Financial Accountability Regime (FAR): Are you prepared?

The Financial Accountability Regime (FAR) is set to apply to insurance companies and superannuation trustees from 15 March 2025.  As this date approaches, it is crucial for affected entities to proactively prepare for the new regulatory landscape.

Rather than focussing on the specific obligations under FAR, this article focuses on key considerations that insurers and superannuation entities should address now to mitigate risks and ensure compliance. Insurers and superannuation entities should focus on specific actionable steps, rather than getting lost in the details of the legal framework. 

Below is an overview of penalties under the FAR and 5 proactive steps affected entities can take to prepare for the transition.

Overview of Penalties Under FAR

Non-compliance with FAR can result in significant penalties for both entities and individuals:

• For Accountable Entities (insurance companies and superannuation entities):
  • The maximum civil penalty is the greater of:
    • 50,000 penalty units (currently $15.65 million);
    • Three times the benefit derived or detriment avoided; or
    • 10% of annual turnover, capped at 2.5 million penalty units (currently $782.5 million).
• For Accountable Persons (e.g., senior executives, directors):
  • The maximum civil penalty is 5,000 penalty units (currently $1.565 million).

Certain breaches may also lead to criminal charges, including custodial sentences, particularly for non-compliance with investigations or directives from regulators. 

1. Review Existing Deeds of Access, Insurance, and Indemnity

Entities should carefully review their existing Deeds of Access, Insurance, and Indemnity to confirm whether liabilities arising under FAR are adequately captured. These deeds typically provide indemnity to directors and officers for liabilities incurred in their roles, but FAR introduces new accountability obligations that may not be captured under existing arrangements.

Questions to consider include:

• Do the deeds cover regulatory penalties or compliance breaches under FAR?
• Is there a need to update indemnification provisions to include FAR-specific liabilities?
• Are reporting and notification obligations under FAR reflected in the deeds?
• Does the entity have a deed in place for all Accountable Persons?
• Do the entity’s insurance arrangements comply with FAR indemnity constraints? 

2. Consider Directors and Officers (D&O) Insurance Policies

D&O insurance policies should be scrutinised to determine whether they provide sufficient coverage for FAR-related exposures. As FAR introduces personal accountability requirements for senior executives, ensuring that insurance policies cover the potential risks associated with non-compliance or enforcement actions is crucial. 

Entities should note that FAR imposes constraints (see s97) that prohibit related entities from indemnifying or paying insurance premiums in respect of the accountable entity. Other areas to consider include:

• Does the current policy explicitly include coverage for FAR-related investigations and penalties?
• Are there any exclusions that may impact coverage for regulatory breaches?
• Is the level of coverage adequate given the increased personal accountability requirements under FAR?
• D&O policy is unlikely to cover criminal sanctions or civil penalties relating to intentional wrongdoing.

3. Internal Accountability Frameworks

Organisations should assess their internal accountability frameworks to ensure they align with FAR's requirements. This includes:

• Mapping out key accountable persons having regard to the prescribed responsibilities in the FAR. 
• Reviewing governance structures to ensure clear accountability lines.
• Implementing appropriate reporting mechanisms to facilitate compliance.
• Reviewing the framework to support the accountable persons to appropriately discharge responsibilities under FAR. 

4. Training and Awareness 

Senior executives and board members should be provided with training to understand their obligations and liabilities under FAR. This includes:

• Meeting accountability obligations and ensuring senior executives act with honesty, integrity, due skill, care and diligence. 
• Mitigating an entity’s potential exposure under FAR by ensuring senior executives understand their risks.
• Ensuring all staff engaged in governance, risk and compliance arrangements are aware of FAR policies and obligations, including their reporting obligations. 

A proactive approach to education and awareness can help prevent potential compliance issues and foster a culture of accountability.

5. Engage with Legal and Compliance Teams

Given the complexity of the FAR regime, it is advisable to engage with legal and compliance teams early to conduct a comprehensive gap analysis. These teams can provide valuable insights into:

• Identifying potential areas of non-compliance.
• Drafting necessary amendments to existing documents and reviewing existing frameworks.
• Ensuring all regulatory reporting obligations are understood and met.
• Developing and delivering training programs to ensure staff understand their responsibilities and reporting obligations. 

Conclusion

With the imminent application of these changes, insurers and superannuation entities should review and update their legal and insurance frameworks. By focusing on deeds of indemnity, D&O insurance policies, internal accountability structures, and compliance readiness, organisations can position themselves to navigate the new regime with confidence.

If you require assistance in assessing your readiness for FAR, please contact our team for expert guidance tailored to your specific needs.