Bills Digest No. 208  1997-98 Retirement Savings Account Providers Supervisory Levy Imposition Bill 1998


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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
Purpose
Background
Main Provisions
Endnotes
Contact Officer and Copyright Details

Passage History

Authorised Deposit-Taking Institutions Supervisory Levy Imposition Bill 1998

Authorised Non-Operating Holding Companies Supervisory Levy Imposition Bill 1998

Superannuation Supervisory Levy Imposition Bill 1998

Retirement Savings Account Providers Supervisory Levy Imposition Bill 1998

Life Insurance Supervisory Levy Imposition Bill 1998

General Insurance Supervisory Levy Imposition Bill 1998

Date Introduced: 26 March 1998

House: House of Representatives

Portfolio: Treasury

Commencement: Each of the Bills with the exception of the Authorised Deposit-taking Institutions Supervisory Levy Bill 1998, commence on the day that the Australian Prudential Regulation Authority Act 1998 commences.

The Authorised Deposit-taking Institutions Supervisory Levy Bill 1998 commences on the earlier of a date to be fixed by proclamation and two years after the Act receives the Royal Assent.

If the day of commencement of any of the Acts is other than 1 July of any year, the Acts have effect subject to modification provided in the regulations.

Purpose

To impose levies on those industries that will be prudentially regulated by the Australian Prudential Regulation Authority (APRA).

Background

The Financial System Inquiry Final Report (FSI Report - sometimes referred to as the 'Wallis Inquiry report') recommended that a single Commonwealth prudential regulator should be established for the deposit taking (including banks, building societies and credit unions), insurance (general and life) and superannuation industries (including retirement savings accounts).(1) The Government has resolved to implement that recommendation by the creation of APRA. The creation of APRA will result in the abolition of the Insurance and Superannuation Commission and eventually the state-based structure for regulation of building societies and credit unions.

At present, the various industries are regulated by different authorities which have separate funding mechanisms. This has created significant disparities between the nature and level of funding of each regulator.

Recommendation 104 of the FSI Report is headed 'Regulatory agencies' charges should reflect their costs' and states:

The regulatory agencies should collect from the financial entities which they regulate enough revenue to fund themselves, but not more. As far as practicable, the regulatory agencies should charge each financial entity for direct services provided, and levy sectors of industry to meet the general costs of their regulation.(2)

The government has stated its aim to be:

To establish an administratively simple and uniform scheme based on the principle of full cost recover from the institutional categories that are regulated.(3)

In broad terms, the proposed charges are similar to those currently imposed on building societies, credit unions and insurance and superannuation entities. The regulatory functions of the Reserve Bank are presently funded by the interest forgone on non-callable deposits held by the Reserve Bank (a requirement which will be abolished by the Financial Sector Reform (Amendments and Transitional Provisions) Act 1998).

The funds received as a result of the imposition of these six levies are to be applied in two ways:

  • The Treasurer must determine, for each financial year, the amount of levy money received during the financial year that is to be available to cover the costs to the Commonwealth of providing market integrity and consumer protection functions for prudentially regulated institutions. That amount is retained in the Consolidated Revenue Fund;
  • The balance of the levy money (after 'taking out' the amount referred to above) is to be paid to APRA (clause 50 of the Australian Prudential Regulation Authority Bill 1998).

It is necessary to understand the meaning of the following two terms so as to understand the levy regime:

  • An 'authorised deposit taking institution' is a body corporate which is authorised, to carry on banking business in Australia under the Banking Act 1959. It will cover banks, building societies, credit unions etc.
  • An 'authorised non-operating holding company' is a new type of financial entity designed to allow the formation of financial conglomerates which are to be allowed to hold more than one deposit-taking licence.

Further information about the Financial Sector Inquiry Final Report can be obtained from Parliamentary Library Research Paper No. 16 of 1996-97, entitled The Wallis Report on the Australian Financial System: Summary and Critique, by Phil Hanratty.

Main Provisions

(Clauses and clause numbering in each of the Bills are consistent unless otherwise stated.)

Each of these Bills sets up the mechanism for determining the amount of the levy that each type of institution is liable to pay. Liability for the levy will then be created by the Financial Institutions Supervisory Levies Collection Bill 1998 (clause 6 of each Bill; clause 7 of the General Insurance Supervisory Levy Imposition Bill 1998).

Amount of the levy - deposit-taking institutions, insurance companies, superannuation entities and retirement savings account providers

The amount of the levy is determined under clause 7 of each Bill (except the General Insurance Supervisory Levy Imposition Bill 1998 under which clause 8 is the relevant provision).

The levy payable by each type of institution, except authorised non-operating holding companies (see below), is a percentage (levy percentage) of the particular entity's asset value. The levy percentage is determined by the Treasurer for each financial year. If the amount calculated is more than the maximum levy amount or less than the minimum levy amount, the levy imposed is limited to the maximum levy amount or increased to the minimum levy amount, as the case may be. The maximum and minimum levy amounts are determined by the Treasurer each financial year.

The Bills provide that the Treasurer cannot set the maximum levy amount at more than $500 000 for superannuation entities, retirement savings account providers and life and general insurance companies and $1 000 000 for authorised deposit-taking institutions. Those amount are indexed in accordance with the consumer price index.

The Treasurer must also determine how an entity's asset value is to be calculated.

Amount of the levy - non-operating holding companies

The levy payable by authorised non-operating holding companies (authorised NOHCs) is determined each financial year by the Treasurer. There is no requirement that the levy bear any relationship to the entity's asset value. However, the levy cannot exceed $500 000 (clause 7 of the Authorised Non-operating Holding Companies supervisory Levy Imposition Bill 1998).

The Explanatory Memorandum to the Bills provides that the amount levied on authorised NOHCs will be a flat amount because the entities are not expected to hold significant assets but may require intensive supervision.

Endnotes

  1. Financial System Inquiry, Financial System Inquiry Final Report, (Mr Stan Wallis, Inquiry Chairman), Canberra, March 1997.
  2. Ibid., 532.

  3. Australia, House of Representatives, Treasurer, Second Reading speech in respect of the Company Law Review Bill 1997, Parliamentary Debates, 26 March 1998, 1160.

Contact Officer and Copyright Details

Lee Jones
14 May 1998
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

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 1998

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, 1998.



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