House debates

Thursday, 8 September 2022


Financial Accountability Regime Bill 2022; Second Reading

9:23 am

Photo of Stephen JonesStephen Jones (Whitlam, Australian Labor Party, Assistant Treasurer) Share this | Hansard source

I move:

That this bill be now read a second time.

Financial Accountability Regime Bill 2022

This Financial Accountability Regime Bill 2022 establishes the Financial Accountability Regime, or FAR, which replaces and extends the Banking Executive Accountability Regime following a number of recommendations from the Hayne royal commission.

The bill underscores the government's commitment to finalise the action necessary to fully address the recommendations of the Hayne banking royal commission and implement measures that compel the financial services industry to act in the public's interest.

Financial services executives make decisions that impact upon the lives of ordinary Australians, who have no choice other than to engage with the system that they operate. As a result, the community reasonably expects high standards of accountability and integrity of financial services directors and executives.

The banking royal commission revealed too many instances of misconduct across the sector and highlighted that industry practices often did not meet community expectations. These issues were frequently found to be systemic and part of corporate cultures that can only be improved and remedied from the top down.

The bill would establish the FAR, with the same design specifications proposed by legislation introduced by the former government in October 2021, which lapsed when parliament was dissolved. The requests made by the former Senate Standing Committee for the Scrutiny of Bills and the Senate Economics Legislation Committee were considered and have been addressed in the explanatory memorandum accompanying this bill.

The FAR would extend the existing responsibility and accountability framework to the insurance and superannuation sectors to ensure that heightened accountability obligations are in place across the wider financial industry.

The FAR ensures that, where these community expectations are not met, appropriate consequences will follow.

I'd now like to turn to the provisions of the bill.

The FAR imposes heightened accountability obligations for prudentially regulated financial institutions, meaning banks, insurers and superannuation entities. These institutions are referred to as accountable entities within the regime. The FAR regulates directors and the most senior and influential executives of accountable entities. These individuals are referred to as accountable persons within the regime.

The FAR imposes four core sets of obligations. First, accountable entities and accountable persons must conduct their business in a proper manner, which includes acting with honesty and integrity and with due skill, care and diligence; dealing with the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) in an open, constructive and cooperative way; preventing adverse impact on the accountable entities' prudential standing; and, finally, preventing breaches of certain specified financial services laws by their accountable entity.

Further, accountable entities must ensure clear identification of accountabilities for accountable persons in the organisation across key areas of operation and defer at least 40 per cent of the variable remuneration of accountable persons for a minimum of four years. Variable remuneration will be reduced where accountability obligations are breached. Ensuring there are financial consequences for accountable persons who do not meet their obligations will increase their focus on the long-term outcomes of their decisions.

The FAR will be supported by the imposition of notification obligations which require accountable entities to provide APRA and ASIC with certain information, such as information relating to the responsibilities of their accountable persons or breaches of certain obligations by accountable entities or their accountable persons.

Both APRA and ASIC will jointly administer the regime.

They will have the power to disqualify accountable persons, investigate suspected breaches of the regime and direct entities to take remedial action and to apply to the Federal Court to impose a civil penalty on accountable entities.

The FAR will apply to the banking industry six months after royal assent and to the insurance and superannuation industries 18 months after royal assent.

Through this bill, the government is finalising the necessary action to ensure that financial institutions are meeting the community's expectations and shifting their focus from profit at all costs to outcomes for all Australians.

Full details of the measures are contained in the explanatory memorandum.

Debate adjourned.


No comments