Superannuation funds should welcome the introduction of the new Financial Accountability Regime (FAR) in March as a chance to embed a culture of accountability through their organisations, according to Deloitte partner in charge of supporting financial services with accountability and governance, Rosalyn Teskey.
“They shouldn’t look upon this as a compliance exercise, but a cultural exercise,” Teskey says in an interview with Investment Magazine.
“If this is to work well, you need to embed a culture of accountability throughout the whole organisation, not just the executive level.”
“[The introduction of FAR] should improve governance and have a flow-on effect by improving decision making and making the organisation more effective.”
Teskey says the superannuation sector was well prepared for the start of the regime which applied to banks from March 2024.
An earlier version, known as the Bank Executive Accountability Regime (BEAR) applied to banks from 2018.
“Super funds have had the benefit of knowing this was coming in,” she says.
“The legislation was delayed significantly.
“Superannuation is well prepared, on average.
“They knew it was coming, and they have been able to embed the ideas and concepts of accountability already into the way they operate.”
Teskey says the new regime, which requires super funds to identify key executives or “accountable persons” in their organisations and to have a clear map of their responsibilities, should already be part of well-run funds.
“It is really about good governance,” she says.
She says funds should “think of FAR as the scaffolding which sits over the top of everything they do and how they run their business”.
“It is about preventing, detecting and fixing issues in the event of something going wrong,” she says.
“And in the event of something going wrong, they can be held accountable.
“In theory, nothing should change.”
Accountable persons
What has changed, Teskey says, is that from 15 March, super funds will have to identify “accountable persons,” as defined by the legislation, and report them to the joint ASIC/APRA portal.
“It [FAR] still has an impact on them in terms of being a regulatory change which requires resources and expert knowledge,” she says.
She says most super funds had taken the view that the extension of the FAR regime to their sector, was “an opportunity to make sure that they are at the standards they need to be, from a good governance and risk management (perspective), which is based on regulatory expectations and member expectations.”
“They have used FAR as an opportunity to uplift,” she says.
The new regime requires all super funds to identify and report “accountable persons”, and funds with assets of more than $30 billion are required to provide more details including an accountability statement and a map of key executives and their responsibilities.
The regime also applies to super fund directors.
Teskey, who has also advised clients in the banking sector on how to comply with FAR, says the new regime may see some organisations having to rethink the way information gets passed up the executive ranks.
With the requirement for specific executives to be identified as being responsible for specific functions, the executives themselves may want to ensure that information about problems is passed up the system to them faster.
Climate of fear
Teskey says organisations needed to communicate to their staff the benefits of the new reporting system and not have a “climate of fear” about decision-making.
She says they also needed to review their internal reporting systems.
“They need to look at the management of information and reporting people receive to make sure they are receiving the right information at the right time,” she says.
The FAR legislation also brings in deferred remuneration obligations for “accountable persons” requiring that 40 per cent of their variable remuneration should be deferred for at least four years.
It applies in cases where 40 per cent of the variable remuneration is more than $50,000.
Teskey says the new FAR remuneration requirements should not be a problem for the larger super funds, with assets of more than $30 billion, which have already been required to disclose remuneration of senior executives and have deferred remuneration under the APRA remuneration standard CPS511, which came into force in 2023.
The CPS511 requirements for big funds were stricter than the new FAR requirements, she says.
But the FAR deferred-remuneration requirements apply to all accountable entities, regardless of size, potentially taking in the 70 funds below $30 billion in assets, if their executives have variable remuneration of more than $125,000 a year.
Teskey says she does not think the specific obligations in the new regime, including the need for people to act honestly, with integrity, care and diligence, will deter people from wanting to move into the super sector.
“Most people don’t go into a job thinking that they are not going to do it properly,” she says.
“The brand proposition of superannuation will still be enough to attract and retain talent.”
