Consultation on the Financial Accountability Regime (FAR)

The AICD support efforts to strengthen governance practices across financial services. We recognise that the Banking Executive Accountability Regime (BEAR) has had positive effects since its introduction to banks, including clarified responsibilities and accountability.

However, we have strong concerns around the proposals to introduce a new civil penalty for individuals who breach their accountability obligations. While the AICD supports individual liability for misconduct in appropriate circumstances, any reform in this area must be clear, balanced and fair in its application. We are concerned that the Government’s proposals do not adequately consider how the new penalty interacts with the raft of existing laws and enforcement regimes that already apply to directors, and in particular its interaction with directors’ duties. As AICD’s recently-commissioned legal research shown, Australia's directors are already exposed to a unique civil penalty regime for directors' duties contraventions, and Australian courts may impose civil fines that rival criminal fines in other jurisdictions.

We have suggested that the Government (and where appropriate, APRA and ASIC) consider:

• Providing guidance and explanatory materials to clearly set out the expected standard of conduct for the individual accountability obligations;
• Providing clarity around how and when the civil penalty will be imposed so that it reflects Government’s stated intention of being a ‘graduated’ tool, and is proportionate to the relevant misconduct and the individual’s position in the entity; and 
• Clarifying how the civil penalty provisions under FAR interact with existing laws and enforcement regimes, and in particular its interaction with directors’ duties.

Without this clarity, there is a real risk that the FAR will be inconsistent and confusing – ultimately undermining its objective of increasing accountability and improving governance in financial services.