Governance and senior management accountability

There was a continued focus on governance and accountability for regulated entities in 2022, replicating a trend in recent years. This was driven by increased regulatory supervision and enforcement activity, in addition to entities pro-actively evaluating how decisions are made within their organisations. This self-reflective approach to governance is consistent with recent public statements from financial services regulators which have made clear that a focus for all organisations should be on establishing information flows and getting 'people and practices right'.¹

This focus on governance and accountability is unsurprising. We have observed an expansion of formal accountability regimes across the globe in recent years,² and in Australia there has been an increase in expectations for embedding and enforcing senior-level accountability, which was formalised in the banking sector by the commencement of the APRA's Banking Executive Accountability Regime (the BEAR) for Authorised Deposit-taking Institutions (ADIs) in 2018.³

Key developments in 2022 included:

• The Financial Accountability Regime (FAR) bill featured front and centre of the regulatory agenda. In particular, the last minute inclusion late in the year to introduce civil penalties for senior managers who fail to comply with their obligations was the subject of significant consternation across the industry. While the bill has not yet passed, insurers and superannuation entities have commenced work to consider the arrangements to be implemented to comply with the FAR, while ADI's evaluated the adequacy of their existing structures under the BEAR.
• ASIC continued to pursue individuals for egregious breaches of directors' and officers' duties under the Corporations Act, including in relation to failures in the management of non-financial risk.
• AUSTRAC continued to position itself as a leading enforcement regulator. It accepted an enforceable undertaking from two banking entities in relation to AML/CTF compliance, which included an undertaking to improve their AML/CTF governance and assurance controls.⁴ Alleged failures in board and senior management oversight, and governance and assurance more generally, feature heavily in each of the civil penalty proceedings commenced by AUSTRAC against the casinos. AUSTRAC increasingly asks reporting entities about what consequence management has been imposed on boards and senior management where failures arise.
• APRA undertook risk culture surveys across 61 regulated entities in all regulated sectors for the purposes of obtaining data and insights on perceived risk behaviours and the effectiveness of the risk management architecture they work within.⁵ A common theme across all sectors was that senior executives were generally more optimistic about the adequacy of a firm's risk governance and compliance arrangements, as opposed to their colleagues in Legal, Risk and Compliance. APRA characterised this as a reminder for firms to ensure the 'voice of risk' is heard and acted upon.⁶
• The ACCC continued to pursue individuals for contraventions of the Competition and Consumer Act, including in relation to cartel conduct and consumer law. In 2022, criminal cartel action was commenced against the chief executive of a waste company,⁷ while civil cartel proceedings were launched against the executive chairman of a mining equipment and technology services company,⁸ and the former managing director of an architecture firm.⁹ Several individuals pleaded guilty for their role in cartel offences. This includes four individuals involved in an exchange rate price fixing scheme, who were the first to be sentenced under criminal cartel laws.¹⁰
• Increasing market, consumer and shareholder expectation for board level engagement with culture and conduct issues, despite those issues largely falling outside the formal accountability regime set by the regulators. It is increasingly common for senior executives to be pressured to resign when cultural failings occur within the organisations they govern.