Bills Digest no. 169 2009–10
Financial Sector Legislation Amendment (Prudential
Refinements and Other Measures) Bill 2010
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
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Financial Sector Legislation Amendment
(Prudential Refinements and Other Measures) Bill 2010
Date introduced: 26 May 2010
House: House
of Representatives
Portfolio: Treasury
Commencement: Sections 1–3: on Royal Assent; Schedule 4
(item 4): on the day after Royal Assent; Schedule 1 (items
1–25; 27–46), Schedule 2 (items 1–83;
85–93), Schedule 3 (items 1–51; 53–63), Schedule
4 (items 1-3; 5–25; 27–36), Schedule 6 (items
1–64; 66–78) and Schedule 7: on the 28th day
after Royal Assent; Schedule 5: on 1 July 2010; Schedule 1
(item 26), Schedule 2 (item 84), Schedule 3 (item 52), Schedule 4
(item 26), Schedule 6 (item 65): for various commencement
arrangements, please refer to table at item 2 in
the Bill
Links: The
links to the Bill, its Explanatory Memorandum and second
reading speech can be found on the Bills page, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
The Financial
Sector Legislation Amendment (Prudential Refinements and Other
Measures) Bill 2010 (the Bill) proposes to amend various Acts to
strengthen Australia’s crisis management and prudential
framework.[1] These
Acts include:
- Australian Prudential Regulation Authority Act 1998
(APRA Act)
- Banking Act 1959 (Banking Act)
- Insurance Act 1973 (Insurance Act)
- Life Insurance Act 1975 (Life Insurance Act)
- Retirement Savings Account Act 1997 (RSA Act)
- Superannuation Industry (Supervision) Act 1993
(Superannuation Supervision Act), and
- Financial Sector (Collection of Data) Act 2001 (FSCODA
Act).
In addition, the Bill proposes to amend other
legislation to make changes to the levy system, most of which were
recommended in the 2009 Report of the Review of Financial
Sector Levies (see below).[2] These Acts include:
- Financial Institutions Supervisory Levies Collection Act
1998 (FI Levies Collection Act)
- Authorised Deposit-taking Institutions Supervisory Levy
Imposition Act 1998 (ADI Levy Imposition Act)
- General Insurance Supervisory Levy Imposition Act 1998
(GI Levy Imposition Act)
- Life Insurance Supervisory Levy Imposition Act 1998
(LI Levy Imposition Act)
- First Home Saver Account Providers Supervisory Levy
Imposition Act 2008 (FHSA Levy Imposition Act)
- Retirement Savings Account Providers Supervisory Levy
Imposition Act 1998 (RSA Levy Imposition Act), and
- Superannuation Supervisory Levy Imposition Act 1998
(Superannuation Levy Imposition Act).
The Australian Prudential Regulation Authority (APRA) is a
Commonwealth statutory authority established in 1998 under the APRA
Act and which operates under various Commonwealth Acts including
those mentioned above.
APRA is the prudential regulator of the Australian financial
services industry, which includes banks, credit unions, building
societies, general and life insurance companies, reinsurance
companies and most members of the superannuation industry.[3]
APRA’s prudential regulation role involves the
following:
- establishing prudential standards
- assessing new licence applications
- assessing financial integrity of supervised institutions
- carrying out remediation, crisis response and enforcement where
necessary.[4]
All deposit-taking institutions (ADIs); friendly
societies; general insurance, reinsurance and life insurance
companies; as well as trustees of prudentially regulated
superannuation funds must be licensed to operate in
Australia.[5] Once
licensed, an institution is subject to ongoing supervision by APRA,
in which APRA follows a risk-based approach, where licensees with
greater risks are supervised more closely.[6]
APRA’s prudential standards set out minimum
capital and risk-management requirements, which licensees must
follow in order to maintain their licence.
Where institutions are unable or unwilling to
comply with their prudential requirements, APRA is able to take
remediation or enforcement action. This includes conducting
investigations of and giving directions to the non-complying
institutions.[7] In
certain cases, APRA may also apply to the Federal Court of
Australia to disqualify a person working in the supervised
institution from working in the relevant industry; appoint a
statutory manager; replace a trustee or apply to the Court to
appoint a judicial manager to take control of the non-complying
institution.[8]
For more comprehensive information about
APRA’s supervisory role, see its
Supervision Blueprint, released in January 2010.[9]
APRA also collects information for its own purposes and acts as
the national statistical agency for the financial sector.[10]
Finally, APRA administers the Financial Claims Scheme (FCS)
established in 2008. The aim of the FCS is to protect certain
policy holders and claimants who make valid claims against a
general insurer where that insurer is insolvent.[11]
APRA’s prudential supervision is, in part, funded by
industry levies determined by the Federal Government each
year.[12] The
levies also cover certain functions of the Australian Securities
and Investments Commission (ASIC) and the Australian Tax Office
(ATO) in relation to institutions regulated by APRA.[13]
A review of the methodologies used in determining financial
sector levies was conducted by Treasury and APRA in 2008 and 2009,
with a report published in June 2009 (the Levies Review
Report).[14]
Recommendations made in the Levies Review Report included the
following:
That the levy date for new starters should be
redefined and a new starter return be introduced.
That the imposition legislation be amended to
provide more flexibility so that a valuation basis other than
assets can be used on a case by case basis in the annual
determinations.[15]
On 1 June 2010, the Senate Standing Committee for
Economics—Legislation Committee stated that it had considered
provisions in the Bill and determined that there were no
substantive matters requiring examination.[16]
Treasury released an exposure draft of the Bill on 19 January
2010 for comment,[17] to which various stakeholders submitted
comments.[18]
In general, stakeholders supported the proposed amendments in
the exposure draft.[19]
However, it is noted that the Self-Managed Super Funds
Professionals Association of Australia (SPAA) expressed concern
about the proposed amendments to proposed section 130BB of the
exposure draft. In brief, SPAA stated that:
SPAA is concerned about the severity of the
penalty that could be imposed on SMSF trustees under this
section.
There is no distinction made between the
trustees of large funds and the trustees of an SMSF. The former are
managing the superannuation affairs of a large number of unrelated
members, whereas SMSF trustees are managing affairs for themselves
and their immediate family group. Therefore the consequences of a
breach under section 130BB are arguably much less severe in the
case of a SMSF when compared to a larger fund.
...
In short, SPAA finds it difficult to foresee a
situation where the actions of a SMSF trustee under section 130BB
may warrant 5 years imprisonment. SPAA therefore considers that a
less onerous penalty regime should apply under this section to SMSF
trustees.[20]
The Association of Superannuation Funds of
Australia (ASFA) also expressed some concern about proposed section
130BB of the exposure draft. It stated:
ASFA has two concerns with proposed section
130BB:
o The narrow class of persons that
can be penalised, and
o The broadness of the term
‘reasonable steps’.
...
The offence of knowingly providing false or
misleading information to an auditor is restricted to the trustee,
a responsible officer of a trustee or an employee of the trustee of
a superannuation entity. ASFA’s concern is that parties
beyond those listed may, without risk of penalty, provide false or
misleading information to a listed person for the sole purpose of
covering up a breach by that other person. The person involved may
be, for example, the accountant, administrator or other service
provider to a superannuation fund. ASFA would argue that, unless
the offence is widened to capture a broader range of persons, an
auditor may be required to report interference under new section
130BA by a person in respect of whom the Regulator would be
powerless to take action under section 130BB.
To avoid penalty under proposed subsection
130BB(2), the relevant person is required to demonstrate that they
took ‘reasonable steps’ to ensure that information
provided to the auditor was not false or misleading in a material
particular or missing something that makes the information
misleading in a material respect.
ASFA’s concern is that the legislation
uses the term ‘reasonable steps’ while the explanatory
material and the heading to the provision uses the term
recklessness. ASFA is concerned that a person who considers that
they have taken reasonable steps in ensuring the accuracy of the
information provided could, in the regulator’s opinion, be
found to not have taken reasonable steps.[21]
It is noted that proposed section 130BB of the Exposure Draft
has been included in item 35 of Schedule
4 of the Bill in the same form.[22]
No stakeholder comments have been found in relation to the
proposed amendments in the Bill itself.
The Government states that the proposed measures in the Bill
would have no significant financial impact.[23]
Due to the short timeframe between when the
Bill was introduced and when it was to be debated; as well as the
comprehensive information set out in the Explanatory Memorandum,
this Digest will only deal with some of the proposed
amendments.
Some amendments in Schedule 1 aim to enhance
APRA’s powers to prevent prudential concerns arising in
relation to ADIs.[24]
One such amendment is set out in items 5 and
8 of Schedule 1, which propose to
insert new subsections 9(2A) and
11AA(1A) into the Banking Act.
Section 9 currently relates to authority to carry on a banking
business in Australia. Section 11AA currently relates to authority
to be a non-operating holding company (an NOHC) of an ADI.[25]
Proposed subsections 9(2A) and
11AA(1A) provide that APRA may set criteria for
the granting of such authority by legislative instrument.
The Explanatory Memorandum states:
The amendment enhances the authorisation
framework by permitting minimum standards for entry and
participation in regulated financial markets to be made by
legislative instrument. Currently, such criteria are set out in
APRA guidelines.[26]
Similar amendments are proposed in Schedule 2
items 9 and 12 (inserting
proposed subsections 12(1B) and
18(2A) into the Insurance Act) and
Schedule 3 items 2 and 4 (inserting proposed subsections 20(2A)
and 28A(2A) into the Life Insurance Act).
Other proposed amendments relating to APRA’s preventive
powers are set out in items 7 and
9 of Schedule 1, which propose to
insert new subsections 9A(5A) and
11AB(5A) respectively into the Banking Act.
The Banking Act currently provides APRA with power to revoke
authorisations to carry on banking business in certain
circumstances. However, the Banking Act does not enable APRA to
continue an authorisation in effect upon revocation of that
authorisation. An authorisation continuing in effect means that
following a revocation of an authorisation, the authorisation is
said to continue in relation to a specified matter or for a
specified period of time as though the revocation of the
authorisation had not occurred. This is said to have implications
on APRA’s ability to ‘monitor an entity, or act under
relevant laws, after the entity’s authorisation has been
revoked’.[27]
Proposed subsections 9A(5A) and
11AB(5A) provide that the notice of revocation of
an authority may state that the authority continues in effect in
relation to a specified matter or period of time, as if the
revocation did not happen for certain purposes. These purposes
are:
- a specified provision of the Banking Act or regulations
- a specified provision of another Commonwealth law that APRA
administers, or
- a specified provision of the prudential standards.
Similar amendments are proposed in
Schedule 2 items 11 and 13
(inserting proposed sections 16A and
22A into the Insurance Act) and Schedule 3
items 3 and 5 (inserting proposed
sections 28 and 28E into the Life
Insurance Act).
It is noted that an existing equivalent provision
is section 29GB of the Superannuation
Supervision Act, which enables APRA to allow a Registrable
Superannuation Entity (RSE) licence to continue in effect.[28]
Under the Banking, Insurance and Life Insurance Acts, there are
various provisions relating to the appointment of auditors and
conduct of audits, which vary across those Acts. Consequently, the
Bill contains provisions aimed at harmonising these laws.
For example, item 10 of Schedule
1 proposes to insert new subsection
11AF(1AB) into the Banking Act.
Section 11AF currently relates to APRA’s powers to make
prudential standards for ADIs and authorised NOHCs.
Proposed subsection 11AF(1AB) provides that
such a standard may provide for matters relating to the appointment
of auditors or the conduct of audits.
According to the Explanatory Memorandum, ‘[t]his clarifies
the existing law’.[29]
Similar amendments are proposed in Schedule 2 item
18 (see proposed new paragraph 32(3)(b) -
Insurance Act) and Schedule 3 item 49 (inserting
proposed subsection 230A(1A) into the Life
Insurance Act).
Item 36 of Schedule 1 proposes
to insert new section 16AV into the Banking
Act.
Proposed section 16AV provides that if the
prudential standards require an auditor to be appointed, the
appointed auditor must perform the functions and duties of an
auditor as set out in those standards.[30] Not only must the appointed auditor
comply with those standards in performing such functions and
duties, but the relevant ADI or authorised NOHC must make any
necessary arrangements to enable the appointed auditor to perform
those functions and duties.
Similar provisions in relation to compliance with prudential
standards and making necessary arrangements to enable the auditor
to perform functions and duties are proposed in Schedule 3
item 11 (inserting proposed sections 83
and 83B into the Life Insurance Act).
Currently, there is nothing in the relevant financial sector
legislation, being amended in the Bill, which prohibits misleading
or otherwise interfering with an auditor in carrying out his or her
functions. Yet, section 1309 of the Corporations Act 2001
(the Corporations Act) makes it an offence for an officer or
employee of a corporation to knowingly mislead an auditor of the
corporation.
There is also no prohibition in such financial sector
legislation requiring an auditor to advise APRA or the ATO that
someone has tried to interfere with the auditor carrying out his or
her duties. Again, section 311 of the Corporations Act provides for
this.
As the Explanatory Memorandum states:
The present offences in the Corporations Act
apply when auditors are undertaking functions or exercising duties
under the Corporations Act, but not when undertaking similar
functions or exercising similar duties under the prudential
Acts.[31]
Item 38 of Schedule 1 proposes
to insert new sections 16D and
16E into the Banking Act.
Proposed section 16E makes it an offence for an
employee or officer of an ADI or authorised NOHC to knowingly give,
or allow to be given, false or misleading information to an auditor
of the entity. The penalty imposed is five years imprisonment
and/or 200 penalty units.[32]
Under proposed section 16E, it is also an
offence for an employee or officer of an ADI or authorised NOHC to
give, or allow to be given, such false or misleading information to
an auditor of the entity without taking reasonable steps to ensure
that the information is not false or misleading. The penalty
imposed is two years imprisonment and/or 100 penalty units.
Proposed section 16D provides that if an
appointed auditor of an ADI or authorised NOHC is aware of
circumstances amounting to the following:
- someone has tried to unduly influence, coerce, manipulate or
mislead the appointed auditor in connection with the performance of
that auditor’s functions or duties, or
- someone has tried to otherwise interfere with the performance
of that auditor’s functions or duties,
the appointed auditor must notify APRA of those circumstances as
soon as practicable, and no later than 28 days, after he or she
becomes aware of those circumstances.
Failure to do so is an offence punishable by 12 months
imprisonment and/or 50 penalty units.
Similar amendments are proposed in Schedule 2 item
35 (inserting proposed sections 49D and
49DA into the Insurance Act); Schedule 3
item 29 (inserting proposed sections
90 and 91 into the Life Insurance
Act); and Schedule 4 items 20 (inserting
new Division 2A into the FSCODA
Act), 29 (inserting proposed sections
69 and 70 into the RSA Act) and
35 (inserting proposed sections
130BA and 130BB into the Superannuation
Supervision Act).
As mentioned above, APRA has a range of enforcement powers and
sanctions to respond proportionately to compliance concerns. Where
APRA is unable to resolve prudential concerns by working
cooperatively with the Board and management of a supervised entity,
it becomes necessary for APRA to use more direct methods of
enforcing compliance.
Issuing directions is one such method. The ability to issue
directions enables APRA to specify how an institution should
resolve compliance issues and to compel the institution to take
specific action to address identified prudential risks.[33] The Banking, Insurance
and Life Insurance Acts enable APRA to issue directions to
regulated institutions if certain conditions are satisfied. The
Bill proposes to amend such conditions.
Item 13 of Schedule 1 proposes
to amend paragraph 11CA(1)(h) in the Banking
Act.
Existing paragraph 11CA(1)(h) provides that APRA may issue
directions to an ADI or an authorised NOHC if APRA has reason to
believe that there has been or might be a sudden material
deterioration in the body corporate’s financial
condition.
Proposed paragraph 11CA(1)(h) provides that
APRA may issue directions to an ADI or an authorised NOHC if APRA
has reason to believe that there has been or might be a material
deterioration in the body corporate’s financial condition,
omitting the word ‘sudden’.
The Explanatory Memorandum states:
This reflects that it is not the speed but the
extent of the deterioration that should be relevant in determining
whether the trigger is met.[34]
Similar amendments are proposed in Schedule 2 item
86 (amending paragraph 104(1)(g) of the
Insurance Act) and Schedule 3 item 54 (amending
paragraph 230B(1)(g) of the Life Insurance
Act).
Under existing subsections 11CA(1) and (2) of the Banking Act,
APRA can direct a regulated entity to do, or cause a subsidiary to
do, certain things if certain conditions are met, but the
conditions themselves (subsection 11CA(1)) do not refer to
subsidiaries.
Item 14 of Schedule 1 proposes
to insert new subsection 11CA(1AA) into the
Banking Act, which would enable APRA to issue directions to an ADI
or authorised NOHC if particular conditions are met.
First, APRA must consider that the direction is reasonably
necessary for one or more prudential matters relating to the ADI or
authorised NOHC.
Second, APRA must have reason to believe that, in relation to
the ADI or authorised NOHC:
- a subsidiary is or about to become unable to meet its
liabilities
- there has been or might be a material risk to the security of a
subsidiary’s assets
- there has been or might be a material deterioration in a
subsidiary’s financial condition
- a subsidiary is conducting its affairs in an improper or
financially unsound manner, or
- a subsidiary is conducting its affairs in a way that may cause
or promote instability in the Australian financial system.
The Explanatory Memorandum states:
The amendment reflects that the conduct or
circumstances of a subsidiary of a regulated body may in some
instances affect prudential matters relating to the regulated
body.[35]
Similar amendments are proposed in Schedule 2 item
87 (inserting proposed subsection 104(1A)
into the Insurance Act) and Schedule 3 item 55
(inserting proposed subsection 230B(1AA) into the
Life Insurance Act).
Item 17 of Schedule 1 proposes
to insert new subsection 11CA(2B) into the Banking
Act relating to directions that APRA may issue to foreign ADIs
regarding assets and liabilities.
Proposed subsection 11CA(2B) provides that APRA
may direct a foreign ADI:
- a particular
asset or class thereof of the ADI be returned to the control of the
part of the ADI’s banking business that is carried out in
Australia, or
- a particular
liability or class thereof of the ADI cease to be the
responsibility of the part of the ADI’s banking business that
is carried out in Australia, or
- to not act in a way that:
- a particular
asset or class thereof of the ADI ceases to be under the control of
the part of the ADI’s banking business that is carried out in
Australia, or
- a particular
liability or class thereof of the ADI becomes the responsibility of
the part of the ADI’s banking business that is carried out in
Australia.
The Explanatory Memorandum states:
The amendment clarifies that APRA may issue a
direction to prevent inappropriate intra-entity transactions that
may undermine the financial position of the ADI’s Australian
operations. This may be particularly important in a situation where
the foreign ADI is in financial distress and to ensure that
liability holders in Australia are not disadvantaged in the winding
up or other resolution of the ADI.[36]
APRA has power to investigate or appoint someone to investigate
APRA regulated entities and the ATO has similar powers in relation
to superannuation entities that the ATO regulates.[37]
However, it is stated in the Explanatory Memorandum that:
... there is uncertainty as to whether APRA and
the ATO may commence or continue an investigation once such an
entity enters external administration or, in the case of a
superannuation entity, the entity is wound up, dissolved or
terminated or the trustee becomes externally-administered or
insolvent under administration.
This uncertainty is undesirable. Investigation
powers are important for gathering information and evidence for the
purposes of administering and enforcing relevant laws.[38]
The proposed amendments in the Bill seek to address this
uncertainty.
Items 19, 24,
43 and 44 of Schedule
1 propose to insert new subsections
13(6), 13A(7), 61(7) and
62(3) respectively into the Banking Act.
Section 13 enables APRA to obtain certain information from an
ADI. Proposed subsection 13(6) generally makes it
clear that section 13 applies to an ADI which is or becomes an
externally-administered body corporate, in the same way as it
applies to any other ADI.
Proposed subsections 13A(7),
61(7) and 62(3) would have a
similar effect in relation to their respective sections. Section
13A enables APRA to investigate or appoint someone to investigate
an ADI that is failing, or likely to fail, to meet its obligations
or suspend payments. Section 61 enables APRA to investigate various
ADIs and NOHCs (or subsidiaries thereof) in particular
circumstances. Section 62 relates to APRA’s ability to obtain
information from ADIs and authorised NOHCs (or subsidiaries
thereof) in particular circumstances.
The Explanatory Memorandum states:
The amendments clarify that APRA may commence
or continue an investigation after an ADI ... enters external
administration ...[39]
Similar amendments are proposed in Schedule 2 item
46 (inserting proposed subsection
52(6) into the Insurance Act) and Schedule
3 item 40 (inserting proposed subsection
137(3) into the Life Insurance Act). See also
Schedule 4 item 36 (inserting proposed
subsection 263(3) into the Superannuation Supervision
Act).
Item 40 of Schedule 1 proposes
to insert new section 22A into the Banking
Act.
Proposed subsection 22A(1) provides that, in
any proceeding under or arising out of the Banking Act, a person
may not refuse or fail to comply with any of the following
requirements to:
- answer a question or give information
- produce books, accounts or other documents, or
- do any other act,
on the grounds that by doing so, there might be a chance that he
or she be disqualified. This is irrespective of whether the person
is a defendant in or a party to the proceeding or any other
proceeding (proposed subsection 22A(2)).
Proposed subsection 22A(3) provides similarly
in relation to statutory requirements under the Banking Act to:
- answer a question or give information
- produce books, accounts or other documents, or
- do any other act.
This is irrespective of whether any legal
proceeding is on foot.
As the Explanatory Memorandum explains:
The relevant Acts presently contain various
provisions relating to the admissibility of information or
documents obtained from a person under them as evidence against
that person in a criminal proceeding or a proceeding for the
imposition of a penalty. The Bill provides that these provisions do
not apply to a proceeding for the imposition of a penalty by way of
disqualification under the respective Acts. This prevents any
inconsistency arising between those present provisions and the new
provisions inserted by the Bill.[40]
Similar amendments are proposed in Schedule 2 item
14 (inserting proposed section 26A into
the Insurance Act), Schedule 3 item 58 (inserting
proposed section 245C into the Life Insurance Act)
and Schedule 4 items 28 (inserting
proposed section 67AA into the RSA Act) and
34 (inserting proposed section
126L into the Superannuation Supervision Act).
The Banking Act currently has no provisions on record keeping by
regulated entities.
While the Insurance, Life Insurance and Superannuation
Supervision Acts do have such provisions, they are said to be:
... not consistent with respect to their
accessibility by APRA. It is important that APRA can efficiently
access records kept by financial institutions where required to
further the administration of prudential laws.[41]
Consequently, the Bill proposes amendments to those Acts to make
record-keeping provisions consistent across the Acts.
For example, item 42 of Schedule
1 proposes to insert new section 60 into
the Banking Act, related to keeping financial records.
Proposed section 60 generally requires any
financial records kept under the Corporations Act, to be kept in
Australia or in another country as approved by APRA (approval may
be subject to certain conditions). In addition, records must be in
English or in a form in which they are readily accessible and
easily convertible into writing in English (proposed
subsections 60(1) and (2)). Failure to do
so is an offence punishable by a penalty of 200 penalty units
(proposed subsection 60(6)).[42]
An ADI must notify APRA of the address where the financial
records are kept, including any new address if the records have
been moved, within a particular period of time (proposed
subsections 60(3)–(5)).
Finally, both APRA’s decision to refuse to give approval
for records to be kept in another country and APRA’s decision
to approve the keeping of records in another country subject to
conditions are reviewable under Part VI of the Banking Act
(Reconsideration and review of decisions). This means that, under
section 51B of the Banking Act, a person who is affected by and is
disappointed with the decision may request that APRA reconsiders
that decision, accompanied by reasons for the request, within a
particular period of time. APRA must then reconsider the decision
and may confirm, vary or revoke it. In addition, under section 51C
of the Banking Act, an application may be made to the
Administrative Appeals Tribunal (the AAT) for a review of
APRA’s decision to confirm or vary the initial decision.
Similar amendments are proposed in Schedule 2 items
40 and 41 (amending
subsection 49Q(1) and inserting proposed
subsections 49Q(1A)–(1D) in the Insurance Act);
Schedule 3 items 9 and 57
(inserting proposed section 76A and
proposed paragraphs 236(1)(o)–(p) into the
Life Insurance Act) and Schedule 4 items
30–32 (inserting proposed paragraphs
10(1)(dp)–dq), substituting paragraph
35A(2)(b) and inserting proposed subsections
35A(2A)–(2D) in the Superannuation Supervision
Act).[43]
Recognising that some regulated financial institutions do become
at risk of experiencing financial difficulties that threaten their
ongoing viability, APRA has powers to intervene in such
circumstances so as to protect depositors and policyholders, as
well as maintain the stability of Australia’s financial
system.[44]
For example, items 20 and 21
of Schedule 1 propose to amend section
13A in the Banking Act relating to the consequences of an
ADI being unable or failing to meet its obligations. The proposed
amendment means that APRA may investigate an ADI’s affairs;
or take control of an ADI’s business or appoint an
administrator to do so, if APRA considers that in the absence of
external support:
- it is likely that the ADI will be unable to carry on its
banking business in Australia consistently with the interests of
its depositors, or
- it is likely that the ADI will be unable to carry on its
banking business in Australia consistently with the stability of
the financial system in Australia,
among other factors.
Unlike the existing provision, the proposed amendments would
allow the appointment of a statutory manager when either one or
both of those conditions are met.
The Explanatory Memorandum states:
This amendment reflects that the interests of
depositors and the stability of the financial system are separable
concepts, and that there may be circumstances where an ADI is
conducting its banking business in a manner that is not in the
interests of its depositors, but where this does not necessarily
adversely affect the stability of the financial system. The reverse
could also be the case. There is a need for APRA to be able to
appoint a statutory manager in either of these situations in order
to ensure prompt remedial measures are taken to address the
situation.[45]
Item 22 of Schedule 1 proposes
to amend paragraphs 13A(3)(c) and
(d) in the Banking Act by inserting new
paragraphs 13A(3)(c)–(f).
Existing subsection 13A(3) provides that if an ADI becomes
unable to meet its obligations or suspends payment, its assets in
Australia must be made available to meet its liabilities in a
particular order. However, priority is not specifically given to
debts owed to the Reserve Bank of Australia (the RBA) or under
industry support contracts.[46]
Proposed paragraphs 13A(3)(c)–(f)
addresses this gap by providing that, after two other higher
priorities, if an ADI becomes unable to meet its obligations or
suspends payment, its assets in Australia must be made available to
meet (in descending order of priority):
- any of the ADI’s liabilities in Australia in relation to
protected accounts that account-holders keep with the ADI
- any of the ADI’s debts to the RBA
- any of the ADI’s liabilities under an industry support
contract certified under section 11CB, and
- any of the ADI’s other liabilities.
Item 25 of Schedule 1 proposes
to insert new Subdivision AA (Recapitalisation directions
by APRA) into Division 2 (Protection of depositors) of
Part II of the Banking Act. New subdivision AA
contains proposed sections 13D–13R. The
proposed new provisions are aimed at clarifying that APRA can
direct an ADI, who is without a statutory manager, to recapitalise
provided that certain conditions are met.
Proposed subsection 13E(1) provides that such
conditions are:
- the ADI informing APRA that it considers that it is likely to
become unable to meet obligations or is about to suspend payment,
or
- APRA considers that in the absence of external support, the
ADI:
- may become unable
to meet its obligations
- may suspend
payment
- is likely to be
unable to carry on its banking business in Australia consistent
with the interests of its depositors
- is likely to be
unable to carry on its banking business in Australia consistent
with the stability of Australia’s financial system, or
- the ADI becomes unable to meet its obligations or it suspends
payment.
Proposed subsection 13E(2)
provides that in deciding whether to give such a direction, APRA
must consult with the Australian Competition and Consumer
Commission (ACCC) unless otherwise notified by the ACCC.
Under proposed subsection 13E(4), a
recapitalisation direction is not a legislative instrument.
According to the Explanatory Memorandum, this is because:
The provision is included to assist readers, as
the instrument is not a legislative instrument within the meaning
of section 5 of the Legislative Instruments Act
2003.[47]
Proposed section 13F, in general, provides that
a recapitalisation direction may require the ADI to issue shares or
rights to acquire shares in the ADI, or other capital instruments,
as specified in the direction. Only capital instruments specified
in the regulations may be included in the direction.
Proposed section 13H generally provides that
APRA must obtain and consider an expert’s report on the fair
value of shares or rights to acquire shares, unless doing so would
detrimentally affect the ADI’s depositors or the stability of
Australia’s financial system.
Proposed sections 13J and 13K
provide for the methodology that the expert must follow when
determining the fair value of each share in the ADI or right to
acquire thereof.
Under proposed section 13N, a recapitalisation
direction is no grounds to deny obligations where an ADI is a party
to a contract—whether the proper law of the contract is
Australian law or a foreign law.
Failure to make reasonable efforts to comply with a
recapitalisation direction, where contravention is not due to
circumstances beyond the ADI’s control, is an offence under
proposed subsections 13Q(1) and
(2). There is a similar offence provision relating
to officers of an ADI under proposed subsection
13Q(4), where the penalty is 50 penalty units.
Proposed section 13R provides generally that an
acquisition of shares, rights to acquire shares or other capital
instruments, directly resulting from compliance with a
recapitalisation direction, are authorised for the purposes of
subsection 51(1) of the Trade Practices Act 1974. This
means that the acquisition is not subject to the restrictive trade
practices provisions of that Act.
Similar amendments are proposed in Schedule 2 item
83 (inserting proposed sections
103A–103N into the Insurance Act) and
Schedule 3 item 51 (inserting proposed
sections 230AA–230AM into the Life Insurance
Act).
Item 27 of Schedule 1 proposes
to insert new section 14AD into the Banking Act.
Proposed section 14AD relates to APRA’s
ability to obtain information or documents for the purposes of
protecting depositors.
Proposed subsection 14AD(1) provides that APRA
may require a person, by issuing a written notice, to give
information or documents relating to the business of an ADI that
has a statutory manager if certain conditions are met. These
conditions are:
- where the statutory manager is APRA:
- APRA believes on
reasonable grounds that the person has the requisite information or
documents, and
- APRA requires the
information or documents for the purposes of protecting
depositors
- where the statutory manager is not APRA:
- the statutory
manager makes a written request to APRA to require the person to
give the information or documents
- APRA believes on
reasonable grounds that the person has the requisite information or
documents, and
- APRA is satisfied
that the statutory manager requires the information or documents
for the purposes of protecting depositors.
The notice must specify a period of time
(which is reasonable in all the circumstances), as well as the form
and manner, in which such information or documents must be given to
APRA (proposed subsections 14AD(2) and
(3)).
Failure to comply with such notice is an
offence punishable by a penalty of imprisonment for 12 months
and/or 50 penalty units (proposed subsection
14AD(4)).[48]
It is noted that under proposed
subsection 14AD(5), a person is not excused from complying
with such notice on the grounds that doing so would tend to
incriminate the individual person or make him or her liable to a
penalty.
However, the Bill affords some protection in
that under proposed subsection 14AD(6), in the
case of an individual person, neither the information or document
given; the act of complying with the notice; nor any information,
document or thing obtained as a direct consequence of complying
with the notice, are admissible in evidence against the person in
the following types of proceedings:
- a criminal proceeding, or
- a proceeding for imposing a penalty.
That protection does not apply to those
proceedings relating to the falsity of the information or
document.
The Explanatory Memorandum states:
The amendment recognises that information about
the financial condition of the ADI is most likely to be within the
knowledge of key personnel within the ADI or with whom the ADI
deals. The amendment enables APRA to require such information in a
timely manner so as to maximise the chances of rehabilitation or
crisis resolution.[49]
Proposed amendments to the FCS are expected to reduce costs for
consumers in facilitating FCS administration, ensuring timely
payment under the FCS and clarifying certain matters related to the
operation of the FCS.[50]
For example, item 29 of Schedule
1 proposes to insert new subsections
16AF(1A) and (1B) into the Banking
Act.
Proposed subsection 16AF(1A) provides that when
determining entitlements under the FCS, the interest payable on
protected accounts is payable at the rate of interest payable
according to terms and conditions of the protected account.
However, if APRA considers that such rate is uncertain, the rate of
interest is the rate that APRA declares is payable. Such
declaration is not a legislative instrument under proposed
subsection 16AF(1B).
Another proposed amendment relating to the FCS is item
33 of Schedule 1, which proposes to
insert new subsections 16AJ(2)–(9) into the
Banking Act, relating to the requirement on a liquidator of an ADI
to assist APRA in making payments under the FCS.
Existing section 16AJ enables APRA to require a liquidator,
appointed in connection with the actual or proposed winding up of
an ADI, among others, to give APRA reasonable assistance in the
performance of APRA’s performance or the exercise of its
powers, in relation to the FCS.
Proposed subsection 16AJ(2) enables APRA to
require a liquidator to also assist APRA in paying account holders
their entitlements under Subdivision C of Division 2AA of Part II
of the Act (Payment of account holders of declared ADIs). Under
proposed subsection 16AJ(4), the
liquidator’s compliance with this requirement takes
precedence over other requirements associated with winding up of
the ADI. In addition, under proposed subsection
16AJ(5), the liquidator does not have to comply unless
there is sufficient property to meet his or her costs, which are
likely to be incurred in complying with the requirement or unless
APRA indemnifies the liquidator for those costs.
Apart from the proposed amendments in Schedule
2 mentioned above, other amendments in Schedule
2 also aim to enhance APRA’s powers to prevent
prudential concerns arising in relation to insurers.
Item 18 of Schedule 2 proposes
to insert new subsection 32(3) into the Insurance
Act.
Section 32 of the Insurance Act currently enables APRA to
determine prudential standards.
The Explanatory Memorandum states that the existing provision
enables APRA to require the head entity and its subsidiaries to
comply with prudential standards individually; but not to make
prudential standards in relation to corporate groups, or parts of
groups, as a whole.[51]
Proposed subsection 32(3) provides a prudential
standard may require particular entities to ensure that its
subsidiaries (or particular subsidiaries); or the entity and its
subsidiaries (or particular subsidiaries), collectively satisfy
particular requirements in relation to prudential matters.
The Explanatory Memorandum states:
The amendment enables APRA to make prudential
standards with respect to general insurance groups or parts of such
groups where it is desirable to do so.[52]
It is noted that an equivalent provision is section 11AF of the
Banking Act.
Item 28 of Schedule 2 proposes
to insert new section 40 into the Insurance
Act.
Section 39 of the Act already requires a general insurer to
appoint an auditor and an actuary.
Proposed subsection 40(1) enables APRA to
require a general insurer, by written notice, to appoint a person
specified in the notice to be an auditor for a specified
purpose.
Under proposed subsection 40(2), the specified
person may be the principal auditor or another auditor,
consequently creating a distinction between the two roles.
The Explanatory Memorandum states:
The latter term captures both the principal
auditor and an auditor appointed for a specific purpose by notice
from APRA.
The distinction ensures that provisions in the
Insurance and Life Insurance Acts are targeted at relevant
auditors. For example, the present requirements under the Acts on
insurers to appoint an auditor, to notify APRA of that appointment,
or for the auditor to audit the insurer’s yearly statutory
accounts, are not intended to apply to auditors appointed by notice
from APRA for a specific purpose. As a result, such provisions are
amended to refer to the ‘principal auditor’ rather than
to ‘an auditor’. Similarly, those provisions intended
to apply to all auditors are amended so as to refer to ‘an
auditor’.[53]
Similar amendments are proposed in Schedule 3 item
11 (inserting proposed section 83A into
the Life Insurance Act).
Currently, under section 62K of the Insurance Act, APRA is
entitled to be heard in proceedings of the Federal Court of
Australia, in relation to the appointment of a judicial
manager.
Under section 62R of the Insurance Act, the Federal Court may
cancel such appointment at any time and appoint another person as
judicial manager. However, there is no provision entitling APRA to
be heard in this situation.
Item 50 of Schedule 2 proposes
to insert new subsection 62R(3) into the Insurance
Act, providing that APRA is entitled to be heard in proceedings
before the Federal Court for the cancelling of the appointment of
the judicial manager.
The Explanatory Memorandum states:
This ensures that APRA’s views are taken
into account in all circumstances where the Federal Court may issue
an order relating to the appointment or cancellation of the
appointment of judicial management.[54]
A similar provision is proposed in Schedule 3 item
42 (inserting proposed subsection 163(3)
into the Life Insurance Act).
An amendment proposed in Schedule 2 relating to
the powers of judicial managers is set out in item
51, which proposes to insert new paragraph
62T(1)(c) into the Insurance Act.
Proposed paragraph 62T(1)(c) provides that at
the time judicial management commences, the judicial manager has
all the powers and functions of the Board of directors of the
general insurer. This is in addition to already existing management
powers of the general insurer.
The Explanatory Memorandum states:
These amendments align the powers of a judicial
manager with the powers of a statutory manager under the Banking
Act. There are certain decisions that may only be taken by the
Board of the insurer, which may be required to be made by a
judicial manager for the purposes of fulfilling its
functions.[55]
A similar amendment is proposed in Schedule 3 item
43 (inserting proposed paragraph
165(1)(e) into the Life Insurance Act).
Item 52 of Schedule 2 proposes to
substitute section 62ZD of the Insurance Act.
Existing section 62ZD enables APRA to request information from a
judicial manager of a general insurer about either the conduct of
the judicial management and/or the financial position of that
general insurer and it requires the judicial manager to comply with
that request.
Proposed subsection 62ZD(1) provides that in
addition to the above matters, APRA may also request information
from the judicial manager about a matter that APRA considers would
enable APRA to perform its functions under Part VC of the Insurance
Act (FCS for policy-holders with insolvent general insurers).
In addition, proposed subsections 62ZD(3) and
(4) set out fault-based and strict liability
offence provisions respectively, relating to judicial managers
failing to comply with APRA’s requests for such information.
The fault-based offence has a penalty of imprisonment for six
months and/or 100 penalty units.[56] The strict liability offence has a penalty of 60
penalty units.
The
Explanatory Memorandum states:
The strict nature of the latter offence
reflects APRA’s need to receive prompt and accurate
information about the conduct of judicial management and other
relevant matters.
These amendments ensure that the statutory or
judicial manager has can obtain the information required to
understand the affairs of a distressed ADI or general
insurer.[57]
A similar amendment relating to statutory managers is proposed
in Schedule 1 item 27 (Banking Act – see
above).
Transferring a business of an entity in financial distress to
one that is financially healthy may be a less expensive means of
resolving financial problems than winding up.[58]
Item 53 of Schedule 2 proposes
to insert new paragraph 62ZI(2)(aa) into the
Insurance Act.
Existing section 62ZI relates to a report that the judicial
manager must file with the Federal Court of Australia, recommending
a specified course of action that is, in his or her opinion, most
advantageous to the general interest of the policyholders of the
general insurer, as well as promoting financial system stability in
Australia.
Proposed paragraph 62ZI(2)(aa)
adds another possible course of action: transfer of the business,
or part thereof, of the company to another company under section 25
of the Financial Sector (Business Transfer and Group
Restructure) Act 1999 (FS and Group Restructure Act).
A
similar amendment has been proposed in Schedule 3 item
44 (inserting proposed paragraph
175(2)(aa) into the Life Insurance Act).
A
related amendment is proposed in Schedule 4 items
4 and 5 (amending section
25(1C) of the Financial Sector (Business Transfer and
Group Restructure) Act—see below for details).
The Bill proposes related amendments to the Insurance Act with
respect to complying with recapitalisation directions mentioned
previously.
For example, item 49 of Schedule
2 proposes to insert new subparagraph
62M(a)(iiia) into the Insurance Act enabling the Federal
Court of Australia to make an order for the appointment of a
judicial manager to a general insurer if that insurer has failed to
comply with a recapitalisation direction.
Items 77 and 78 of
Schedule 2 propose to amend section
62ZZO of the Insurance Act.
Section 62ZZO currently enables APRA to require reasonable
assistance from a general insurer or a liquidator appointed in
connection with the winding up, or proposed winding up of a general
insurer, in relation to APRA’s FCS functions and powers under
Part VC of the Insurance Act (FCS for policy-holders with insolvent
general insurers).
Amendments proposed in items 77 and
78 have the effect that, in addition to those from
whom APRA may already require assistance, APRA may require
assistance from a judicial manager of a general insurer.
Item 81 of Schedule 2 proposes
to insert new subsections 62ZZQ(8)–(10) into
the Insurance Act.
Section 62ZZQ currently relates to enforcing compliance with the
requirement to give APRA reasonable assistance and information
under section 62ZZO and subsection 62ZZP(1) of the Insurance Act,
as it relates to general insurers and liquidators.
Proposed subsections 62ZZQ(8)–(10)
extends the enforcement provisions to judicial managers.
In addition to the amendments proposed in Schedule
3 referred to above, Schedule 3 sets out
other proposed amendments to the Life Insurance Act.
Item 27 of Schedule 3 proposes
to insert new section 88B into the Life Insurance
Act, relating to an auditor’s duty to give information to
APRA when so required.
Currently, section 88A of the Act simply gives an auditor of a
life company, authorised NOHC or subsidiaries thereof, discretion
as to whether to give information to APRA that the auditor
considers would assist APRA in its functions under the Life
Insurance or FSCODA Acts.
In contrast, proposed subsection 88B(1) gives
APRA power to, by written notice, require a person who is or was an
auditor of a life company to:
- give APRA information, or
- produce books, accounts or documents,
about the life company if APRA considers that the giving of the
information or producing such books, accounts or documents, will
assist APRA in performing its functions under the Life Insurance or
FSCODA Acts.
The person must comply with such requirement in a way that does
not involve giving false or misleading information
(proposed subsection 88B(2)). Failure to comply
with the notice, or providing false or misleading information, is
an offence punishable by a penalty of either six months
imprisonment and/or 100 penalty units (fault-based offence) or 60
penalty units (strict liability offence) (proposed
subsections 88B(3)–(5)).[59]
Item 30 of Schedule 3 proposes
a similar amendment in relation to actuaries by inserting
new section 98B into the Life Insurance Act.
Item 57 of Schedule 3 proposes
to insert new paragraphs 236(1)(o) and
(p) into the Life Insurance Act.
Section 236 of the Act relates to the review of certain
decisions. Subsection 236(1) lists decisions under the Act that are
subject to review. Under subsections 236(2)–(4), a person
affected by such a decision may, within a certain period of time,
request the Regulator to reconsider that decision and provide
reasons for the request.[60] The Regulator may then confirm, revoke or vary the
decision in question (subsection 236(5)). Under subsection 236(8),
an application may be made to the AAT to review the
Regulator’s decision to confirm or vary the initial
decision.
The effect of item 57 is that both of the
following decisions will be reviewable under section 236 of the
Life Insurance Act:
- a refusal to give an approval under paragraph
76A(1)(b)—approval to keep records in a country
other than Australia, and
- a decision to give an approval subject to conditions under
paragraph 76A(1)(b).
A similar amendment is proposed in Schedule 4 item
30 (inserting proposed paragraphs
10(1)(dp)–(dq) into the Superannuation Supervision
Act), as discussed previously.
Schedule 4 contains amendments proposed to several Acts,
including:
- the APRA Act
- the FS and Group Restructure Act
- the FSCODA Act
- the RSA Act, and
- the Superannuation Supervision Act.
Item 1 of Schedule 4 proposes
to repeal paragraphs 56(1)(a)–(cc)
(definitions of ‘protected information’ and
‘protected document’), substituting them with
proposed paragraphs 56(1)(a)–(c).
Section 56 of the APRA Act deals with the protection and sharing
of protected information and documents by APRA.
The Explanatory Memorandum states:
Currently, the definitions of protected
information and documents in section 56 covers much but not all
information collected under prudential laws in relation to
financial sector entities (as defined in the FSCODA). All such
information and documents should be subject to the protection of
section 56 and the information sharing regime it contains.[61]
Proposed paragraphs (a)–(c) of the
definitions in subsection 56(1)
of the APRA Act captures financial sector entities as defined in
the FSCODA Act.
Items 4 and 5
of Schedule 4 propose to amend subsection
25(1C) of the FS and Group Restructure Act.
Section 25(1C) of this Act currently deals with
compulsory transfer of business determinations made by APRA, in
relation to transfers from one life insurance company to
another.
The amendment proposed in item 4
would extend the provision to transfers from a life insurance
company to another company not necessarily a life insurance
company.
Item 5 proposes to insert
new subsections 25(1D)–(1F) into the FS and
Group Restructure Act in relation to the following types of
transfers:
- unregulated business from a life insurance company
- business from a general insurer, and
- unregulated business from a general insurer.
In general, these new provisions would enable
APRA, in certain circumstances, to make determinations for the
transfer only of business that is not unregulated business from a
life insurance or general insurer, to an entirely different
company; as well as determinations for the transfer of business
from a general insurer to another general insurer. The
circumstances include APRA being satisfied that:
- the transferring body had contravened the Life insurance Act or
the Insurance Act (as the case may be), any regulations or other
instruments made under or any obligations imposed by the respective
Act, or
- the judicial manager of the transferring body had recommended
under the respective Act that the business be transferred to the
other company or general insurer (as the case may be).
Certain other conditions must also be
satisfied:
- APRA considering the interests of the policy owners of the
transferring body (viewed as a group) and, in considering to those
interests, concluding that it would be appropriate for the transfer
to be made, and
- conditions set out in subsection 25(2) of the FS and Group
Restructure Act, such as APRA being satisfied that:
- the board of
directors of the receiving entity consented to the transfer,
and
- the transfer is
appropriate, having regard to:
- the interests of the financial sector as a whole; and
- any other matters that APRA considers to be relevant.
For a discussion of related amendments to the
Insurance and Life Insurance Acts relating to business transfers,
see above.
Item 7 of Schedule 4 proposes
to substitute subsection 3(1) of the FSCODA
Act.
Subsection 3(1) currently states that the objective of this Act
is to enable APRA in collecting information to assist APRA in the
prudential regulation and monitoring of financial sector bodies, as
well as to facilitate the formulation of monetary policy by the
RBA.
However, as the Explanatory Memorandum states:
The global financial crisis highlighted that
the Government and other financial sector regulators may require
specific data to inform decisions and monitor subsequent outcomes
that cannot presently be collected by APRA under the FSCODA. This
includes data from non-prudentially regulated bodies which operate
in the financial sector.[62]
Consequently, proposed subsection 3(1) provides
that the objective of the FSCODA Act is to enable APRA to collect
information to assist:
- APRA in the prudential regulation and monitoring of financial
sector bodies
- another financial sector agency to perform its functions or
exercise its powers, and
- the Minister to formulate monetary policy.
‘Financial sector agency’ is defined in item
22 of Schedule 4, which proposes to
insert the new definition of ‘financial sector
agency’ into the FSCODA Act.
‘Financial sector agency’ would
mean:
- ASIC
- the RBA, and
- a Commonwealth, State or Territory authority that is prescribed
by the regulations.
Item 8 of Schedule 4 proposes
to amend the definition of ‘financial sector
entity’ in subsection 5(2) of the
FSCODA Act.
Currently, a ‘financial sector entity’ is a
registered or regulated entity; or a corporation that is a medical
indemnity entity under section 5A of the Act; or a discretionary
mutual fund, as defined in subsection 5(5) of the Act.
The proposed new definition means that the
FSCODA Act would also apply to certain persons providing financial
services and persons who participate in a payment system under the
relevant legislation and that reporting standards to be complied
with by such person may be made.[63]
Items 10 and 12 of
Schedule 4 propose to amend subsection
13(1) of the FSCODA Act.
Proposed subsection 13(1) of the Act would
enable APRA to determine reporting standards, in writing (as
opposed to by legislative instrument), that must be complied with
by financial sector entities, with respect to particular reporting
documents, and to publish those standards, which are legislative
instruments, in any way that APRA considers appropriate.
Item 13 of Schedule 4 proposes
to insert new subsections 13(1A) and
(1B) into the FSCODA Act.
Proposed subsection 13(1A) provides that a
reporting standard is a legislative instrument except in particular
circumstances, which are as follows:
- APRA considers, on reasonable grounds, that the standard
includes confidential information, the publication of which is
likely to have a detrimental effect on the stability of either the
financial system or of one or more financial institutions
- APRA considers, on reasonable grounds, that APRA urgently
requires the information contained in the reporting documents for
any of the following purposes:
- determining the
financial or prudential condition of financial sector entities
- determining the
nature or level of exposure that financial sector entities have to
risks
- assessing
potential threats to the stability of the financial system
- assisting APRA,
the Minister or a financial sector agency to respond to any threats
to the stability of the financial system
- determining what,
if any, action should be taken by or in relation to one or more
financial sector entities, and
- the standard does not require such urgently required
information to be given on an ongoing basis.
Under proposed subsection 13(1B), where the
Minister directs APRA to determine reporting standards under
proposed section 13C (inserted by Schedule
4 item 17), to be complied with by proposed additional
financial sector entities (see item 8 above), APRA
must determine such reporting standards by legislative
instrument.
The Explanatory Memorandum states:
While a one-off data collection can be effected
as a legislative instrument under the FSCODA, it may create
problems insofar as it may force APRA to publically [sic] reveal
the sensitive information it has sought to collect or which has led
it to make the collection.
Such an outcome would be undesirable,
particularly where the publication of the information is likely to
have a detrimental effect on financial system stability or the
stability of one or more financial institutions.[64]
However, the Bill proposes to include provisions to ensure a
certain degree of transparency and accountability, where reporting
standards are not determined by way of legislative instrument.
For example, item 17 of Schedule
4 proposes to insert new sections
13A–13C into the FSCODA Act.
Proposed section 13A provides that if a
reporting standard, determined under proposed section
13(1), is not a legislative instrument, as soon as
practicable after the standard is determined, APRA must give a copy
of the standard to each financial sector entity that must comply
with it and to the Minister. In addition, APRA must give the
financial sector entity a written statement explaining the effect
of proposed section 13B (see below) at the same
time as it gives the entity a copy of the reporting standard.
Proposed subsection 13B(1) provides that if
APRA gives a financial sector entity a copy of the reporting
standard under proposed subsection 13A(1), that
entity must not disclose to any person that it had been given a
copy of such standard nor any confidential information included in
such standard. Failure to comply attracts a penalty of a two year
imprisonment.
However, proposed subsection 13B(2) provides
that proposed subsection 13B(1) does not apply
if
- APRA for the
purposes of APRA performing its functions under the FSCODA Act or
any other Commonwealth law, or
- an employee
officer or contractor of the financial sector entity for the
purposes of that person performing his or her duties in relation to
the reporting standard, or
- disclosure is authorised under the FSCODA Act or another law,
or
- the confidential information included in the reporting standard
has already been lawfully made public from other sources.
Proposed section 13C enables the Minister to
direct APRA to determine reporting standards under proposed
subsection 13(1B), as discussed above.
It is noted that the Explanatory Memorandum states:
To ensure that relevant entities are aware of
the above provisions prohibiting inappropriate disclosure, APRA
must explain the effect of the provisions to any entity which
receives a reporting standard to which the provisions apply.
...
the amendments provide an exception from the
requirements of the Legislative Instruments Act for the relevant
reporting standards. APRA is, however, required to give a copy of
any such standard to the Minister as soon as practicable after it
is determined and must report the number of times during a year
that such a reporting standard is determined in its annual report.
Under subsection 59(4) of the APRA Act, the Minister must cause a
copy of APRA’s annual report to be tabled in each House of
Parliament within 15 sitting days after the day on which the
Minister receives the report.[65]
Item 16 of Schedule 4 proposes
to substitute subsection 13(6) of the FSCODA
Act.
Currently, subsection 13(6) provides that the requirement for
APRA, when preparing reporting standards, to consult with
those financial sector entities or class thereof (or their
associations or bodies representing them as the case may be), which
would be affected by proposed reporting standards, does not apply
if APRA is satisfied that the delay involved in holding the
consultations would prejudice the interests of depositors, policy
holders or members of the financial sector entity or financial
sector entities concerned.
Proposed subsection 13(6) provides that, in
addition to the above, APRA would also not have to consult in those
circumstances where the delay in holding consultations would have a
detrimental effect on the stability of the financial system.
Item 18 of Schedule 4 proposes
to substitute existing subsection 16(1) in the FSCODA Act with
new subsections 16(1)–(1B).
Existing section 16(1) enables APRA, by legislative instrument,
to exempt a financial sector entity, or a class or kind thereof,
from the requirement to comply with either:
- all requirements contained in any one or more applicable
reporting standards, or
- a specific requirement(s) contained in applicable reporting
standards.
Proposed subsections 16(1) and
(1A) only relate to APRA exempting a single
financial sector entity from having to comply with applicable
standards by written notice that is not a legislative
instrument.
The Explanatory Memorandum states:
The amendment reflects that a decision to so
exempt a single entity is of an administrative nature rather than
of a legislative nature.[66]
However, under proposed subsection 16(1B),
exemptions for a class or kind of financial sector entities would
be by legislative instruments.
As the Explanatory Memorandum states:
There are currently no provisions in the FSCODA
relating to the appointment of auditors and the conduct of audits.
APRA may require much of the data collected under the Act to be
audited via its existing powers in the Banking, Insurance, Life
Insurance and Superannuation Industry (Supervision) Acts. However,
these provisions do not extend to all data collected under the
FSCODA.[67]
Amendments proposed in Schedule 4 seek to address that
situation.
For example, items 14 and 15
of Schedule 4 propose to amend subsection
13(2) of the FSCODA, which deals with the kind of matters
that reporting standards may include. These amendments have the
effect that reporting standards may include matters relating to the
audit of reporting documents (as defined in subsection 13(1)) and
that information contained in reporting documents may relate to
information that APRA requires to perform its functions under:
- Division 2AA of Part II of the Banking Act (FCS for account
holders with insolvent ADIs), or
- Part VC of the Insurance Act (FCS for account holders with
insolvent general insurers).
In addition, item 20 of Schedule
4 proposes to insert a new Division 2A
(Auditing of documents) in Part 3 of the FSCODA
Act containing several new provisions—being new
sections 17A–17D.
In particular, under proposed section 17B, the
auditor must perform the functions and duties of an auditor set out
in the reporting standards and comply with the reporting standards
in performing their functions and duties. Also, the financial
sector entity must make any arrangements necessary to enable the
auditor to perform their functions and duties. This is similar to
amendments proposed to the Banking and Life Insurance Acts (see
above).
Amendments are proposed to various Acts changing the valuation
basis for determining levies. This is done by replacing the
references to ‘asset value’ in those Acts with
references to ‘levy base’. See, for example,
items 1–4, 7–21, and
23–28 of Schedule 5.
These proposed amendments are not expected to impose
costs.[68]
This Act imposes a levy on trustees of certain superannuation
entities. A ‘superannuation entity’ is defined in
section 5 of the Act as an entity that:
- is a superannuation entity, and
- is not a self-managed superannuation fund,
under the Superannuation Supervision Act.
Item 30 of Schedule 5 proposes
to substitute subparagraph 7(1A)(a)(ii) in the
Act.
Currently, section 7 provides for calculating the amount of levy
to be paid. Existing subparagraph 7(1A)(a)(ii) provides that where
the superannuation entity was an unregulated entity on 30 June of
the previous financial year (a ‘new starter’), the
restricted levy component is generally the amount that is the
restricted levy percentage of the entity’s asset value on
that date.
The Explanatory Memorandum states:
This method of calculating the restricted levy
component is not appropriate for new starters. For example, under
the present arrangements if a fund becomes a regulated
superannuation fund on 1 October of a particular financial year,
its restricted levy component is to be worked out by applying the
restricted levy percentage to its asset value as at 30 June in the
previous financial year. However, as the fund is a new starter it
is unlikely to have had any assets, or have been in existence, on
30 June of the previous financial year. As a result, the fund is
likely to pay only the minimum amount for this component, which
could be less than commensurate with the costs of APRA’s
supervisory resources.[69]
Proposed subparagraph 7(1A)(a)(ii) would change
the restricted levy percentage to that of the entity’s levy
base on the day that the entity became a superannuation entity.
According to the Explanatory Memorandum:
The amendments bring the levy arrangements for
superannuation entities into line with those applicable to ADIs,
general insurers, life insurers, retirement savings account
providers and leviable first home saver account providers. The
respective levy imposition Acts in relation to those entities
presently provide that the valuation day for a new starter is the
day that it becomes regulated.[70]
There is a similar amendment proposed by item
32 of Schedule 5 in the Bill
(substituting subsection 7(1B) of the Superannuation Levy
Imposition Act), relating to the unrestricted levy component.
The Bill does propose largely technical amendments, making the
various Acts relating to the financial sector more consistent with
each other.
It is noted that the Bill proposes several offence provisions,
which address a number of gaps and inconsistencies in existing
financial sector legislation. Stakeholder concerns about
proposed section 130BB, as mentioned above, should
also be considered.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277 2442.
Sharon Scully
11 June 2006
Bills Digest Service
Parliamentary Library
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