FAR allows regulators to choose between regimes
The Financial Services Council (FSC) has pointed to complexity and double jeopardy with the Financial Accountability Regime (FAR) as overlap will allow regulators to choose between different regimes.
In its submission to the FAR draft bill, the FSC said the interaction of FAR with general law and statutory rules was not always clear and misconduct could result in liability under both FAR and existing regimes, particularly the design and distribution obligations (DDO), breach reporting, and other civil penalty provisions.
“There are instances where the FAR regime overlaps existing regulatory regimes. This overlap would allow a regulator to arbitrage the different regimes and choose between the different regimes,” the submission said.
“The FSC recommends that the legislation should be aligned as much as possible, such that the breach reporting regime under FAR is not inconsistent with other legislation and that further guidance is provided on how these obligations will interact and the extent to which the rules will clarify any longer or shorter periods.”
In an example, the FSC said under the Superannuation Industry (Supervision) Act 1993 (SIS Act), the regulators had powers to conduct investigations, conduct examinations, request information, issue directions, request enforceable undertakings, and issue injunctions.
“However, there are misalignments between the legislation. For example, the Australian Prudential Regulation Authority’s (APRA’s) directions power under the SIS Act permits APRA to give a direction where APRA ‘has a reason to believe’ the RSE licensee has contravened a provision of the SIS Act,” it said.
“Under FAR, APRA may give a direction where it ‘has reasonable grounds to believe’. The FAR wording imposes an objective test (which is arguably stricter) whereas the SIS Act test is subjective. The FSC suggests that other regimes be amended to ensure alignment with the FAR regime.
“Otherwise, a regulator could arbitrage the different regimes and choose between the different regimes.”
The FSC noted that significant breaches of the Corporations Act needed to be report to the Australian Securities and Investments Commission, and to APRA under individual pieces of legislation depending on the entity. The FAR required all breaches of the obligations to be reported. The association recommended the legislation should be aligned as much as possible with amendments such as only for significant breaches needing to be reported under the FAR.
It also recommended the issue of further guidance on how these obligations would interact and the extent to which the rules would clarify any longer or shorter periods.
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