Bills Digest 155 1996-97 Financial Laws Amendment Bill 1996


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WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History

Financial Laws Amendment Bill 1996

Date Introduced: 21 November 1996
House: House of Representatives
Portfolio: Treasury
Commencement: The Bill commences on the day on which it receives Royal Assent with the following exceptions:

  1. Items 15 to 20 in Schedule 3 are taken to have commenced immediately after the commencement of those sections concerned.
  2. Items 1, 12, 24 and 25 in Schedule 7 and Schedule 10 are taken to have commenced on 1 October 1994.

Purpose

The main purpose of the Bill is to improve the information sharing between the Reserve Bank of Australia (RBA) and the Insurance and Superannuation Commission (ISC). Other domestic and overseas financial regulators will also have improved information sharing arrangements with the RBA and ISC.The information sharing provisions of the legislation are aimed at improving the prudential supervision of banks, superannuation funds and insurers.

Background

Prudential supervision is currently conducted by several institutions - the RBA, the ISC, the Australian Securities Commission (ASC) and various other regulators under the umbrella of the Australian Financial Institutions Commission (AFIC).

The banking industry is a multi-billion dollar concern involving many players, markets, customers, products and derivatives.The RBA has a duty to protect bank depositors and as part of this duty oversees the prudential management of the banks.The RBA monitors ownership and control, minimum capital requirements, liquidity management, large credit exposures, impaired assets, associations with non-banking financial institutions, funds management and securitisation guidelines and external audit arrangements.

The size of the life insurance and superannuation industry is significant. The ISC advises that as at September 1996, there were 51 life insurance companies operating in Australia, managing around $130 billion in assets and representing 10.6 million individual and group policies. At December 1996 there were 147,000 separate superannuation funds in Australia managing $271 billion in assets on behalf of 6.7 million members.The ISC monitors life insurance offices and superannuation funds, requiring adequate risk management policies and other internal controls.Life insurance companies are required both by the ISC and their appointed actuaries to put aside reserve assets in a defined and conservative manner. The ISC also controls the disclosure and competency standards for the sale of products.Requirements include detailed and prescriptive guidelines for sales documents and sales practices and a code of practice.

The financial sector has undergone momentous change since the Campbell inquiry reported 1981.Changes since this time include new technology leading new financial products, delivery by a wider range of entities, the globalisation of capital markets, electronic banking, and the emergence of complex derivative trading and products involving risks transfers within the financial system.Accordingly, the Government saw it an apt time to modernise the conduct of regulation of the financial system and commissioned the Wallis inquiry.The recently released Wallis inquiry's recommendations aim to improve the financial system's efficiency and effectiveness.Of importance, the Wallis report recommended a new mega-regulator be formedwhich would take over all prudential supervision of banking, insurance, superannuation, building societies and credit unions under a new structure.

However, the proposed amendments in this Bill were introduced prior to the Wallis inquiry findings being published.The amendments are designed to enhance the current system's efficiency and effectiveness.The principal amendments concerning information sharing and disclosure are consistent with international 'best practice', where the finance sector (and itsregulation) is very much subject to the influence of globalisation.The exchange of information between the RBA and ISC and overseas financial regulatory bodies is seen by the Government as a key prudential tool.

Main Provisions

The Wallis inquiry supported an international co-operative approach to prudential supervision.In its 29th recommendation it recommended that the Corporations and Financial Services Commissioner (CFSC -a new body based on the ASC) should work with overseas regulatory and industry bodies to provide consumer protection for cross-border financial transactions and to avoid the potential for fraud. It also recommended that the CFSC should be empowered to enter into bilateral and multilateral mutual assistance treaties with overseas counterparts. The inquiry pointed out that currently when dealing with overseas transactions, the consumers should adopt a "buyer beware" approach because their dealings with overseas financial service providers are not protected.Current disputes arising formmisleading, deceptive or fraudulent conduct are hard to resolve.

This Bill's predominant amendments are in sympathy with the above mentioned Wallis recommendation. The amendments will improve protection of bank depositors and insurance policy holders by enabling the RBA and ISC to move quickly to exchange information to prevent and or/manage a crisis situation arising in a financial conglomerate in Australia.Administrative arrangements will ensure commercial-in-confidence information is suitably protected by way of agreements with domestic and overseas supervisory regulatory agencies.In line with government policy, some of the provisions relating to information sharing are subject to a five-year sunset clause.

A summary of the amendments to each of the Acts follow.

Schedule 1 -Amendment of the Banking Act 1959

The proposed amendments provide the Commissioner discretionary power to disclose protected information directly to other financial regulatory agencies (in and out of Australia).

Other sundry amendments include:

  • replacing existing language with gender inclusive language; and,
  • updating penalties -from monetary penalty to penalty units in accord with sec 4AA of the Crimes Act 1914.

Schedule 2 - Banks (Shareholdings) Act 1972

The proposed amendments provide the Commissioner discretionary power to disclose protected information directly to other financial regulatory agencies (in and out of Australia).

Other amendments include:

  • replacing existing language with gender inclusive language;
  • updating penalties - and clarifying that subsection 4B(3) of the Crimes Act 1914 applies; and,
  • updating company law provisions -to be in line with Corporations Law, rather than the Companies Act 1981.

Schedule 3 - Financial Corporations Act 1974

The proposed amendments provide the Commissioner discretionary power to disclose protected information directly to other financial regulatory agencies (in and out of Australia).

Other sundry amendments include:

  • replacing existing language with gender inclusive language;
  • deleting obsolete references to Papua New Guinea;
  • updating penalties -from monetary penalty to penalty units in accord with sec 4AA of the Crimes Act 1914; and,
  • updating company law provisions -to be in line with Corporations Law, rather than the Companies Act 1981.

Schedule 4 -Amendment of the Financial Corporations (Transfer of Assets and Liabilities) Act 1993

These amendments provide 2 year time extensions.They extend the date by which foreign banks can apply for branch banking status from 22 December 1996 to 22 December 1998, and extend the deadline by which the transfer of assets and liabilities needs to be completed from 22 December 1999 to 22 December 2001.The Government sees that these amendments are necessary because it decided that it was unreasonable to expect foreign banks to make long-term strategic decisions about whether to convert to branch status while the Wallis inquiry into the financial system was in progress, and before the outcomes and changes flowing from it were known. Schedule 5 - Amendment of the Insurance Act 1973

This Act has the most substantial amount of amendments in the Bill.As with the theme of the overall Bill, the principal proposed amendments is to provide the Commissioner discretionary power to disclose protected information directly to other financial regulatory agencies (in and out of Australia).

Other amendments involve :

  1. new responsibilities and powers to the Treasurer;
  2. new responsibilities and powers to the Commissioner;
  3. solvency provisions and related bodies corporate; and
  4. sundry amendments to improve the Act generally.

1. Treasurer's responsibilities and powers

The proposed amendment to the Bill gives the Treasurer new responsibilities and powers which are designed to improve the efficiency and effectiveness of the insurance system.These amendments include:

  • allowing the Treasurer to approve a body as a securities exchange;
  • that various decisions of the Commissionerin respect of an insurer's liabilities is subject to the Treasurer's agreement; and,
  • that various directions and decisions by the Commissioner about insurer's assets, liability, income and expenses be subject to the Treasurer's agreement, rather than being subject to review by the Administrative Appeals Tribunal.

The Insurance and Superannuation Commissioner's regulatory powers in this regard will be checked by the need for the Commissioner to obtain ministerial consent for decisions that are non-reviewable by the AAT. 2. Commissioner's responsibilities and powers

The proposed amendment to the Bill gives the Commissioner new responsibilities and powers which are designed to improve the efficiency and effectiveness of the insurance system.These amendments include:

  • clarifying that the Commissioner's power that can be delegated, and the means for delegating them under the Act;
  • allowing the Commissioner to require the production of any books from both an insurer and connected bodies corporate for the purpose of determining whether the insurer should be authorised for the purposes of the Act;
  • the requirement that the Commissioner publish a notice in the Gazette stating that because of the commencement of winding up of a body, that body is no longer permitted to carry on insurance business; and,
  • permitting the Commissioner to charge a fee for the supply of statistical information and allows the Commissioner to publish and disseminate aggregated statistical information.

3. Solvency provisions and related bodies corporate

The new provisions allow the Commissioner power to exercise prudential control over the operation of related bodies corporate, providing a sound basis on which the Commissioner can exercise discretion to allow assets held within related bodies corporate to be included for the purposes of insurer's solvency calculations. Prior to the amendment, assets held by authorised insurers in related bodies corporate were not included in the calculations of solvency. These amendments have been strongly supported by the insurance industry.Other solvency amendments also empower the Commissioner to:

  • require information from, and freeze assets of, an insurer, to a connected body corporate;
  • investigate the connected bodies corporate providing similar action is undertaken with the insurer;
  • enter the premises of an insurer and the connected bodies corporate under certain conditions and apply for a search warrant if necessary;
  • look at the books of supervised bodies corporate. Any report by the Commissioner must take into account the associated relationship of bodies corporate to the insurer;
  • make recommendations in relation to authorised insurers and associated bodies corporate;
  • direct values of assets held by an authorised insurer in connected bodies corporate to be reduced in certain circumstances; and,
  • approve the form of accounts and statements through a disallowable instrument.

4. Other sundry amendments include:

  • replacing existing language with gender inclusive language;
  • updating penalties -from monetary penalty to penalty units in accord with sec 4AA of the Crimes Act 1914;
  • updating company law provisions -to be in line with Corporations Law, rather than the Companies Act 1981;
  • updating the offences for the breach of specific provisions of the Act; and,
  • updating provisions in line with the current Commonwealth criminal law policy.

Schedule 6 - Amendment of the Insurance Acquisitions and Takeovers Act 1991

The proposed amendments provide the Commissioner discretionary power to disclose protected information directly to other financial regulatory agencies (in and out of Australia).

All other amendments are concerned with omitting monetary penalties from the Act, which is in line with current Commonwealth criminal law policy. The amendments also add a note to clarify that the Crimes Act 1914 applies, where monetary penalties and imprisonment may be imposed by a court. Schedule 7 - Amendment of the Insurance (Agents and Brokers) Act 1984

The proposed amendments provide the Commissioner discretionary power to disclose protected information directly to other financial regulatory agencies (in and out of Australia).

The amendments also clarify roles and responsibilities of various key players.They make it clear that the Commissioner's powers may be delegated and outline the means for delegating these powers.In the case of insurers, the amendments clarify the responsibility of insurers for the conduct of multi-agents by making them liable for a multi-agent's conduct.And for brokers, as a condition of registration (and its renewal), a broker who writes general insurance of domestic or personal business,must be a party to an approved complaints arrangement.Failure of such is a ground for suspension or cancellation of registration.

Other sundry amendments include :

  • replacing existing language with gender inclusive language;
  • removing drafting errors for ambiguity; and,
  • adding notes to clarify the Crimes Act 1914 applies to various sections, where monetary penalties and imprisonment may be imposed by a court.

Schedule 8 - Amendment of the Insurance Contracts Act 1984

The proposed amendments provide the Commissioner discretionary power to disclose protected information directly to other financial regulatory agencies (in and out of Australia).

Various amendments are concerned with insurers.There is a requirement that the method of valuation on which the insurance cover is based must be brought to the notice of the insured by the insurer, and that insurers must give fourteen days notice as to whether or not they are prepared to renew an insurance contract.Also, an insurer, in the event of a total loss on an automatically renewed policy, is entitled to receive the premium for the full term of the policy (not just a proportion).But, no statutory cover is available where an insurer has failed to provide notice of expiry of a contract, and a replacement contract is arranged with the same insurer.

Other sundry amendments include :

  • replacing existing language with gender inclusive language;
  • amending ambiguous definitions;
  • consumer credit insurance disclosure documentation is only given on the entering into of the initial contract, and not at renewal, extension, or reinstatement of a contract;
  • in the case of war, various provisions in the Act do not apply; and,
  • the rate of interest on payments unnecessarily delayedwill be linked to market rates, where regular changes to the rate set under the regulation would be inappropriate.

Schedule 9 - Repeal of the Insurance (Deposits) Act 1932

The whole of the Act is repealed as it has been replaced by the Insurance Act 1973.The 1932 Act wasretained in the past for transitional reasons and to ensure policy holder entitlements were maintained.

Schedule 10 - Amendment of the Insurance Laws Amendment Act 1994

This amendment updates provisions in line with the current Commonwealth criminal law policy. Schedule 11 - Amendment of the Insurance Supervisory Levies Collection Act 1989

These amendments seek to remedy a deficiency in the original legislation.The effect of the amendments is to allow the Insurance and Superannuation Commissioner to collect a pro-rata supervisory levy when an authorised insurer goes into liquidation, or its authority lapses at its own request. Schedule 12 - Amendment of the Life Insurance Act 1995

These amendments involve various disclosure requirements regarding information obtained under the Act - what persons under various circumstances may disclose and to whom.

They also seek to make reviewable decisions by the Commissioner subject to the Treasurer's agreement.Prior to these amendments, directions given by the Commissioner to life insurance companies were reviewable by the Administrative Appeals Tribunal.

New subsections are inserted to clarify that there is no conflict between sections 200 and 201 involving assignments of interest in a life policy, and outline the circumstances where life companies have received express notice in writing of a trust, right, equity or interest.

Other sundry amendments include :

  • updating provisions re criminal law policy; and,
  • that financial statements be prepared in accordance with accounting and actuarial standards.

Schedule 13 - Amendment of the Reserve Bank Act 1959

These amendments propose to allow the Reserve Bank to share protected information about financial institutions to other financial regulatory agencies.

Other sundry amendments include:

  • updating penalties from monetary penalty to penalty units;
  • updating provisions in line with Corporations Law; and,
  • permitting courts to take judicial notice of data published in the name of, by or under the authority of the Reserve Bank.

Schedule 14 - Amendment of the Superannuation Industry (Supervision) Act 1993

These amendments involve the various disclosure requirements regarding information obtained under the Act - what persons under various circumstances may disclose and to whom.

The amendments also update various definitions - protected document, protected information, court, financial sector supervisory agency, law enforcement agency, overseas financial sector supervisory agency-to ensure consistency with new provisions being introduced in other legislation administered by the Insurance and Superannuation Commission and the Reserve Bank of Australia.

Contact Officer and Copyright Details

John Harrison
19 June 1997
Bills Digest Service
Information and Research Services

This Digest does not have any official legal status. Other sources should be consulted to determine whether the Bill has been enacted and, if so, whether the subsequent Act reflects further amendments.

IRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 1997

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1997.

This page was prepared by the Parliamentary Library, Commonwealth of Australia
Last updated: 14 July 1997


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