Financial Accountability Regime: who is an 'accountable person'?

What FAR is

The Financial Accountability Regime Act 2023 establishes a framework for personal accountability of senior executives within certain financial institutions. This legislation makes named senior executives personally accountable for the conduct of APRA-regulated entities. CPS 230 readiness scorer

The Regime commenced on 15 March 2024 for Authorised Deposit-taking Institutions (ADIs). Its application extends to other regulated entities in the future.

Specifically, the Regime will apply to insurers (including general, life, and private health insurers) and Registered Superannuation Entity licensees (super fund trustees) from 15 March 2026.

Who is an accountable person

An accountable person is a senior executive who holds actual or effective senior executive responsibility for management or control of a significant or substantial part or aspect of the operations of the accountable entity or its corporate group. This responsibility can relate to various areas of the entity’s business.

Typically, the CEO and their direct reports are recognised as accountable persons. Other roles commonly designated as accountable persons include heads of significant business units, and those responsible for key control functions such as risk, compliance, and internal audit. Certain other prescribed roles also fall under this definition.

To clearly define responsibilities, each accountable person is linked to a defined set of accountabilities documented in an accountability statement. The entity maintains an accountability map to provide a comprehensive overview of all accountable persons and their associated accountabilities.

What accountable persons must do

Accountable persons have specific obligations under the Financial Accountability Regime. They must act with honesty, integrity, due skill, care and diligence. This includes fulfilling director duties self-check where applicable.

Accountable persons are required to engage with the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) in a manner that is open, constructive and cooperative. They must also take reasonable steps to prevent issues that could negatively impact the entity’s prudential standing or reputation.

Furthermore, accountable persons are obligated to take reasonable steps to ensure the parts of the business for which they are responsible comply with prudential standards and key financial-services laws.

Penalties and the deferred-remuneration rule

Accountable persons face significant financial consequences for non-compliance. Civil penalties of up to approximately $1.65M may apply per individual contravention of the Financial Accountability Regime. Furthermore, making false statements relating to the Regime can result in criminal liability.

The deferred-remuneration rule is a key component of the Regime, designed to align the interests of accountable persons with the long-term success of accountable entities. Accountable entities are required to defer at least 40% of an accountable person’s variable remuneration for a period of at least 4 years. This requirement increases to 60% over 4 years for the CEO of a significant entity.

Breaches of accountability obligations can trigger the reduction or clawback of deferred remuneration. This mechanism allows accountable entities to recover remuneration previously paid to accountable persons where their actions have negatively impacted the entity.