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2002
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
FINANCIAL SECTOR LEGISLATION AMENDMENT BILL (NO. 2) 2002
SUPPLEMENTARY EXPLANATORY MEMORANDUM
(Circulated by authority of the Treasurer,
the Hon Peter
Costello, MP)
Table of Contents
1.1 These amendments are to the Financial Sector Legislation Amendment Bill (No. 2) 2002. In particular to the Banking Act and to the Insurance Act.
1.2 Many of the amendments are minor and technical in nature or seek to clarify various proposed sections.
1.3 Amendments to both the Banking Act and the Insurance Act provide for the removal of a director by either the chair of the board of directors acting alone or by a majority of directors acting together, upon signing a written notice. This will provide an additional mechanism by which a director can be removed upon a direction from APRA to do so.
1.4 The definition of ‘information’ in both the Banking Act and the Insurance Act is being clarified to include books, accounts or documents. This will ensure consistency across both APRA regulated sectors and within the Acts. Amendments relating to information are also included to ensure that the provisions of the Financial Sector (Collection of Data) Act are captured by the Banking Act. This enhances APRA’s ability to make prudential assessments of regulated institutions.
1.5 An amendment is being proposed to the definition of ‘senior manager’ in the Banking Act, to make it consistent with the definition of ‘senior manager’ in the Insurance Act. The new definition will make the assessment of who is a ‘senior manager’ more precise by limiting it to that contained in the relevant prudential standard issued by APRA. However, it will provide APRA with sufficient flexibility in defining ‘senior manager’ to adequately apply the fit and proper test to senior managers.
1.6 Another amendment to the Banking Act, to new sections 17 and 23, will make it explicit that regulated institutions must comply with directions from APRA, and that penalties for non-compliance will apply (consistent with other breaches of direction powers in the Banking Act), in accordance with section 11CG of the Banking Act.
1.7 A transitional period of three months is being included, to apply to new section 19 of the Banking Act. This section is part of the ‘fit and proper’ regime which has been introduced by the Bill.
1.8 The penalty provisions in the Insurance Act relating to the reporting of breaches of prudential standards are being clarified and made consistent with other provisions in the Insurance Act.
2.1 The following abbreviations are used in this supplementary explanatory memorandum.
ADI Authorised deposit-taking Institution
APRA Australian Prudential Regulation Authority
ASIC Australian Securities and Investments Commission
ASIC Act Australian Securities and Investments Commission Act 2001
Banking Act Banking Act 1959
the Bill Financial Sector Legislation Amendment Bill (No. 2) 2002
Corporations Act Corporations Act 2001
Corporations (RCT) Act Corporations (Repeals, Consequentials and Transitionals) Act 2001
Financial Sector (Collection of Data) Act Financial Sector (Collection of Data) Act 2001
Insurance Act Insurance Act 1973
NOHC Non-operating holding company
3.1 The proposed amendments have no financial impact.
Amendment 1 – section 5(1)
4.1 This amendment will make the definition of ‘senior manager’ in the Banking Act consistent with that in the Insurance Act. It will have the effect of defining ‘senior manager’ in terms of the relevant prudential standard issued by APRA.
Amendments 2 and 15 – new sections 17 and 23
4.2 These amendments will ensure that an ADI or authorised NOHC must comply with APRA’s directions under the new sections 17 (removal of auditors of ADIs) and 23 (removal of directors or senior managers of ADIs or authorised NOHC) and to insert penalty provisions under section 11CG in the case of non-compliance.
Amendments 3, 4, 5, 6, 9, 10 and 11 – section 14A and new sections 16B and 16C
4.3 The proposed amendments to sections 16B (APRA’s power to require auditors to provide information) and 16C (auditors’ right to provide information voluntarily to APRA) do not contain a definition of ‘information’. The amendments will enable APRA to require regulated entities and auditors to supply information which may include books, accounts or documents. An example of a document is audit working papers. These amendments will enhance APRA’s ability to undertake a prudential assessment of a regulated institution, including the fit and proper status of auditors. It will also clarify the definition of ‘information’ contained in section 14A which deals with the powers of a statutory manager appointed to an ADI. This measure ensures a statutory manager is able to obtain the material they might need to deal with a troubled ADI and brings greater consistency with information collection powers in other parts of the Banking Act.
Amendments 7, 8 and 12 – new sections 16B and 16C
4.4 The amendments will ensure that the Banking Act continues to capture the provisions of the Financial Sector (Collection of Data) Act, which have the effect of enhancing APRA’s ability to collect information for the purposes of conducting prudential assessments of regulated institutions.
Amendments 13, 14, 16, 18, 19, 20, 21, 23, 24 and 25, – new sections 17, 21, 22 and 23
4.5 These are technical corrections relating to incorrect numbering and sequencing of sections; and correcting the reference to submissions being made ‘in response’ to a notice rather than ‘pursuant to’ a notice. The opportunity has been taken to make these technical corrections.
Amendment 17 – new section 19
4.6 This amendment introduces a short transitional period of three months during which the operation of new section 19, which states that disqualified persons under the new fit and proper regime must not act for ADIs or authorised NOHCs, will be suspended. It is considered that some regulated entities (and potentially affected persons) may require time in which to assess which persons may be disqualified under the new provisions (section 20) and for any application to be made to APRA to have them ‘undisqualified’. However, during the transitional period, APRA will still be able to disqualify or remove persons determined otherwise to be not ‘fit and proper’, that is, under its own initiative pursuant to new sections 21 and 23 respectively.
Amendment 22 – new section 23
4.7..This amendment seeks to clarify the mechanism for the removal of a director upon a direction from APRA to do so. It is intended that these provisions will act as a ‘by-pass’ to other powers for removal of a director. However, they will not limit any other powers of an ADI or authorised NOHC to remove a director, whether under the Corporations Act or otherwise. The amendment will provide a mechanism by which a director can be removed by either the chair of the board of directors or a majority of directors acting together to remove a director, upon signing a notice to that effect. This will be considered sufficient to give effect to the direction from APRA for the removal of a director.
Amendments 26 and 27 -sections 62(2) and 62A
4.8 These are technical amendments to ensure consistency across new provisions contained in the Banking Act in relation to collection of information and notification to APRA of breaches of standards etc where these may be related to relevant groups of bodies corporate of which an ADI is a member. It is consistent with APRA’s group approach to regulation of ADIs and authorised NOHCs.
Amendments 28 and 29 – section 27(3A) and 27(3B)
5.1 These are technical corrections to correct the reference to submissions being made ‘in response to’ a notice rather than ‘pursuant to’ a notice.
Amendment 30 – section 27(5A)
5.2 This amendment seeks to clarify the mechanism for the removal of a director upon a direction from APRA to do so. It is intended that these provisions will act as a ‘by-pass’ to other powers. However, they will not limit any other powers of an insurer to remove a director, whether under the Corporations Act or otherwise. The amendment will provide a mechanism by which a director can be removed by either the chair of the board of directors or a majority of directors acting together to remove a director, upon signing a notice to that effect. This will be considered sufficient to give effect to the direction from APRA for the removal of a director.
Amendment 31 – section 35A
5.3 The Bill introduces provisions in both the Banking Act and the Insurance Act by which regulated entities must report breaches of prudential standards to APRA. This amendment ensures that the penalty provision in the section is consistent with other penalty provisions in the Insurance Act.
Amendments 32 and 33 - sections 49(1) and 49B
5.4 Currently, the definition of information contained within sections 49(1) and 49B limits APRA’s ability to obtain working papers from auditors and actuaries. The amendments will enable APRA to require auditors and actuaries to supply information which may include books, accounts or documents. An example of a document is audit working papers. Section 49(2) is covered by the Criminal Code Act 1995, Division 137 and for this reason there is no need to amend this subsection. These amendments will enhance APRA’s ability to undertake a prudential assessment of a regulated institution, in particular, the fit and proper status of auditors and actuaries.
6
SCHEDULE 1 – ASIC ACT AND
SCHEDULE 4 – CORPORATIONS (RCT) ACT
FURTHER NOTES ON AMENDMENTS IN THE BILL
6.1 The following notes refer to aspects of retrospectivity relating to the amendments to the above Acts which are contained in the Bill. Specifically, the notes refer to the absence of an assurance that retrospectivity is not prejudicial to the interests of any persons.
6.2 The need for the amendments in items 3, 5, 6 and 7 in the table to subclause 2(1) (item 4 of Schedule 1 and items 1, 2 and 3 of Schedule 4) of the Bill was noted by ASIC and the Office of Parliamentary Counsel in routine reviews of recent enactments for minor anomalies and discrepancies and drafting oversights. Neither body has indicated any disadvantage flowing to any person from them.
6.3 In relation to item 4 of Schedule 1 of the Bill, ASIC has advised that it is “not aware of any specific matter that is potentially adversely affected by the failure to include laws of the Commonwealth referred to in sections 74 and 75 of the old application Acts in the definition of ‘old ASIC law’.” The amendment may have the effect of protecting persons and the integrity of examinations and proceedings in circumstances where it has effect. The explanatory memorandum to the Bill provides a detailed explanation of this amendment which corrects a technical drafting error. Without applying the correction as from commencement of the Act the relevant provisions would be uncertain in their operation.