Bills Digest No. 143  1998-99 Financial Sector Reform (Transfers of Business) Bill 1999

Numerical Index | Alphabetical Index

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.


Passage History
Main Provisions
Concluding Comments
Contact Officer and Copyright Details

Passage History

Financial Sector Reform (Transfers of Business) Bill 1999

Date Introduced: 11 March 1999

House: House of Representatives

Portfolio: Treasury

Commencement: On the transfer date for the purposes of the Financial sector Reform (Amendments and transitional Provisions) Act (No.1) 1999. This is the date at which financial institutions and friendly societies will come under Commonwealth jurisdiction. It will be promulgated by the Governor-General in the Gazette.


To provide for transfers of business between some kinds of financial institutions and to provide the Australian Prudential Regulation Authority with an additional prudential tool in the performance of its duties.


In May 1996, the Treasurer established a Financial System Inquiry (FSI) headed by Mr Stan Wallis. The terms of reference directed the inquiry to undertake a stocktake of the results arising from the financial deregulation of the Australian financial system since the early 1980s. Further, it was charged with identifying the forces driving change and recommending changes to regulatory arrangements so as to ensure an efficient, responsive, competitive and flexible financial system consistent with financial stability, prudence, integrity and fairness.

In March 1997, the FSI delivered its report making 115 recommendations for regulatory reform in the Australian Financial System. A central proposal was that a single commonwealth agency should be established to carry out prudential regulation of the financial system, and that the new body should have comprehensive powers to meet its regulatory objectives.(1) In response to the report, in 1998 the Government introduced a new framework for the regulation of the financial system including the establishment of the Australian Prudential Regulation Authority (APRA). APRA took over responsibility for the prudential regulation of banks from the Reserve Bank and the prudential regulation of insurance companies and superannuation funds from the Insurance and Superannuation Commission. However the recommendation that APRA take on the regulation of buildings societies credit unions and friendly societies which are currently supervised by the States and Territories was deferred to allow time for negotiation with the States to gain an agreement to transfer their powers. Commonwealth legislation to effect the transfer is contained in the Financial Sector Reform (Amendments and Transitional Provisions) Bill (No.1) 1999 which was introduced at the same time as this bill.(2)

At present, building societies, credit unions and friendly societies are regulated by separate State and Territory supervisors (State Supervisory Authorities - SSAs). While actual supervision is carried out at a State level, the Australian Financial Institutions Commission (AFIC) promulgates prudential standards for the uniform supervision of institutions covered by the Financial Institutions Code (FI Code) and the Friendly Society Code (FS Code). One of the tools available to SSAs in the performance of their duties to protect members of financial institutions is the power to approve or direct a 'transfer of engagements'.(3) Under this process, regulated institutions may transfer all or part of their business to another regulated institution.

Although there have been examples of the Government and the Reserve Bank using mergers as a prudential tool to deal with banks in financial distress,(4) there has been no formal power in the hands of regulators to order a merger or transfer of business between banks or insurance companies.

In his Second Reading Speech, the Minister expressed a view that this power would be useful to APRA as it will provide 'an efficient and effective tool for protecting depositors or policy owner monies where their institution is in severe financial hardship.'(5) The Bill provides a framework for the transfer of business between institutions that are regulated by the Australian Prudential Regulation Authority (APRA).

Main Provisions

'Business' is defined in clause 4 as including the assets and liabilities of a body.

Clause 8 states that the Bill provides two types of 'transfer of business': voluntary and compulsory. Transfers may be partial or total. For a transfer to be made under the Bill it must concern some prudentially regulated business. The Bill does not purport to be the sole means for the transfer of business between authorised deposit-taking institutions and life insurance companies (Clause 8(6)).

Part 3 of the Bill deals with voluntary transfers. Under Clause 10 two regulatory bodies of the same kind, that is approved deposit taking institutions or life insurance companies, may apply in writing to APRA to approve a transfer of business.

Clause 11 establishes the criteria governing APRA's approval process. APRA must approve a transfer if considers that:

  • an application for approval of the transfer has been made in accordance with clause 10
  • the transferring body and receiving body are entities of the same kind
  • the transfer has been adequately adopted (clause 13)
  • the Minister has consented to the transfer (the Minister may determine that consent is not required - see clause 15)
  • necessary State or Territory legislation to facilitate the transfer is in place (this legislation must provide that the receiving body is taken to be the successor in law to the transferring body - see clause 14), and
  • the transfer should be approved having regard to the interests of depositors or policy owners of the receiving and transferring bodies and the interests of the financial sector as a whole, as well as any other matter that APRA considers relevant.

In recognition of the fact that a transfer of business may raise concerns other than prudential matters, clause 12 provides that in deciding whether to approve a transfer APRA may (but is not required to) consult with other regulatory bodies including the Australian Competition and Consumer Commission, Australian Securities and Investment Commission and the Reserve Bank.

Pursuant to clause 16 approval for the transfer can be made subject to conditions.

Part 4 of the Bill provides for compulsory transfers of business. Under clause 25, APRA may make a determination that there is to be a transfer of business between bodies regulated by it.

APRA cannot do so unless it is satisfied that:

  • the transferring body has contravened a provision of its regulatory legislation and/or it is in the interests of policy owners or depositors
  • the transferring body and receiving body are entities of the same kind
  • the receiving body has consented to the transfer
  • APRA is satisfied that the transfer is appropriate having regard to the interests of depositors or policy owners of the receiving and transferring bodies, and the interests of the financial sector as a whole, as well as any other matter that APRA considers relevant
  • the necessary State or Territory legislation to facilitate the transfer is in place (this legislation must provide that the receiving body is taken to be the successor in law to the transferring body see clause 28), and
  • the Minister has consented to the transfer (the Minister may determine that consent in not required - see clause 29).

As with voluntary transfers, APRA may consult with other regulators (clause 26).

Part 6 deals with miscellaneous issues. Clause 43(2) is particularly important. It provides that subject to subsections (4), (5) and (6) nothing done under the Bill places a receiving body, a transferring body or another person in breach of any law of the Commonwealth, State or Territory. That is, the Bill is intended to operate independently of any other Act. The potential effect of this provision on the regulation of mergers in the financial system will be discussed below.

Clause 44 acknowledges that because the Bill provides a compulsory transfer of business, the legislation may be characterised as a law with respect the 'acquisition of property' and therefore invoke the constitutional requirement for just terms. Clause 44 provides that the body receiving a transfer of business is liable to pay 'just terms' to the transferring body.

Concluding Comments

A Way Around the ACCC for the Big Four?

The Bill has been described in the press as a 'new and simplified way' for banks to merge and possibly circumvent the scrutiny of the Australian Competition and Consumer Commission (ACCC). (6)An assessment of this proposition necessitates a brief description of the merger rules that currently apply in the financial system.

The primary law governing mergers is contained in the Section 50 of the Trade Practices Act 1974 which applies on an economy-wide basis. This section prohibits mergers or acquisitions, which would have the effect, of likely effect, of substantially lessening competition in a substantial market for goods and services. The ACCC typically scrutinises any proposal for mergers that involves one of the four major banks.

In addition, the Treasurer has power over mergers in the financial system under the Banking Act 1959(7), Financial Sector Shareholdings Act 1998, Insurance Acquisitions and Takeovers Act 1991 and the Foreign Acquisitions and Takeovers Act 1975. In exercising these powers, the Treasurer considers a range of matters including prudential and competitive issues and is guided by advice from APRA and the ACCC.(8)

It is currently the Government's policy that mergers among the four major banks will not be permitted. The Treasurer has stated that this policy will be reviewed when the government is satisfied that competition has increased in the financial industry.(9)

As noted above, Clause 43(2) of the Bill provides, amongst other things, that nothing done by or under the Bill places a receiving or transferring body or any other institution in breach of a law of the Commonwealth. Therefore a merger which would otherwise breach Section 50 of the Trade Practices Act 1974, for example, could proceed as a either a voluntary or compulsory 'transfer of business' under this Bill. Such a transfer would require the approval of APRA and the Minister although the Minister can decide that his or her consent is not required.

Although the transfer of business mechanism is touted as a prudential tool, there is nothing in the Bill that restricts its use to transfers involving an institution that is in financial distress.

Concerns about the Bill being used as a way for institutions to avoid the scrutiny of the ACCC could be addressed by way of regulations made under clause 43(4). The clause provides that the regulations may specify that another Act continues to apply in relation to the transfer of a business subject to any modifications. Clause 11(2) states that APRA must not approve a voluntary transfer of business if after having regard to law prescribed under clause 43(4), it considers that the transfer should not be approved.


  1. Financial System Inquiry, Final Report, 1997. Recommendations 31, 33.

  2. State and Territory legislation has not yet been introduced.

  3. Part 7 FI Code 1992 and Part 7 of the Friendly Societies Code 1996

  4. Financial System Inquiry, Discussion Paper, November 1996, p. 281. Examples include the Commonwealth Bank's takeover of the State Bank of Victoria in 1991 and the Reserve Bank's use of moral suasion to facilitate the 1979 takeover of the Bank of Adelaide by ANZ.

  5. Second Reading Speech, Financial Sector Reform (Transfers of Business) Bill 1999, House of Representatives Debates, 11 March 1999, p 3286.

  6. Hans van Leeuwen, 'Federal Legislation makes bank mergers easier', Australian Financial Review, March 15, 1999, p. 26.

  7. If the Financial Sector Reform (Amendments and Transitional Provisions) Bill (No.1) 1999 is passed Section 63 of the Banking Act 1959 will be amended. In that case the Treasurer's consent to a restructuring (including a merger) of an Authorised Deposit-Taking Institution is not required if APRA so determines.

  8. Costello, P., 'Proposed Merger Between the Westpac Banking Corporation and the Bank of Melbourne Limited: In-Principle Approval', Press Release, No. 82 25/7/1997.

  9. Costello, P., 'Release of the Report of the Financial System Inquiry and Initial Government response on Mergers Policy', Press Release, No. 28 9/4/1997.

Contact Officer and Copyright Details

Mark Tapley
23 March 1999
Bills Digest Service
Information and Research Services

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ISSN 1328-8091
© Commonwealth of Australia 1999

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Published by the Department of the Parliamentary Library, 1999.

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