023 makes consequential amendments to relevant Acts to support the Financial Accountability Regime.

Date of effect

The Financial Accountability Regime Bill 2023 commences the day after Royal Assent. The regime will apply to the banking industry six months after commencement of the Financial Accountability Regime Bill 2023 and to any new entrants beyond that, from the time they become an ADI or a non-operating holding company. The regime will apply to the insurance and superannuation industries 18 months after commencement of the Financial Accountability Regime Bill 2023, and to any new entrants beyond that, from the time they become licensed.

Schedule 1 Part 1 and Schedule 2 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 commence the day after Royal Assent, at the same time as the Financial Accountability Regime Bill 2023 commences. Schedule 1 Part 2 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 will commence the date the regime applies to the banking industry. That date will be six months after commencement of the Financial Accountability Regime Bill 2023.

Proposal announced

This proposal was announced on 4 February 2019 as part of the former Government's response to the Financial Services Royal Commission.

Financial impact

Nil.

Impact Analysis

The Financial Services Royal Commission Final Report has been certified as being informed by a process and analysis equivalent to an Impact Analysis for the purposes of the Government decision to implement this reform. The Financial Services Royal Commission Final Report can be accessed through the Australian Parliament House website.^[1]

Human rights implications

The Financial Accountability Regime Bill 2023 does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 2 of this Explanatory Memorandum.

Financial Accountability Regime (Consequential Amendments) Bill 2023 does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 2 of this Explanatory Memorandum.

Chapter 1: Financial Accountability Regime

Outline of chapter

1.1 This chapter provides an overview of the Financial Accountability Regime.

Context of amendments

1.2 The Australian financial system is central to the economy and plays an essential role in promoting economic growth. Decisions taken by directors and senior executives of financial institutions are important and have flow on effects for the Australian economy and for consumers.

1.3 A key objective of the Financial Accountability Regime is to improve the operating culture of entities in the banking, insurance and superannuation industries and to increase transparency and accountability across these industries-both in relation to prudential matters and conduct related matters.

1.4 The Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Act 2018 enacted the Banking Executive Accountability Regime, which commenced on 1 July 2018. The Banking Executive Accountability Regime is an accountability framework for directors and senior executives of ADIs (entities that carry on banking business) and their subsidiaries.

1.5 The Financial Services Royal Commission made a number of recommendations relating to extending the Banking Executive Accountability Regime to other APRA regulated industries and to have APRA and ASIC jointly administer the extended regime.

1.6 These recommendations include:

•

recommendation 3.9-to extend provisions modelled on the Banking Executive Accountability Regime to registrable superannuation entity licensees;

•

recommendation 4.12-to extend provisions modelled on the Banking Executive Accountability Regime to insurers regulated by APRA;

•

recommendation 6.6-to have APRA and ASIC jointly administer the Banking Executive Accountability Regime;

•

recommendation 6.7-to make it clear that ADIs and their accountable persons must deal with both APRA and ASIC in an open, constructive and cooperative way; and

•

recommendation 6.8-to have APRA and ASIC jointly administer the extended regime.

1.7 The Financial Accountability Regime is the Government's implementation of those Financial Services Royal Commission recommendations. The regime is designed to improve the risk and governance cultures of Australia's financial institutions by imposing a strengthened responsibility and accountability framework for those institutions and the directors and the most senior and influential executives (accountable persons) of those institutions.

Summary of new law

1.8 The Financial Accountability Regime imposes four core sets of obligations:

•

accountability obligations-which require entities in the banking, insurance and superannuation industries and their directors and most senior and influential executives to conduct their business in a certain manner (i.e. honesty and with care, skill and diligence);

•

key personnel obligations-which require entities in the banking, insurance and superannuation industries to nominate senior and influential executives to be responsible for all areas of their business operations;

•

deferred remuneration obligations-which require entities in the banking, insurance and superannuation industries to defer at least 40 per cent of the variable remuneration (for example, bonuses and incentive payments) of their directors and most senior and influential executives for a minimum of 4 years, and to reduce their variable remuneration for non-compliance with their accountability obligations; and

•

notification obligations-which require:

-

entities in the banking, insurance and superannuation industries to meet the core notification obligations by providing the Regulator with certain information about their business and their directors and most senior and influential executives; and

-

for entities above a certain threshold, which will be determined by rules made by the Minister, to meet the enhanced notification obligations, by preparing and submitting accountability statements and accountability maps.

1.9 The Financial Accountability Regime will apply to the banking industry six months after the commencement of the Financial Accountability Regime Bill 2023, and to any new entrants beyond that, from the time they become an ADI or authorised non-operating holding company. The Banking Executive Accountability Regime will be repealed when the obligations under the Financial Accountability Regime begin to apply to the banking industry.

1.10 The Financial Accountability Regime will apply to the insurance and superannuation industries from 18 months after commencement of the Financial Accountability Regime Bill 2023 and to any new entrants beyond that, from the time they become licensed.

1.11 The entities to which the Financial Accountability Regime applies are referred to as accountable entities. These entities are:

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ADIs;

•

authorised non-operating holding companies of ADIs;

•

general insurers;

•

authorised non-operating holding companies of general insurers;

•

life companies;

•

registered non-operating holding companies of life companies;

•

private health insurers; and

•

registrable superannuation entity licensees (or RSE licensees).

1.12 The Financial Accountability Regime also provides for the regulation of the directors and most senior and influential executives of accountable entities who:

•

have actual or effective senior executive responsibility for management or control of the accountable entity or its relevant group; or

•

hold particular responsibilities and/or positions prescribed in the rules made by the Minister.

1.13 The directors and senior executives who are regulated under the Financial Accountability Regime are referred to as accountable persons.

1.14 The Financial Accountability Regime imposes accountability obligations on accountable persons, requires accountable persons be registered, and gives the Regulator power to disqualify someone from being an accountable person of an entity or a class of entities regulated by the regime. The Regulator may also direct an accountable entity to reallocate the responsibilities of its accountable persons to address prudential risks or risks of significant and systemic non-compliance.

1.15 The Financial Accountability Regime will be jointly administered by APRA and ASIC. The Financial Accountability Regime Bill 2023 sets out the powers the Regulators can exercise under the regime and their shared responsibilities. However, ASIC's powers under the regime only provides for ASIC to be able to regulate entities licensed under financial services law or credit legislation. The Financial Accountability Regime Bill 2023 refers to APRA and ASIC collectively (or just to APRA, where it is the sole regulator) as the Regulator.

Detailed explanation of new law

1.16 The object of the Financial Accountability Regime is to impose a strengthened accountability framework for certain entities in the banking, insurance and superannuation industries, and their directors and most senior and influential executives.

[Section 3 of the Financial Accountability Regime Bill 2023]

1.17 The Financial Accountability Regime Bill 2023 will achieve this by placing accountability obligations on certain entities within these industries, referred to as accountable entities. Some corporate groups may have multiple accountable entities.

[Section 9 of the Financial Accountability Regime Bill 2023]

1.18 Some of the legal obligations in the Financial Accountability Regime will require an accountable entity to take reasonable steps to ensure that its significant related entities (for most entities, its significant subsidiaries) act in accordance with the regime. However, those significant related entities will not generally be subject to direct legal obligations under the regime.

[Section 12 and paragraph 20(e) of the Financial Accountability Regime Bill 2023]

1.19 The Financial Accountability Regime also places legal obligations on the directors and most senior and influential executives of accountable entities, referred to as accountable persons.

[Section 10 of the Financial Accountability Regime Bill 2023]

1.20 The Financial Accountability Regime Bill 2023 provides a number of definitions to establish the new legislative framework and ensure that the regime interacts effectively with existing legislation.

[Section 8 of the Financial Accountability Regime Bill 2023]

Entities regulated under the Financial Accountability Regime

Accountable entities under the Financial Accountability Regime

1.21 The Financial Accountability Regime imposes obligations on accountable entities in the banking, insurance and superannuation industries.

1.22 An accountable entity is generally an entity which holds a licence to carry on a banking, insurance or superannuation business. Accountable entities are the primary entities which are regulated under the Financial Accountability Regime.

1.23 In the banking sector, the following bodies corporate are accountable entities:

•

an ADI under the Banking Act 1959;

•

an authorised non-operating holding company under the Banking Act 1959.

[Subsection 9(1) of the Financial Accountability Regime Bill 2023]

1.24 For the insurance and superannuation industries the following bodies corporate will be accountable entities under the Financial Accountability Regime:

•

for general insurance:

-

a general insurer under the Insurance Act 1973;

-

an authorised non-operating holding company of a general insurer under the Insurance Act 1973;

•

for life insurance:

-

a life company registered under the Life Insurance Act 1995;

-

a registered non-operating holding company of a life company under the Life Insurance Act 1995;

•

for private health insurance-a private health insurer under the Private Health Insurance (Prudential Supervision) Act 2015; and

•

for superannuation-a licensed trustee of a superannuation entity (a registrable superannuation entity licensee (a RSE licensee) under the Superannuation Industry (Supervision) Act 1993). [Subsections 9(3) and (4) of the Financial Accountability Regime Bill 2023]

1.25 To be an accountable entity, a body corporate must also be a constitutionally covered body. A body will be a constitutionally covered body, if:

•

it is a constitutional corporation;

•

it carries on a business of banking, insurance or superannuation; or

•

its conduct affects, or could affect, a constitutional corporation or a body that carries on a business of banking, insurance or superannuation. [Paragraphs 9(1)(b) and 9(3)(b) and section 13 of the Financial Accountability Regime Bill 2023]

1.26 The Financial Accountability Regime will have a staggered application to the banking, insurance and superannuation industries.

1.27 The banking industry will transition from the Banking Executive Accountability Regime to the Financial Accountability Regime six months after commencement of the Financial Accountability Regime Bill 2023. [Subsection 9(2) of the Financial Accountability Regime Bill 2023]

1.28 The deferred remuneration obligations under the Financial Accountability Regime will apply when the decision to provide remuneration occurs in first financial year that begins six months after the Financial Accountability Regime begins to apply to the banking industry. [Schedule 2, item 11 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

1.29 Once the Financial Accountability Regime starts applying to the banking industry, the regime will apply to new entrants from the time they become an ADI or a non-operating holding company under the Banking Act 1959. [Paragraph 9(2)(b) of the Financial Accountability Regime Bill 2023]

1.30 The Financial Accountability Regime will apply to the insurance and superannuation industries 18 months after commencement of the Financial Accountability Regime Bill 2023. [Subsections 9(3) and (4) of the Financial Accountability Regime Bill 2023]

1.31 Once the Financial Accountability Regime starts applying to the insurance and superannuation industries, the regime will apply to new entrants from the time they become licensed. [Paragraph 9(4)(b) of the Financial Accountability Regime Bill 2023]

Obligation on accountable entities in relation to their significant related entities

1.32 The Financial Accountability Regime imposes some obligations on an accountable entity in relation to its significant related entities.

1.33 An accountable entity's significant related entities can include entities that are incorporated and operate outside of Australia, as well as entities within Australia. This approach recognises that financial services are often provided by large international corporate businesses and the activities of foreign entities can have a significant effect on the provision of services in Australia.

Significant related entities of accountable entities in the banking and insurance industries

1.34 For the banking and insurance industries, an entity will be a significant related entity of an accountable entity if it is:

•

a subsidiary of the accountable entity; and

•

the effect of the subsidiary on the accountable entity is material and substantial. [Subsection 12(1) of the Financial Accountability Regime Bill 2023]

1.35 The Financial Accountability Regime Bill 2023 contains a list of factors to assist consideration of whether the relationship between an accountable entity and another entity is sufficiently material and substantial to make the other entity a significant related entity. Such factors include the nature and scale of the entity's business or activities, any interdependency between the entity and the accountable entity, any organisational, financial or administrative arrangements between the entity and the accountable entity, as well as any other relevant factor. [Subsection 12(4) of the Financial Accountability Regime Bill 2023]

1.36 The relationship between an accountable entity and another entity will be sufficiently material and substantial if the other entity's business activity has the potential to have a significant impact on the accountable entity or its relevant group's business operations or its ability to manage risks effectively.

1.37 The Financial Accountability Regime recognises that related entities' operations may be significant to the accountable entity's business. For example, consumers often associate a wide range of financial services and activities provided by a corporate group under the accountable entity's brand. Poor behaviour by a significant related entity can have a negative effect on the accountable entity's brand and public standing and has the potential to adversely affect the prudential reputation of the accountable entity itself.

1.38 In general, a given significant related entity can only be related to one accountable entity, its closest parent accountable entity. This rule provides clarity around the operation of the regime and ensures that each significant related entity is the sole responsibility of one accountable entity. [Subsection 12(2) of the Financial Accountability Regime Bill 2023]

1.39 A significant related entity must be a constitutionally covered body. [Paragraph 12(1)(c) and section 13 of the Financial Accountability Regime Bill 2023]

Diagram 1.1 - Accountable entities and their significant related entities

The below corporate group contains four accountable entities from the banking, insurance and superannuation industries. Each accountable entity has obligations in relation to the conduct of its significant related entities. However, there are other entities in the group that are not regulated under the Financial Accountability Regime.

Significant related entities in the superannuation industry

1.40 A significant related entity of an accountable entity that is a registrable superannuation entity licensee can be a wider variety of entities than a significant related entity in the banking and insurance industries.

1.41 Significant related entities of registrable superannuation entity licensees can be:

•

subsidiaries of the licensee;

•

other related bodies corporate of the licensee (such as parent and sibling entities); and

•

entities with certain control relationships with the licensee. [The definition of 'connected entity' in section 8 and subsection 12(3) of the Financial Accountability Regime Bill 2023; see also section 10 of the Superannuation Industry (Supervision) Act 1993 and section 50AAA of the Corporations Act]

1.42 Different related entities are covered by the Financial Accountability Regime for registrable superannuation entity licensees as they may have a different operating structure to other types of accountable entities. In particular, a connected entity of a registrable superannuation entity licensee could have a material and substantial impact on the licensee but may not be a subsidiary of the licensee. These connected entities can be significant related entities of registrable superannuation entity licensees.

1.43 Additionally, unlike other accountable entities, a related entity can be a significant related entity of more than one registrable superannuation entity licensee.

1.44 The four cumulative requirements to determine whether a body corporate is a significant related entity of an accountable entity that is a registrable superannuation entity licensee are that the body corporate:

•

is a connected entity of the accountable entity, as defined by section 8;

•

has a material and substantial effect on the accountable entity or the business or activities of the accountable entity (or the body corporate's business or activities have such an effect);

•

is a constitutionally covered body within the meaning of section 13; and

•

is not an accountable entity itself. [Subsection 12(3) of the Financial Accountability Regime Bill 2023]

1.45 Factors to assist consideration of whether the relationship between an accountable entity and another entity is sufficiently material and substantial to make the other entity a significant related entity are set out in subsection 12(4). Such factors include the nature and scale of the entity's business or activities, any interdependency between the entity and the accountable entity, any organisational, financial or administrative arrangements between the entity and the accountable entity, as well as any other relevant factor. [Subsection 12(4) of the Financial Accountability Regime Bill 2023]

Diagram 1.2 - Significant related entities of registrable superannuation entity licensees

The below corporate group contains three accountable entities: two registrable superannuation entity licensees and a general insurer. Subsidiary C is a significant related entity to both superannuation entities and the insurer. The other associated entity is a significant related entity to both superannuation entities, as are subsidiaries A and B. More than one accountable entity will be responsible for each of the significant related entities.

Diagram 1.3 - Significant related entities of a not-for-profit registrable superannuation entity licensee

The below corporate group contains one accountable entity (the registrable superannuation entity licensee) and five connected entities of the registrable superannuation entity licensee. Entities A, B and E are significant related entities of the registrable superannuation entity licensee.

Accountable persons under the Financial Accountability Regime

1.46 The conduct of a business is ultimately determined by its directors and its most senior and influential executives. These directors and executives of accountable entities are regulated by the Financial Accountability Regime as accountable persons.

1.47 The Financial Accountability Regime places a series of obligations on accountable persons such as requirements to act with honesty and integrity, and with due skill, care and diligence, and to deal with APRA and ASIC in an open, constructive and cooperative way. Breach of these obligations can result in a person becoming disqualified from being an accountable person. [Sections 21 and 42 of the Financial Accountability Regime Bill 2023]

1.48 A person is an accountable person if the person:

•

holds a position in an accountable entity or a significant related entity of an accountable entity; and

•

has senior executive responsibility for management or control of the accountable entity or a significant or substantial part or aspect of the operations of the accountable entity or the accountable entity and its group of significant related entities. [Subsections 10(1) and (6) of the Financial Accountability Regime Bill 2023]

1.49 An accountable person also includes a person who:

•

holds a position in an accountable entity that is of a kind prescribed in the rules made by the Minister; or

•

has a prescribed responsibility in or in relation to an accountable entity as specified in the rules made by the Minister. [Subsections 10(2) to (4) of the Financial Accountability Regime Bill 2023]

1.50 Accountable persons with specified responsibilities will primarily be persons appointed or employed by an accountable entity or its significant related entity, but could also include contractors and independent service providers (such as a consultant in charge of human resources for an accountable entity). [Subsections 10(2) to (4) of the Financial Accountability Regime Bill 2023]

1.51 The rules made by the Minister may identify a kind of responsibility or position by reference to the level or area of responsibility. The rules may identify responsibilities within all or a class of entities that are subject to the Financial Accountability Regime. [Subsections 10(2) to (4) of the Financial Accountability Regime Bill 2023]

1.52 One person can be an accountable person of multiple accountable entities and can hold multiple prescribed responsibilities or positions listed in the rules made by the Minister. An accountable person may also be employed by a body other than the accountable entity or one of its significant related entities.

1.53 In practice, accountable persons will typically include the directors and senior executives of an entity, such as the Chief Executive Officer and officers reporting directly to the Chief Executive Officer. Lower-level executives are generally not expected to be accountable persons under the Financial Accountability Regime.

1.54 For a foreign accountable entity in the banking or insurance industries, the accountable person's responsibilities will relate to the Australian branch of the entity, rather than to the entity as a whole. [Subsection 10(5) of the Financial Accountability Regime Bill 2023]

1.55 Despite the above, the Regulator can exclude certain responsibilities from the obligations under the Financial Accountability Regime. This means that persons with only those excluded responsibilities or positions will not be accountable persons. This Regulator can provide for the exclusions:

•

in relation to a particular entity - by written notice to the entity; or

•

in relation to a class of entities - by rules made by the Regulator. [Subsections 11(1) to (4) of the Financial Accountability Regime Bill 2023]

1.56 The written notice by the Regulator is not a legislative instrument. [Subsection 11(5) of the Financial Accountability Regime Bill 2023]

Obligations of accountable persons under the Financial Accountability Regime

1.57 The Financial Accountability Regime sets out accountability obligations for accountable persons that relate to both conduct-related and prudential matters. [Sections 18 and 21 of the Financial Accountability Regime Bill 2023]

1.58 An accountable person is required to act with honesty and integrity, and with due skill, care and diligence. The person must also act in a manner that prevents actual or likely adverse impact to their accountable entity's prudential standing, where standing is considered within the entity's industry as well as among the general public. [Paragraphs 21(1)(a) and (c) of the Financial Accountability Regime Bill 2023]

1.59 The accountability obligations of accountable persons extend beyond those in the Banking Executive Accountability Regime by:

•

extending the requirement for accountable persons to deal in an open, constructive and cooperative way with both APRA and ASIC; and [Paragraph 21(1)(b) of the Financial Accountability Regime Bill 2023]

•

introducing a new obligation for accountable persons to take reasonable steps to prevent matters from arising that would (or would be likely to) result in a material contravention by their accountable entity of certain financial sector laws. [Paragraph 21(1)(d) of the Financial Accountability Regime Bill 2023]

1.60 The Financial Accountability Regime Bill 2023 provides guidance on what amounts to taking reasonable steps to support proactive compliance by accountable persons and accountable entities. This includes taking appropriate action both to prevent, and in response to, non-compliance or suspected non-compliance rather than a set-and-forget attitude. [Section 22 of the Financial Accountability Regime Bill 2023]

1.61 The new obligation for accountable persons to take reasonable steps to prevent breaches of certain financial sector laws will only be triggered by material and significant breaches. The focus on significant contraventions ensures an accountable person does not face unduly serious consequences for involvement in occasional minor or technical contraventions.

1.62 However, a large number or repeated occurrence of minor breaches could indicate a systemic issue of non-compliance which could amount to a material contravention. Similarly, taking reasonable steps to prevent a material contravention does not mean an accountable person can operate or set up compliance systems that allow non-material breaches.

1.63 An accountable person would only be required to take reasonable steps to ensure compliance by the accountable entity with the certain financial sector laws that are relevant to their area of responsibility.

1.64 An accountable person will be held accountable to the extent they were involved in and responsible for a contravention of obligations under the Financial Accountability Regime. If multiple accountable persons have the same responsibility for the same accountable entity, each person is liable for any breaches in relation to that responsibility. This approach is to prevent accountable persons from avoiding their obligations under the regime by shifting responsibility to other accountable persons. [Subsection 21(2) of the Financial Accountability Regime Bill 2023]

1.65 An accountable person must comply with each of their accountability obligations. For instance, not acting with due diligence would result in the accountable person failing to meet their accountability obligations.

1.66 If an accountable person fails to comply with any of these obligations, their variable remuneration will need to be reduced by the accountable entity or significant related entity by an amount proportionate to the failure. [Subsection 25(1) of the Financial Accountability Regime Bill 2023]

1.67 Failure to comply with an obligation may also result in the Regulator taking other enforcement actions under the Financial Accountability Regime. For example, the Regulator could seek to disqualify someone from being an accountable person or could seek to have an accountable person's responsibilities reallocated. [Sections 42 and 65 of the Financial Accountability Regime Bill 2023]

1.68 However, protections for whistle-blowers under Part 9.4AAA of the Corporations Act will be available in relation to the Financial Accountability Regime. [Schedule 1, item 31 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; Section 1317AA of the Corporations Act]

Obligations of accountable entities under the Financial Accountability Regime

1.69 The obligations for accountable entities under the Financial Accountability Regime relate to both conduct and prudential matters. [Section 20 of the Financial Accountability Regime Bill 2023]

1.70 Accountable entities must comply with each of their accountability obligations, key personnel obligations, deferred remuneration obligations, and notification obligations (as described below). [Subsection 15(1) of the Financial Accountability Regime Bill 2023]

1.71 If an accountable entity fails to comply with an obligation, it may be subject to a civil penalty of up to 50,000 penalty units, three times the value of the benefit derived or detriment avoided by the entity, or 10 per cent of the entity's annual turnover up to 2.5 million penalty units for each contravention (for more detail, see the sections below on civil penalties). [Sections 80 to 83 of the Financial Accountability Regime Bill 2023]

1.72 Contravention may also result in other enforcement action being taken in relation to the accountable entity. For example, the Regulator may enter an enforceable undertaking with the entity, or issue a direction to it, to resolve non-compliance. APRA and ASIC may also be able to take enforcement action under other relevant legislation, such as the Banking Act 1959. [Part 4 of Chapter 3 of the Financial Accountability Regime Bill 2023]

Accountability obligations of accountable entities

1.73 An accountable entity must take reasonable steps to conduct its business with honesty and integrity, with due skill, care and diligence, and in a manner that prevents actual or likely adverse impact on its prudential standing and reputation. [Paragraphs 20(a) and (c) of the Financial Accountability Regime Bill 2023]

1.74 The obligation to take reasonable steps to prevent both actual and likely impacts on the accountable entity's prudential standing is designed to encourage proactive compliance. The entity's prudential standing is considered within its industry as well as more broadly, among the general public.

1.75 The Financial Accountability Regime accountability obligations extend beyond those currently in the Banking Executive Accountability Regime: an accountable entity must take reasonable steps to deal in an open, constructive and cooperative way with both APRA and ASIC. [Paragraph 20(b) of the Financial Accountability Regime Bill 2023]

1.76 An accountable entity is also required to take reasonable steps to ensure that:

•

its accountable persons comply with their own accountability obligations; and [Paragraph 20(d) and section 21 of the Financial Accountability Regime Bill 2023]

•

its significant related entities comply with the accountability obligations of an accountable entity as if it were an accountable entity. [Paragraph 20(e) of the Financial Accountability Regime Bill 2023]

1.77 An accountable entity must comply with each obligation. For instance, not acting with due skill would result in the accountable entity failing to meet its accountability obligations. The obligations are designed to complement and support the obligations under other legislative requirements (such as the general obligations under section 912A of the Corporations Act and the obligations under section 52 of the Superannuation (Industry Supervision) Act 1993).

Key personnel obligations of accountable entities

1.78 The Financial Accountability Regime requires an accountable entity to ensure that the responsibilities of relevant accountable persons collectively cover all parts or aspects of its business, including the business of its relevant group. [Paragraph 23(1)(a) of the Financial Accountability Regime Bill 2023]

1.79 This obligation includes having accountable persons who are responsible for each of the responsibilities and positions prescribed in the rules made by the Minister. [Subparagraphs 23(1)(a)(ii) and (iii) of the Financial Accountability Regime Bill 2023]

1.80 An accountable entity must comply with any directions given by the Regulator and take steps to ensure that its significant related entities do the same. [Paragraphs 23(1)(c) and (d) of the Financial Accountability Regime Bill 2023]

1.81 An accountable entity must ensure each of its accountable persons and those of its significant related entities have not been disqualified from being accountable persons by the Regulator. [Paragraphs 23(1)(b) and 24(1)(b) of the Financial Accountability Regime Bill 2023]

1.82 Accountable entities are not required to have accountable persons for responsibilities which have been excluded by the Regulator. [Subsection 23(2) of the Financial Accountability Regime Bill 2023]

1.83 Foreign accountable entities in the banking and insurance industries are only required to comply with the key personnel obligations in relation to the operations of their Australian branches. [Subsection 23(3) of the Financial Accountability Regime Bill 2023]

Timing of key personnel obligations

1.84 Generally, an accountable entity must ensure each of its accountable persons and those of its significant related entities are registered with the Regulator before the person starts occupying a role as an accountable person. [Paragraph 23(1)(b) and section 24 of the Financial Accountability Regime Bill 2023]

1.85 However, to support accountable entities to comply with the key personnel obligations, and to promote efficient practices, the Financial Accountability Regime provides flexibility for:

•

temporary and unforeseen vacancies;

•

directors appointed at general meetings; and

•

new entities entering the industry. [Subsections 24(2) to (7) of the Financial Accountability Regime Bill 2023]

1.86 Accountable persons filling temporary vacancies or unforeseen vacancies have up to 90 days after becoming an accountable person to be registered. This grace period applies where the incumbent position-holder is expected to return, or there is intention to make a permanent appointment, within 90 days of the position becoming vacant. This can include situations where an individual is temporarily replacing an accountable person due to illness, or an individual fulfils a vacancy on a temporary basis until a new permanent accountable person is appointed. [Subsection 24(2) of the Financial Accountability Regime Bill 2023]

1.87 Appointing an accountable person to fill a permanent position on a fixed-term contract will not constitute a temporary vacancy to which this longer period for registration will apply (the vacancy itself must be temporary).

1.88 An accountable person who is appointed as director of an accountable entity at a general meeting has up to 30 days to be registered. This approach simplifies the registration process as the entity has 30 days after the successful candidate is appointed to register them as an accountable person, rather than having to submit applications ahead of the meeting for all candidates, only to later retract those of the unsuccessful candidates. [Subsection 24(3) of the Financial Accountability Regime Bill 2023]

1.89 An entity that becomes an accountability entity after the application of the Financial Accountability Regime to the industry the entity is licensed for will have 30 days to register their accountable persons. The 30-day time period commences from the date the entity becomes an accountable entity. This 30-day period does not apply to entities when they are renewing a licence. [Subsection 24(4) of the Financial Accountability Regime Bill 2023]

1.90 These longer periods for registration are intended to support compliance with the obligations in the Financial Accountability Regime and should not be used to avoid registration or notification obligations.

1.91 The Regulator can adjust these longer periods for registration:

•

for an individual entity - by written notice to the entity; or

•

for a class of entities - by Regulator rules. [Subsections 24(2) and (5) of the Financial Accountability Regime Bill 2023]

1.92 The Regulator can adjust the period for registration to a longer or shorter period. A decision to shorten the period by written notice is a reviewable decision and is therefore subject to reconsideration by the Regulator, and to review by the Administrative Appeals Tribunal (see below for more on reviewable decisions and merits review). [Subsections 24(2) to (6) and section 91 of the Financial Accountability Regime Bill 2023]

1.93 A written notice setting out the Regulator's determination of a new period for a particular entity prevails over rules which would also apply to the entity. [Subsection 24(6) of the Financial Accountability Regime Bill 2023]

Deferred remuneration obligations of accountable entities

1.94 The Financial Accountability Regime requires accountable entities to control payment of an accountable person's variable remuneration, such as bonuses and incentive payments, in various ways.

1.95 Specifically, the Financial Accountability Regime obliges each accountable entity to:

•

defer payment of at least 40 per cent of each accountable person's variable remuneration for a minimum period of four years;

•

have a remuneration policy that requires the variable remuneration of an accountable person to be reduced if they fail to comply with their accountability obligations;

•

not pay the portion of variable remuneration that has been reduced in accordance with the remuneration policy; and

•

take reasonable steps to ensure that their significant related entities comply with the above. [Subsection 25(1) and sections 27 and 28 of the Financial Accountability Regime Bill 2023]

1.96 The requirement to defer variable remuneration ensures that accountable persons have clear incentives to promote effective risk management when making decisions which have longer-term impacts. It also ensures that accountable persons are properly held to account for decisions that have negative future consequences.

1.97 In the event of contravention, the amount an accountable person's variable remuneration is reduced by is determined by the relevant accountable entity or significant related entity. The amount of the reduction must be proportionate to the accountable person's failure to comply with the person's obligations. The reduction does not need to relate to the period in which the failure occurred, and the accountable person may not have any variable remuneration left after the reduction. [Subsection 25(2) of the Financial Accountability Regime Bill 2023]

1.98 The deferred remuneration obligations under the Financial Accountability Regime apply to variable remuneration, which is remuneration conditional on the accountable person achieving particular objectives such as performance metrics and service requirements. [Paragraph 26(1)(a) of the Financial Accountability Regime Bill 2023]

1.99 The deferred remuneration obligations apply to variable remuneration paid in cash and also other forms of remuneration such as shares and options. The obligations also apply to remuneration paid directly by the accountable entity and other entities in the corporate group to which the accountable entity belongs. [Subsection 25(3) of the Financial Accountability Regime Bill 2023]

1.100 The deferred remuneration obligations will apply in relation to variable remuneration paid by other entities in a corporate group only if it is wholly or partly related to the person's work performing the role of an accountable person. [Subsection 25(3) of the Financial Accountability Regime Bill 2023]

1.101 The Regulator can also determine certain types of remuneration to be included or excluded from the deferred remuneration obligations. The Regulator is able to do this:

•

for an individual entity - by written notice to the entity and each accountable person who is impacted; or

•

for a class of entities - by making Regulator rules. [Paragraph 26(1)(b) and subsections 26(2) to (4) and (7) of the Financial Accountability Regime Bill 2023]

1.102 A person who becomes an accountable person after the Regulator makes a determination to include or exclude certain types of renumeration from the deferred remuneration obligations must be notified of the determination if the person is impacted by it. [Subsection 26(5) of the Financial Accountability Regime Bill 2023]

1.103 Written notice of a determination that particular remuneration is or is not variable remuneration is not a legislative instrument. [Subsection 26(6) of the Financial Accountability Regime Bill 2023]

1.104 Decisions of the Regulator relating to a determination of variable remuneration by written notice are subject to reconsideration by the Regulator, and to review by the Administrative Appeals Tribunal. [Subsection 26(3) and section 91 of the Financial Accountability Regime Bill 2023]

Minimum amount of variable remuneration to be deferred

1.105 Generally, the deferred remuneration obligations under the Financial Accountability Regime requires at least 40 per cent of an accountable person's variable remuneration for the relevant financial year to be deferred. The meaning of financial year is specific to each accountable entity. [Subsections 27(1) and (7) and the definition of 'financial year' in section 8 of the Financial Accountability Regime Bill 2023]

1.106 The value of a person's variable remuneration that is deferred will generally be the value of the remuneration if it had been paid to the person at the start of the deferral period. However, the Regulator will have power to determine or prescribe an alternative way to work out that value. [Subsections 27(2) and (3) of the Financial Accountability Regime Bill 2023]

1.107 The Regulator's power to make determinations and rules can be used for particular forms of remuneration such as shares and options. If the Regulator exercises such power, the value of a person's variable remuneration that is deferred is worked out based on the written determination from the Regulator (if applicable in relation to a specific entity) or on the basis of rules made by the Regulator in relation to a class of entities (if applicable). [Subsections 27(2) to (5) of the Financial Accountability Regime Bill 2023]

1.108 The Regulator must provide a copy of a determination to each accountable person who is impacted by it at the time of the determination. A person who becomes an accountable person after the determination is made and is impacted by it must be notified of the determination by the relevant accountable entity or significant related entity. [Subsections 27(4) and (5) of the Financial Accountability Regime Bill 2023]

1.109 Written notice of a determination of how to calculate the minimum amount of variable remuneration to be deferred is not a legislative instrument. [Subsections 27(6) of the Financial Accountability Regime Bill 2023]

1.110 Decisions of the Regulator relating to variable remuneration are subject to reconsideration by the Regulator, and to review by the Administrative Appeals Tribunal. [Subsection 27(3) and section 91 of the Financial Accountability Regime Bill 2023]

Minimum period of deferral

1.111 Generally, the deferred remuneration obligation under the Financial Accountability Regime requires an accountable person's variable remuneration to be deferred for at least four years. [Subsections 28(1) to (4) of the Financial Accountability Regime Bill 2023]

1.112 The minimum deferral period may be shorter than four years:

•

if a person stops being an accountable person due to death, or serious illness, disability or incapacity; or

•

if the Regulator determines other circumstances allowing for a shorter deferral period, either by written notice for a particular entity or by Regulator rules for a class of entities. [Subsections 28(4) and (5) of the Financial Accountability Regime Bill 2023]

1.113 An accountable person may have a shorter minimum deferral period on the occurrence of one of the listed circumstances without approval from the Regulator. However, the shorter minimum deferral period will not end until the accountable entity is reasonably satisfied that the person has complied with their accountability obligations, based on information available at the time. If the accountable entity is never so satisfied, the default approach of four years applies, and the amount of deferred remuneration may be reduced by an amount proportionate to the failure to meet the accountability obligations. [Subsection 28(4) of the Financial Accountability Regime Bill 2023]

1.114 The deferral period will start on the later of:

•

the day after the day on which the decision was first made for the accountable person to be able to earn the amount of variable remuneration; or

•

the first day of the performance period, if the variable remuneration is measured by reference to that period. [Subsection 28(2) of the Financial Accountability Regime Bill 2023]

1.115 If the variable remuneration is remuneration of a kind determined by the Regulator or prescribed by rules made by the Regulator, then the deferral period may start on the day determined by the Regulator. [Subsection 28(3) of the Financial Accountability Regime Bill 2023]

1.116 The deferral period is intended to be consistent with provisions of APRA's prudential standard to regulate remuneration in regulated industries (Prudential Standard CPS 511 Remuneration), that also requires deferral of variable remuneration for an overlapping class of persons in those industries. This approach will provide for consistent compliance requirements under the two frameworks.

1.117 If an accountable entity discovers that an accountable person is likely to have breached their accountability obligations during the deferral period, then the deferral period will be extended until such time as the entity completes its investigation of the breach. [Subsection 28(4) of the Financial Accountability Regime Bill 2023]

1.118 Written notice of a determination of a deferral period by the Regulator is not a legislative instrument.

[Subsection 28(6) of the Financial Accountability Regime Bill 2023]

Circumstances where the deferred remuneration obligations do not apply

1.119 The deferred remuneration obligations do not apply to an accountable person whose deferred variable remuneration in a particular financial year for the accountable person's entity would be less than a certain threshold. The threshold is set at $50,000, unless the Minister has made rules prescribing a different amount. [Section 29 of the Financial Accountability Regime Bill 2023]

1.120 The deferred remuneration obligations do not apply to an accountable person while the person is filling a temporary or an unforeseen vacancy, who is not registered or required to be registered under the Financial Accountability Regime because they only hold the position for 90 days or less. [Section 30 of the Financial Accountability Regime Bill 2023]

1.121 The deferred remuneration requirements do not apply to ordinary salary and wages, to an accountable person whose total remuneration does not include any variable remuneration, nor to variable remuneration which relates to other work an accountable person may have performed outside their role as an accountable person.

Notification obligations of accountable entities

1.122 The Financial Accountability Regime requires an accountable entity to provide the Regulator with particular information about the entity and its accountable persons.

1.123 All accountable entities are required to comply with the core notification obligations, while a subset of entities is required to comply with the enhanced notification obligations. These obligations are important to ensure the Regulator has up to date information about the nature and influence of entities and persons who are subject to the Financial Accountability Regime. [Section 31 of the Financial Accountability Regime Bill 2023]

Core notification obligations that apply to all accountable entities

1.124 Each accountable entity must notify the Regulator of certain events relating to the accountable persons of the entity, as well as to certain breaches of obligations under the Financial Accountability Regime by the entity or its accountable persons. [Paragraph 31(1)(a) and section 32 of the Financial Accountability Regime Bill 2023]

1.125 There are two new events that must be notified to the Regulator beyond the events requiring notification under the Banking Executive Accountability Regime. They are when:

•

the accountable entity has reasonable grounds to believe that it has breached its key personnel obligations; and

•

a material change occurs to information about an accountable person on the register of accountable persons. [Subparagraph 32(d)(i) and paragraph 32(e) of the Financial Accountability Regime Bill 2023]

1.126 The Financial Accountability Regime also requires accountable entities to take reasonable steps to ensure their significant related entities comply with these requirements as if they were accountable entities. [Paragraph 31(1)(b) of the Financial Accountability Regime Bill 2023]

1.127 Generally, the notification must be provided within 30 days of the event occurring. The notice must be provided using the form approved by the Regulator. [Subsections 31(6) and (7) of the Financial Accountability Regime Bill 2023]

1.128 The Regulator can adjust this compliance period in the Regulator rules. [Paragraph 31(6)(b) of the Financial Accountability Regime Bill 2023]

Enhanced notification obligations - accountability statements and maps

1.129 In addition to the core notification obligations, accountable entities that meet an enhanced notification threshold are required to provide the Regulator with an accountability statement for each of the entity's accountable persons and an accountability map. [Subsection 31(2) of the Financial Accountability Regime Bill 2023]

1.130 An accountability statement is a document that contains:

•

a comprehensive statement of the accountable person's responsibilities, and any other matters determined in the Regulator rules; and

•

a declaration by the accountable person that the content of the statement is accurate, and that the person understands their accountability obligations. [Section 33 of the Financial Accountability Regime Bill 2023]

1.131 An accountability map is a document outlining all the accountable persons in a group comprised of the accountable entity and its significant related entities, the responsibilities of each accountable person and the lines of reporting and responsibility between those accountable persons, and any other matters determined in the Regulator rules. [Section 34 of the Financial Accountability Regime Bill 2023]

1.132 The Minister can make rules to prescribe the threshold for determining which accountable entities will need to comply with the enhanced notification requirements. Despite subsection 14(2) of the Legislation Act 2003, these rules may incorporate a matter contained in an instrument or writing as in force or existing from time to time if it is published on a website maintained by the Regulator. That is, the incorporation of certain documents by reference will not be limited to the instrument as at the date of incorporation. This is necessary to ensure that the rules align with current standards or guidance. [Subsections 31(3) to (5) of the Financial Accountability Regime Bill 2023]

1.133 The rules can only incorporate material as it exists from time to time from non-legislative instruments if that material is published by APRA and ASIC on their websites. This limitation will ensure only credible, relevant, readily available material may be incorporated. [Subsections 31(3) to (5) of the Financial Accountability Regime Bill 2023]

1.134 The accountability statement of an accountable person must accompany the person's application for registration. [Paragraph 41(2)(d) of the Financial Accountability Regime Bill 2023]

1.135 An accountability map must be provided to the Regulator within 30 days of an entity becoming subject to the Financial Accountability Regime, or within the period set in the Regulator rules. [Paragraph 31(2)(c) and subsection 31(5) of the Financial Accountability Regime Bill 2023]

1.136 Generally, an accountable entity must ensure the Regulator is notified of any material change to the accountability map and accountability statement(s) within 30 days of the change occurring. The Regulator rules can prescribe a different period for compliance. [Paragraphs 31(2)(b) and (d) of the Financial Accountability Regime Bill 2023]

1.137 The Financial Accountability Regime also requires accountable entities to take reasonable steps to ensure their significant related entities provide accountability statements and update the Regulator of material changes as if they were accountable entities. [Paragraph 31(2)(e) of the Financial Accountability Regime Bill 2023]

1.138 The Banking Executive Accountability Regime required all ADIs to provide accountability maps and statements to APRA, and to notify APRA of all changes to accountability maps and statements. The Financial Accountability Regime reduces the regulatory burden and compliance costs by only requiring accountable entities that meet the enhanced notification threshold to prepare and submit accountability maps and statements and to notify the Regulator of material changes to these documents. The Regulator may provide guidance on what constitutes material changes.

Circumstances where accountable entities and accountable persons are not subject to the obligations of the Financial Accountability Regime

1.139 The Minister has the power to exempt a particular accountable entity or a class of entities from the obligations of the Financial Accountability Regime. Where this is done, those obligations will not apply to that accountable entity, to any of its significant related entities, or to an accountable person of the entity. [Paragraph 15(2)(a), section 16 and subsection 18(2) of the Financial Accountability Regime Bill 2023]

1.140 The power to exempt an accountable entity or a class of accountable entities from the Financial Accountability Regime is required to ensure the regime applies appropriately to the regulated industries and to avoid any potential unintended consequences from the application of the regime.

1.141 This power ensures that the regime can operate flexibly and be appropriately targeted. For instance, there may be instances where the Financial Accountability Regime may act as a barrier to entry for some small new entrants and the ability to exempt entities or classes of entities from the regime may facilitate competition in the market.

1.142 The exemption power is broadly framed to avoid constraining relevant considerations due to the diversity of industries regulated by the Financial Accountability Regime, and the complexity and unforeseen nature of the issue the exemption power is seeking to address.

1.143 The Minister may only exempt an accountable entity or a class of accountable entities if the Minister is satisfied that it would be unreasonable for that entity or class of entities to be required to comply with the obligations of the Financial Accountability Regime. [Subsections 16(2) and 16(5) of the Financial Accountability Regime Bill 2023]

1.144 To exempt an accountable entity, the Minister makes a notifiable instrument. The exemption must include a statement setting out the reasons for the making of the instrument. [Subsections 16(1) and 16(3) of the Financial Accountability Regime Bill 2023]

1.145 To exempt a class of entities, the Minister makes a legislative instrument. Such instruments are subject to Parliamentary disallowance. [Subsection 16(4) of the Financial Accountability Regime Bill 2023]

1.146 This approach ensures exemptions are made through formal, publicly available instruments. Exemption of a class of entities is by legislative instrument, rather than notifiable instrument, as it is of greater significant for operation and scope of the regime than exemption of a particular accountable entity.

1.147 The obligations of the Financial Accountability Regime apply to a foreign accountable entity (in the banking or insurance industries), but only to the operations of the entity's branch in Australia. The obligations apply to the same extent to an accountable person of such an entity or any of its significant related entities. [Paragraph 15(2)(b) and subsection 18(2) of the Financial Accountability Regime Bill 2023]

1.148 An accountable entity or an accountable person can be exempted from a particular obligation of the Financial Accountability Regime if the Regulator is satisfied that complying with the obligation would breach a foreign law. The Regulator must provide written notice to the accountable person or entity to exempt them from that obligation. [Subsections 15(3), and 18(4) and sections 17 and 19 of the Financial Accountability Regime Bill 2023]

1.149 Certain decisions of the Regulator relating to these exemptions are subject to reconsideration by the Regulator, and to review by the Administrative Appeals Tribunal (see below for more on reviewable decisions and merits review). [Sections 17, 19 and 91 of the Financial Accountability Regime Bill 2023]

Administration of the Financial Accountability Regime

General administration

1.150 The Financial Accountability Regime will be administered and enforced by both APRA and ASIC. This will ensure the regime is regulated from both a prudential perspective as well as a conduct and consumer outcomes-based perspective. [Section 36 of the Financial Accountability Regime Bill 2023; Schedule 1, items 1 and 16 of the Financial Accountability Regime (Consequential Amendments) Bill 2023, section 3 of the Australian Prudential Regulation Authority Act 1998 and section 12A of the Australian Securities and Investments Commission Act 2001]

1.151 ASIC will only exercise regulatory and enforcement powers under the Financial Accountability Regime in relation to an accountable entity that has either an Australian financial services licence or an Australian credit licence, its significant related entities, and accountable persons of these entities. The Financial Accountability Regime Bill 2023 identifies which provisions this limitation applies to. However, ASIC will be able to maintain the register of accountable persons, share information, and make legislative instruments (Regulator rules) with APRA in relation to all accountable entities and persons. [Section 36 of the Financial Accountability Regime Bill 2023]

1.152 To ensure a cohesive approach, APRA and ASIC must enter into an arrangement outlining their general approach to administering and enforcing the Financial Accountability Regime within 6 months of the commencement of the Financial Accountability Regime Bill 2023. If this does not occur, the Minister may determine an arrangement for this purpose. [Section 37 of the Financial Accountability Regime Bill 2023]

1.153 APRA and ASIC are required to reach agreement before exercising certain powers or performing certain functions under the Financial Accountability Regime except in administering the Register of accountable persons, sharing information, and for certain compliance and enforcement decisions. [Section 38 of the Financial Accountability Regime Bill 2023]

1.154 A failure by the Regulators to enter into an arrangement relating to the administration of the Act, to reach an agreement, or a failure by ASIC to adhere to the scope of its enforcement powers towards certain entities, does not invalidate the performance or exercise of the relevant function or power. [Subsections 36(2), 37(5) and 38(4) of the Financial Accountability Regime Bill 2023]

1.155 The no-invalidity clauses are necessary to provide certainty to regulated entities regarding the performance or exercise of a function or power under the Financial Accountability Regime and to ensure the enforcement of the regime is not compromised. The enforcement powers of the Financial Accountability Regime are designed to combat serious regulatory issues such as prudential risk to the Australian financial system or significant and systemic consumer harms. As such, invalidity of regulatory action due to a Regulator's failure to comply with certain procedural matters could cause significant harm to consumers.

1.156 The no-invalidity clauses are designed to ensure regulatory certainty while forming part of a balanced regulatory framework which includes redress mechanisms which may apply to the regulatory action. The Financial Accountability Bill 2023 expressly provides for merits review of certain decisions made under the regime by the Administrative Appeals Tribunal. Judicial review of an exercise of power or performance of function by APRA or ASIC is also available, unless on the grounds of jurisdictional error solely in relation to one Regulator not having the other's agreement to act, or their arrangement for administration not being in place or available on their website. [Section 95 of the Financial Accountability Regime Bill 2023]

Information sharing and protections

1.157 APRA and ASIC may share information that is obtained, produced, or disclosed for the purposes of the Financial Accountability Regime Bill 2023. APRA and ASIC are also required to share certain information necessary to enable the joint administration and enforcement of the regime. These arrangements are in addition to information-sharing frameworks available to APRA and ASIC under other legislation. [Section 39 of the Financial Accountability Regime Bill 2023]

1.158 One regulator does not need to notify any person that it plans to, or has, shared information with the other regulator. This will enable APRA and ASIC to efficiently perform their functions as joint regulators for the Financial Accountability Regime. While the natural justice hearing rule will not apply to the act of information sharing between the regulators, this is a limited restriction as procedural fairness will still be afforded in relation to uses of the shared information. This approach ensures the interests of affected persons are taken into account in making substantive decisions. [Subsection 39(5) of the Financial Accountability Regime Bill 2023]

1.159 Disclosure of information under this information sharing power constitutes an authorisation by an Australian law for the purpose of Australian Privacy Principle 6 of the Privacy Act 1988. [Subsection 39(6) of the Financial Accountability Regime Bill 2023; Schedule 1, item 11 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

1.160 Most information obtained or disclosed under the Financial Accountability Regime will be 'protected information' within the meaning of each regulator's enabling legislation. This means that the information will be subject to APRA's and ASIC's standard secrecy and confidentiality obligations. This approach protects confidential information of financial services businesses and encourages entities to be open and honest in their dealings with APRA and ASIC.

1.161 Schedule 1 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 achieves this by amending relevant definitions of protected information, protected document, and prudential regulation framework law to include information obtained or disclosed under the Financial Accountability Regime. Schedule 1 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 also introduces a prohibition into the Australian Securities and Investments Commission Act 2001 to protect against the disclosure of information that is protected information because of the Financial Accountability Regime. [Schedule 1, items 1, 5 to 11, 16 and 17 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; sections 3 and 56 of the Australian Prudential Regulation Authority Act 1998; sections 12A and 127 of the Australian Securities and Investments Commission Act 2001]

1.162 Exemptions to the secrecy provisions will allow for the appropriate sharing of information by APRA and ASIC. A defendant bears an evidential burden in relation to sharing of information on the reliance of these exemptions. Shifting the evidential burden to the person who disclosed the information is justified and not unduly onerous as the information subject to the new provisions would be peculiarly within the knowledge and control of the defendant. [Schedule 1, items 1, 5 to 11, 16 and 17 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; sections 3 and 56 of the Australian Prudential Regulation Authority Act 1998; sections 12A and 127 of the Australian Securities and Investments Commission Act 2001]

1.163 The amendments to the secrecy obligations will apply regardless of whether the information was obtained before or after the commencement of the Financial Accountability Regime. [Schedule 1, item 20 and Schedule 2, item 31 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 340 of the Australian Securities and Investments Commission Act 2001]

1.164 Information obtained or disclosed under the Financial Accountability Regime that is protected information (as defined by the enabling legislation for APRA and ASIC) will be exempt from the Freedom of Information Act 1982. This exemption already exists for protected information held by APRA. Schedule 1 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 extends the exemption to also cover information obtained or disclosed under the Financial Accountability Regime that is held by ASIC. [Schedule 1, item 17 of the Financial Accountability Regime (Consequential Amendments) Bill 2023, section 127 of the Australian Securities and Investments Commission Act 2001; Schedule 1, items 1 and 5 to 9 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 56(11) of the Australian Prudential Regulation Authority Act 1998]

Registration of accountable persons

1.165 APRA and ASIC must jointly establish and maintain a register of accountable persons covered by the Financial Accountability Regime. The register will enable clear oversight of the accountable persons of each accountable entity and its significant related entities. The register will include details in relation to each accountable person's role, for example, name and date of registration. [Section 40 of the Financial Accountability Regime Bill 2023]

1.166 Information from the register may be made public at the discretion of APRA and ASIC. This allows the regulators to balance the need for confidentiality of sensitive information about financial services businesses with the need for public accountability and transparency. [Subsection 40(5) of the Financial Accountability Regime Bill 2023]

1.167 To register an accountable person, their accountable entity must:

•

submit a complete application in the approved form to the Regulator;

•

give a signed declaration the accountable entity is satisfied the person is suitable to be an accountable person; and

•

if the accountable entity meets the enhanced notification threshold - provide an accountability statement for the accountable person. [Subsection 41(2) of the Financial Accountability Regime Bill 2023]

1.168 The Regulator can request further information in relation to an application from the accountable entity. The accountable entity must comply with the request. [Paragraph 20(b) and subsection 41(3) of the Financial Accountability Regime Bill 2023]

1.169 Where a person is an accountable person of multiple accountable entities, the person must be registered by each accountable entity. [Paragraph 24(1)(a) and subsection 41(1) of the Financial Accountability Regime Bill 2023]

1.170 The Regulator is required to register an accountable person within the later of 21 days after an application is made, or 21 days after the day that any further requested information is given to the Regulator by the accountable entity. [Subsections 41(4) and (5) of the Financial Accountability Regime Bill 2023]

Ensuring compliance of the obligations imposed under the Financial Accountability Regime

Information-gathering powers

1.171 The Regulator may request information from accountable entities, significant related entities or accountable persons, for the purpose of administering or enforcing the Financial Accountability Regime. The information requested may relate to any entity or person that may be regulated under the regime, or to the related body corporate or connected entity of a regulated entity. [Subsections 62(1) to (3) of the Financial Accountability Regime Bill 2023]

1.172 The request must be made in accordance with certain requirements as to its purpose and content. It may be fulfilled in hard copy or electronic form, consistent with standard practice. [Subsections 62(4) to (6) of the Financial Accountability Regime Bill 2023]

1.173 This provision is similar to APRA's existing information-gathering powers in section 62 of the Banking Act 1959, with necessary changes to tailor the provision to the Financial Accountability Regime.

1.174 Failing to comply with a request for information is an offence subject to a maximum penalty of 200 penalty units (see below for more on the offence provisions under the Financial Accountability Regime). [Section 63 of the Financial Accountability Regime Bill 2023]

Investigation powers

1.175 The Regulator has powers to investigate an accountable entity or its significant related entity if the Regulator has reason to believe the entity or an accountable person of the entity may have contravened obligations under the Financial Accountability Regime. These powers are similar to those in Part VIII of the Banking Act 1959, with necessary changes to ensure the provisions are tailored to the regime.

1.176 The Regulator commences an investigation by appointing an investigator. The investigator can delegate any or all of their powers and functions to APRA or ASIC staff members, to assist with the investigation. [Section 45 of the Financial Accountability Regime Bill 2023]

1.177 The standard requirements for appointments made by APRA to be made by certain people (such as a chair of APRA) do not apply to the appointment of investigators or other appointments under the Financial Accountability Regime. [Schedule 1, items 2 and 3 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 48 of the Australian Prudential Regulation Authority Act 1998]

1.178 The Regulators may act cooperatively as the investigation is carried out. However, the single investigator will lead the conduct of the investigation.

1.179 The investigated entity is required to assist the investigation by providing access to information including books, accounts and documents, that are relevant to the investigation. The investigator may also require any person to produce such materials if they have reasonable grounds to believe that the person has knowledge of or access to the information. Materials may be provided in hard copy or electronic form. [Section 46 and subsection 47(1) of the Financial Accountability Regime Bill 2023]

1.180 An investigator may, by written notice, require the person to produce any or all relevant documents within a certain time period, but must provide at least 14 days' notice. [Subsection 47(2) of the Financial Accountability Regime Bill 2023]

1.181 It is an offence not to provide information or access to materials relevant to an investigation when required to do so by the investigator. The maximum penalty for such non-compliance is 50 penalty units for the entity being investigated, and 30 penalty units for other persons. The different penalties are appropriate as entities regulated under the Financial Accountability Regime should be more familiar with its operation and hence their contraventions attract a higher penalty. [Subsections 46(2) and 47(3) of the Financial Accountability Regime Bill 2023]

1.182 If the entity fails to provide information or access to materials when required to do so by the investigator, it commits an offence on the first day and a continuing offence for each subsequent day of non-compliance. [Subsection 46(3) of the Financial Accountability Regime Bill 2023]

1.183 It also an offence to alter, destroy or conceal materials known to be relevant to an investigation, with a maximum penalty of two years' imprisonment. [Section 48 of the Financial Accountability Regime Bill 2023]

1.184 The penalties and offences for non-compliance with an investigation are consistent with equivalents in the Banking Executive Accountability Regime, on which they were modelled. For more information on penalties and offences, see the dedicated sections below.

1.185 The Regulator's power to appoint an investigator, and the requirements to assist the investigator, do not affect the operation of other provisions in the Financial Accountability Regime. [Subsection 46(4) of the Financial Accountability Regime Bill 2023]

Examinations

1.186 To assist an investigation, the investigator may give notice in writing requiring a person to appear for an examination. This power ensures an investigator can undertake in person procedures as well as operating remotely, and can consider matters within the examinee's knowledge which are not written down or capable of production under the investigatory powers. [Section 49 of the Financial Accountability Regime Bill 2023]

1.187 The investigator must provide 14 days' prior notice of an examination. The person attending the examination may be required to answer questions from the investigator under oath or affirmation. The examination may be recorded and conducted in the presence of persons such as lawyers, and an officer of both APRA and ASIC (irrespective of which regulator appointed the investigator). To reinforce privacy and accountability considerations, it is an offence to be present at an investigation without authorisation, subject to a maximum penalty of 30 penalty units. [Sections 49 to 51 of the Financial Accountability Regime Bill 2023]

1.188 A written record may be produced from the statements made by the person at the examination. The person must be given a copy of the written record, but it may be subject to any conditions imposed by the investigator. It is an offence to fail to comply with these conditions, subject to a maximum penalty of 6 months' imprisonment. [Section 52 of the Financial Accountability Regime Bill 2023]

1.189 It is also an offence not to comply with any other requirement relating to examinations, subject to a maximum penalty of 30 penalty units. [Section 53 of the Financial Accountability Regime Bill 2023]

1.190 The penalties relating to examinations are consistent with penalties in the Banking Executive Accountability Regime (for more see the below section on penalties).

Evidentiary use of certain material

1.191 Any of the statements made by a person at an examination may be used as evidence against the person in a proceeding or in other proceedings, subject to certain rules and exceptions. These provisions are based on Part VIII of the Banking Act 1959. [Sections 54 to 61 of the Financial Accountability Regime Bill 2023]

Auditors and actuaries under the Financial Accountability Regime

1.192 To support enforcement of the Financial Accountability Regime, obligations imposed on auditors and actuaries of certain entities under the Banking Act 1959 and other industry Acts administered by APRA will be extended to cover the Financial Accountability Regime (once the regime starts to apply).

1.193 Schedule 1 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 requires auditors and actuaries to assist APRA with investigations into breaches of the Financial Accountability Regime. Specifically, this Schedule requires:

•

an auditor of an ADI, an authorised non-operating holding company or a subsidiary to provide information that will assist APRA in performing its functions under the Financial Accountability Regime; [Schedule 1, items 25 to 27 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; sections 16B, 16BA and 16C of the Banking Act 1959]

•

an auditor or actuary of a general insurer, an authorised non-operating holding company or a subsidiary to provide information to APRA that will assist APRA in performing its duties under the Financial Accountability Regime; [Schedule 1, items 42 to 44 of the Financial Accountability Regime (Consequential Amendments) Bill 2023, sections 49 to 49B of the Insurance Act 1973]

•

an auditor or actuary of a life company, a registered non-operating holding company or a subsidiary to provide information that will assist APRA in performing its functions under the Financial Accountability Regime; [Schedule 1, items 53 to 57 and 59 to 63 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; sections 88 to 89 and 98 to 99 of the Life Insurance Act 1995]

•

an actuary of a private health insurer to provide information that would assist APRA performing its functions under the Financial Accountability Regime; and [Schedule 1, items 78 to 81 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; sections 110 to 113 of the Private Health Insurance (Prudential Supervision) Act 2015]

•

an auditor or actuary of a superannuation entity to provide information when there is likely to have been a breach of the Financial Accountability Regime, by amending the definition of regulatory provision. [Schedule 1, items 86, 88 and 89 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; sections 38A, 129 and 130A of the Superannuation Industry (Supervision) Act 1993]

1.194 Consequences for failing to comply with these or other obligations of the Financial Accountability Regime include termination of the auditor or actuary's appointment. Schedule 1 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 requires:

•

an ADI to remove an auditor from their appointment for failing to properly perform functions and duties under the Financial Accountability Regime; [Schedule 1, item 28 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 17(2)(a) of the Banking Act 1959]

•

a general insurer to end an auditor or actuary's appointment if the general insurer is satisfied that the auditor or actuary has failed to provide APRA with relevant information in relation to breaches of the Financial Accountability Regime; [Schedule 1, item 38 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 43 of the Insurance Act 1973]

•

a life company to end the appointment of an auditor or actuary if the life company is satisfied that the auditor or actuary has failed to provide APRA with relevant information in relation to breaches of the Financial Accountability Regime; and [Schedule 1, items 52 and 58 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; sections 85 and 94 of the Life Insurance Act 1995]

•

a private health insurer to terminate an actuary's appointment if the private health insurer reasonably believes that the actuary has failed to provide APRA with relevant information in relation to breaches of the Financial Accountability Regime. [Schedule 1, items 76 and 77 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 107 of the Private Health Insurance (Prudential Supervision) Act 2015]

1.195 The Financial Accountability Regime also provides APRA additional powers to direct auditors and actuaries in relation to breaches of the regime. Schedule 1 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 allows APRA to:

•

refer an auditor or actuary to a professional association, or apply to a court to disqualify an auditor or actuary if APRA considers that the auditor or actuary has failed to perform their duties under the Financial Accountability Regime; [Schedule 1, items 39 to 41 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; sections 44 and 48 of the Insurance Act 1973]

•

direct a life company to remove an auditor or actuary if they have failed to perform their duties under the Financial Accountability Regime; and [Schedule 1, item 64 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 125A of the Life Insurance Act 1995]

•

direct the removal of an auditor or actuary for a superannuation entity, or direct a matter to an auditor or actuary's professional organisation for breaches of the regime. [Schedule 1, items 91 and 92 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; sections 131AA and 131A of the Superannuation Industry (Supervision) Act 1993]

Enforcement and penalties

1.196 The Financial Accountability Regime has a variety of mechanisms for enforcement, once a contravention or likely contravention has been established. These mechanisms align with those in existing financial services law, and in particular are drawn from the Banking Executive Accountability Regime to ensure continuity and consistency of approach.

1.197 Enforcement mechanisms under the Financial Accountability Regime include:

•

directions powers;

•

disqualification;

•

enforceable undertakings;

•

injunctions;

•

civil penalties; and

•

some limited criminal offences.

1.198 Consistent with standard practice, the enforcement mechanism used will reflect the circumstances of the case. Contravention of the core obligations of the Financial Accountability Regime could trigger many enforcement mechanisms and civil penalties (i.e. disqualification of an accountable person, or directions to an accountable entity to comply with the regime or reallocate responsibilities of an accountable person). Non-compliance with an investigation or request for information from the Regulator could constitute an offence. The Regulator may also seek court orders for compliance or an injunction, or enter an enforceable undertaking with the relevant entity.

Directions

Compliance directions

1.199 The Regulator can direct an accountable entity to take action to address actual or likely non-compliance with obligations under the Financial Accountability Regime. A similar power exists under the Banking Act 1959 and other legislation regulating APRA-regulated institutions.

1.200 The Regulator can give an accountable entity a direction if the Regulator believes the accountable entity, an accountable person of the entity, or of one of its significant related entities:

•

contravened obligations under the Financial Accountability Regime; or

•

is likely to contravene obligations under the Financial Accountability Regime, and the direction is necessary to prevent that non-compliance. [Section 64(1) of the Financial Accountability Regime Bill 2023]

1.201 The directions can include directions to cause the accountable entity or any of its significant related entities to:

•

take a specific action;

•

undertake an audit;

•

make changes to internal systems and practices;

•

reconstruct, amalgamate or otherwise alter part of the entity's structure or that of its relevant group; and

•

not take a specific action. [Subsection 64(2) of the Financial Accountability Regime Bill 2023]

1.202 The direction must:

•

be given to the accountable entity in writing;

•

identify the grounds on which it is given (i.e. the breach or likely breach which forms the basis of the order);

•

specify a period for compliance; and

•

state that the accountable entity could commit an offence if it fails to comply with the direction. [Subsection 64(3) of the Financial Accountability Regime Bill 2023]

1.203 An accountable entity or significant related entity may comply with a direction despite anything in the entity's constitution or any contract to which the entity is a party. A direction does not, except in limited cases, affect the obligations of parties under such contracts. The Federal Court may make an order on how such contracts operate. [Subsections 64(5) to (7) and section 77 of the Financial Accountability Regime Bill 2023]

1.204 Notice of a decision to give, vary, or revoke a direction must be provided to the accountable entity and to any relevant accountable person and significant related entity. Decisions by the Regulator to give, vary, or revoke directions, or to refuse to do so, are subject to reconsideration by the Regulator, and to review by the Administrative Appeals Tribunal. [Subsection 64(4) and sections 91 to 95 of the Financial Accountability Regime Bill 2023]

1.205 Non-compliance with a direction may attract a civil penalty and may also be an offence. The maximum penalty for an accountable entity or an officer of an accountable entity which commits an offence by not complying with a direction is 50 penalty units (see more on penalty and offence provisions below). [Sections 66 and 80 of the Financial Accountability Regime Bill 2023]

Directions to reallocate responsibilities

1.206 The Regulator can direct an accountable entity to reallocate the responsibilities of an accountable person of the entity or of its relevant group (including of a significant related entity). [Section 65 of the Financial Accountability Regime Bill 2023]

1.207 The power is designed to be used in exceptional circumstances to direct an accountable entity to reallocate the responsibilities of accountable persons of its relevant group in order to minimise prudential risk or risks of serious non-compliance. A similar power exists under the Banking Executive Accountability Regime, with the power in the Financial Accountability Regime expanded to cover serious non-compliance risks.

1.208 In order to make a reallocation direction the Regulator must be satisfied that the current allocation of responsibilities has given or is likely to give rise to:

•

a prudential risk; or

•

a risk of significant and systemic non-compliance with financial laws. [Subsection 65(1) of the Financial Accountability Regime Bill 2023]

1.209 The Regulator must have regard to the responsibilities set out in the accountability statement, where a statement for the accountable person has been given. [Subsection 65(2) of the Financial Accountability Regime Bill 2023]

1.210 A direction to reallocate responsibilities must be given in writing, specify a period by which the direction must be complied with, and state that the accountable entity could commit an offence or be liable to a civil penalty if it fails to comply with the direction. [Subsection 65(3) of the Financial Accountability Regime Bill 2023]

1.211 Notice of a decision to give, vary or revoke a direction must be provided to the accountable entity, the person whose responsibility is to be reallocated, the person to whom the responsibility is reallocated, and - if applicable - to the significant related entity of the accountable persons. [Subsection 65(4) of the Financial Accountability Regime Bill 2023]

1.212 Decisions by the Regulator to give, vary, or revoke directions - or to refuse to do so - are subject to reconsideration by the Regulator, and to review by the Administrative Appeals Tribunal. The direction is not a legislative instrument. [Sections 65 and 91 to 95 to the Financial Accountability Regime Bill 2023]

Other provisions relating to directions

1.213 Information about directions may be provided by the Regulator to the Minister, on the Regulator's own initiative or on request by the Minister. [Section 78 of the Financial Accountability Regime Bill 2023]

1.214 If a direction relating to non-compliance or a direction to relocate responsibilities is inconsistent with rules made by the Minister or the Regulator rules, the direction prevails over the rules, to the extent of the inconsistency. [Section 79 of the Financial Accountability Regime Bill 2023]

Offences for failing to comply with directions

1.215 An accountable entity commits an offence if it does not comply with a direction from the Regulator. The maximum penalty is 50 penalty units. Failure to comply with a direction to reallocate responsibilities may also contravene civil penalty provisions of the Financial Accountability Regime Bill 2023. [Subsections 66(1) and (2) and section 80 of the Financial Accountability Regime Bill 2023]

1.216 A director, senior executive, or other senior employee of an accountable entity commits an offence if they fail to take reasonable steps to ensure that the accountable entity complies with a direction from the Regulator. The maximum penalty is 50 penalty units. The offence applies more broadly than just accountable persons because of the importance of ensuring compliance with the Regulator's directions to the administration and enforcement of the Financial Accountability Regime. [Subsections 66(3) and (4) of the Financial Accountability Regime Bill 2023]

1.217 Schedule 1 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 amends the Financial Regulator Assessment Authority Act 2021 to allow individuals working for the Financial Regulator Assessment Authority to disclose the fact that directions have been given under the Financial Accountability Regime. [Schedule 1, items 32 and 33 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 40 of the Financial Regulator Assessment Authority Act 2021]

1.218 Schedule 1 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 amends the Payment Systems and Netting Act 1998 to ensure the directions given under the Financial Accountability Regime operate consistently with the legal framework governing payment systems in Australia. [Schedule 1, items 71 to 73 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 5 of the Payment Systems and Netting Act 1998]

Secrecy provisions relating to directions under the Financial Accountability Regime

1.219 The Regulator may determine that secrecy arrangements apply to a direction given under the Financial Accountability Regime. This can be done if the Regulator considers it is necessary to protect certain customers of accountable entities, or to promote financial system stability in Australia. [Section 67 of the Financial Accountability Regime Bill 2023]

1.220 Where secrecy arrangements apply to a direction, a directed accountable entity or another person (such as an employee or contractor of the entity) commits an offence for disclosing information revealing the fact that the direction was given, except in limited circumstances. The maximum penalty for contravening the secrecy arrangements is two years imprisonment. [Section 68 of the Financial Accountability Regime Bill 2023]

1.221 The secrecy arrangements do not apply where the information:

•

has already been lawfully made available to the public;

•

is disclosed to a legal representative to seek legal advice;

•

is disclosed in a manner that is authorised under law or by a legislative instrument made under the Financial Accountability Regime; or

•

is disclosed to another person who is subject to the secrecy arrangements for the purposes of one of the other exemptions. [Sections 69 to 76 of the Financial Accountability Regime Bill 2023]

Disqualification of accountable persons

1.222 The Regulator can disqualify a person from being an accountable person for a period if the Regulator is satisfied that the accountable person has breached their accountability obligations under the Financial Accountability Regime.

1.223 The power to disqualify an accountable person is required as accountable persons have significant power in accountable entities (which themselves are central to the Australian financial system) and should exercise due skill, care and diligence in relation to their roles. In some cases, the appropriate remedy for contravention of the Financial Accountability Regime will be that the current or former accountable person will not be able to hold such a role in future.

1.224 The Regulator can disqualify a person if they have breached their accountability obligations and their disqualification is justified, having regard to the seriousness of the breach. [Section 42 of the Financial Accountability Regime Bill 2023]

1.225 A person can be disqualified from being an accountable person from an accountable entity, a significant related entity, or a class of such entities. The Regulator must give written notice to the accountable person and the accountable entity, and if relevant to the significant related entity, to give them an opportunity to make submissions. The disqualification takes effect from the date specified in the notice. [Subsection 42(2) to (7) of the Financial Accountability Regime Bill 2023]

1.226 The Regulator may vary or revoke a disqualification if the Regulator considers it appropriate, or on application of the disqualified person. To do so, the Regulator must give written notice of the variation or revocation to the affected accountable person and to relevant accountable entities or significant related entities. The variation or revocation takes effect from the day the determination was made. [Section 43 of the Financial Accountability Regime Bill 2023]

1.227 A written notice making, varying or revoking disqualification is not a legislative instrument. [Subsections 42(8) and 43(4) of the Financial Accountability Regime Bill 2023]

1.228 An accountable entity breaches its key personnel obligations if it appoints an accountable person who has been disqualified. [Paragraph 23(1)(b) of the Financial Accountability Regime Bill 2023]

1.229 In addition to a contravention of key personnel obligations, an accountable entity or significant related entity commits an offence if it appoints an accountable person who has been disqualified under the Financial Accountability Regime. Allowing a disqualified person to act as an accountable person of the entity also constitutes an offence. There are two possible offences: a strict liability offence with a penalty of 60 penalty units, and a fault-based offence with a penalty of 250 penalty units. While there is no ambiguity as to whether a person is disqualified or not, if it can be established that an accountable entity or significant related entity intentionally appointed or allowed a disqualified person to act as its accountable person, a higher penalty would be imposed. These penalties and offences are consistent with the penalties in the Banking Executive Accountability Regime, on which they were modelled for continuity. The offences and penalties also comply with the Guide to Framing Commonwealth Offences. [Section 44 of the Financial Accountability Regime Bill 2023]

1.230 Decisions by the Regulator to disqualify a person, to vary or revoke a disqualification, or to refuse to vary or revoke a disqualification, are subject to reconsideration by the Regulator, and to review by the Administrative Appeals Tribunal. [Section 91 of the Financial Accountability Regime Bill 2023]

Enforceable undertakings

1.231 The Regulator can accept enforceable undertakings in relation to the Financial Accountability Regime, including from any accountable entity. Undertakings may relate to any matter in relation to which the Regulator has a power or function under the regime. For example, an undertaking may relate to compliance with the regime by an accountable entity or by an accountable person.

1.232 The Regulator can enforce enforceable undertakings in the Federal Court.

1.233 Enforceable undertakings will be accepted and enforced under Part 6 of the Regulatory Powers (Standard Provisions) Act 2014, with modifications set out in the Financial Accountability Regime Bill 2023 to ensure all relevant kinds of undertakings can be accepted. [Section 84 of the Financial Accountability Regime Bill 2023]

Injunctions

1.234 The Regulator may apply for an injunction in the Federal Court to uphold the requirements of the Financial Accountability Regime. The Court may grant an injunction requiring or restraining conduct, for instance to restrain a person from engaging in conduct that contravenes a direction given by the Regulator. The Court may also grant an injunction by consent of all parties to the relevant proceedings.

1.235 Injunctions will be enforced under Part 7 of the Regulatory Powers (Standard Provisions) Act 2014, with modifications set out in the Financial Accountability Regime Bill 2023 to ensure it works under the regime. [Section 85 of the Financial Accountability Regime Bill 2023]

Civil penalties for contravention of the Financial Accountability Regime

1.236 Civil penalties apply in relation to contravention of obligations under the Financial Accountability Regime. The civil penalties are designed to deter and punish malfeasance and non-compliance with the obligations of the regime, and are part of a standard suite of enforcement tools. Strong penalties are warranted given the importance of the regulated industries to the broader economy, and to ensure that incurring a civil penalty is not considered a mere cost of doing business.

1.237 A civil penalty may be incurred for each contravention. To determine the amount of each penalty, the Financial Accountability Regime provides a flexible method modelled on that used in corporations and consumer legislation.

1.238 An accountable entity that contravenes its obligations under the Financial Accountability Regime may be subject to a civil penalty. [Section 80 of the Financial Accountability Regime Bill 2023]

1.239 The maximum penalty for a body corporate, including an accountable entity, is calculated using a formula where the maximum penalty is at least 50,000 penalty units. The maximum penalty may be greater depending on the benefit derived or detriment avoided by the entity, and the entity's annual turnover. [Subsections 83(1) and (2) of the Financial Accountability Regime Bill 2023]

1.240 The maximum penalty for a person other than a body corporate, including an accountable person, is calculated using a formula where the maximum penalty is at least 5,000 penalty units. The maximum penalty may be greater depending on the benefit derived or detriment avoided by the person. [Subsections 83(1) and (3) of the Financial Accountability Regime Bill 2023]

1.241 A person can face a civil penalty if they assist another person to contravene a civil penalty provision under the Financial Accountability Regime. An example of such an ancillary contravention is an accountable person aiding an accountable entity to contravene its accountability obligations. [Section 81 of the Financial Accountability Regime Bill 2023]

1.242 The civil penalties in the Financial Accountability Regime are consistent with some of the existing relevant legislative regimes, including the Corporations Act, the Insurance Contracts Act 1984, the Australian Securities and Investments Commission Act 2001, and the Credit Act, and are comparable to those in the Banking Executive Accountability Regime.

1.243 The Regulator has the power to commence civil penalty proceedings in the Federal Court. Civil penalty provisions will be enforced under Part 4 of the Regulatory Powers (Standard Provisions) Act 2014, with modifications to provide for the maximum penalties set out above, and to ensure that additional matters relevant to the Financial Accountability Regime are taken into account by a court in determining the appropriate penalty. [Sections 82 and 83 of the Financial Accountability Regime Bill 2023]

Offences

1.244 The Financial Accountability Regime also provides for offences relating to non-compliance with an investigation, request for information, or directions made by the Regulator, the appointment of disqualified accountable persons, and legal professional privilege.

1.245 Most of the offence provisions in the Financial Accountability Regime Bill 2023 replicate existing offences in the Banking Act 1959 that apply in relation to the Banking Executive Accountability Regime. It is appropriate to maintain the treatment of this conduct as a criminal offence to provide continuity between the regimes, and due to the serious nature of the wrongdoing involved (see Chapter 2 of the Guide to Framing Commonwealth Offences). The strong deterrent effect of a criminal sanction is necessary for the Financial Accountability Regime because of the central role that directors and senior executives of entities operating in the Australian financial system play in the Australian economy. [Sections 44 to 53, 63, 66 and 68 of the Financial Accountability Regime Bill 2023]

1.246 This rationale also applies to offences for failure to comply with a condition of a notice which relates to disclosure of information. These offences and their maximum penalties accord with the treatment of failing to comply with a condition of a notice issued by a Regulator under the Banking Act 1959. For consistency, these offence penalties also align with penalties for disclosure of information about a direction that is covered by a secrecy determination of the Regulator. [Section 68 and subsections 92(2) and 94(5) of the Financial Accountability Regime Bill 2023]

1.247 For clarity, the Financial Accountability Regime Bill 2023 applies Chapter 2 of the Criminal Code such that the physical elements of the offence are set out in the conduct provision. [Section 86 of the Financial Accountability Regime Bill 2023]

1.248 Any contravention of an offence provision or a civil penalty provision includes a reference to a contravention of the conduct provision. [Section 87 of the Financial Accountability Regime Bill 2023].

1.249 Five offences include a custodial sentence as the maximum penalty. These penalties are justified either because of the serious nature of the offence, involving dishonesty or an attempt to compromise regulation of the Financial Accountability Regime, or because of the serious consequences that committing the offence may have on the economy where the offence involves secrecy relating to directions. [Sections 48, 52, 68, 92 and 94 of the Financial Accountability Regime Bill 2023]

1.250 Pecuniary penalties relating to offences in the Financial Accountability Regime Bill 2023 are generally not large, and are suitably proportioned when applied to corporations and individual persons consistent with the Guide to Framing Commonwealth Offences. A court has its usual discretion to order a penalty up to the maximum amount prescribed by the legislation to suit the circumstances of the case. [Sections 44 to 53, 63, 66 and 68 of the Financial Accountability Regime Bill 2023]

1.251 In practice, it is intended that a court would determine which method provides the greatest penalty, and then use discretion to impose an appropriate penalty up to that amount.

Court orders for compliance

1.252 If the Regulator certifies that a person has failed to comply with a requirement of the Financial Accountability Regime, the Federal Court may order that person to comply. [Section 90 of the Financial Accountability Regime Bill 2023]

Impact of non-compliance with obligations under the Financial Accountability Regime in relation to other laws

Disqualification under other regimes

1.253 Non-compliance with the Financial Accountability Regime may result in consequences under other regimes.

1.254 Schedule 1 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 makes amendments which disqualify a person from:

•

being a director, senior manager or auditor of an ADI or an authorised non-operating holding company if they have been convicted of an offence under the Financial Accountability Regime; [Schedule 1, item 29 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 20 of the Banking Act 1959]

•

being a director or senior manager of a general insurer, an authorised non-operating holding company or a corporate agent if the person has committed an offence under the Financial Accountability Regime; [Schedule 1, item 37 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 25 of the Insurance Act 1973]

•

being a director, principal executive officer or otherwise act for a life company if the person has committed an offence under the Financial Accountability Regime; and [Schedule 1, item 67 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 245 of the Life Insurance Act 1995]

•

acting as an officer or an appointed actuary of a private health insurer if the person has committed an offence under the Financial Accountability Regime; and [Schedule 1, items 82 and 83 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; sections 119 and 120 of the Private Health Insurance (Prudential Supervision) Act 2015]

•

being a trustee, actuary or auditor of a superannuation entity if the person has contravened obligations under the Financial Accountability Regime. [Schedule 1, items 87 and 90 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; sections 126H and 130D of the Superannuation Industry (Supervision) Act 1993]

1.255 A breach of an obligation under the Financial Accountability Regime can also inform decisions of the Regulator under other laws. This includes where the Regulator decides to revoke or refuse to grant a licence, or in relation to winding up companies.

1.256 For instance, Schedule 1 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 makes necessary amendments to other Acts so that a breach of the Financial Accountability Regime can be used by APRA as the basis to:

•

revoke the authorisation of an ADI or its authorised non-operating holding company; [Schedule 1, items 21 and 22 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; sections 9A and 11AB of the Banking Act 1959]

•

revoke a general insurer's authorisation or the authorisation of a non-operating holding company of a general insurer; [Schedule 1, items 35 and 36 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; sections 15 and 21 of the Insurance Act 1973]

•

refuse to register a life company, or vary or revoke a life company's registration or the registration of a life company's non-operating holding company; and [Schedule 1, items 49 to 51 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; sections 21, 26 and 28C of the Life Insurance Act 1995]

•

cancel a private health insurer's registration. [Schedule 1, items 74 and 84 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; sections 21 and 168 of the Private Health Insurance (Prudential Supervision) Act 2015]

1.257 A breach of the Financial Accountability Regime can also be considered by APRA when:

•

granting and imposing conditions on RSE licenses, by including the Financial Accountability Regime in the definition of RSE licensee law; and [Schedule 1, item 85 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 10 of the Superannuation Industry (Supervision) Act 1993]

•

a general insurer is being put under judicial management for failing to comply with certain laws. [Schedule 1, items 45 to 47 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; sections 62M, 62W and 62ZOY of the Insurance Act 1973]

1.258 The amendments to provisions which allow for the revocations of licences of insurers and superannuation entities apply regardless of whether the relevant breaches occur prior to the commencement of the Financial Accountability Regime (Consequential Amendments) Bill 2023. [Schedule 2, items 24 and 26 to 28 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

Entities in financial distress

1.259 The Financial Accountability Regime (Consequential Amendments) Bill 2023 also makes amendments to other Acts to ensure the Financial Accountability Regime interacts appropriately with legislative schemes that govern entities in financial distress.

1.260 Specifically, Schedule 1 to the Financial Accountability Regime (Consequential Amendments) Bill 2023:

•

ensures proceedings against a body corporate for an offence against the Financial Accountability Regime will not prevent the winding?up of the body corporate and that the regime will still apply while a statutory manager has been appointed under the Banking Act 1959; [Schedule 1, items 23, 24 and 30 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; sections 15D and 69BA of the Banking Act 1959]

•

ensures proceedings against a body corporate for an offence against the Financial Accountability Regime will not prevent statutory or judicial management and that the regime will still apply while a statutory or judicial manager has been appointed under the Life Insurance Act 1975; [Schedule 1, items 65, 66 and 68 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; sections 166, 179AY and 248 of the Life Insurance Act 1995]

•

ensures that the institution of proceedings against a body corporate under the Financial Accountability Regime does not prevent judicial management or winding-up under the Insurance Act 1973; [Schedule 1, item 48 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 129AA of the Insurance Act 1973]

•

ensures the appointment of an external or terminating manager of a health benefits fund, does not affect the operation of the Financial Accountability Regime; and [Schedule 1, item 75 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 84 of the Private Health Insurance (Prudential Supervision) Act 2015]

•

expands the ability of a court to stop the payment of money to protect certain creditors for certain breaches of legislation to include breaches of the Financial Accountability Regime; [Schedule 1, item 93 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 313 of the Superannuation Industry (Supervision) Act 1993]

1.261 Schedule 1 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 amends the Financial Sector (Transfer and Restructure) Act 1999 to allow businesses undertaking a restructure because of an order under the Financial Accountability Regime to take advantage of the regulatory relief under that Act. [Schedule 1, item 34 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 36B of the Financial Sector (Transfer and Restructure) Act 1999]

Miscellaneous provisions

Indemnification and insurance for accountable entities

1.262 A significant related entity must not indemnify an accountable entity against the consequences of breaching the Financial Accountability Regime, or pay insurance premiums insuring the entity against those consequences. This prohibition also applies to a body corporate in the same corporate group as the accountable entity. [Subsections 97(1) and (4) of the Financial Accountability Regime Bill 2023]

1.263 Any arrangement that purports to indemnify or insure an accountable entity against liability, or to exempt them from liability, contrary to that prohibition is void. [Subsection 97(3) of the Financial Accountability Regime Bill 2023]

1.264 This prohibition does not apply to legal costs. [Subsection 97(2) of the Financial Accountability Regime Bill 2023]

1.265 There is no prohibition under the Financial Accountability Regime relating to indemnification of, or payment of insurance premiums relating to, accountable persons.

Privilege against self-incrimination and legal professional privilege

1.266 A person cannot refuse to give information or to provide documents on the basis of the privileges against self-incrimination or exposure to a penalty. However, if an individual makes a valid claim to privilege before producing the information, that information is not admissible as evidence against the individual in criminal proceedings, other than proceedings in respect of the falsity of the information. [Section 88 of the Financial Accountability Regime Bill 2023]

1.267 A lawyer can refuse to comply with the requirement to provide information or to produce a document if doing so would breach legal professional privilege. However, this exception does not apply if the person to whom the information relates consents to the lawyer releasing the information. If the lawyer refuses to comply, the lawyer must instead disclose the name of the person to whom (or on whose behalf) the privileged communication was made. If a lawyer fails to comply with these requirements, the lawyer commits an offence subject to a maximum penalty of 30 penalty units. [Section 89 of the Financial Accountability Regime Bill 2023]

1.268 These provisions are necessary for the efficient regulation of the Financial Accountability Regime, ensuring that access to information relevant to an investigation is not denied. The approach taken balances the public interest in accountability among vital financial services with protection of individual privileges. To strike the right balance, the abrogation of the privilege against self-incrimination is limited, such that information produced after making a valid claim is not admissible in evidence against the individual in criminal proceedings, and the sharing of such information is limited by the information sharing provisions in the regime and each Regulator's information protection regimes.

1.269 Protections for whistle-blowers under Part 9.4AAA of the Corporations Act will be available in relation to the Financial Accountability Regime. [Schedule 1, item 31 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; Section 1317AA of the Corporations Act]

Liability provisions

Conduct of directors, employees and agents

1.270 It may be necessary to establish the state of mind of an individual in proceedings for offences under the Financial Accountability Regime Bill 2023. In these circumstances, it is sufficient to show that an employee or agent of the individual engaged in the relevant conduct and had the relevant state of mind. State of mind includes knowledge, intention, opinion, belief or purpose. [Section 100 of the Financial Accountability Regime Bill 2023]

1.271 The relevant conduct is limited to conduct by an individual's employee or agent within the scope of actual or apparent authority, and will not be attributed to the individual where that individual can establish that they exercised due diligence to avoid the conduct. [Section 100 of the Financial Accountability Regime Bill 2023]

1.272 An individual will not be imprisoned if they are convicted of an offence as a result of conduct or a state of mind being attributed to them under section 100(1)-(2) of the Financial Accountability Regime Bill 2023. [Subsection 100(3) of the Financial Accountability Regime Bill 2023]

Protection from liability

1.273 Actions and omissions for the purpose of complying with a direction or a secrecy requirement of the Financial Accountability Regime do not attract liability if it was reasonable for the person to have acted or omitted to act. This protection applies to a person who is an employee, agent, officer or senior manager of an accountable entity, or a member of an accountable entity's group, or accountable entity or member of an accountable entity's group. This protection is necessary to, for example, allow an accountable entity and its senior management (or other relevant persons) to promptly and fully comply with a direction given by the Regulator to address prudential risks or non-compliance with obligations. This protection complements protections already available for officers and staff of the Regulators, for instance those involved in issuing the direction and monitoring its implementation. [Section 102 of the Financial Accountability Regime Bill 2023]

1.274 Persons performing functions or duties, or exercising powers, under the Financial Accountability Regime Bill 2023 are also protected from liability if the function or duty is performed, or power exercised in good faith and without negligence. Protection from liability will enable persons who are required to perform functions or exercise powers to do so without being obstructed by the possibility of a continuous stream of repeated challenges to the performance of those functions or duties, or the exercise of those powers when done in good faith and without negligence. [Section 101 of the Financial Accountability Regime Bill 2023; Schedule 1, item 12 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 58 of the Australian Prudential Regulation Authority Act 1998]

1.275 These protections from civil and criminal liability are necessary to support compliance with the regime and minimise prudential risk. They also support compliance with the Financial Accountability Regime by concentrating enforcement on intentional and malicious contraventions, rather than inadvertent breaches which may arise during a genuine attempt to comply with the regime.

1.276 The prescribed protections from liability in the Financial Accountability Regime are intended to work alongside each other and not to limit the operation of each other, or that of section 58 of the Australian Prudential Regulation Authority Act 1998 or section 246 of the Australian Securities and Investments Commission Act 2001. [Section 103 of the Financial Accountability Regime Bill 2023]

Merits review of decisions made by the Regulator

1.277 Certain decisions of the Regulator are subject to merits review. Reviewable decisions, and the persons affected by each type of decision, are listed in the table in section 91 of the Financial Accountability Regime Bill 2023. Such decisions are described throughout this explanatory memorandum where the substantive provisions are explained. [Section 91 of the Financial Accountability Regime Bill 2023]

1.278 Where a decision is reviewable, the Regulator must give all persons affected by the decision the reasons for the decision and information about the person's review rights. [Subsection 92(1) of the Financial Accountability Regime Bill 2023]

1.279 To seek review, a person affected by a reviewable decision may first apply for the Regulator that made the original decision to reconsider the decision. The Regulator must reconsider the decision within 60 days and notify the applicant of the outcome by written notice. If the Regulator does not notify the applicant in that time, the decision is taken to be affirmed. [Sections 93 and 94 of the Financial Accountability Regime Bill 2023]

1.280 A notice to an affected person of a reviewable decision, or of a reconsideration decision, may contain conditions relating to disclosure of information about the reasons for the decision. For example, the Regulator may include a non-disclosure condition in a notice relating to a decision about a direction.

1.281 It is an offence to not comply with a condition in a notice that relates to disclosure. The maximum penalty for not complying with a notice condition is two years imprisonment, aligning with the penalty for disclosure of information about a direction that is subject to secrecy arrangements in section 68 of the Financial Accountability Regime Bill 2023, and accords with the treatment of failing to comply with a condition of a notice issued by APRA in the Banking Act 1959. [Subsections 92(2) and 94(5) of the Financial Accountability Regime Bill 2023]

1.282 However, a person may disclose information for the purpose of seeking administrative review of, or obtaining legal advice about, a direction covered by a secrecy provision without committing an offence. [Sections 96 of the Financial Accountability Regime Bill 2023]

1.283 Following internal reconsideration of the decision, a person affected by the decision may seek review of the reconsidered decision by the Administrative Appeals Tribunal. A review by the Tribunal is conducted in accordance with the Administrative Appeals Tribunal Act 1975. [Section 95 of the Financial Accountability Regime Bill 2023]

1.284 Certain decisions of the Minister and of the Regulator are not subject to merits review, consistent with the Administrative Review Council's publication "What Decisions Should be Subject to Merits Review?".

1.285 Decisions which are legislation-like in character, and decisions which are procedural or preliminary as they precede a substantive decision, are not suitable for administrative review.

1.286 Likewise, other decisions are not reviewable where the benefits of not providing administrative review outweigh the objectives of providing it. This applies to decisions of the Regulator and the Minister that are made in favour of the affected person by reducing the scope of their responsibilities or by providing flexibility or an exemption from compliance with the Financial Accountability Regime. In addition, challenges to the Minister's decision not to exempt an accountable entity may undermine public and industry confidence in the prudential and financial system and create financial uncertainty. Where the Minister exempts an accountable entity from the regime, the exemption must include a statement setting out the reasons for this exemption. In relation to other decisions, the Minister must provide reasons on request, as required by section 13 of the Administrative Decisions (Judicial Review) Act 1977. [Subsections 11(2) and 16(1) to (3) of the Financial Accountability Regime Bill 2023]

Rule-making powers

1.287 The Minister may make rules, known as the Minister rules, prescribing matters under the Financial Accountability Regime Bill 2023. The Minister rules may cover matters required or permitted by that Bill to be prescribed by the Minister rules, as well as anything necessary or convenient for carrying out or giving effect to that Bill. [Section 104 of the Financial Accountability Regime Bill 2023]

1.288 The Regulator may also make rules, known as the Regulator rules, prescribing matters that are required, permitted, necessary or convenient to prescribe by such rules under the Financial Accountability Regime Bill 2023. [Section 105 of the Financial Accountability Regime Bill 2023]

1.289 The Minister rules and the Regulator rules may not create an offence or civil penalty, provide certain enforcement powers, impose a tax, or directly amend the primary law. The rules are legislative instruments and will therefore be subject to disallowance and appropriate Parliamentary scrutiny. [Subsections 104(2) and 105(2) of the Financial Accountability Regime Bill 2023]

Application of the Financial Accountability Regime

1.290 The Financial Accountability Regime applies within Australia and its external territories, capturing conduct (including that of the Crown) that occurs or has an impact within Australia's jurisdiction. This means the Regulator's powers can be applied to entities and persons within Australia in relation to conduct which occurs within Australia, as well as conduct which occurs offshore and has impacts within Australia. [Sections 5 to 7 of the Financial Accountability Regime Bill 2023]

1.291 For example, in relation to offshore conduct, the Regulator could register or disqualify an accountable person who is a foreign citizen based overseas. The Regulator could also take enforcement action towards an Australian accountable entity in relation to the conduct of its offshore accountable person or significant related entity, in order to establish and address a contravention of that accountable entity's obligations or a risk to its prudential standing or prudential reputation - such as investigating the accountable entity and giving it a direction to comply with the Financial Accountability Regime or reallocate responsibilities of an accountable person.

1.292 The Regulator can administer and enforce the Financial Accountability Regime within Australia. While the regime binds the Crown, it does not render the Crown liable for an offence. [Sections 5 to 7 of the Financial Accountability Regime Bill 2023]

Other miscellaneous provisions

1.293 APRA and ASIC must include information about investigations conducted under the Financial Accountability Regime in their respective annual reports from the 2023-24 financial year onwards. The information each regulator provides should deal with its own investigations and joint investigations, but need not cover investigations conducted solely by the other regulator. [Schedule 1, item 13 and Schedule 2, item 32 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 59 of the Australian Prudential Regulations Authority Act 1998; Schedule 1, items 18 and 20 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; sections 136, 340 and 341 of the Australian Securities and Investments Commission Act 2001]

1.294 However, APRA and ASIC are not authorised to disclose information about the affairs of a particular person as part of the information included in their annual reports. [Schedule 1, item 14 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 59 of the Australian Prudential Regulation Authority Act 1998; Schedule 1, item 19 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 136 of the Australian Securities and Investments Commission Act 2001]

1.295 The Financial Accountability Regime Bill 2023 does not have the effect of creating a cause of action that would not have existed without it being enacted. [Section 98 of the Financial Accountability Regime Bill 2023]

1.296 The Commonwealth is liable to pay compensation if the operation of the Financial Accountability Regime results in an acquisition of property otherwise than on just terms, including the transition from the Banking Executive Accountability Regime. [Section 99 of the Financial Accountability Regime Bill 2023; Schedule 2, item 3 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

1.297 Schedule 2 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 creates a series of definitions to aid in the transitional arrangements and clarifies it does not limit the application of the Acts Interpretations Act 1901. [Schedule 2, items 1 and 2 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

1.298 Fees, charges or penalties paid to APRA under the Financial Accountability Regime are not credited to APRA's Special Account. [Schedule 1, item 4 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 53 of the Australian Prudential Regulation Authority Act 1998]

1.299 Simplified outlines of the key aspects of the Financial Accountability Regime are provided throughout the Financial Accountability Regime Bill 2023 to assist readers. [Sections 4, 14 and 35 of the Financial Accountability Regime Bill 2023]

Commencement, application, and transitional provisions

1.300 The Financial Accountability Regime Bill 2023 commences on the day after Royal Assent. [Subsection 2(1) of the Financial Accountability Regime Bill 2023]

1.301 Part 1 of Schedule 1 and Schedule 2 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 commence at the same time as the Financial Accountability Regime Bill 2023. Part 2 of Schedule 1 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 commences on the date the regime begins to apply to the banking industry, six months after the commencement of the Financial Accountability Regime Bill 2023. [Section 2 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

1.302 Obligations under the Financial Accountability Regime will not apply to accountable entities immediately after that date of commencement. Instead, the Financial Accountability Regime (Consequential Amendments) Bill 2023 provides for a staggered application of the obligations under the Financial Accountability Regime to the different industries in the financial system.

1.303 The Financial Accountability Regime will first apply to the banking industry (ADIs and their authorised non-operating holding companies). Entities in the banking industry are currently subject to the obligations under the Banking Executive Accountability Regime. The Financial Accountability Regime (Consequential Amendments) Bill 2023 therefore provides for specific transitional arrangements so that these entities can be transitioned from the Banking Executive Accountability Regime to the Financial Accountability Regime.

1.304 The Financial Accountability Regime Bill 2023 provides for a deferred application of the Financial Accountability Regime to the insurance and superannuation industries so that they have sufficient time to adjust their systems and processes before they are subject to the obligations under the regime.

Transitional arrangements for the banking industry

1.305 The majority of the obligations under the Financial Accountability Regime will apply to the banking industry six months after the Financial Accountability Regime Bill 2023 commences. [Subsection 9(2) of the Financial Accountability Regime Bill 2023]

1.306 Once the Financial Accountability Regime starts applying to the banking industry, ADIs and their authorised non-operating holding companies will become accountable entities and the Banking Executive Accountability Regime will be repealed. [Schedule 1, items 94 to 107 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

1.307 Accountability statements provided to APRA under the Banking Executive Accountability Regime will automatically transition to become accountability statements under the Financial Accountability Regime. [Schedule 2, item 13 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

1.308 APRA and ASIC may jointly make rules prescribing transitional arrangements under the Financial Accountability Regime (Consequential Amendments) Bill 2023. [Schedule 2, item 34 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

Transitioning of accountable persons

1.309 Accountable persons of entities in the banking industry will automatically have their registration transitioned from the Banking Executive Accountability Regime to the Financial Accountability Regime. This only applies where the person will continue to be an accountable person under the Financial Accountability Regime. While re-registration of accountable persons is not necessary, the transition from the Banking Executive Accountability Regime to the Financial Accountability Regime would most likely result in material changes to the details of the responsibilities of those accountable persons and the Regulator must be notified of any such changes. [Schedule 2, items 4 and 13 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

1.310 Any applications to register accountable persons under the Banking Executive Accountability Regime that are pending at the time the Financial Accountability Regime commences, will be considered to be applications for registration under the Financial Accountability Regime. [Schedule 2, item 6 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

1.311 A person who became an accountable person under the Banking Executive Accountability Regime on a temporary basis (i.e. due to an unexpected vacancy or acting for a short period) will be taken to be a new temporary accountable person when the Financial Accountability Regime starts to apply to the banking industry. [Schedule 2, item 7 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

1.312 Entities can register new accountable persons in the 30 days prior to the Financial Accountability Regime applying to the banking industry. [Schedule 2, item 8 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

Deferred remuneration

1.313 The Financial Accountability Regime deferred remuneration obligations for the banking industry will apply when the decision to provide remuneration occurs in first financial year that begins six months after the Financial Accountability Regime applies to the banking industry. [Schedule 2, item 11 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

1.314 Remuneration that was decided to be provided to an accountable person before the first financial year starting six months after the Financial Accountability Regime applies to the banking industry will still be subject to the deferred remuneration rules under the Banking Executive Accountability Regime. [Schedule 2, item 10 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

1.315 The deferred remuneration obligations under the Banking Executive Accountability Regime will also continue to apply despite the repeal of the Banking Executive Accountability Regime to accountable persons who do not transition to Financial Accountability Regime until the period for the deferral finishes. [Schedule 2, item 12 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

Continuing application of the Banking Executive Accountability Regime

1.316 The Banking Executive Accountability Regime will apply to the banking industry before the application of the Financial Accountability Regime. [Schedule 2, item 18 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

1.317 The Banking Executive Accountability Regime will be repealed once the Financial Accountability Regime starts applying to the Banking industry. [Schedule 1, Part 2 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

1.318 However, some obligations under the Banking Executive Accountability Regime will continue to apply to the banking industry after the application of the Financial Accountability Regime to enable the effective transition from the Banking Executive Accountability Regime.

1.319 This means that:

•

APRA must still be notified of relevant changes in an accountability statement or an accountability map, or of a notification event, under the Banking Executive Accountability Regime; [Schedule 2, item 14 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

•

directions to reallocate responsibilities given under the Banking Executive Accountability Regime will continue to have force as directions under the Financial Accountability Regime; [Schedule 2, item 15 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

•

directions for non-compliance given under the Banking Executive Accountability Regime will continue to have force, despite the repeal of the Banking Executive Accountability Regime; [Schedule 2, item 19 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

•

enforceable undertakings and injunctions under the Banking Executive Accountability Regime will continue to have force, despite the repeal of the Banking Executive Accountability Regime; and [Schedule 2, item 21 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

•

APRA will continue to be able to exercise its powers under the Banking Executive Accountability Regime to investigate non-compliance in the same manner and subject to the same obligations as before the application of the Financial Accountability Regime (including secrecy obligations). [Schedule 2, item 29 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

1.320 The Financial Accountability Regime can be used to take action in relation to breaches of the Banking Executive Accountability Regime. Specifically, under the Financial Accountability Regime:

•

a non-compliance direction may be made in relation to breaches of the Banking Executive Accountability Regime; [Schedule 2, item 16 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

•

an accountable person may be disqualified in relation to breaches under the Banking Executive Accountability Regime; [Schedule 2, item 9 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

•

any accountable person disqualified under the Banking Executive Accountability Regime will continue to be disqualified under the Financial Accountability Regime on similar terms; and [Schedule 2, item 5 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

•

the authority of an ADI may be revoked in relation to breaches of the Banking Executive Accountability Regime, regardless of whether the breach was before or after the application of the Financial Accountability Regime to the ADIs. [Schedule 2, item 17 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

1.321 Information collected under the Banking Executive Accountability Regime can be used to investigate breaches under the Financial Accountability Regime. This can occur regardless of whether the relevant breach occurred before or after the commencement of the Financial Accountability Regime. However, the restrictions on sharing information between APRA and ASIC in relation to such information brought in as part of the Financial Accountability Regime will apply to that information. [Schedule 2, items 29, 30, 31 and 33 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

1.322 Decisions made under the Banking Executive Accountability Regime can continue to be reviewed under the Banking Executive Accountability Regime, according to the existing review procedures. [Schedule 2, item 20 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

1.323 Schedule 1 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 makes a consequential amendment to the Credit Act. Currently the Credit Act relies on the definition of large ADI under the Banking Act 1959. As this definition is repealed along with the Banking Executive Accountability Regime, Schedule 1 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 introduces an instrument making power into the Credit Act which allows a Minister to define a large ADI for the purpose of that Act. [Schedule 1, items 69 and 70 of the Financial Accountability Regime (Consequential Amendments) Bill 2023; section 5 of the National Consumer Protection Act 2009]

Transitional arrangements for insurance and superannuation industries

1.324 The Financial Accountability Regime will apply to the insurance and superannuation industries from 18 months after commencement of the Financial Accountability Regime Bill 2023. The Financial Accountability Regime will apply in full to the accountable entities in the insurance and superannuation industries from that date. [Subsection 9(4) of the Financial Accountability Regime Bill 2023]

1.325 This will include the deferred remuneration obligations, which will apply to remuneration that was determined after the start of the first financial year after the Financial Accountability Regime applies to the insurance and superannuation industries. [Schedule 2, item 23 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

1.326 Accountable entities in the insurance and superannuation industries can apply to register accountable persons under the Financial Accountability Regime 30 days before the Financial Accountability Regime applies to them. [Schedule 2, item 22 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

1.327 The amendments to the Life Insurance Act 1995 apply in relation to pending applications of life companies to be registered under that Act, when the Financial Accountability Regime applies. [Schedule 2, item 25 of the Financial Accountability Regime (Consequential Amendments) Bill 2023]

Chapter 2: Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Financial Accountability Regime Bill 2023

Financial Accountability Regime (Consequential Amendments) Bill 2023

Financial Accountability Regime Bill 2023

Overview

2.1 The Financial Accountability Regime Bill 2023 is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

2.2 The Financial Accountability Regime Bill 2023 creates a new accountability regime for the banking, insurance and superannuation industries. It establishes the Financial Accountability Regime, which extends the standards of conduct in the Banking Executive Accountability Regime to all APRA-regulated entities. This gives effect to recommendations 3.9, 4.12, 6.6, 6.7 and 6.8 of the Financial Services Royal Commission.

2.3 The Financial Accountability Regime imposes a strengthened responsibility and accountability framework within financial institutions. It recognises that decisions taken by directors and the most senior and influential executives of financial institutions are significant and have flow on effects for the Australian economy.

2.4 The Financial Accountability Regime Bill 2023 empowers the APRA and the ASIC to jointly administer and enforce the regime.

Human rights implications

2.5 The Financial Accountability Regime Bill 2023 engages the following human rights or freedoms:

•

the right to a fair trial under Article 14 of the ICCPR;

•

the imposition of strict liability for an offence;

•

the right against self-incrimination under Article 14(3)(g) of the ICCPR;

•

the right to protection from arbitrary or unlawful interference with privacy under Article 17 of the ICCPR; and

•

the right to freedom of expression under Article 19(2) of the ICCPR.

Right to a fair trial under Article 14 of the ICCPR

2.6 Article 14 establishes rights to due judicial process and procedural fairness. These rights apply in both civil and criminal proceedings, and in matters before both courts and tribunals.^[2]

2.7 The Financial Accountability Regime Bill 2023 engages these rights as it contains civil penalties and criminal offences for non-compliance, includes an evidential burden on a defendant, and provides for administrative and judicial review.

Assessment of Civil Penalties

2.8 Guidance Note 2: Offence provisions, civil penalties and human rights observes that civil penalty provisions may engage criminal process rights under Articles 14 and 15 of the ICCPR, regardless of the distinction between criminal and civil penalties in domestic law.^[3] This is because the word 'criminal' has an autonomous meaning in international human rights law. Therefore, when a provision imposes a civil penalty, an assessment is required to ascertain whether it amounts to a 'criminal' penalty for the purposes of complying with the ICCPR. Such assessment requires consideration of the nature and purpose of the penalties, the classification of the penalty provisions under domestic law, and the severity of the penalties.

2.9 Sections 80 and 81 of the Financial Accountability Regime Bill 2023 contain civil penalties. Section 80 imposes a civil penalty where an accountable entity fails to comply with an obligation under Chapter 2 of the Financial Accountability Regime Bill 2023. Section 81 imposes a civil penalty where a person assists another person to contravene a civil penalty provision under the Financial Accountability Regime. Section 81 is the only civil penalty which applies to a person other than a body corporate. It is intended to deter an accountable person from aiding an accountable entity to contravene its accountability obligations. Providing this penalty for ancillary contraventions of the Financial Accountability Regime continues the approach of the Banking Executive Accountability Regime, providing continuity of expectations on executives.

2.10 The civil penalty provisions are expressly classified as civil penalties. While the domestic classification alone may not be determinative, it is indicative of the nature of the penalty. A criminal penalty is punitive and may include imprisonment in addition to pecuniary sanctions. In contrast, the civil penalties imposed by the Financial Accountability Regime Bill 2023 are regulatory and disciplinary in nature, and solely involve pecuniary penalties in the form of a debt payable to the Commonwealth. None of the civil penalty provisions carry a penalty of imprisonment nor a sanction of imprisonment for non-payment of a penalty, and a finding by a court that these sections have been contravened does not lead to the creation of a criminal record.

2.11 The amount of the civil penalty for a person other than a body corporate is calculated using a formula where the maximum penalty is at least 5,000 penalty units (currently $1,375,000) (see section 83). The maximum penalty may be greater depending on the benefit derived or detriment avoided by the person. This approach is consistent with existing legislative regimes that apply to industries regulated by the Financial Accountability Regime and allows a court to determine a penalty appropriate to the circumstances of the case.

2.12 The nature, classification and amount of the civil penalty provisions in the Financial Accountability Regime Bill 2023 show these provisions do not create criminal offences for the purposes of Articles 14 and 15 of the ICCPR.

New Criminal Offences

2.13 The Financial Accountability Regime Bill 2023 provides criminal offences relating to non-compliance with specific provisions. Most offences apply to accountable entities or their significant related entities rather than to natural persons such as accountable persons. Offences which could apply to a natural person involve non-compliance with provisions relating to:

•

an investigation or examination (sections 46 and 51-53);

•

a request for information or a direction of the Regulator (sections 63, 66 and 68); and

•

a requirement relating to legal professional privilege (section 89).

2.14 The strong deterrent effect of criminal sanctions is necessary for the Financial Accountability Regime because of the central role that directors and senior executives of entities operating in the Australian financial system play in the Australian economy.

2.15 These offences are designed to deter misconduct and support the integrity of the regime through efficient oversight and regulation. Most of these offences replicate existing offences in the Banking Act 1959 that apply in relation to the Banking Executive Accountability Regime (sections 46, 51-53, 63, 66 and 68). It is appropriate to maintain the treatment of this conduct as a criminal offence to provide continuity between the regimes, and due to the serious nature of the wrongdoing involved which could compromise oversight and enforcement of the regime (see Chapter 2 of the Guide to Framing Commonwealth Offences).

2.16 The offences are modelled on the standard for all Australian criminal laws, including default elements from the Criminal Code.

2.17 Consistent with Article 14(1) of the ICCPR, an independent, impartial court will preside over all criminal proceedings brought under the Financial Accountability Regime Bill 2023, which will be subject to established Australian court processes and procedures that protect the right to a fair trial including requirements relating to procedural fairness, evidence and sentencing.

2.18 As these offences are appropriately designed to ensure integrity of the Financial Accountability Regime and its proper regulation, and will be administered in accordance with Australia's standards for criminal law proceedings, the offences created by Schedule 4 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 are consistent with Article 14 of the ICCPR.

2.19 Certain offences engage with other human rights; analysis of those interactions is set out in subsequent sections of this Statement.

Evidential burden

2.20 The Financial Accountability Regime Bill 2023 imposes an evidential burden on a defendant who wishes to raise a defence to the offence of disclosing information which was subject to a secrecy arrangement (section 68(3)). As the provision imposes an evidentiary burden on the defendant, it engages the right to a fair trial under Article 14 of the ICCPR.

2.21 The Financial Accountability Regime Bill 2023 provides a range of exceptions to the section 68 offence where disclosure is lawfully permitted (sections 69-75). The offence does not apply where the information was already lawfully in the public domain, or was disclosed to a legal representative in order to seek advice or to another person who is also subject to relevant secrecy arrangements for the purpose of another exception. It is also not an offence where the disclosure was in accordance with the Australian Prudential Regulation Authority Act 1998, the Australian Securities and Investments Commission Act 2001, a determination of the Regulator, or the Minister rules of the Financial Accountability Regime. In addition to these exceptions, which operate as offence-specific defences, disclosure may also take place if it is required by an order or direction by a court or a tribunal.

2.22 Placing an evidential burden in relation to those defences is appropriate, proportionate and reasonable. Principally, this is because in the vast majority of cases it will be peculiarly within the knowledge of the defendant how the information may have been publicly accessed, or the means by which the conduct was authorised by another law of the Commonwealth. This in turn is due to the wide range of publicly available information and circumstances in which other laws could authorise or require disclosure. Evidence establishing that disclosure was to a legal representative for the purpose of seeking legal advice or to another person as permitted by the other exceptions is also peculiarly within the defendant's knowledge and control.

2.23 Placing an evidentiary burden on the defendant is further justified because it would be significantly more difficult for the prosecution to disprove these matters than it would be for the defendant to establish these matters.

2.24 Placing an evidential burden of proof on the defendant is also justified as it aligns with the approach taken in other similar frameworks. For example, it is consistent with the treatment of other protected information collected under prudential frameworks which is held by APRA including information collected under the predecessor regime to the Financial Accountability Regime, the Banking Executive Accountability Regime under Part IIAA of the Banking Act 1959 (see section 56 of the Australian Prudential Regulation Authority Act 1998). Similarly, an evidential burden of proof exists in relation to the other prudential frameworks which interact with the regime including a matter raised under section 11CI of the Banking Act 1959, section 109A of the Insurance Act 1973, section 231A of the Life Insurance Act 1995. Consistency of approach across this complex legal framework is important to support understanding and application of the law.

2.25 In summary, engaging the right to a fair trial in this way is necessary because it achieves the legitimate objective of ensuring that directions given by the Regulator (subject to a secrecy arrangement) is not disclosed in ways that may cause harm, and it ensures consistency of approach across relevant laws. Placing an evidentiary burden on the defendant therefore ensures that a secrecy offence is effectively prosecuted. As such, the provision is consistent with the right to a fair trial under Article 14 of the ICCPR.

Merits and judicial review

2.26 Article 14 establishes rights to due judicial process and procedural fairness. These rights apply in both civil and criminal proceedings, and in matters before both courts and tribunals.^[4]

2.27 The Financial Accountability Regime Bill 2023 engages and supports these rights by providing court and tribunal oversight of administrative decisions. The Financial Accountability Regime Bill 2023 expressly provides for merits review of certain decisions made under the regime by the Administrative Appeals Tribunal (see section 91).

2.28 Certain decisions of the Minister and of the Regulator are not subject to merits review, consistent with the Administrative Review Council's publication "What Decisions Should be Subject to Merits Review?".^[5] In particular, decisions which are legislation-like in character, and decisions which are procedural or preliminary as they precede a substantive decision, are not suitable for administrative review. Likewise, other decisions are not reviewable where the benefits of not providing administrative review outweigh the objectives of providing it. This applies to decisions of the Regulator and the Minister that are made in favour of the affected person by reducing the scope of their responsibilities or by providing flexibility or an exemption from compliance with the Financial Accountability Regime (see sections 11 and 16 of the Financial Accountability Regime Bill 2023). Where the Minister exempts an accountable entity from the regime, the exemption must include a statement setting out the reasons for this exemption. In relation to other decisions, the Minister must provide reasons on request, as required by section 13 of the Administrative Decisions (Judicial Review) Act 1977. This supports procedural fairness.

2.29 Judicial review of an exercise of power or performance of function by the Regulators is also available, unless on the grounds of jurisdictional error solely in relation to one Regulator not having the other's agreement to act, or their arrangement for administration not being in place or available on their website (see section 95).

2.30 As such, the Financial Accountability Regime Bill 2023 upholds and does not unreasonably limit the right to a fair trial or fair hearing with respect to administrative decisions and judicial review.

Strict Liability Offence

2.31 The Financial Accountability Regime Bill 2023 imposes a strict liability offence in section 44 where an accountable entity or a significant related entity of an accountable entity appoints a person, disqualified under the FAR, as an 'accountable person'. This includes appointments on a temporary basis.

2.32 This offence does not apply to a natural person, nor could ancillary liability under section 81 apply as such liability relates to contravention of civil penalty provisions, not to offences.

2.33 The prosecution will not need to prove fault as part of a strict liability offence. This approach is appropriate here as there is no ambiguity as to whether a person is disqualified or not. The deterrence provided by a strict liability offence is requested because allowing a disqualified person to act as or be an accountable person would go against the prudential and conduct-related standards the FAR seeks to strengthen. Recognising the importance of such deterrence, section 44 also provides a fault-based offence with a higher penalty than the strict liability offence (250 penalty units compared to 60 penalty units) to cater for more serious situations where the mental element can be proven.

2.34 The penalty for the strict liability offence for entities complies with the requirements of the Guide to Framing Commonwealth Offences as:

•

the offence is not punishable by imprisonment;

•

the maximum penalty is at the maximum allowable for strict liability offences (60 penalty units for individuals (currently $16,500)); and

•

the harm to consumers and overall financial stability is so significant that fault should not be an element of the offence.

Right against self-incrimination under Article 14(3)(g) of the ICCPR

2.35 The Financial Accountability Regime Bill 2023 empowers the Regulator or an investigator to require a person to cooperate and assist with investigations and examinations (see section 46). This includes answering questions put to the person, signing of a record provision of certain documents, books or accounts.

2.36 The investigation and examination powers engage the right against self-incrimination under Article 14(3)(g) of the ICCPR because they provide that a person cannot refuse to cooperate and/or assist with an investigation or examination on the basis that doing so would incriminate the person. This includes the person refusing to: appear for examinations, answer questions, provide documents, books or accounts, and/or, sign a record. A failure to act in a certain way or provide information required is punishable by a criminal penalty of up to 50 penalty units (currently, $13,750).

2.37 However, the Financial Accountability Regime Bill 2023 balances the Regulator's or investigator's need to access information with a natural person's right against self-incrimination by limiting the use of incriminating material supplied by the person. Specifically, incriminating information or documents provided (and identified as such) cannot be used against the individual in criminal proceedings or in proceedings where the person may be liable to a criminal penalty (see section 88).

2.38 The protection does not, however, apply to proceedings concerning the falsity of the information or documents provided. This is consistent with sections 137.1 and 137.2 of the Criminal Code which create offences for providing false or misleading information. Incriminating evidence supplied by an individual can also be used to investigate unlawful conduct by that person and a third party, including in subsequent proceedings against a third party.

2.39 These provisions are required in this manner because the material and evidence necessary for the Regulator or investigator to perform its regulatory function is likely to only be available from certain individuals in an entity. Obtaining such information would be critical to give effect to the regulatory functions of the Financial Accountability Regime which in turn ensures the stability of Australia's financial system and prudential standing.

2.40 Engaging the right against self-incrimination in this way is necessary and justified as the public benefit in removing the liberty outweighs the loss to the individual. The regulatory powers in the Financial Accountability Regime Bill 2023 are therefore consistent with the right against self-incrimination under Article 14(3)(g) of the ICCPR.

Right to protection from arbitrary or unlawful interference with privacy under Article 17 of the ICCPR

2.41 Privacy is a broad concept and includes a right to information privacy. Article 17 of the ICCPR prohibits unlawful or arbitrary interferences with a person's privacy, family, home or correspondence. It also provides that everyone has the right to protection from the law against such interference or attacks.

2.42 The Human Rights Committee has interpreted the term 'unlawful' to mean that interferences cannot take place except in cases envisaged by law, which itself must comply with the provisions, aims and objectives of the ICCPR. The Human Rights Committee has also indicated that an interference will not be considered to be 'arbitrary' if it is provided for by law, is in accordance with the provisions, aims and objectives of the ICCPR, and is reasonable in the particular circumstances.^[6]

2.43 The Financial Accountability Regime Bill 2023, through the notification obligations, requires an accountable entity to provide particular information about the entity and its accountable persons. Additionally, the information gathering powers of the Financial Accountability Regime Bill 2003 allow the Regulator to request information from accountable entities, its significant related entities or accountable persons. Insofar as the application of these provisions results in the collection, use, sharing or disclosure of information (including personal information), they engage the right to privacy under Article 17 of the ICCPR.

2.44 Mechanisms in the Financial Accountability Regime Bill 2023 which involve collection, use and or disclosure of information include:

•

accountable entities' notification obligations, to notify the Regulator of the entity's structure and key personnel through accountability statements and accountability maps (Chapter 2 part 6 of the Financial Accountability Regime Bill 2023);

•

the Regulator's registration function, which includes registering and keeping a register of accountable persons (Chapter 3 part 3 of the Financial Accountability Regime Bill 2023);

•

information sharing powers, to allow one Regulator to disclose information or documents to the other for the purpose of their functions or powers, such as maintaining the register of accountable persons or conducting an investigation (section 39 of the Financial Accountability Regime Bill 2023); and

•

the Regulator's power to request information for a purpose under the regime, such as ensuring or investigating compliance (section 62 of the Financial Accountability Regime Bill 2023).

2.45 These mechanisms are necessary for the Regulator to carry out its functions to administer and enforce the regime; it would not be possible to achieve the objectives of the Financial Accountability Regime Bill 2023 to ensure accountability of entities and executives in the financial sectors without collecting information about relevant individuals.

2.46 In relation to the register of accountable persons, the Financial Accountability Regime Bill 2023 requires this to include details of each accountable person such as their name, date of registration, details of any disqualification as an accountable person, and other relevant information prescribed by the Regulator rules. Section 40(5) allows the Regulator to make any such information available for public inspection, for instance disqualification information. Maintaining the register is necessary to ensure that entities do not inadvertently appoint a disqualified individual. Moreover, providing public access to this information allows accountable entities and members of the public to ensure that their financial representatives are correctly registered and qualified to provide services, which justifies the impact upon accountable persons' right to privacy.

2.47 To ensure a balanced approach and avoid arbitrary interferences with privacy, the Regulator's powers to collect and use personal information under the Financial Accountability Regime Bill 2023 are tailored to the purpose of carrying out its functions and powers. This is expressed directly in the powers to share information (section 39) and request information (section 62). It is also evident in the design of section 40 (register) as the types of information collected for the register are designed to only capture information relevant to the person's registration and responsibilities, not other personal information.

2.48 In addition, the Regulator is also subject to information handling obligations which ensure personal information is collected, used and stored securely in accordance with the Privacy Act 1988, which gives effect to the right to privacy in Australia.

2.49 This approach ensures that any limitation on privacy is reasonable, as it is proportionate to the legitimate aim of the Financial Accountability Regime of transparency and accountability.

2.50 The provisions in the Financial Accountability Regime Bill 2023 relating to the collection, use, sharing or disclosure of information are therefore consistent with the right to protection against arbitrary or unlawful interference with privacy under Article 17 of the ICCPR, as they are explicitly specified for in appropriate circumstances.

Right to freedom of expression under Article 19(2) of the ICCPR

2.51 The Financial Accountability Regime Bill 2023, through its secrecy provisions, allows the Regulator to indicate in writing that directions it has provided to an accountable entity must not be publicly disclosed (see section 67). Specifically, the Financial Accountability Regime Bill 2023 allows the Regulator to make a secrecy determination if it considers it necessary to protect consumers and/or to promote the stability of the financial system in Australia. Except for limited circumstances, a breach of these secrecy provisions may result in imprisonment of up to two years.

2.52 These provisions engage the right to freedom of opinion and expression under Article 19(2) of the ICCPR because they prevent entities or persons working in the entity from disclosing details of a direction given to them. Consequentially, they also restrict public access to information relating to such directions.

2.53 Article 19(2) of the ICCPR provides that everyone has the right to freedom of expression, including the freedom to impart information and ideas of all kinds, regardless of frontiers, either orally, in writing or in print, in the form of art, or through any other media.

2.54 Article 19(3) provides that this right may be limited on the grounds including respect for the rights of others, or the protection of national security or public order and that any limitations must be prescribed by legislation and be reasonable, necessary and proportionate to achieve the desired purpose.

2.55 The secrecy provisions in the Financial Accountability Regime Bill 2023 are intended to prevent significant losses to consumers as well as fiscal instability that may arise as a result of unauthorised disclosure of information in the directions. Furthermore, these provisions can also prevent public detriment by averting contagions within the financial system.

2.56 The secrecy provisions have been balanced with a range of exceptions which allow for the disclosure of information in appropriate circumstances. For example, disclosure is allowed where information is subject to a direction that is already public or otherwise authorised by the Regulator. Disclosure to a legal representative is also allowed for the purpose of obtaining legal advice.

2.57 The exceptions identified in the Financial Accountability Regime Bill 2023 ensure that the secrecy provisions are proportionate as they do not unduly or unfairly limit disclosure. As such these provisions are consistent with the right to freedom of expression under Article 19(2) of the ICCPR.

Conclusion

2.58 In summary:

•

the strict liability offences are appropriate and consistent with the requirements of the Guide to Framing Commonwealth Offences;

•

the investigation and examination powers are consistent with the right against self-incrimination under Article 14(3)(g) of the ICCPR;

•

the secrecy provisions are consistent with the right to freedom of expression under Article 19(2) of the ICCPR as well as the right to a fair trial under Article 14 of the ICCPR; and

•

the notification obligations and information gathering and use powers (including keeping a register of accountable persons) are consistent with the right to protection from arbitrary or unlawful interference with privacy under Article 17 of the ICCPR.

2.59 As such, the Financial Accountability Regime Bill 2023 is compatible with human rights because to the extent that it may limit human rights or freedoms, those limitations are reasonable, necessary and proportionate.

Financial Accountability Regime (Consequential Amendments) Bill 2023

Overview

2.60 The Financial Accountability Regime (Consequential Amendments) Bill 2023 is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

2.61 Schedules 1 and 2 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 make consequential amendments and transitional arrangements to support establishment of the Financial Accountability Regime by the Financial Accountability Regime Bill 2023.

2.62 The Financial Accountability Regime imposes an accountability framework for certain entities in the banking, insurance and superannuation industries (accountable entities, and their significant related entities), and their directors and most senior and influential executives (accountable persons).

2.63 The Financial Accountability Regime will first apply to the banking industry (ADIs and their authorised non-operating holding companies). Entities in the banking industry are currently subject to the obligations under the Banking Executive Accountability Regime, under the Banking Act 1959. The Financial Accountability Regime (Consequential Amendments) Bill 2023 makes consequential amendments to other legislation and transitional arrangements so that these entities can be transitioned from the Banking Executive Accountability Regime to the Financial Accountability Regime, ensuring continuity of practices and requirements.

2.64 The Financial Accountability Regime will also apply to other APRA-regulated entities in the insurance and superannuation industries. For such entities there is a deferred application so they have sufficient to adjust their systems and processes before they are subject to the obligations under the regime. The Financial Accountability Regime (Consequential Amendments) Bill 2023 makes consequential amendments and transitional arrangements to assist this process, such as allowing for early application for registration of accountable persons, to prepare for the start date of the regime for the relevant industry.

Human rights implications

2.65 The Financial Accountability Regime (Consequential Amendments) Bill 2023 engages the following human rights or freedoms under the ICCPR:

•

the right to a fair trial and due process under Article 14 of the ICCPR;

•

the right to protection from arbitrary or unlawful interference with privacy under Article 17 of the ICCPR; and

•

the right to freedom of expression under Article 19(2) of the ICCPR.

Right to protection from arbitrary or unlawful interference with privacy under Article 17 of the ICCPR

2.66 Privacy is a concept that is broad in scope and includes a right to information privacy. Article 17 of the ICCPR prohibits unlawful or arbitrary interferences with a person's privacy, family, home or correspondence. It also provides that everyone has the right to protection from the law against such interference or attacks.

2.67 The Human Rights Committee has interpreted the term 'unlawful' to mean that interferences cannot take place except in cases envisaged by law, which itself must comply with the provisions, aims and objectives of the ICCPR. The Human Rights Committee has also indicated that an interference will not be considered to be 'arbitrary' if it is provided for by law, is in accordance with the provisions, aims and objectives of the ICCPR, and is reasonable in the particular circumstances.^[7]

2.68 The Financial Accountability Regime engages the right to privacy where application of provisions results in the collection, use and disclosure of personal information.

2.69 The right to privacy is most directly engaged by the substantive obligations and powers of the regime established in the Financial Accountability Regime Bill 2023. The Financial Accountability Regime (Consequential Amendments) Bill 2023 also engages the right to privacy through provisions that facilitate the transition of the banking, insurance and superannuation sectors into the regime.

2.70 In particular, the Financial Accountability Regime (Consequential Amendments) Bill 2023 contains provisions that:

•

mean a notification obligation or an application for registration under the Banking Act 1959 (which established the Banking Executive Accountability Regime) is continued under the Financial Accountability Regime (Schedule 2 to the Financial Accountability Regime (Consequential Amendments) Bill 2023, part 2, in particular items 6, 8 and 14);

•

allow an early application for registration of an accountable person under the Financial Accountability Regime, so the person may begin their responsibilities on the start date for the relevant industry (Schedule 2, items 8 and 22); and

•

enable information collected under the Banking Executive Accountability Regime to be used to investigate breaches under the Financial Accountability Regime (Schedule 2 to the Financial Accountability Regime (Consequential Amendments) Bill 2023, items 29, 30, 31, and 33).

2.71 These provisions are designed to facilitate a smooth transition into the Financial Accountability Regime, and are important for integrity of the regime.

2.72 The information required through the registration and notification processes is essential for the Regulator to administer and enforce the Financial Accountability Regime. The substantive provisions are designed to ensure any impact on privacy is reasonable and proportionate to the aim of greater transparency and accountability in the regulated sectors. For instance, only information relevant to a person's role and responsibilities under the regime is collected, not other personal information (Section 39 of the Financial Accountability Regime Bill 2023). Consistent with this, the Financial Accountability Regime (Consequential Amendments) Bill 2023 requires the Regulator's annual reports on investigations not include information about a particular person (Schedule 1 to the Financial Accountability Regime (Consequential Amendments) Bill 2023, items 14 and 19).

2.73 Use of information collected in regulating or investigating compliance with the Banking Executive Accountability Regime is necessary to ensure an effective regulatory transition to the new Regime. In relation to regulatory uses of information collected under the Banking Executive Accountability Regime, this can occur regardless of whether the relevant breach occurred before or after the commencement of the Financial Accountability Regime. However, restrictions on sharing information between the Regulators in relation to such information brought in as part of the Financial Accountability Regime will apply. This means the information must be used for the purpose of fulfilling the Regulator's functions or powers under the regime, not for other purposes (see section 39 of the Financial Accountability Regime Bill 2023). This approach ensures any impact on privacy is not arbitrary and is proportionate to the broader goals of ensuring accountability and integrity of the regime.

2.74 The provisions in the Financial Accountability Regime (Consequential Amendments) Bill 2023 relating to the collection, use, sharing or disclosure of information are therefore consistent with the right to protection against arbitrary or unlawful interference with privacy under Article 17 of the ICCPR, as they are explicitly specified for in appropriate circumstances.

Right to freedom of expression under Article 19(2) of the ICCPR

2.75 Article 19(2) of the ICCPR provides that everyone has the right to freedom of expression, including the freedom to impart information and ideas of all kinds, regardless of frontiers, either orally, in writing or in print, in the form of art, or through any other media.

2.76 Article 19(3) provides that this right may be limited on the grounds including respect for the rights of others, or the protection of national security or public order and that any limitations must be prescribed by legislation and be reasonable, necessary and proportionate to achieve the desired purpose.

2.77 The Financial Accountability Regime (Consequential Amendments) Bill 2023 engages the right to freedom of opinion and expression under Article 19(2) because it transitions secrecy arrangements under the Banking Executive Accountability Regime in the Banking Act 1959 through to the Financial Accountability Regime (Schedule 2 to the Financial Accountability Regime (Consequential Amendments) Bill 2023, items 15, 29 and 31).

2.78 The Financial Accountability Regime Bill 2023, through its secrecy provisions, allows the Regulator to indicate in writing that directions it has provided to an accountable entity must not be publicly disclosed (see section 67). Specifically, the Financial Accountability Regime Bill 2023 allows the Regulator to make a secrecy determination if it considers it necessary to protect consumers and/or to promote the stability of the financial system in Australia. Except for limited circumstances, a breach of these secrecy provisions may result in imprisonment of up to two years.

2.79 These provisions engage the right to freedom of opinion and expression under Article 19(2) of the ICCPR because they prevent entities or persons working in the entity from disclosing details of a direction given to them. Consequentially, they also restrict public access to information relating to such directions.

2.80 As such, provisions of the Financial Accountability Regime (Consequential Amendments) Bill 2023 which support the transition of substantive provisions and active secrecy arrangements under the Banking Act 1959 (which established the Banking Executive Accountability Regime) to the Financial Accountability Regime engage the right to freedom of expression in the same way.

2.81 The secrecy provisions of the regimes are intended to prevent significant losses to consumers as well as fiscal instability that may arise as a result of unauthorised disclosure of information in the directions. Furthermore, these provisions can also prevent public detriment by averting contagions within the financial system.

2.82 The secrecy provisions have been balanced with a range of exceptions which allow for the disclosure of information in appropriate circumstances. For example, disclosure is allowed where information is subject to a direction that is already public or otherwise authorised by the Regulator. Disclosure to a legal representative is also allowed for the purpose of obtaining legal advice. The exceptions ensure that the secrecy provisions are proportionate as they do not unduly or unfairly limit disclosure.

2.83 As such, the provisions of the Financial Accountability Regime (Consequential Amendments) Bill 2023 which provide transitional arrangements for secrecy arrangements under other legislation are consistent with the right to freedom of expression under Article 19(2) of the ICCPR.

Protected information - rights under Articles 14 and 19 of the ICCPR

2.84 The Financial Accountability Regime (Consequential Amendments) Bill 2023 contains provisions relating to 'protected information' which engage the right to a fair trial in Article 14 of the ICCPR as well as the right to freedom of expression in Article 19 of the ICCPR.

2.85 Article 14 establishes rights to due judicial process and procedural fairness, which Australia applies in both civil and criminal proceedings. This right is engaged by provisions which establish criminal offences and evidential burdens on defendants in relation to offences for disclosure of 'protected information.

2.86 As noted above, Article 19 provides that everyone has the right to freedom of expression, including the freedom to seek, receive and impart information and ideas in any form. Article 19(3) provides that this right may be limited on the grounds including respect for the rights of others, or the protection of national security or public order and that any limitations must be prescribed by legislation and be reasonable, necessary and proportionate to achieve the desired purpose. This right is engaged by provisions which limit disclosure of and access to information which is protected information under the Financial Accountability Regime.

2.87 Most information obtained or disclosed under the Financial Accountability Regime will be 'protected information' within the meaning of each Regulator's enabling legislation. This means that the information will be subject to APRA's and ASIC's standard secrecy and confidentiality obligations. Where the Regulators' legislation is inconsistent, Schedules 1 and 2 to the Financial Accountability Regime (Consequential Amendments) Bill 2023 makes consequential amendments to align the approach in relation to the Financial Accountability Regime. This approach protects confidential information of financial services businesses, and encourages entities to be open and honest in their dealings with APRA and ASIC.

2.88 The Financial Accountability Regime (Consequential Amendments) Bill 2023 achieves this by amending relevant definitions of protected information, protected document, and prudential regulation framework law to include information obtained or disclosed under the Financial Accountability Regime (Schedule 1 to the Financial Accountability Regime (Consequential Amendments) Bill 2023, items 1 and 5 to 8).

2.89 The Financial Accountability Regime (Consequential Amendments) Bill 2023 also introduces a prohibition into the Regulators' legislation to protect against the disclosure of information that is protected information because of the Financial Accountability Regime (Schedule 1 to the Financial Accountability Regime (Consequential Amendments) Bill 2023, items 9, 16 and 17). This has the effect of extending the existing offence in section 56 of the Australian Prudential Regulation Authority Act 1998 to cover the regime, and introducing a new, equivalent offence into section 127 of the Australian Securities and Investments Commission Act 2001 to support a consistent regulatory approach.

2.90 These offences are necessary to protect the personal and sensitive financial information collected under the regime, and aim to deter inappropriate disclosure. It is appropriate to have a criminal offence given the sensitivity of the information covered by the prohibition on disclosure, which could compromise oversight of the Financial Accountability Regime or result in harm to regulated entities or persons if disclosed or used other than in accordance with the legislation.

2.91 Importantly, consistent with Article 14(1) of the ICCPR, an independent, impartial court will preside over any criminal proceedings, which will be subject to established Australian court processes and procedures that protect the right to a fair trial including requirements relating to procedural fairness, evidence and sentencing.

2.92 Exemptions to the secrecy provisions will allow for the appropriate sharing of information by APRA and ASIC (see Schedule 1 to the Financial Accountability Regime (Consequential Amendments) Bill 2023, items 10 and 17). A defendant bears an evidential burden in relation to sharing of information on the reliance of these exemptions. Shifting the evidential burden to the person who disclosed the information is justified and not unduly onerous as the information subject to the new provisions would be peculiarly within the knowledge and control of the defendant, and the defendant would have immediate knowledge of the purpose and circumstances of any disclosure. In particular, the defendant could readily establish application of exemptions such as where disclosure was of information contained in the register of accountable persons to an accountable entity or the individual to whom the information relates, or of information about disqualification of an accountable person, or where disclosure was between APRA and ASIC in connection with carrying out their regulatory functions and powers under the regime. This approach also provides consistency with the existing approach to the evidential burden for similar existing exemptions in section 59 of the Australian Prudential Regulation Authority Act 1998 and section 127 of the Australian Securities and Investments Commission Act 2001.

2.93 Information obtained or disclosed under the Financial Accountability Regime that is protected information (as defined by the enabling legislation for APRA and ASIC) will be exempt from the Freedom of Information Act 1982. That Act establishes a scheme of open access to government documents, subject to certain exemptions. Such an exemption already exists for protected information held by APRA. The Financial Accountability Regime (Consequential Amendments) Bill 2023 extends the exemption to also cover information obtained or disclosed under the Financial Accountability Regime that is held by ASIC (Schedule 1 to the Financial Accountability Regime (Consequential Amendments) Bill 2023, items 1, 5 to 9, and 17).

2.94 This is necessary to avoid a situation where some but not all information collected under the regime is exempt from the freedom of information scheme, which could create confusion and inconsistent protection of personal and potentially sensitive financial information from disclosure. It also supports efficient regulation of the as APRA and ASIC are joint regulators of the regime and will have equivalent powers and procedures. For these reasons, the exemption from the Freedom of Information Act 1892 is a reasonable, necessary and proportionate limitation on the right to freedom of expression under the ICCPR.

2.95 As such, the creation of a new offence and imposition of an evidential burden on a defendant are also consistent with the due process rights in Article 14 of the ICCPR. Any limitations on the right to freedom of expression under Article 19 of the ICCPR are reasonable and proportionate to the aim of the legislation to establish a strong accountability regime and encourage cooperative and accountable behaviour.

Conclusion

2.96 In summary:

•

the notification obligations and regulatory powers to gather and use information are consistent with the right to protection from arbitrary or unlawful interference with privacy under Article 17 of the ICCPR.

•

the transitional arrangements relating to secrecy are consistent with the right to freedom of expression under Article 19 of the ICCPR;

•

the creation of a new offence and imposition of evidential burdens on a defendant are also consistent with the due process rights in Article 14 of the ICCPR.

•

The 'protected information' provisions are a reasonable and proportionate limitation on the right to freedom of expression, consistent with Article 19(3) of the ICCPR.

2.97 As such, the Financial Accountability Regime (Consequential Amendments) Bill 2023 is compatible with human rights because to the extent that it may limit human rights or freedoms, those limitations are reasonable, necessary and proportionate.