Financial Accountability Regime (FAR) – an imposition, or an opportunity?
The introduction of the Financial Accountability Regime (FAR) by the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) presents a choice to financial institutions when approaching the requirements – adopt FAR as an additional risk and compliance activity or embrace it as an opportunity to accelerate organisational performance. Our view is that implementing FAR can and should be value-creating, through adoption of robust organisation effectiveness practices.
Some background on FAR
For the uninitiated, FAR was introduced in September 2023, following recommendations from the Royal Commission into banking and financial services. FAR replaces and expands upon the Banking Executive Accountability Regime (BEAR).
FAR applies to authorised deposit-taking institutions (ADIs) and their authorised non-operating holding companies. From March 2025, FAR will also apply to insurers, their licensed non-operating holding companies, and registrable superannuation entity licenses.
As outlined by APRA, FAR’s purpose is to improve accountability standards in entities regulated by APRA, improve operating culture and reinforce the standards of conduct expected by the Australian community. The FAR also imposes consequences in the event of a material failure to meet those expectations.
ADIs responses to FAR
In their initial response to BEAR and now FAR, ADI’s have been focused on one of the key requirements of the regime, namely the submission of Accountability Statements for their ‘Accountable Persons’. In the initial (and significant) effort to comply with the regime, ADI’s had to navigate relatively vague guidance, an absence of standards, and significant executive engagement. Further ongoing effort is being invested by ADI’s in responding to FAR requirements related to ‘reasonable steps’ – activities such as leader training, cultural change campaigns, the introduction of Statements of Responsibility, development of action plans, consolidation of governance forums, reviews of policy ownership and the bolstering of effort around breach identification.
For an organisation that interprets FAR as simply a regulatory exercise, the combined effort and investment – to implement and maintain FAR – could be viewed as a cumbersome risk and compliance overhead. A high price to pay for a regulatory tick.
Our view is that organisations should view FAR as an opportunity to drive sustained organisational performance and cultural change.
An organisational effectiveness approach to FAR
At a simplistic level, our advice to clients adopting FAR requirements is no different to the advice we provide to any of our clients pursuing an organisational effectiveness agenda. Be clear on how your organisation delivers value to stakeholders, how you measure this value and who’s responsible for these value creating activities.
Accountability mapping and accountability statements
Consider preparing your Accountability Statements like completing a jigsaw puzzle. Without seeing the picture on the box, it’s hard to figure out whether, how and where the individual pieces will all fit together. Rather than start with individual pieces, it’s common sense that you would agree the picture first, then split it up into the constituent puzzle pieces.
An organisational effectiveness approach would establish the organisational framework first (the picture), then adopt a rigorous process to delineate organisational accountabilities across Accountable Persons (the puzzle pieces). Levant’s Operating Model methodology is a robust approach to identifying the value drivers within your business, then helping to facilitate a clear process to align executives and functions around that framework.
Reasonable steps
The Accountability Mapping and Accountability Statements form a foundational layer for your organisational effectiveness – by clarifying responsibilities and measures of performance to give functional areas a clear purpose. What will drive and sustain organisational performance is what you build on that foundation.
No organisational unit or division operates in isolation or can deliver its’ accountabilities on their own. Defining ways of working – the interactions and governance that articulate how interdependencies across the organisation will be managed – is a critical enabling component of our approach.
Having defined performance standards for value-generating functions of your business, you enable your organisation to monitor performance, identify gaps, and then facilitate prioritisation and planning to close those performance gaps.
Where to from here?
If you’re an ADI that has already invested heavily in meeting your BEAR/FAR obligations, regardless of the approach you adopted, we believe there is significant value in using an Organisational Effectiveness approach to validate and continuously improve your FAR implementation. Think of it as helping to sustain the changes you’ve made and generate a positive return on your investment.
For other financial services organisations thinking about, or preparing to adopt, the FAR requirements, the Organisational Effectiveness approach is a unique and timely opportunity to get on the front foot. Our initial advice would be to agree on the organisational framework – the ‘puzzle picture’ – before diving into drafting the accountability statements or other artefacts.
Want to discuss your organisation’s response to FAR, or learn more about our approach? Reach out to:
Fadi zeitoune, principal
Clare Morris, director