The word “Executive” may have been removed from the FAR acronym, but executives remain front and centre in Treasury’s proposal to extend the BEAR to insurers and superannuation entities.
Treasury’s Proposal Paper1, released on 22 January 2020, sets out its plans to extend the operation of the existing Banking Executive Accountability Regime (BEAR) to other APRA regulated entities – that is to general, life and health insurers, Registrable Superannuation Entities (RSEs) and non-operating holding companies.
Treasury’s approach, which will operate under the acronym “FAR”, uses the “essential structure” of the BEAR and applies many of the same obligations as those currently in place under it. However, there are also some differences and the most important of those are focused on senior executives.
As with the BEAR, the FAR will define “Accountable Persons” in two groups. The first, using a “principles-based element”, will include senior executives who hold positions with a defined level of management or control within the organisation. There’s no change there. The second group, using a “prescriptive element”, will capture persons who carry out roles which fulfil certain prescribed responsibilities, such as risk management, compliance, human resources and internal audit. This is also consistent with the BEAR except that, for FAR, this list is going to be quite a bit longer.
Treasury has included an “indicative list” of these prescribed roles with its Proposal Paper. The list picks up a range of functions which, today, may not fall to the responsibility of a single person. For insurers, for instance, it includes those responsible for setting staff and partner incentives, claims management, internal and external dispute resolution, breach reporting and customer remediation – just to name a few. While these functions are all undeniably important, entities may find it challenging to identify a single person with accountability for delivery, at least without giving rise to duplication and overlap. If implemented, therefore, further thought may need to be given to internal business structures and, inevitably, there will be more executives needing to be registered as Accountable Persons.
Included in Treasury’s indicative list is a role with responsibility for “end-to-end management” of the entity’s products. That role, which is the product of a Financial Services Royal Commission recommendation, is described as including responsibility for “all steps in the design, delivery, maintenance and any necessary remediation of customers in respect of the product or product group”. Its inclusion follows APRA’s consultation on this topic in June 2019, which received submissions pointing out the practical challenges that would arise in connection with such a responsibility. It would require insurers, for instance, to fashion roles with appropriate responsibility for the full lifecycle of their products, from design, through to distribution, servicing, claims management and compliance outcomes. While Treasury indicates in its paper that the outcomes of APRA’s consultation are yet to be finalised (it says that those outcomes will be “subsumed” into the FAR), at this stage the end-to-end product accountability remains very much a live proposition.
The expanded group of Accountable Persons under the FAR will have the same obligations as currently exist under the BEAR, except in one very important respect. In addition to being required to take reasonable steps to prevent matters from arising that would adversely affect the entity’s prudential standing or reputation, as is currently the case under the BEAR, Accountable Persons will also be required to take reasonable steps “to ensure that the entity complies with its licensing obligations”. Those “obligations” would include compliance with both the relevant prudential legislation and with the entity’s obligations under the Corporations Act and other “financial services laws”.
While this extension was expected at a conceptual level, the change will pack a punch. An executive with Accountable Person responsibility for activity which results in a breach of these laws, will themselves be in breach of their accountability obligations if they cannot show that they took reasonable steps to prevent that outcome. Whether this is the right approach (and wording – taking reasonable steps “to ensure” compliance poses a particularly high standard) will no doubt see some debate. In any case, though, close regard will have to be given by Accountable Persons to the steps needed to achieve compliance with relevant laws in their area of responsibility.
To complement these new obligations, Treasury has proposed introducing civil penalties for the breach by Accountable Persons of their obligations under the FAR. These will complement the power to disqualify an Accountable Person (now to be given to both APRA and ASIC), which already exists under the BEAR. Consistent with the BEAR, the FAR will prohibit entities from indemnifying or obtaining insurance for their Accountable Persons with respect to these penalties. However, Accountable Persons will remain free to obtain such insurance themselves.
In relation to the deferral of remuneration for Accountable Persons, Treasury has proposed a simpler approach.
The amount of remuneration to be deferred will be calculated as a proportion of variable remuneration alone; not also by reference to total remuneration, as is currently the case under the BEAR. This means that an Accountable Person who does not receive variable remuneration will not be subject to a deferral at all.
The proportion of variable remuneration to be deferred will be set at 40% and the period of that deferral will be a minimum of four years. The FAR will retain the current exemption for the deferral of amounts under $50,000, so the end result will be that the deferred remuneration arrangements only apply to Accountable Persons who become entitled to receive variable remuneration of $125,000 or more in a financial year.
This approach will apply to all FAR entities and Accountable Person positions. No longer will it vary based on the size of the entity and the seniority of the Accountable Person (for instance, whether they are also the CEO), as is currently the case under the BEAR.
While this simplified approach may be welcomed, it does not seem to be a signal as to the approach that APRA will take to the new remuneration requirements it proposed in July 20192. Treasury states that the FAR “will not limit a regulator’s ability to apply additional requirements on remuneration.” On that topic, APRA Chairman Wayne Byers indicated in November 20193, for instance, that APRA’s proposal to apply a cap on variable remuneration based on financial metrics would be retained, though possibly with some flexibility applied to it. If APRA proceeds on that basis, such a cap and APRA’s other remuneration requirements will apply in addition to the FAR proposals. APRA originally stated that it would publish its response to submissions on the remuneration requirements in late 2019 or early 2020, so those are likely to be released shortly.
Treasury is also proposing to replace the small, medium and large entity classification used in the BEAR with a split between “core compliance entities” and “enhanced compliance entities”.
The difference will be important with respect to accountability maps and statements. Only Enhanced Compliance Entities will be required to submit accountability maps and statements to regulators and to notify them of changes made to those documents. Core Compliance Entities will not be required to meet these requirements, but will remain subject to all other FAR obligations, including identifying and registering Accountable Persons. The principal effect of this qualification is therefore likely to be that Enhanced Compliance Entities will face a higher level of regulatory oversight than Core Compliance Entities, rather than there being any material difference in the underlying regulatory requirements.
As to the method for determining which category an entity falls into, Treasury has proposed that the entity’s total assets be the principal measure. For general insurers, for instance, it is proposed that entities with more than $2B in total assets would be Enhanced Compliance Entities (based on recent APRA statistics, there are nine direct insurers and two reinsurers currently in this group). The same threshold would apply for health insurers, while life insurers would have a higher threshold of $4B. Note, though, that Treasury plans to also give ASIC and APRA the power to reclassify entities where their governance and accountability justify it, so there may be some flexibility in its application.
Given that the BEAR has both a conduct and prudential purpose, the Royal Commission recommended that APRA and ASIC jointly administer the new provisions. For the FAR, ASIC will be given responsibility for those parts that concern consumer protection and market conduct. APRA will take responsibility for the prudential aspects. At this stage, the mechanics of how that will work in practice is not clear. Treasury’s paper refers to the regulators exercising certain of their powers jointly where they affect entities which fall under both of their regulation (which will be the case more often than not). Certain documents and notifications will also need to be made to both regulators or shared between them. Further detail of this will no doubt follow.
The Royal Commission recommended that “provisions modelled on BEAR” be applied to all APRA-regulated financial institutions, in a sequential manner; first to the largest RSE licensees, then to the balance of those licensees, then to the largest insurers and finally to the balance of insurer licensees. In support of that approach, Commissioner Hayne stated “These changes cannot and should not be made at once. They must be made sequentially, and they will take time.”
There was no reference to that sequential approach in Treasury’s Implementation Roadmap, released in August 2019 and, likewise, Treasury’s Proposal Paper does not touch on it. The Roadmap includes a commitment to consult on and introduce legislation to extend BEAR to all APRA regulated entities by the end of 2020, so current indications seem to point to the FAR being rolled out in one go.
As to the Federal Government’s announcement in February 2019 that it would introduce a “similar regime for non-prudentially regulated financial firms focused on conduct”, for instance for Australian Financial Services Licence or Australian Credit Licence holders, Treasury states that that will only progress following the “initial implementation” of the FAR to all APRA regulated entities. At this stage, Treasury expects the ASIC regulated entities to be brought into the scope of the FAR through legislative instrument. The particular rules and responsibilities that will apply to ASIC regulated entities will be the subject of consultation at a later time.
Treasury has invited submissions, seeking “targeted feedback” on how the proposals will best be implemented; not on whether it should be implemented. It has offered just three weeks to make those submissions, which are due by Valentine’s Day – 14 February 2020.
A link to Treasury’s Proposal Paper can be found here:
For more information on the application of the BEAR to financial services, please contact insurance advisory principal, Mathew Kaley.
1 APRA Proposal Paper, Implementing Royal Commission Recommendations 3.9, 4.12, 6.6, 6.7 and 6.8 Financial Accountability Regime, 22 January 2020
2 Draft Prudential Standard CPS 511 Remuneration
3 Speech to Women in Banking and Finance Series Luncheon, 13 November 2019
In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract. Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed. Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph , Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)." Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter. Judgment At paragraph , Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship. Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph : "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the dictionary.com definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest. What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.
The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane  NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty. The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.
The recent decision in New Aim Pty Ltd v Leung  FCAFC 67 (New Aim) has provided some useful guidance in relation to briefing experts in litigation.