Financial Accountability Regime delayed as the Government reconsiders civil penalties for individuals – Knowledge

Financial Accountability Regime delayed as the Government reconsiders civil penalties for individuals – Knowledge

Ross McInnes, Katie Wood, Gabrielle Scott-Jones and Rhys Williams

25 Nov 2022

Time to read: 2 MIN

Proposed changes to the FAR Bill will almost certainly delay it.

The passage of the Financial Accountability Regime Bill 2022 (FAR Bill 2022) has been delayed after renewed debate on the inclusion of civil penalties for individuals (this last-minute twist means that the vote on the FAR Bill 2022 scheduled for Friday, 25 November 2022 will not take place. The matter will likely be debated in the Senate during the week commencing 28 November.

These penalties were part of Treasury’s initial proposal for the legislation but have not previously been included in the Bill. If enacted, Accountable Persons will face civil penalties for breaches of their accountability obligations. The maximum amount of civil penalty for individuals would be the greater of:

  1. 5,000 penalty units or $1,110,000 (based on the current penalty unit rate of $222); or
  2. If the court can determine the benefit derived and detriment avoided because of the contravention – that amount multiplied by 3.

The civil penalty provisions in the proposed legislation which already apply to entities are proposed to extend to apply to individuals. A breach of any of the obligations provided in Chapter 2 of the proposed legislation, including an Accountable Person’s accountability obligations, could trigger the imposition of a civil penalty.

Other consequences for non-compliance by Accountable Persons include:

  • the deferred remuneration obligations, which require Accountable Entities to reduce variable remuneration payments for accountable persons who fail to comply with their Accountability Obligations; and
  • disqualification orderswhich empower the Regulator to ban an individual from being an Accountable Person where they breach their Accountability Obligations.

The potential inclusion of civil penalties for individuals has lingered over the progression of this legislation:

April 2020

Treasury Proposal Paper on the establishment of FAR indicated civil penalties would be included for individuals who breached accountability obligations.

28 October 2021

FAR Bill 2021 introduced to the House of Representatives without civil penalties for individuals.

February 15, 2022

The Senate Economics Legislation Committee reported on the submissions it had received in respect of whether civil penalties for individuals should be included but ultimately did not recommend their inclusion.

February 24, 2022

Senator Nick McKim moved on behalf of the Australian Greens that civil penalties were added.

8 September 2022

Following the change in government, FAR Bill 2022 introduced to the House of Representatives without civil penalties for individuals.

21 October 2022

Senator Nick McKim moved on behalf of the Australian Greens that civil penalties were added.

24 October 2022

The Senate Economics Legislation Committee reported on the submissions it had received in respect of whether civil penalties for individuals should be included but ultimately did not recommend their inclusion: “The committee is of the view that accountability measures, such as the existence of banning powers and deferred remuneration arrangements, will complement existing penalties for entities and accountable persons contained in the Corporations Act. On balance, the committee believes that such measures will effectively guide behavior and are the final step of implementing the recommendations made by Commissioner Hayne.”

Key takeaway

If these proposed changes are incorporated into the FAR Bill 2022, it will need to be reintroduced to the House of Representatives for debate. It had been expected that the legislation would pass before the end of 2022 but if the Senate propose amendments to incorporate civil penalties for individuals that would start to look unlikely.

While the timing is uncertain, it remains expected that FAR will apply to the banking, insurance and superannuation industries in due course. Our team at Clayton Utz can assist you with steps to prepare for FAR compliance.

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Gabrielle Scott-Jones

Sydney

Senior Associate

Rhys Williams

Sydney

Senior Associate

25/11/2022 7:00:00 AM

Banking and Finance

Retail Banking

Insurance and Risk

Article

Ross McInnes

Ross McInnes

Katie Wood

Katie Wood

Gabrielle Scott-Jones

Gabrielle Scott-Jones

Financial Services Regulatory

Rhys Williams

Disclaimer

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.

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