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
Contact Officer & Copyright Details
Date Introduced: 26 March
House: House of
Commencement: See each schedule
below for details
An omnibus Bill amending a number of Acts to help put in place a
new regulatory framework for the financial sector.
In March 1997, the Financial System Inquiry
(also known as the Wallis Inquiry, after its chairman, Stan Wallis)
reported to the Federal Government. It had been given a wide brief
- 'stocktake' the results of the deregulation of the Australian
- examine the forces driving further change, particularly
- recommend changes to the regulatory system to ensure an
'efficient, responsive, competitive and flexible financial system
to underpin stronger economic performance, consistent with
financial stability, prudence, integrity and fairness'.
In its final report, the inquiry recommended
far-reaching changes to the $40 billion finance sector, most of
which were accepted by the Federal Government. (It is recommended
that this digest be read in conjunction with the DPL Research Paper
No. 16 of 1996-97, 'The Wallis Report on the Australian
Financial System: Summary and Critique'. The Research Paper
provides a summary of the Wallis report and analysis of its
recommendations) This Bill, the Financial Sector Reform (Amendments
and Transitional Provisions) Bill 1998, is one of a package of
eleven Bills implementing the recommendations.(1)
- establishes the Australian Securities and Investment Commission
(ASIC), which absorbs the Australian Securities Commission (ASC)
and its responsibility for corporate regulation, plus it takes on
the additional functions of consumer protection and market
integrity for the whole financial system;
- establishes a single licensing regime for banks and other
non-bank deposit-taking institutions to be overseen by a single
Commonwealth agency, the Australian Prudential Regulation Authority
(APRA), with responsibility for prudential regulation of the whole
financial sector- it takes over the prudential functions of the
Reserve Bank of Australia (RBA);
- establishes a Payments System Board within the RBA with
responsibility for the massive daily transfer of funds between
- abolishes the requirement for banks to deposit one per cent of
their eligible liabilities with the RBA (called non-callable
deposits); APRA is to be funded, instead, by fees levied on
institutions under its supervision;
- divides the powers of the Insurance and Superannuation
Commissioner (ISC), which is to be abolished, between ASIC and
- leaves the way open for State-regulated institutions like
credit unions and building societies to be covered by the
Commonwealth scheme if and when the States agree.
Many of the provisions in the Bill's 19
schedules simply effect name changes, i.e. references to the
soon-to-be-abolished ASC, are deleted, and the name of the
appropriate new regulator - either ASIC or APRA - is
Some schedules repeal Acts in their entirety,
- schedule 3 repeals the Banks
(Shareholdings) Act 1972 - it will be replaced by the proposed
Financial Sector (Shareholdings) Act;
- schedule 11 repeals the Insurance and
Superannuation Commissioner Act 1983 - the Commissioner's
functions are in future to be performed by APRA and ASIC; and
- schedule 18 (while it amends some other Acts)
- the General Insurance Supervisory
Levy Act 1989;
- the Insurance Supervisory Levies
Collection Act 1989;
- the Life Insurance Supervisory Levy
Act 1989; and
- the Retirement Savings Accounts
Supervisory Levy Act 1997
Schedule 3, schedule
11 and most of schedule 18 commence on
the commencement of the Australian Prudential Regulation
Authority Act 1998. The parts of schedule 18
which amend the Australian Prudential Regulation Authority Act
1998, commence either on the commencement of
the APRA Act if the Public Service Act 1998 has already
commenced; or following the commencement of the Public Service
The major amendments in the remaining 16
schedules are outlined below.
Amendments to the Australian Securities Commission
A new super-regulator
Commencement: Schedule 1
commences on the commencement of the Australian Prudential
Regulation Authority Act 1998.
Schedule 1 has 35 items
amending the Australian Securities Commission Act 1989.
The changes establish the ASIC, giving it functions formerly
performed by the ASC, with additional responsibility for consumer
protection and market integrity for the whole financial sector,
including insurance and superannuation.
The expanded role for the new body is spelt out
in item 3. It repeals subsection 1(2) and inserts
a new section which makes it clear that the ASIC's responsibilities
extend not just to the performance of companies, and the securities
and futures markets, but to the whole financial system. For
example, proposed paragraph 1(2)(a) says ASIC, in performing its
functions and exercising its powers, must strive to 'maintain,
facilitate and improve the performance of the financial system and
the entities within that system in the interests of commercial
certainty, reducing business costs, and the efficiency and
development of the economy'.
And proposed paragraph 1(2)(b) says ASIC must
strive to: 'promote the confident and informed participation of
investors and consumers in the financial system'.
ASIC's additional functions
ASIC's additional functions and powers are spelt
out in item 10 which inserts proposed section 12A.
- transfers the prudential functions of the ISC to the ASIC.
Proposed section 12A(1) lists the Acts which are to be amended to
effect the change. The actual amendments to those Acts are
contained in later schedules to this Bill (schedules 9, 10, 12, 13,
- gives the proposed body the function of monitoring and
promoting market integrity and consumer protection in relation to
the Australian financial system, including the payments system;
proposed subsections 12A(2) and (3); this was previously carried
out by the Australian Payments System Council which is to be
- with regards to the payments system, it also has the function,
under proposed subsection 12A(3) of promoting and monitoring the
operation of, and compliance with, industry standards and codes of
practice (this function was previously carried out by the
Australian Payments System Council); proposed section 12A(3);
- gives the ASIC the right to advise the Minister about changes
to the laws dealing with its prudential functions, and to make
recommendations about any matters relating to monitoring and
promoting market integrity, consumer protection and operating
standards and codes of practice.
Proposed section 12A is headed 'non-national
scheme laws' because it relies for its validity on a direct head of
Commonwealth Constitutional power. In contrast, the rest of the
Australian Securities Commission Act 1989 only has a
national reach because of agreement between the Commonwealth, the
States and the Territories.(2)
Giving ASIC teeth
Item 11 inserts a proposed
section 93A into the part of the Act dealing with investigations
and information-gathering. The proposed section would allow ASIC to
accept a written undertaking, which may then be enforced by a
court, if the court finds the undertaking has been breached. Under
proposed section 93A(4), the court has wide powers. It may:
- direct the person to comply with the undertaking;
- order the person to pay the Commonwealth an amount up to the
amount of any financial benefit obtained as a result of the
- order the person in breach to compensate anyone else who has
suffered loss or damage as a result of the breach; and
- make any other order the court sees fit.
Power to delegate to APRA
Items 13 and 14 insert proposed
paragraph 102(2)(d) and proposed subsection 102(2A) which in
combination allow ASIC to delegate powers to an APRA official, but
only with the agreement in writing of the Chief Executive Officer
Disclosing pecuniary interests
Item 16 widens the types of
direct or indirect pecuniary interests which the Chairperson must
disclose to the Minister to include, not only any interest s/he has
in a business or body corporate carrying on a business in
Australia, but in a pooled superannuation trust, a superannuation
fund, an approved deposit fund or body corporate providing such a
fund, a retirement savings account or retirement savings provider,
or a body corporate that is a trustee of one of the above
The disclosure must be in writing.
Confidentiality and disclosure of information
Items 17 to 29
deal with the confidentiality and disclosure of information.
Presently, subsection 127(1) requires the Commission to take all
reasonable measures to protect information given to it in
confidence in connection with its performance or functions. That
section is to be amended by item 17 to include
'protected information', which, under the definition in
item 29, means information disclosed or obtained,
or a document given or produced (whether before or after the
commencement of the section) in relation to proposed section 12A
(see item 10 above) which contains the new
functions and powers of ASIC.
Items 18 to 28
then detail what sort of information may be released to other
people or entities, and under what conditions. For example, under
proposed subsection 127(1A) summaries of information or statistics
may be released provided that the summary does not contain
information which may be used to identify a particular individual.
Under proposed subsection 127(2A) information may be disclosed
- the Minister;
- the Secretary of the Department or other authorised officer but
only for the purpose of advising the Minister; and
Under proposed paragraph 127(4)(a) the chairman
may supply information to:
- the Australian Bureau of Criminal Intelligence;
- the Australian Financial Institutions Commission;
- the Superannuation Complaints Tribunals; or
- the Office of Law Enforcement Co-ordination in the Commonwealth
if s/he is satisfied it will assist them in
doing their job. This is in addition to bodies already listed in
the Act. The chairman may also attach conditions to the supply of
Under proposed section 127(4)(c) information may
also be disclosed to a professional disciplinary body performing
its functions, but that body must not disclose the information to
any other person (proposed subsection 127(4EA)) and must not use
that information for any purpose other than disciplinary action.
The penalty is two years imprisonment.
Unclaimed superannuation money
Proposed changes to subsection 135(4) would give
the Commission the power to spend money on its proposed functions,
including administering unclaimed moneys under the
Superannuation Industry (Supervision) Act 1993.
Amendments to the Banking Act 1959
Commencement: Schedule 2,
except for item 86, commences on the commencement
of the Australian Prudential Regulation Authority Act
1998. Item 86, which repeals the requirement
for banks to deposit non-callable funds with the RBA, commences
either on a day to be fixed by proclamation, or if no date is
proclaimed, 24 months after this Bill receives Royal Assent.
Major changes at a glance
The Banking Act 1959 contains the
scheme for regulating banks. The amendments in schedule 2, extend
the scope and reach of the Act to include not just banks, but all
deposit-taking institutions. The amendments also strip the RBA of
its powers to supervise banks - giving them instead to APRA. (APRA
is to be established under the Australian Prudential Regulation
Authority Act 1998, which is one of the package of eleven
Bills revamping the regulation of the financial system, presently
APRA's powers include the power to:
- issue a deposit-taking institution or a non-operating holding
company (NOHC) with an authority to operate as an Authorised
Deposit-taking Institution (ADI) or an NOHC - or revoke the
authorisation or impose conditions on it; (an NOHC is a new
financial creature designed to allow the formation of financial
conglomerates which are to be allowed to hold more than one
- make prudential standards with which ADIs and NOHCs are
expected to comply;
- investigate ADIs or NOHCs under certain circumstances;
- direct them to comply with a prudential regulation or
- order an audit of the affairs of an ADI or NOHC at that
- ensure a nominated director or secretary, executive officer or
employee does not take part in the management or conduct of the
- issue a direction not to borrow money; or issue any other
direction as to the way in which the affairs of the company are to
be conducted (it is a criminal offence to fail to comply with a
- take control of an ADI, or appoint an administrator to take
control under certain circumstances - an administrator who may even
sell off all or part of the business; (if APRA does appoint an
administrator - that administrator takes over control of the
business and any existing directors cease to hold office, and the
appointment of any external administrator is terminated.
The first 25 items of schedule
2 insert proposed definitions in the Banking Act
1959. These include:
- APRA (item 4) - the Australian Prudential
- an authorised deposit-taking institution (item
7) which is defined as a body corporate to which APRA has
granted a written authority to carry on a banking business in
Australia (item 33, proposed subsection
- bank (item 5) which is defined as a particular
sort of ADI - one granted approval, under proposed section 66, to
call itself a bank;
- a non-operating holding company (item 16)
which is defined as a company, incorporated in Australia, whose
only business consists of owning or controlling other companies;
- prudential matters (item 17) which is expanded
to include all ADIs (of which, of course banks are a subset) and
NOHCs; the obligations remain the same as in the current Act. They
are: to conduct its affairs in such a way as: to keep itself in a
sound financial position and not to cause or promote instability in
the Australian financial system; and to act with integrity,
prudence and professional skill.
Authority to be an ADI
Items 33 to 40
detail how a deposit-taking institution may become authorised to
carry on a banking business, and set out APRA's power to grant,
revoke, or impose conditions on an authority.
Item 33 says APRA may grant a
body corporate authority to carry out a banking business in
Australia. If so, it must do so in writing. However, it may decide
to refuse an application, and one reason for that could be if the
company is a subsidiary of an NOHC that does not hold an NOHC
authority. Similarly, under item 36 APRA may make
the authority conditional on a company, of which the ADI is a
subsidiary, being an authorised NOHC.
If APRA decides to grant an authority to carry
on a banking business, or impose vary or revoke conditions attached
to it, it must publish the details in the Government Gazette.
Revoking an ADI's authority
Proposed section 9A, inserted by item
40 lists when APRA must revoke an authority to carry on
banking - for example, (subsection 9A(1)) if the body corporate
requests the revocation in writing and APRA is satisfied that it is
not contrary to the national interest or the interests of
However, proposed subsection 9A(2) deals with
other situations where APRA may revoke an authority and is very
broadly drafted. It includes where:
- a company has not complied with a requirement of the Act;
- it would be contrary to the national interest or the interests
of the company's depositors, for the authority to remain in
- the body corporate is insolvent and is unlikely to become
solvent again within a reasonable time;
- the body corporate has not paid fees and charges; or
- has ceased to carry on a banking business in Australia.
In these circumstances, generally speaking, APRA
must act in accordance with the rules of natural justice, i.e.
before revoking an authority, APRA must give the company written
notice setting out the possible course of action, and the reasons
for it, and allow the company at least 90 days in which to
However, these procedures need not be followed
if APRA is satisfied that delay would be contrary to the national
interest, or the interests of depositors.
If an authority is revoked, APRA must do so in
writing and publish notice of its actions in the Gazette -
although failure to publish does not invalidate the order.
Items 41 to 44
change the requirement that a body corporate seeking authority to
be an ADI supply certain documents to the Treasurer. Instead, the
documents are to be provided to APRA.
Similarly, item 45 gives the
power to grant an exemption from provisions of the Act to APRA,
instead of the Treasurer. This proposed section is extremely wide
and open-ended in its effect. The proposed subsection 11(1) reads:
'APRA may, by order published in the Gazette, determine
that all or specified provisions of this Act do not apply to a
person during the period while the order continues in force.'
Authority to be an NOHC
Item 47 inserts proposed
sections setting out the process for granting an authority to be an
NOHC of an ADI, and empowers APRA to attach conditions, and to vary
or revoke them. The scheme is much the same as for ADIs.
Setting prudential standards
Item 49 gives APRA wide-ranging
powers to determine prudential standards for both ADIs and NOHCs.
Failure to comply with a standard is not a criminal offence, but
may lead to a direction being given (item 53
below). Failure to comply with a direction is a criminal offence
(see item 152 which inserts a new table of
Power to issue directions
Item 53 inserts proposed
Division 1BA outlining APRA's powers to issue directions.
Under proposed section 11CA, APRA may issue
directions to an ADI or an NOHC if:
- the company has contravened a prudential regulation or
- in the case of an ADI, it is necessary to protect the interests
of depositors; or
- in the case of an NOHC, it is necessary to protect the
interests of depositors of any ADI that is a subsidiary of the
Types of directions
Directions which may be issued (proposed section
- to comply with all or part of a prudential regulation or
- to audit a body corporate at its expense;
- to ensure a specified director or secretary, executive officer
or employee does not take part in the management or conduct of the
company except as permitted by APRA;
- to remove an auditor and appoint another;
- not to accept deposits;
- not to borrow money; or
- any other direction as to the way in which the affairs of the
company are to be conducted.
The amendments give the company the power to
comply with a direction despite anything in its constitution or any
contract or arrangement to which it is a party (proposed section
A direction has effect until APRA revokes it in
writing (proposed section 11CA(5)).
Failing to comply with a direction is a criminal
Item 53 inserts a proposed
section 11CG(1) which says that an ADI or an authorised NOHC must
comply with a direction. A failure to comply is a criminal offence,
under item 152 which inserts a proposed table of
criminal offences at section 69A. However, it is impossible to
tell, simply by looking at proposed section 11CG(1) that failing to
comply is a criminal offence. This only becomes clear when the
table is examined. It would be preferable to either add another
subsection to 11CG, or at least a note, either spelling out the
implications of non-compliance, or pointing to the table at section
Gazettal of directions
APRA may, if it chooses, publish in the
Gazette any direction it makes (proposed section 11CE(1)).
But if it does publish a direction, it must publish any subsequent
APRA obliged to protect ADI depositors
Items 61 and 62 amend section
12, imposing a duty on APRA to protect depositors of ADIs (and
removing that duty from the Reserve Bank.)
What happens if an ADI falls on hard
Item 63 repeals sections 13,
14, 15 and 16 and substitutes new provisions.
Many of the proposed provisions have no direct
counterpart in the current Act. They spell out in much greater
detail what is to happen if an ADI runs into financial problems, or
looks like it is going to, and give APRA greater and more specific
powers than the RBA has under the current scheme. They are aimed at
providing better protection for depositors.
Under proposed section 13A, an ADI is required
to supply information to APRA relating to its financial stability,
if asked in writing to do so. APRA may appoint an investigator if
an ADI fails to do this. Furthermore, an ADI must immediately
inform APRA if it considers it likely that it will become unable to
meet its obligations or is about to suspend payment.
Power to appoint an investigator or
Under proposed section 13A(1) APRA may appoint a
person to investigate an ADI, take control of its business, or
appoint an administrator, if:
- the ADI informs APRA that the ADI considers that it is likely
to become unable to meet its obligations or that it is about to
suspend payments -proposed section 13A(1)(a);
- APRA considers the ADI is likely to become unable to meets its
obligations or is about to suspend payments - section 13A(1)(b);
- the ADI is unable to meet its obligations or suspends payments
- proposed section 13A(1)(c).
If the ADI becomes unable to meet its
obligations or suspends payments its Australian assets are to be
available to meet its Australian deposit liabilities ahead of all
other liabilities - section 13A(3).
An ADI must hold assets (excluding goodwill) in
Australia at least equal to its Australian deposit liabilities,
unless authorised by APRA to hold a lesser amount - proposed
Proposed section 13B obliges an ADI to provide
an APRA-appointed investigator with access, facilities, books,
documents etc needed for the investigation.
Terminating APRA's control
Proposed section 13C outlines when APRA, or an
administrator appointed by APRA, should cease control, and what
should happen then with regards to the appointment/election of
proposed directors/liquidators, and how the termination of control
should be handled.
Powers of statutory manager
If APRA appoints a statutory manager, s/he has
very wide powers including:
- the powers and functions of the members of the board of
directors (collectively and individually), including the power of
delegation - proposed section 14A(1);
- the power to compel a person, who has at any time been an
officer of the ADI to answer questions relating to the business -
penalty for refusing to co-operate 12 months imprisonment -
proposed section 14A(2);
NOTE: [an individual is not excused from
answering questions on the grounds of self-incrimination (section
14A(3)) but, if the individual claims, before answering the
questions that the answers may tend to incriminate and the
information might in fact tend to incriminate, then the information
is generally not admissible as evidence against the individual in
criminal proceedings - proposed section 14A(4)];
- selling off all or part of the business on whatever terms and
conditions the manager considers appropriate - proposed section
Statutory manager's liabilities
A statutory manager is only liable for losses
incurred by an ADI through his/her fraud, dishonesty or wilful
failure to comply with the Act - section 14C.
This contrasts with the position of an
administrator under the Corporations Law, who may be
personally liable for any debts incurred by a company under his/her
What happens to a director if a statutory manager takes
A director ceases to hold office once a
statutory manager is appointed - proposed section 15(1).
What happens to an external
administrator if a statutory manager takes over?
An external administrator is in the same
position as a company director if/when a statutory manger is
appointed - the administrator's appointment is terminated -
proposed section 15A.
Proposed section 15B deals with the effect on
legal proceedings when a statutory manager takes control. Proposed
section 15C makes it clear that the appointment of a manager is not
grounds for other parties to a contract denying their obligations.
Proposed section 16 makes it clear that the cost to APRA of
controlling the business, or placing an administrator in control,
are payable out of the ADI's funds, and take priority over all
other unsecured debts.
Obligations on auditors or former
auditors of ADIs or NOHCs
Under proposed section 16B (item
65) an auditor or former auditor of an ADI, authorised
NOHC or the subsidiary of an ADI or authorised NOHC, have
- comply with any written request by APRA to provide information
which APRA considers will assist it in performing its
- inform APRA if s/he has reasonable grounds for believing that
the ADI/NOHC/subsidiary of an ADI or NOHC is insolvent, or there is
a significant risk it will become insolvent; if the company has
failed to comply with a prudential standard, a direction from APRA
or some other requirement imposed by the Act or regulations;
- inform APRA of an existing or proposed state of affairs which
may materially prejudice the interests of depositors.
Failing to comply with any of the above, is a
criminal offence and could lead to up to six months in jail.
In addition, there is a catch-all clause -
proposed section 16C, under which an auditor or former auditor may
provide information to APRA if s/he believes the information will
assist APRA in performing its functions.
The same provisions on self-incrimination apply
as in section 14A above, i.e. an individual is not excused from
answering questions on the grounds of self-incrimination but, if
the individual claims, before answering the questions, that the
answers may tend to incriminate and the information might in fact
tend to incriminate, then the information is generally speaking not
admissible as evidence against the individual in criminal
Non-callable funds requirement
Item 86 repeals Division 3 of
Part II which contains the requirement that banks hold one per cent
of their eligible liabilities with the Reserve Bank. This money had
been used to fund the supervisory scheme. In future, supervision by
APRA will be funded by fees levied on the institutions under its
control. The levies will be imposed by other Acts.
General investigatory power
Item 127 repeals section 61 and
inserts a new one which gives APRA general powers to appoint a
person to investigate and report on specified prudential matters
(it is wider than proposed section 13A discussed earlier). The body
under investigation is required to give access to books, accounts
and documents, and provide such information and facilities as may
be required to complete the investigation.
The proposed section is similar in terms to the
one it replaces, but hands the investigatory power to APRA rather
than the RBA, and covers all ADIs, NOHCs and their subsidiaries,
rather than just banks.
General power to obtain
Item 128 repeals section 62 and
inserts a new one. It gives APRA a general power to require an ADI,
NOHC or a subsidiary to provide information. It is similar to the
old powers of the RBA, but also includes protection against
self-incrimination as in proposed sections 14A(4) and 16B(6)
Failure to comply with a request for information
is a criminal offence (item 152 which inserts a
new table of criminal offences at section 69A).
Restructuring an ADI
Items 129 to
132 amend section 63 to require an ADI to obtain
prior permission from the Treasurer before selling, or otherwise
disposing of its business, or going into partnership. The Treasurer
may, in writing, delegate any or all of his/her functions to APRA,
or a staff or board member of APRA.
Items 143, 144, 145 and
146 restrict the use of certain words to those
companies who have been given permission to use them by APRA.
Restricted words include bank, banking, banker, building society,
credit union or credit society or any word or expression conveying
a 'like import', or indeed any word which APRA decides should be a
restricted word for the purposes of these provisions. (An APRA
determination under this provision is a disallowable
These provisions do not stipulate what
conditions must be met before APRA gives consent to the use of a
restricted term. The Explanatory Memorandum says:
APRA will take into account current policy with
respect to these names. For example, under current policy, a bank
is required to possess at least $50 million in capital and an
exchange settlement account with the RBA while only mutuals are
allowed to be a 'credit union' or 'credit society'.(3)
Where a depositor dies
Item 150 gives an ADI some
protection if it releases up to $15,000 from the account of a
deceased depositor in certain circumstances before the grant of
probate. These circumstances include paying:
- for funeral expenses or debts;
- the executor of the will; and
- anyone else who, in the ADI's opinion, is entitled to the
amount, having regard to the laws of probate and accepted practice
for the administration of deceased estates.
These provisions give APRA extraordinarily wide
powers in relation to the management of the financial system, but
few guidelines as to how those powers should be exercised are spelt
out in the Act. There is no appeal mechanism provided for, and in
many circumstances APRA may be able to operate in secrecy - for
example, it is up to its discretion as to whether it should publish
any directions it makes in the Gazette.
Amendments to the
Financial Corporations Act 1974
Commencement: Schedule 7
commences on the commencement of the APRA Act.
Schedule 7 amends the
Financial Corporations Act 1974.
Item 2 amends the Act to
exclude all ADI's from its operation. This is necessary because
they will be covered by the amendments to the Banking Act
1959 discussed above.
Most of the rest of the 19 amendments take power
away from the Treasurer and give it instead to the Governor of the
Reserve Bank including the power to exempt corporations from the
operation of the Act (item 3).
Amendments to the
Insurance Acquisitions and Takeovers Act 1991
Commencement: Schedule 8
commences on the commencement of the APRA Act.
Schedule 8 amends the
Insurance Acquisitions and Takeovers Act 1991. Sections
dealing with the acquisition of an insurance company or shares in
it are deleted. Under the revamped scheme for the regulation of the
financial sector, these matters are in future to be covered in the
proposed Financial Sector (Shareholdings) Act 1998, which
is one of the package of Bills now before Parliament.
The amendments also transfer regulatory
responsibility from the ISC to APRA.
Amendments to the
Insurance Act 1973
Commencement: Schedule 9
commences on the commencement of the APRA Act - unless the
Insurance Laws Amendment Act 1998 commences on that same
day, in which case, schedule 9 will commence on the following
Schedule 9 amends the Insurance Act
1973 which regulates the general insurance industry. Under the
changes, the soon to be abolished ISC will no longer be the
industry regulator. Generally speaking, APRA will. However, ASIC is
to be given responsibility for administering section 113 which
deals with drawing up codes of practice and ensuring they are
complied with. It is a criminal offence to carry on an insurance
business, if the company has not agreed to comply with the relevant
Item 87 gives ASIC additional
powers to ensure compliance including requiring that books be
presented for inspection, and extracts or copies taken.
Amendments to the
Insurance (Agents and Brokers) Act 1984
Commencement: parts 1 to 3 of
Schedule 10 commence on the commencement of the
APRA Act. Items in Part 4 commence on the commencement of the APRA
Act, provided that items 47, 52, 60 and 66 of Schedule 1 to the
proposed Insurance Laws Amendment Act 1998 have commenced
- if these proposed ILA Act amendments commence after or at the
same time as the APRA Act, Part 4 of Schedule 10 comes into effect
immediately after the commencement of those items in the proposed
Schedule 10 amends the
Insurance (Agents and Brokers) Act 1984 to transfer
regulatory responsibility for it to ASIC, from the ISC which
presently has responsibility for it.
Items 2 and 15
also amend the Act to enable ASIC to appoint in writing, not only
an ASIC staff member to act as an 'authorised officer' for
specified purposes, but also an APRA staff member.
Amendments to the
Insurance Contracts Act 1984
Commencement: Schedule 12
commences on the commencement of the APRA Act, or if that occurs on
the same day as the proposed Insurance Laws Amendment Act
1998, then the schedule 12 commences the next day.
The amendments in Schedule 12
transfer regulatory responsibility for the Insurance Contracts
Act 1984 from the ISC to ASIC.
Amendments to the Life
Insurance Act 1995
Commencement: Parts 1 to 6 of
Schedule 13 commence on the commencement of the
APRA Act. Part 7 commences on the date of Royal Assent of this Bill
(the Financial Sector Reform (Amendment and Transitional
Provisions) Bill 1998.
The amendments in Schedule 13
transfer regulatory responsibility for the Life Insurance Act
1995 from the ISC to APRA and ASIC.
Broadly speaking, APRA will be responsible for
prudential supervision of life insurance businesses, ASIC will be
responsible for market integrity and consumer protection.
Item 2 repeals section 7 and
inserts a new section spelling out the sections of the Act to be
administered by each of the two regulators.
APRA has the general administration of:
- Parts 3 to 6 of the Act, dealing with the registration of life
insurance companies, statutory funds, solvency and capital adequacy
standards, and the financial management of life companies;
- Parts 8 and 9 dealing with judicial management and winding
- sections 206 to 210 dealing with surrender values, paid-up
policies and non-forfeiture of policies; and
- Part 12 dealing with companies registered under the earlier
Life Insurance Act 1945
ASIC has the general administration of Part 10
(other than sections 206 to 210 dealt with above). Part 10
- issuing policies;
- protecting the interests of the insured;
- certain circumstances where the policy may be paid out before
probate is granted;
- unclaimed money; and
- lost or destroyed policy documents.
Proposed section 7(2) says Parts 1, 2, 7 and 11
confer on APRA and ASIC the powers and duties which they require to
fulfil their functions under the Act
The Minister may also give APRA or ASIC
directions under this Act (proposed subsection 7(3)).
Amendments to the
Reserve Bank Act 1959
Commencement: Schedule 14
commences on the commencement of the APRA Act.
Schedule 14 amends the
Reserve Bank Act 1959 to set up a separate board within
the bank dealing with the payments system - the massive daily
transfer of funds between banks. It also reduces the size of the
Reserve Bank Board by two, from eleven members to nine. It does
this by reducing the number of Deputy Governors from two to one,
and the other positions from seven to six.
Items 1, 2, 3,
6, 7, 8 and 9 insert new
definitions required in the Act because of the creation of APRA and
the Payments System Board and their respective functions and
Item 15 inserts a new section
8A which spells out the functions of the Reserve Bank Board and the
proposed Payments Systems Board.
Proposed section 8A(2) says the Reserve Bank
Board is responsible for the Bank's monetary and banking policy,
and on all other matters except for its payments system policy.
Under proposed section 8A(3) the Payments System
Board is responsible for the bank's payments system policy.
Any disagreement between the boards (proposed
section 8A(4)) is to be resolved in the following way (proposed
- if there is an inconsistency, the Reserve Bank Board prevails
and the Payments System Board's policy is modified to remove the
- if there is a disagreement as to whether there is an
inconsistency, or the extent of the inconsistency, then the RBA's
Governor will make a decision;
- if there is disagreement as to which board is responsible for
determining policy on a particular matter, then that issue too,
will be decided by the Governor.
Functions of Payments System
Item 20 inserts sections
formally establishing the Payments Systems Board (proposed section
10A), and spelling out its functions (proposed section 10B) which
- determining the bank's payments system policy;
- ensuring the bank implements that policy;
- ensuring that the bank's payments system policy is directed to
the greatest advantage of the Australian people, and its powers
exercised so as to best contribute to:
(i) controlling risk in the financial
(ii) promoting the efficiency of the
payments system and
(iii) promoting competition in the market
for payment services consistent with the overall stability of the
Both Boards are to keep the Government informed
about their policies (proposed section 11(1)).
Cutting Reserve Bank Board numbers
Item 25 amends subsection 12(1)
and reduces the number of Deputy Governors from two to one.
Item 30 amends paragraph
14(1)(d) to reduce the number of general board appointments from
seven to six.
The Reserve Bank Board will now consist of:
- the Governor;
- the Deputy-Governor;
- the Secretary to the Department of the Treasury; and
- up to six members to be appointed by the Governor-General.
Item 40 amends subsection 21(3)
to reduce the number required for a quorum from six to five.
The Explanatory Memo explains the restructuring
In the interests of administrative efficiency,
and due to the transfer of some responsibilities to APRA, the size
of the Board will be reduced from 11 to 9 members. The reduction
will be achieved via the non-renewal of 1 of the 2 Deputy Governor
positions and the non-renewal of 1 of the 7 non ex officio
positions. As a result, a quorum of the RBA Board will be reduced
to 5 members (previously 6 members).(4)
The reductions are not to take place immediately
- see schedule 19, item 39,
Membership of Payments System
Item 48 inserts a proposed Part
IIIA. Proposed section 25A stipulates the membership of the
Payments System Board as:
- the Governor;
- one representative of the Bank (appointed by the Governor -
proposed subsection 25B(1));
- one representative of APRA (appointed by APRA's CEO - proposed
section 25B(2)); and
- up to five other members (appointed by the Governor-General -
proposed section 25B(3))
All appointments are to be part-time - proposed
The Explanatory Memo gives some pointers as to
the sorts of people likely to be appointed by the
It is envisaged that the members appointed by
the Governor-General will be independent and free of any material
direct conflicts of interest. This should not preclude people with
substantial past industry experience and expertise in the fields of
the payments system and banking regulation. Disclosures of material
personal interest will be made in accordance with section 2 of the
Commonwealth Authorities and Companies Act 1997.(5)
Proposed sections 25C and 25D stipulate who will
be the chair (the Governor) and deputy chair (the other
representative of the RBA) and when the deputy chair will act as
Under section 25E, members of the board must
make an oath or affirmation of allegiance and make a declaration of
secrecy, except for any member who is also a member of the Reserve
Bank Board and has already done so in that capacity.
Payments system board meetings
Proposed sections 25F, 25G and 25H deal with the
timing and location of meetings and their conduct.
Pay and conditions
Proposed sections 25I, 25J, 25K, 25L deal with
the remuneration for members of the Payments System Board, leave of
absence and when it may be granted, resignations from the board and
termination of appointment.
Amendments to the
Retirements Savings Accounts Act 1997
Commencement: Schedule 15
commences on the commencement of the APRA Act.
Schedule 15 amends the
Retirement Savings Accounts Act 1997.
ASIC and APRA to administer the
Under present arrangements contained in section
3, the ISC is responsible for the administration of the Act.
Item 1 repeals that section substituting a new
one, which divides the ISC's responsibilities between APRA and
ASIC. APRA is to be responsible for prudential supervision, ASIC
for market integrity and consumer protection functions.
Item 3 provides that APRA's functions
- Part 3 - approving Retirement Savings Account (RSA)
- sections 40 to 44 which: prohibit interest off-set arrangements
where one of the accounts involved is an RSA; prohibit benefits
provided under an RSA in relation to an RSA from being assigned;
(anyone breaching these provisions commits a criminal
- Parts 6 - setting out rules about the records, audits and
auditors of RSA providers;
- Part 9 - which provides for a facility for the payment of
benefits to eligible rollover funds;
- Part 11 - which provides for the quotation and provision of tax
- section 183 - dealing with supervising deductions from wages;
- sections 193 and 194 - which allow for the collection of
statistical information about RSAs and RSA providers and its
publication, provided that the identities of those involved remain
ASIC's functions include:
- the general administration of most of Part 5 relating to the
duties etc of RSA providers and employers who apply on behalf of
employees wishing to become RSA holders, including the duty to
establish arrangements for dealing with inquiries and complaints,
to keep minutes and records, and to provide information to
prospective RSA holders;
- Part 7 - prohibiting false, improper and misleading conduct in
relation to RSAs;
- Part 8 - outlining what happens to unclaimed money; and
- the general administration of sections 37 to 39 dealing with
the operating standards of RSAs to the extent to which they relate
to the keeping and retaining of records; disclosing information to
holders of RSAs, disclosing information about RSAs, including to
Minister may give directions
Under proposed section 3(3), the Minister may
give directions to either regulator about the performance or
exercise of its functions and powers - the Minister has a similar
power in the existing Act.
Powers and duties conferred on both APRA
Proposed subsection 3(2) confers certain powers
and duties on both APRA and ASIC which each will need in order to
administer their parts of the Act including:
- Part 10, monitoring and investigating RSA providers;
- Part 12, offences relating to statements, records etc including
making false or misleading statements to the relevant
- Part 14 which gives the regulator the power to intervene in
court proceedings relating to matters under this Act; and
- Part 15 which empowers the regulator to grant exemptions from,
and make modifications of, certain provisions in this Act.
Items 2 to 11
change definitions to bring them into line with the proposed
scheme, including inserting definitions for APRA, ASIC and
regulator (which refers to either APRA or ASIC depending on the
Co-operation between ASIC and
Item 20 amends paragraph
96(1)(b) to allow a regulator to appoint a member of staff of the
other regulator as an inspector to investigate the affairs of an
Item 24 enables a regulator to
appoint a member of its own staff, or of the other regulator's
staff, to carry out the functions of an 'authorised person'
(defined in item 4).
Item 23 adds a proposed
paragraph 114(3)(d) requiring a regulator, who has received a
report from an investigator into the affairs of an RSA provider, to
provide a copy of the report to the other regulator.
According to the Explanatory Memorandum, ASIC
and APRA are expected to enter into a memorandum of understanding
setting out how they will co-operate with each other. (6)
Amendments to the
Superannuation Industry (Supervision) Act
Commencement: Schedule 16
commences on the commencement of the APRA Act; except for Part 7,
which commences on the commencement of the APRA Act, provided that
Part 1 of Schedule 2 of the proposed Superannuation Legislation
Amendment Act 1998 has commenced - otherwise Part 7 of
Schedule 16 commences immediately after the commencement of Part 1
of Schedule 2 of the Superannuation Legislation Amendment Act. Part
8, which has similar provisions in relation to Part 3 of Schedule 5
of the proposed Taxation Laws Amendment Act (No. 3)
Schedule 16 amends the
Superannuation Industry (Supervision) Act 1993, which
regulates certain superannuation funds, approved deposit funds and
pooled superannuation trusts.
ASIC and APRA to administer the
Presently, the ISC supervises the industry.
Under the package of reform proposals, the ISC is to be abolished.
These amendments hand the ICS's responsibilities under this Act to
APRA and ASIC. Item 2 repeals existing section 6
and inserts a new one outlining which regulator is responsible for
which sections of the Act. In general terms, APRA will be
responsible for prudential supervision of the superannuation
industry , ASIC will be responsible for market integrity and
consumer protection functions.
The sections of the Act which APRA will be
responsible for administering include:
- Part 2 - approving trustees;
- Part 4 - obliging trustees to lodge annual returns with the
- Part 5 - giving notices about complying fund status;
- section 60A dealing with dismissing a trustee of a public offer
- most of Part 7 which deals with special rules for regulated
- Parts 13 to 16 dealing with accounts, statements and audits and
other provisions applying to superannuation entities; standards for
trustees, custodians and investment managers of superannuation
entities; and rules dealing with actuaries and auditors of
- most of Part 17 dealing with the suspension or removal of
trustees of superannuation entities;
- Part 21 specifying the consequences of contravening a civil
- Parts 23 and 24 making provision for the grant of financial
assistance for certain superannuation entities which have suffered
loss as a result of fraud or theft; to provide a facility to pay
benefits to eligible rollover funds; and
- Division 3 of Part 25, under which a trustee of a
superannuation entity may be required to appoint an investigator to
look into the financial position of the entity.
The sections of the Act which ASIC will be
responsible for administering include:
- section 101 and 103 imposing on trustees a duty to establish
arrangements for dealing with inquiries or complaints, and a duty
to keep records;
- Parts 18 to 20 prohibiting false or misleading conduct in
relation to superannuation interests; ensuring that beneficiaries
and standard employer-sponsors of public offer entities are treated
fairly, honestly and are adequately informed;
- Part 22 setting out a procedure for dealing with unclaimed
- those sections dealing with the keeping of reports to members
of, or beneficiaries in, funds; or disclosure of information to
members of, or beneficiaries in, funds; or disclosure of
information about funds.
Co-operation between ASIC and
These amendments envisage ASIC and APRA
co-operating to administer this Act in a similar way to the way
they are expected to work together to administer the Retirement
Savings Act 1997 discussed above.
Item 20 amends subsection
265(1) to allow a regulator to appoint a member of staff of the
other regulator as an inspector to investigate the affairs of a
Item 22 inserts a proposed
section 298A which enables a regulator to authorise a member of its
own staff, or of the other regulator's staff, to carry out the
functions of an 'authorised person' as defined in item
Item 21 inserts a proposed
subsection 284(4) requiring a regulator, who has received a report
from an investigator into the affairs of a superannuation entity,
to provide a copy of the report to the other regulator.
Amendments to the
Superannuation (Resolution of Complaints) Act
Commencement: Schedule 17
commences on the commencement of the APRA Act.
Schedule 17 amends the
Superannuation (Resolution of Complaints) Act 1993, which
establishes the Superannuation Complaints Tribunal.
The amendments are designed to transfer
responsibility for administering the Act to ASIC, instead of the
Amendments to Acts to smooth the
Commencement: Schedule 19
commences on Royal Assent to this Bill.
Schedule 19 amends a number of
Acts to provide for a smooth transition from the present regulatory
system to the proposed one.
Transitional amendments to the Banking Act
1959 contained in Part 1 include:
- item 5 which empowers APRA to make a
determination allowing a body covered by a Financial Institutions
Code (eg building societies and credit unions) to carry on a
banking business - providing the Treasurer and the relevant State
Minister have agreed that that type of institution should be
covered by the amended Act, and have specified a date from which
that should happen. The determination may specify conditions and is
a disallowable instrument.
- item 10 obliges the Reserve Bank to repay to
an ADI the amount it has in its Non-callable Deposit Account as
soon as practicable after Division 3 of Part II of the Banking
Act 1959 is repealed. (See Schedule 2, item
Transitional amendments to the Insurance and
Superannuation Commissioner Act 1987 include:
- transferring staff from the RBA to APRA; ensuring their terms
and conditions of employment at APRA are no less favourable than
those under which they were employed at the RBA; and preserving
their existing entitlements and benefits (item 25,
- transferring certain assets and liabilities from the ISC to
APRA and ASIC (items 28, 29 - the
clauses do not refer to the ISC by name - rather they refer to the
Commonwealth; the Explanatory Memorandum on page 116 says this is
necessary because the ISC is not a separate legal entity from the
- ensuring that instruments made by the ISC continue to have
effect as if they had been made by the relevant regulator - either
APRA or ASIC item 34, item
- substituting the relevant regulator (APRA or ASIC) for the ISC
in any proceedings before a Court or Tribunal.
Part IV amends the Reserve Bank Act
- provisions allowing the two Deputy Governors to continue in
their roles until one of them ceases to hold office - when that
happens the amendments to the Reserve Bank Act contained in
schedule 14, reducing the number of Deputy Governors from two to
one, will take effect.
- The names of the other 10 Bills follows:
Authorised deposit-Taking Institutions
Supervisory Levy Imposition Bill 1998
Authorised Non-Operating Holding Companies
Supervisory Levy Imposition Bill 1998.
Superannuation Supervisory Levy Imposition Bill
Retirement Saving Account Provides Supervisory
Levy Imposition Bill 1998.
Life Insurance Supervisory Levy Imposition Bill
General Insurance Supervisory Levy Imposition
Financial Institutions Supervisory Levies
Collection Bill 1998.
Financial Sector Reform (Amendments and
transitional Provisions) Bill 19998.
Payments Systems (regulations) Bill 1998.
Financial Sector (Shareholdings) Bill 1998.
- Explanatory Memorandum, Financial Sector Reform
(Amendments and Transitional Provisions) Bill 1998, 12.
- Ibid., 64.
- Ibid., 91.
- Ibid., 94.
- Ibid., 99.
8 May 1998
Law and Bills Digest Service
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