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Financial Sector Legislation Amendment Bill (No.1)
Date Introduced: 13 April 2000
House: House of
Commencement: Item 21 of schedule 1, which allows the Treasurer to
delegate his powers in relation to unclaimed moneys commences on
Royal Assent. The remaining provisions of the Act commence 28 days
after Royal Assent.
To amend the Banking Act 1959 to permit
the Treasurer to place conditions on the approval of
reconstructions and amalgamations of authorised deposit-taking
institutions and to allow the Australian Prudential Regulation
Authority (APRA) or the Treasurer to seek an injunction if certain
sections of the Act are breached.
To strengthen the
enforcement provisions of the Superannuation Industry
(Supervision) Act 1993 to apply the Criminal Code to certain
To modify the service provisions of the
Reserve Bank Act 1959, including the ability of the Bank
to lend money to staff members.
As this Bill has no central theme the background
to the various measures is included in the discussion of the main
Schedule1: Amendments to the Banking
The prudential framework that is established by
the Banking Act 1959 (the Act) is designed to protect the
depositors of authorised deposit-taking institutions
(ADIs).(1) For example, section 13(3) of the Act
provides that if an ADI becomes unable to meet its obligations, the
assets of the ADI in Australia are to be available to meet that
ADI's deposit liabilities in Australia in priority to all other
liabilities of the ADI.
- Section 63 of the Act states that an ADI other than a foreign
ADI must seek the approval of the Treasurer before it:
- enters into an arrangement or agreement for any sale or
disposal of its business by amalgamation or otherwise, or for the
carrying on of business in partnership with another ADI; or
- effects a reconstruction of the ADI.
- The intent of the section is to prevent the protection given by
depositor priority under section 13 from being undermined by the
transfer of assets.
At present, the Banking Act
1959 does not allow the Treasurer to place conditions on
an approval. This contrasts with the approval process for
transactions, including mergers, which come under the Financial
Sector (Shareholdings) Act 1998(2) (FSSA) or the
Financial Sector (Transfers of Business) Act 1999
Under the FSSA, where a proposed transaction
results in an entity acquiring more than a 15 per cent stake in a
financial sector company, the approval of the Treasurer is
required. The ToBA is essentially a prudential tool that allows the
Treasurer or the Australian Prudential Regulation Authority (APRA)
to merge entities that are in financial distress.
While some section 63 proposals may fall within
the scope of the FSSA or ToBA and thus allow the Treasurer to
impose conditions on a merger or reconstruction, this may not
always be the case. For example a bank reconstruction may not
result in a person achieving more than a 15 per cent stake in a
financial institution. Also as the Explanatory Memorandum notes,
FSSA conditions are imposed on the purchaser not the
To address the policy inflexibility created by
the absence of a capacity to impose conditions item
18 inserts a new section 64 which
provides that the Treasurer's consent under subsection 63(1) is
subject to the conditions (if any) imposed by the Treasurer.
Proposed subsection 64(2)
elaborates on the Treasurer's powers in relation to a person who
has been given consent. The Treasurer may by written notice:
- impose conditions, or further conditions on the consent;
- revoke or vary any condition imposed on the consent; or
- revoke the consent if the Treasurer is satisfied that there has
been a contravention of a condition to which the consent is
- The Treasurer's powers under proposed section
64 may be delegated to APRA, an APRA board member or an
APRA staff member; or an officer of Treasury (proposed
Item 19 ensures that the new
powers given the Treasurer will not apply to a consent given prior
to the commencement of this Bill.
It may be argued that the approvals process
under the Act lacks the transparency of the FSSA. Under the
FSSA, the Treasurer is subject to certain public
notification requirements in relation to the exercise of powers
granted by that Act. For example, where the Treasurer:
- approves an application for a person to hold a stake of greater
than 15 per cent in a company under section 14
- extends the period of the approval under section 15
- imposes, varies or revokes conditions on an approval under
- varies the approved percentage stake under section 17, or
- revokes an approval under section 18.
a copy of the notice of the Treasurer's action
must be must be published in the gazette and given to the company
There is no equivalent requirement for gazettal
of approvals in relation to section 63 of the Banking Act
or in relation to conditions under the proposed new section
Item 20 inserts a new provision
to strengthen the powers of the Australian Prudential Regulation
Authority. APRA may seek a Federal Court injunction to stop
breaches or compel compliance with :
- section 7, which requires that a person other than a body
corporate must not carry on banking business;
- section 8, which states that only the Reserve Bank and bodies
corporate that are ADIs may carry on banking business;
- section 66, which restricts the use of words such as 'bank',
'building society' or 'credit union' to APRA approved
- section 66A, which restricts the use of the phrase 'authorised
deposit-taking institution' or ADI;
- section 67, which prevents a person from establishing or
maintaining a representative office of a foreign bank without
APRA's consent and
- conditions imposed under new section 64.
Proposed subsection 65A(6)
states that in addition to APRA, the Treasurer may apply for an
injunction if conditions imposed under section 64 have been
breached. The Australian Securities and Investments Commission
(ASIC) or a member of an ADI may seek an injunction if a condition
in relation to a demutualisation of an ADI has been breached.
Proposed subsection 65A(8)
makes clear that the Court has the power to grant an interim
injunction. However neither APRA, ASIC or the Treasurer can be
required to pay damages as a condition of obtaining the injunction
(proposed subsection 65A(10)).
Item 21 inserts
proposed subsection 69(11A) which allows the
Treasurer to delegate powers in relation to unclaimed moneys to
Treasury agencies or members of such agencies.
Schedule 2: Amendments to the
Reserve Bank Act 1959
Item 3 inserts into subsection
5(1) a new definition 'staff member of the Reserve Bank Service' to
replace the various definitions of 'officer' repealed by
items 1 and 2. A staff member will be either a
person appointed under proposed section 67 or
consultants appointed under proposed section
The amendments proposed by Schedule
2 will also give the Reserve Bank of Australia (RBA) more
flexibility in relation to loans to staff. This matter has recently
generated some controversy. The Leader of the Opposition has
described the fact that Bank executives sitting on the Board have
access to a home loan at a discounted rate of interest as
'extremely insensitive' however the Treasurer has defended as a
longstanding practice.(5) It is of note that most banks
offer employees discounted loans.(6)
Currently, the RBA's ability to lend to staff
members is governed by section 71. Under that provision the Bank
may only lend money to officers:
- for the purchase, erection, alteration, renovation or
enlargement of a home in which he or she resides or intends to
- to discharge a mortgage or encumbrance on such a home, or
- in special circumstances, upon such terms and conditions as the
Governor thinks fit, providing the loan does not exceed $1000.
Section 71 is repealed by item
10. The effect is that the restrictions on the purposes
for which the RBA may lend money to staff will be removed.
Loans will now be governed by proposed
section 67 which is inserted by item 8.
Proposed subsection 67(2) will allow the terms and
conditions of appointment (including as to remuneration) to be
determined by the RBA. This will potentially allow the RBA to make
loans to staff members for purposes other than the purchase of a
residential property such as, for example, the purchase of an
investment property or a share portfolio. Such a change could be
justified on equity grounds, as the ability to access a benefit of
employment (ie a loan at discounted rates) would not be dependent
on the intended purpose of the loan.
Schedule 3: Amendments to the
Superannuation Industry (Supervision) Act 1993
Three regulatory bodies oversee the
superannuation industry. The Australian Securities and Investments
Commission (ASIC) is responsible for consumer protection, for
example through the enforcement of disclosure requirements. The
Australia Prudential Regulation Authority (APRA) is the prudential
regulator. Amongst other things it is responsible for ensuring
superannuation funds have sound policies in place so that they will
be able to honour their commitments. In addition, the Australian
Taxation Office (ATO) is responsible for all self-managed
The regulatory responsibility for enforcing
various provisions of the Superannuation Industry (Supervision)
Act 1993 (the SIS Act) is allocated by section 6 of the
Item 14 inserts
proposed section 120A which introduces a new
regulatory power designed to ensure that people who are not judged
to be 'fit and proper' or have contravened the SIS Act are unable
to operate superannuation funds. Proposed section
120A allows the relevant regulator(7) to
disqualify a person from being a trustee, custodian or investment
manager of a superannuation fund.
The disqualification power also applies in
relation to responsible officers of bodies corporate that are
trustees, custodians or investment managers. 'Responsible officer'
is defined in section 10 as meaning a director, executive officer
or secretary of a body corporate. Under proposed subsection
120A(2) the regulator may disqualify a responsible officer
if it is satisfied that:
- the body corporate has contravened the Act
- at the time of the breach the person was the responsible
officer of the body corporate, and
- the nature, seriousness or number of contraventions provides
grounds for disqualification.
In addition the regulator may also disqualify a
person if satisfied that the person is not a fit and proper person
to be a trustee, custodian, or investment manager or the
responsible officer of the body corporate performing such
functions. The criteria to be used in determining whether a person
is fit and proper is not contained in the Bill. It appears to be
the intention of the Bill to leave the formulation of such criteria
to the discretion of individual regulators.
Item 33 inserts a new offence.
Under proposed section 131B a penalty of up to
$5,500 will apply to persons who falsely hold themselves out to be
an auditor or an actuary. The offence is one of strict liability.
That is, the prosecution does not need to prove a fault element in
the offence such as an intention to breach the section.
Item 36 inserts
proposed new division 3A which will allow the
relevant regulator to accept and enforce undertakings. This
provision is modelled on section 87B of the Trade Practices Act
1974 which was introduced in 1992. ACCC Chairman Alan Fels has
strongly supported the provision as a regulatory tool stating that
'legally enforceable undertakings..(have) made the Act both more
effective and helped avoid court procedures'.(8)
Proposed section 262A allows a
regulator to accept an undertaking in relation to matters where the
regulator has a function or powers under the Act. A person may
withdraw an undertaking but only with the regulators consent.
If the regulator considers that the undertaking
has been breached, the regulator may seek a Federal Court
- directing the person to comply with a term of the
- directing the person to pay the Commonwealth an amount up to
the total financial benefit that the person obtained as a result of
- ordering the person to pay compensation to other parties who
have suffered loss as a result, or
- giving any other order that the Court deems appropriate.
Removal of Immunity from
Prosecution in Relation to Certain Evidence
- At common law a person may refuse to answer a question or
produce a document if doing so would have a tendency to expose that
person to a criminal conviction or the imposition of penalty. Under
the SIS Act the common law privilege is replaced by a statutory
obligation to provide information.(9) The Act however
provides that if information is given, a record of examination
signed or a book produced, it is not admissible in evidence in any
subsequent criminal proceedings unless those proceedings relate to
the provision of false evidence. This is known as direct use
immunity. Items 37 to 40 prevent a person under
investigation from claiming privilege in relation to the production
of books thereby removing the direct use immunity.
- The SIS Act also currently provides for 'derivative use'
immunity. Where a statement is made or a record signed, any
information, document or other thing obtained as a consequence of
the person's action is inadmissible in a criminal
proceedings.(10) This immunity is removed by
- Similar changes were made to the Australian and Securities
and Investment Commission Act 1992 and the Corporations Law by
the Corporations Legislation (Evidence) Amendment Act
1992. At the time doubts were expressed about whether it was
necessary or desirable to abolish derivative use
immunity.(11) However a review of the legislation in
1997 endorsed the changes and stated that the:
Amendments have greatly assisted the ASC in its
enforcement of the national scheme law, primarily by increasing the
Commission's ability to more fully and expeditiously utilise its
power to conduct compulsory oral examinations.(12)
- Based on the experience the ASC, it may be expected that the
removal of these immunities should make it easier for APRA to
pursue prosecutions under the SIS Act.
Part 2: The Criminal Code
The Commonwealth Criminal Code is contained in
the Schedule to the Criminal Code Act 1995. Chapter 2 of
the Code sets out the general principles of criminal
responsibility, which apply under Commonwealth Law. The Chapter is
due to commence on 15 December 2001.
Proposed section 9A applies the
Chapter 2 of the Code to the SIS Act with certain listed
exceptions. According to the Explanatory Memorandum these offences
will be amended at a later date to ensure compliance with the
Currently most offences in the SIS Act contain
what is described in the Criminal Code as a 'fault' element. This
means that the prosecution must show intention, knowledge,
recklessness or negligence. Items 46, 47, 49, 50, 51, 58,
59, 63, 67, 76 convert these offences into offences of
strict liability with a maximum penalty of 50 penalty units
($5,500). Items 48, 52, 53, 54, 55, 60, 61, 65, 66,
68-75 establish 'two-tier' offences which may be
prosecuted either as fault based offences or as offences of strict
liability. A maximum penalty of 100 penalty units ($11,000) applies
if the fault elements of an offence can be made out. A maximum
penalty of 50 penalty units applies if the strict liability offence
The policy rationale for the move from a fault
based regime to a strict liability scheme is not apparent from the
Explanatory Memorandum or the Minister's Second Reading Speech. The
Senate Standing Committee for the Scrutiny of Bills has requested
that the Treasurer advise the Committee on the reasons for the
The amendments in Division 2
are purely technical. All amendments (except items 82, 85
and 90) confirm that a range of existing offences are
strict liability offences and direct the reader to the relevant
provisions of the Criminal Code.
Sections 123, 163 and 303 of the SIS Act create
offences concerning the appointment of custodians, the use of
statements by experts and record-keeping respectively. In each case
the relevant section provides for a defence. Items 82, 85
and 90 relate to the burden of proof required by a person
seeking to invoke a particular defence. These items add 'notes'
only. In relation to items 82 and 85 (sections 123
and 163), the defendant bears an evidential burden
only, that is, the burden of adducing or pointing to evidence that
suggests a reasonable possibility that the matter exists or does
not exist.(15) In contrast, item 90
(section 303) makes it clear that the defendant bears the legal
burden, that is, the burden of proving the existence of the matter.
- For example a bank, building society or credit union.
- Section 16.
- Sections 16 and 31.
- p. 5.
- Chris Griffith, 'Bank's Mates Rates', Daily Telegraph,
April 10 2000. See also The Hon. Kim Beazley, Transcript of
Doorstop Interview, 10 April 2000 and The Hon. Peter Costello,
House of Representatives, Hansard 10 April 2000 p. 14938.
- Chris Griffith, 'Bank's Mates Rates', Daily Telegraph,
April 10 2000.
- 'Regulator' is defined in section 10 of the SIS Act to include,
APRA, ASIC and the Commissioner of Taxation.
- Speech by Alan Fels to the Australian Institute of Company
Directors, 'National Competition Policy and Directors' Duties under
the Trade Practices Act 1974', Western Australia,
1 May 1997.
- Subsection 287(1).
- As with direct use immunity, the evidence may be used where a
person is charged with giving false statement.
- See Joint Statutory Committee on Corporations and Securities,
'Use Immunity Provisions in the Corporations Law and the
Australian Securities Commission Law', November 1991
(Dissenting Report) and Peter Costello, House of Representatives,
Debates, 30 March 1992 p. 1367.
- John Kluver, Report on the Review of the Derivative Use
Immunity Reforms, May 1997
- p. 25.
- Senate Standing Committee for the Scrutiny of Bills, Alert
Digest, No. 6 2000 10 May 2000
- See Section 13.3 of the Criminal Code.
29 May 2000
Bills Digest Service
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