WARNING:
This Digest was prepared for debate. It reflects the legislation as
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CONTENTS
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:
- Items 15 to 20 in Schedule 3 are taken to have commenced
immediately after the commencement of those sections
concerned.
- Items 1, 12, 24 and 25 in Schedule 7 and Schedule 10 are taken
to have commenced on 1 October 1994.
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.
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.
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 :
- new responsibilities and powers to the Treasurer;
- new responsibilities and powers to the Commissioner;
- solvency provisions and related bodies corporate; and
- 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.
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
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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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