16 December 2021

FAR Far Away

Written by Diana Nicholson, Tim Bednall, Emma Newnham and Miriam Kleiner


On 28 October 2021, the Federal government introduced and read the Financial Accountability Regime Bill 2021 (FAR Bill) to the House of Representatives. On 25 November 2021 the FAR Bill was referred to the Senate Economics Legislation Committee for inquiry and report by 15 February 2022. On its current drafting, it’s unlikely the FAR Bill will apply until at least:

  • for the banking industry, late 2022; and
  • for the insurance and superannuation industries, late 2023.[1]

Once passed, the Financial Accountability Regime (FAR) implemented by the FAR Bill will extend and replace the current Banking Executive Accountability Regime (BEAR). 

We have published a series of alerts that provide an overview of FAR and how it will affect authorised deposit-taking institutions (ADIs), registered superannuation entity licensees (RSE licensees) and regulated insurers, as well as their directors and senior executives who will become “accountable persons”. You can read our previous alerts available here:

In this alert we consider some key outstanding issues which have not yet been addressed in the FAR Bill or explanatory memorandum.

Extension of FAR to “significant related entities” of RSE licensees

As noted in our earlier alerts, the FAR Bill provides that a body corporate will in most circumstances be a significant related entity of an RSE licensee if (i) it is a connected entity of the RSE licensee, and (ii) it has (or is likely to have) a material and substantial effect on the accountable entity or its business or activities.

In our submission, we argued that the proposed legislative changes would substantially increase the regulatory impact of FAR without achieving the regulatory benefits intended by the FAR Bill or the Financial Services Royal Commission. 

We particularly highlighted that the proposed definition of “connected entities” in the FAR Bill has unfortunate consequences for significant related entities of RSE licensees that are part of a broader corporate group. 

Under the current drafting, several entities may be captured by the “connected entities” definition, including parent companies and related party service providers (e.g. sister companies).  The proposed legislative provisions have the consequence of subsidiaries (and potentially multiple subsidiaries)[2] being responsible for ensuring their parent and sister companies comply with FAR – notwithstanding that they may have no ability to do so and that their parent entities are not regulated.

In addition, the senior executives of those service provider entities may be required to be registered as “accountable persons” and have their remuneration subject to regulation under FAR. This could affect, for example, the CFO, CRO or head of HR in a major corporate, not regulated by APRA and with no financial services business, but which has a corporate super scheme. It could also affect senior executives of financial services groups that have subsidiary RSE licensees, and who are not otherwise required to be registered under FAR. 

The proposed regime therefore creates a competitive disadvantage for RSE licensees who are part of a broader corporate group compared to stand‑alone RSE licensees.

We think this issue could be addressed by requiring one group executive with general management responsibility for the RSE licensee to be an accountable person, in addition to the directors and management of the RSE licensee itself to whom the FAR requirements would already apply. This would be directly analogous to the regime that applies to foreign banks, where the “senior officer outside Australia” is required by APRA to be an accountable person.

Civil penalties should not be imposed on individuals without fault

Following strong industry opposition, the FAR Bill does not contain “direct” civil penalties for breaches by accountable persons – with the BEAR liability regime of potential disqualification and/ or remuneration consequences applying. It does, however, impose “ancillary” civil penalties on individuals involved in a contravention by the accountable entity (e.g. where a person attempts, aids, abets, procures, induces, conspires with others to effect, or is in any way knowingly concerned in, a contravention of a civil penalty provision).

The argument against these “ancillary” civil penalties is similar to that which was made successfully in relation to the continuous disclosure regime earlier this year – that is, civil penalties should not be imposed without fault.

We think this issue can be addressed if civil penalties could only be imposed on individuals who have been involved in a contravention by the accountable entity (in the circumstances as described in the FAR Bill), and who have also acted dishonestly, intentionally or recklessly. We think this is the intention and at the very least should be confirmed in the EM.

Continued overlap and stepping stones risk with obligations on individuals to ensure compliance with financial services laws

The exposure draft legislation originally proposed a new “accountability obligation” which would require accountable persons to take “reasonable steps…to ensure that the accountable entity complies with” a long list of financial services laws, including FAR itself, the Banking Act, the Insurance Act, the Private Health Insurance (Prudential Supervision) Act and the Superannuation Industry (Supervision) Act, and other financial services laws including as specified under the Corporations Act.

In our submission to Treasury, we argued that the new obligation risked:

  1. creating an inconsistency with the financial services legislation with which it requires compliance;
  2. individuals being liable for the same underlying conduct under both FAR and other financial services legislation; and
  3. entrenching a stepping stones approach to directors’ and officers’ liability for a company’s breach of financial services laws, extending it to individuals who might not ordinarily be considered officers.

Pleasingly, Treasury responded to our submission (and those of many others) and amended section 21(1)(d) of the FAR Bill.  The obligation on accountable persons is now to take “reasonable steps in conducting those responsibilities to prevent matters from arising that would (or would be likely to) result in a material contravention by the accountable entity” of the financial services laws.  The explanatory memorandum notes that “occasional minor or technical contraventions” are not intended to be caught, but repeat occurrences could indicate a systemic issue of non-compliance which could amount to a material contravention.[3]  The explanatory memorandum also notes that an accountable person would only be required to take reasonable steps to ensure compliance by the accountable entity in relation to the financial sector laws relevant to their area of responsibility.[4]

This is a lower and more reasonable standard than the onerous obligation in the exposure draft.  However, the legislative overlap with existing accountability obligations of due skill, care and diligence, a prescribed responsibility focussed on compliance and stepping stones risk highlighted above continue to apply to the lower threshold test.

Where to from here?

As noted above, the Senate Economics Legislation Committee is due to report by 15 February 2022.

If you are interested in making a submission to the Committee, or would like to discuss how FAR will affect you, please contact Diana Nicholson or Tim Bednall (details adjacent) or your usual KWM contact.

If this topic is of interest, stay tuned for a three part podcast series early next year on understanding the FAR legislation’s details, implications and timing. Links will be available through the OnBoard app, KWM’s social media channels and via email, so please make sure you’re signed up to receive alerts!


[1] The regime in the FAR Bill will apply to the banking industry on the later of 1 July 2022 and six months after royal asset, and to the insurance and superannuation industries on the later of 1 July 2023 and 18 months after royal assent. The first senate sitting date after the Senate Economics Legislation Committee report due date is 29 March 2022.  

[2] The explanatory memorandum provides at paragraph 1.43 that, unlike other accountable entities, a related entity can be a significant related entity of more than one RSE licensee.

[3] At para 1.60.

[4] At para 1.61.

Key contacts

Share on LinkedIn Share on Facebook Share on Twitter
    You might also be interested in

    The increased use of Artificial Intelligence raises serious questions: Can – or should – we automate decision making?

    16 December 2021

    One of this year’s prominent corporate governance developments was the Federal Government’s proposed regulatory "crackdown" on proxy advisers.

    16 December 2021

    On 15 October 2021, the Hon. Ray Finkelstein AO QC as Commissioner and Chairperson of the Royal Commission into the Casino Operator and Licence, delivered the report (An inquiry into the suitability...

    16 December 2021

    The Commonwealth Government currently has a number of initiatives underway to deter and penalise phoenix activity in order to protect those who are negatively affected by such fraudulent behaviour...

    16 December 2021

    Legal services for your business

    This site uses cookies to enhance your experience and to help us improve the site. Please see our Privacy Policy for further information. If you continue without changing your settings, we will assume that you are happy to receive these cookies. You can change your cookie settings at any time.

    For more information on which cookies we use then please refer to our Cookie Policy.