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2008-2009-2010
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
Financial Sector legislation amendment (prudential refinements and other
measures) bill 2010
EXPLANATORY MEMORANDUM
(Circulated by the authority of the Minister for Financial Services,
Superannuation and Corporate Law, the Hon Chris Bowen MP)
Table of contents
Glossary 1
General outline and financial impact 1
Chapter 1 Amendments to APRA's preventive powers 11
Chapter 2 Amendments to APRA's correction powers 21
Chapter 3 Amendments to APRA's and the ATO's investigation powers 27
Chapter 4 Amendments to APRA's failure management powers 35
Chapter 5 Amendments relating to auditors and actuaries 53
Chapter 6 Amendments to the Financial Claims Scheme 65
Chapter 7 Amendments to APRA's data collection powers 77
Chapter 8 Amendments relating to levies 89
Chapter 9 Minor or technical amendments 97
Chapter 10 Regulation Impact Statement 103
Index 139
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
|Abbreviation |Definition |
|ACCC |Australian Competition and |
| |Consumer Commission |
|ADI |Authorised deposit-taking |
| |institution |
|APRA |Australian Prudential |
| |Regulation Authority |
|APRA Act |Australian Prudential |
| |Regulation Authority Act |
| |1998 |
|ASIC |Australian Securities and |
| |Investments Commission |
|Banking Act |Banking Act 1959 |
|Bill |Financial Sector |
| |Legislation Amendment |
| |(Prudential Refinements and|
| |Other Measures) Bill 2010 |
|Corporations Act |Corporations Act 2001 |
|FCS |Financial Claims Scheme |
|FCS Act |Financial System |
| |Legislation Amendment |
| |(Financial Claims Scheme |
| |and Other Measures) Act |
| |2008 |
|Federal Court |Federal Court of Australia |
|FHSA Act |First Home Saver Accounts |
| |Act 2008 |
|Business Transfer and |Financial Sector (Business |
|Group Restructure Act |Transfer and Group |
| |Restructure) Act 1999 |
|FSCODA |Financial Sector |
| |(Collection of Data) Act |
| |2001 |
|Government |The Australian Government |
|ITAA |Income Tax Assessment Act |
| |1997 |
|Insurance Act |Insurance Act 1973 |
|Levy imposition Acts |The Authorised |
| |Deposit-taking Institutions|
| |Supervisory Levy Imposition|
| |Act 1998, First Home Saver |
| |Account Providers |
| |Supervisory Levy Imposition|
| |Act 2008, General Insurance|
| |Supervisory Levy Imposition|
| |Act 1998, Life Insurance |
| |Supervisory Levy Imposition|
| |Act 1998, Retirement |
| |Savings Account Providers |
| |Supervisory Levy Imposition|
| |Act 1998 and the |
| |Superannuation Supervisory |
| |Levy Imposition Act 1988 |
|Life Insurance Act |Life Insurance Act 1995 |
|NOHC |Non-operating holding |
| |company |
|Payment Systems and |Payment Systems and Netting|
|Netting Act |Act 1998 |
|PTA |Pooled Trust Account |
|RBA |Reserve Bank of Australia |
|RBA Act |Reserve Bank Act 1959 |
|RSE |Registrable Superannuation |
| |Entity |
|RSA Act |Retirement Savings Accounts|
| |Act 1998 |
|Superannuation |Superannuation Industry |
|Industry (Supervision)|(Supervision) Act 1993 |
|Act | |
General outline and financial impact
Outline of Bill
The Financial Sector Legislation Amendment (Prudential Refinements
and Other Measures) Bill 2010 (the Bill) amends the Australian
Prudential Regulation Authority Act 1998, the Banking Act 1959, the
Insurance Act 1973, the Life Insurance Act 1995, the Superannuation
Industry (Supervision) Act 1993, and the Financial Sector
(Collection of Data) Act 2001 and related Acts to enhance
Australia's crisis management and prudential framework.
The Bill also amends the Authorised Deposit-taking Institutions
Supervisory Levy Imposition Act 1998, the First Home Saver Account
Providers Supervisory Levy Imposition Act 2008; the General
Insurance Supervisory Levy Imposition Act 1998; the Life Insurance
Supervisory Levy Imposition Act 1998; the Retirement Savings
Account Providers Supervisory Levy Imposition Act 1998 and the
Superannuation Supervisory Levy Imposition Act 1988 (the levy
imposition Acts) and the Financial Institutions Supervisory Levies
Collection Act 1998 to improve the methodologies governing the
determination of financial sector levies.
APRA's preventive powers
Schedules 1 to 3 of the Bill promote the prudential regulation of
bodies in the financial sector by amending the Banking, Insurance
and Life Insurance Acts to enhance the powers of the Australian
Prudential Regulation Authority (APRA) to prevent prudential
concerns arising.
The amendments:
. enable APRA by legislative instrument to set criteria for
granting authorisation to carry on business as an
authorised deposit-taking institution (ADI), insurer or
authorised non-operating holding company (NOHC) of an ADI
or insurer;
. enable APRA to continue an authorisation in-effect upon
revocation for relevant purposes;
. enable APRA to make prudential standards in respect of
corporate groups or parts of groups under the Insurance
Act;
. clarify that the prudential standards may exclude assets
from being 'assets in Australia' for the purposes of
section 28 of the Insurance Act;
. clarify the relationship between section 28 of the
Insurance Act and sections 62M, 62ZZC and 62ZZE of that
Act;
. enable prudential standards under the Banking Act to
exclude assets and amounts from being 'assets in
Australia' for the purposes of subsection 13(4) of that
Act; and
. enable incorporation by reference in prudential standards
made under the Banking, Insurance and Life Insurance Acts.
Date of effect: The amendments commence 28 days after the Bill
receives Royal Assent.
Proposal announced: The measures were announced in the Minister
for Financial Services, Superannuation and Corporate Law's Press
Release No. 5 of 2010, dated 19 January 2010. An exposure draft of
the measures was publically released on 19 January 2010.
Financial impact: The measures have no significant financial
impact.
Compliance cost impact: Low.
APRA's correction powers
Schedules 1 to 3 of the Bill promote the prudential regulation of
bodies in the financial sector by amending the Banking, Insurance
and Life Insurance Acts to strengthen APRA's powers to correct
breaches of the prudential framework by issuing directions.
The amendments:
. enhance the triggers for issuing directions;
. make it an offence for a NOHC of a general insurer to fail
to comply with a direction to remove a director or senior
manager; and
. clarify that APRA may issue directions to foreign ADIs
relating to their control of assets and their
responsibility for liabilities.
Date of effect: The amendments commence 28 days after the Bill
receives Royal Assent.
Proposal announced: The measures were announced in the Minister
for Financial Services, Superannuation and Corporate Law's Press
Release No. 5 of 2010, dated 19 January 2010. An exposure draft of
the measures was publically released on 19 January 2010.
Financial impact: The measures have no significant financial
impact.
Compliance cost impact: Low.
APRA's and ATO's investigation powers
Schedules 1 to 4 of the Bill promote the prudential regulation of
bodies in the financial sector by enhancing APRA's and the ATO's
investigation powers.
In particular, the schedules amend the Banking Act, Insurance Act,
Life Insurance Act, Superannuation Industry (Supervision) Act,
Retirement Savings Accounts Act, and Australian Prudential
Regulation Authority Act (APRA Act) to:
. clarify APRA's and the ATO's investigation powers during
the winding-up of a regulated entity;
. respond to the High Court's decision in Rich v Australian
Securities and Investments Commission (ASIC);
. harmonise record keeping provisions for APRA-regulated
entities with respect to their accessibility by APRA; and
. enhance the protection and sharing of information by APRA.
Date of effect: The amendments commence 28 days after the Bill
receives Royal Assent.
Proposal announced: The measures were announced in the Minister
for Financial Services, Superannuation and Corporate Law's Press
Release No. 5 of 2010, dated 19 January 2010. An exposure draft of
the measures was publically released on 19 January 2010.
Financial impact: The measures have no significant financial
impact.
Compliance cost impact: Low.
APRA's failure management powers
Schedules 1 to 4 of the Bill promote the prudential regulation of
bodies in the financial sector by making amendments related to
APRA's failure management powers.
In particular, the schedules amend the Banking Act, Insurance Act,
Life Insurance Act, Reserve Bank Act 1959 (RBA Act), and Financial
Sector Legislation Amendment (Business Transfer and Group
Restructure Act) 1999 (the Business Transfer and Group Restructure
Act) in relation to:
. the appointment of a judicial manager to a general or life
insurer, and APRA's powers with respect to judicial
management of general and life insurers, and the statutory
management of an ADI;
. compulsory transfer of business provisions with regard to
a general or life insurer;
. matters relating to the winding up of an ADI, general
insurer or life insurer; and
. the recapitalisation of an ADI, general insurer or life
insurer.
Date of effect: The amendments commence 28 days after the Bill
receives Royal Assent.
Proposal announced: The measures were announced in the Minister
for Financial Services, Superannuation and Corporate Law's Press
Release No. 5 of 2010, dated 19 January 2010. An exposure draft of
the measures was publically released on 19 January 2010.
Financial impact: The measures have no significant financial
impact.
Compliance cost impact: Low.
Auditors and actuaries
Schedules 1 to 4 of the Bill promote the prudential regulation of
bodies in the financial sector and the administration of the
Financial Claims Scheme (FCS) by amending the regulatory framework
that applies to the auditors and actuaries of regulated entities.
In particular, the schedules amend the Banking, Insurance, Life
Insurance, Superannuation Industry (Supervision), Financial Sector
(Collection of Data) and Retirement Savings Accounts Acts to:
. harmonise the provisions relating to the appointment of
auditors and the conduct of audits under the Banking,
Insurance and Life Insurance Acts, as appropriate;
. enhance the auditing of data under the Financial Sector
(Collection of Data) Act (FSCODA);
. insert equivalent offences (as relevant) to those
contained in sections 311 and 1309 of the Corporations Act
2001 (Corporations Act) into the Banking, Insurance, Life
Insurance, Superannuation Industry (Supervision),
Financial Sector (Collection of Data) and Retirement
Savings Accounts Acts; and
. require auditors and actuaries of life insurers to give
information to APRA on request that relates to APRA's
functions under the Life Insurance Act or the FSCODA.
Date of effect: The amendments commence 28 days after the Bill
receives Royal Assent.
Proposal announced: The measures were announced in the Minister
for Financial Services, Superannuation and Corporate Law's Press
Release No. 5 of 2010, dated 19 January 2010. An exposure draft of
the measures was publically released on 19 January 2010.
Financial impact: The measures have no significant financial
impact.
Compliance cost impact: Low.
Financial Claims Scheme
Schedules 1 and 2 contain amendments to the FCS provided for in the
Banking Act and the Insurance Act to promote APRA's administration
of that scheme.
Schedule 1 of the Bill amends the Banking Act to:
. enable APRA to determine the rate of interest that applies
to protected accounts for the purposes of determining
entitlements under the FCS, where APRA considers that the
rate of interest is not certain;
. clarify the operation of the FCS in relation to pooled
trust accounts; and
. clarify that APRA may require a liquidator to assist it in
paying account-holders their entitlements under the FCS.
Schedule 2 of the Bill amends the Insurance Act to:
. clarify that the FCS applies to policies that were
transferred to the declared general insurer, as well as
policies that were issued by the declared general insurer;
. enhance APRA's ability to administer the scheme by
enabling it to issue approved forms in respect of common
administrative matters, enabling it to settle claims under
the scheme; and enabling it to seek reasonable assistance
or information from a judicial manager related to its
functions and duties under the FCS;
. enable the scheme to operate in relation to claims against
insurers of deregistered companies under section 601AG of
the Corporations Act;
. ensure entitlements paid under the FCS are treated as if
paid by the failed general insurer under the terms and
conditions of its policy, for all relevant purposes;
. enable the Minister to declare that the FCS applies to an
insolvent insurer under external administration or
judicial management; and
. enable APRA to seek reasonable assistance, and specified
information, from a judicial manager of a general insurer,
where doing so would enable APRA to perform its duties and
functions in relation to the FCS.
Date of effect: The amendments commence 28 days after the Bill
receives Royal Assent.
Proposal announced: The measures were announced in the Minister
for Financial Services, Superannuation and Corporate Law's Press
Release No. 5 of 2010, dated 19 January 2010. An exposure draft of
the measures was publically released on 19 January 2010.
Financial impact: The measures have no significant financial
impact.
Compliance cost impact: Low.
APRA's data collection powers
Schedules 3 and 4 of the Bill make amendments relating to the data
collection regime in the FSCODA to promote: the harmonisation and
flexibility of the data-collection and publishing regime; APRA's
role as the central repository for the collection of financial
data; and the administration of the FCS.
Schedule 4 of the Bill amends the FSCODA to:
. ensure APRA can collect data to assist the Minister
formulate financial policy or to assist another financial
sector agency perform its functions or exercise its
powers;
. enable APRA to collect data from an expanded class of
financial sector entities on direction from the Minister;
. clarify that APRA may collect data relating to the FCS
under the FSCODA;
. protect confidential information in reporting standards
from publication where publication is likely to
detrimentally affect the stability of the financial system
or financial institutions and the requested data is
required urgently by APRA for a specified purpose;
. ensure APRA is not delayed by having to consult when
preparing reporting standards where such delay would have
a detrimental effect on financial system stability; and
. enable APRA to exempt an individual entity from
requirements of reporting standards by written notice that
is not a legislative instrument.
Schedule 3 of the Bill amends section 124 of the Life Insurance Act
to provide that the documents required to be provided by a life
insurer to a policy owner upon request are those specified by a
reporting standard under the FSCODA.
Date of effect: The amendments commence 28 days after the Bill
receives Royal Assent.
Proposal announced: The measures were announced in the Minister
for Financial Services, Superannuation and Corporate Law's Press
Release No. 5 of 2010, dated 19 January 2010. An exposure draft of
the measures was publically released on 19 January 2010.
Financial impact: The measures have no significant financial
impact.
Compliance cost impact: Low.
Financial sector levies
Schedules 4 and 5 of the Bill improves the methodologies governing
the determination of financial sector levies by implementing
recommendations of the 2009 Report of the Review of Financial
Sector Levies and making related amendments.
Schedule 4 of the Bill replaces the reference to 'Treasurer' in
paragraph 9(2)(a)(i) of the Financial Institutions Supervisory
Levies Collection Act 1998 with a reference to 'trustee'.
Schedule 5 of the Bill:
. amends section 7 of the Superannuation Supervisory Levy
Imposition Act 1998 so that the levy payable by a new
starter is based on the entity's asset value on the day it
became a superannuation entity; and
. replaces all reference to 'asset value' in the levy
imposition Acts with references to 'levies base' so that a
valuation basis other than assets can be used in
determining levies payable.
In addition, schedule 7 of the Bill repeals the Authorised Non-
operating Holding Companies Supervisory Levy Determination
Validation Act 2000; the General Insurance Supervisory Levy
Determination Validation Act 2000; the Life Insurance Supervisory
Levy Determination Validation Act 2000; the Retirement Savings
Account Providers Supervisory Levy Determination Validation Act
2000; and the Superannuation Supervisory Levy Determination
Validation Act 2000.
Date of effect: The amendments in schedules 4 and 7 of the Bill
commence 28 days after the Bill receives Royal Assent. The
amendments in schedule 5 commence on 1 July 2010.
Proposal announced: The measures in schedules 4 and 5 of the Bill
were announced in the Minister for Financial Services,
Superannuation and Corporate Law's Press Release No. 5 of 2010,
dated 19 January 2010. An exposure draft of the measures was
publically released on 19 January 2010.
Financial impact: The measures have no significant financial
impact.
Compliance cost impact: Low.
Minor and technical amendments
Schedules 1, 2, 3, 4 and 6 of the Bill make amendments of a minor
or technical nature to the Banking Act, Insurance Act, Life
Insurance Act, Superannuation (Industry) Supervision Act and
Financial Sector Legislation Amendment (Simplifying Regulation and
Review) Act to correct drafting errors, reflect drafting practice,
or ensure that present provisions in those Acts operate as
intended.
Date of effect: The amendments commence 28 days after the Bill
receives Royal Assent.
Proposal announced: The majority of measures were announced in the
Minister for Financial Services, Superannuation and Corporate Law's
Press Release No. 5 of 2010, dated 19 January 2010. An exposure
draft of the measures was publically released on 19 January 2010.
Financial impact: The measures have no significant financial
impact.
Compliance cost impact: Low.
Summary of regulation impact statement
Regulation impact on business
Impact: The measures in the Bill apply to financial sector
businesses in Australia, and the auditors, actuaries, and managers
of such businesses.
Main points:
. The measures improve APRA's ability to regulate bodies in
the financial sector in accordance with prudential laws,
and enhance its ability to administer the FCS.
. The amendments improve methodologies governing the
determination of financial sector levies.
. The measures may impose compliance costs on business.
However, these costs are overall expected to be low and
outweighed by the benefits of the amendments.
Chapter 1
Amendments to APRA's preventive powers
Outline of chapter
1. Schedules 1 to 3 of the Bill contain amendments to the Banking,
Insurance and Life Insurance Acts that enhance APRA's powers to
prevent prudential concerns arising.
Context of amendments
Minimum criteria for authorisation or registration
2. The Banking, Insurance and Life Insurance Acts permit a body
corporate to apply to APRA for authorisation[1] to carry on a
regulated business or be a NOHC of a regulated business. If an
application is made, APRA may grant or refuse the application.
3. Currently, APRA sets out criteria for the granting of such an
authorisation in guidelines. APRA cannot presently set such
criteria by legislative instrument.
4. The ability to set criteria by legislative instrument rather than
by guidelines would provide greater certainty as to the legal
standing of those criteria.
Continuing licences in-effect
5. The Banking, Insurance and Life Insurance Acts provide APRA with
the power to revoke an authorisation in certain circumstances.
However, none of the Acts currently provide that APRA may continue
an authorisation in effect upon revocation, as is the case under
section 29GB of the Superannuation Industry (Supervision) Act in
relation to Registrable Superannuation Entity (RSE) licences.
6. The inability to continue an authorisation in effect upon
revocation may hinder APRA's ability to appropriately monitor an
entity, or act under relevant laws, after the entity's
authorisation has been revoked.
Prudential standards in respect of corporate groups
7. Section 32 of the Insurance Act currently provides that APRA may
determine prudential standards relating to prudential matters that
must be complied with by: all general insurers; or all authorised
NOHCs; or the subsidiaries of general insurers or authorised NOHCs;
or a specified class of general insurers, authorised NOHCs or
subsidiaries of general insurers or authorised NOHCs; or one or
more specified general insurers, authorised NOHCs or subsidiaries
of general insurers or authorised NOHCs.
8. Section 32 allows APRA to require the head entity of a corporate
group and its subsidiaries to comply with prudential standards
individually. However, it is not clear that APRA may make
prudential standards in respect of corporate groups or parts of
groups, as it may currently do under section 11AF of the Banking
Act.
9. APRA's ability to efficiently utilise prudential standards under
the Insurance Act would be enhanced by an ability to make
prudential standards in respect of corporate groups or parts of
such groups.
Prudential standard to determine assets in Australia
10. Section 28 of the Insurance Act currently requires all general
insurers to maintain assets in Australia (excluding goodwill and
other amounts excluded in the prudential standard) of a value that
equals or exceeds the total amount of the general insurer's
liabilities in Australia. This requirement is designed to ensure
that the total value of assets held within the jurisdictional reach
of APRA and the Australian courts is sufficient to meet a general
insurer's liabilities in Australia for the purposes of subsection
116(3) of the Insurance Act 1973.
11. There is uncertainty, however, as to whether the current reference
to 'amounts' in section 28 of the Insurance Act enables APRA to
exclude all relevant 'assets' for the purposes of the section.
There is also uncertainty as to the relationship between section 28
and certain other provisions of the Insurance Act.
12. A similar provision to section 28 of the Insurance Act exists in
subsection 13A(4) of the Banking Act. That subsection provides
that an ADI is guilty of an offence if it does not hold assets
(excluding goodwill) in Australia of a value that is equal to or
greater than the total amount of its deposit liabilities in
Australia and APRA has not authorised the ADI to hold assets of a
lesser value.
13. Unlike section 28 of the Insurance Act, however, subsection 13A(4)
of the Banking Act does not currently enable APRA to exclude assets
or amounts from being treated as assets in Australia for the
purposes of the subsection. This means that APRA cannot presently
exclude assets from being treated as 'assets in Australia' under
the subsection so as to protect Australian deposit holders.
Incorporation by reference in prudential standards
14. Currently, the Banking and Life Insurance Acts do not contain a
provision for the incorporation by reference of documents into
prudential standards. The Insurance Act contains such a provision.
15. The inability to incorporate documents by reference increases the
burden on APRA of maintaining and administering prudential
standards. For example, it means that APRA is required to make new
prudential standards each time versions of documents referred to in
the standards (such as the Audit and Assurance Standards Board's
Audit Guidance) are updated.
Summary of new law
16. Schedules 1 to 3 of the Bill amend the Banking, Insurance and Life
Insurance Acts to:
. enable APRA by legislative instrument to set criteria for
granting authorisation to carry on business as an ADI,
insurer or authorised NOHC of an ADI or insurer;
. enable APRA to continue an authorisation in-effect upon
revocation for relevant purposes;
. enable APRA to make prudential standards in respect of
corporate groups or parts of groups under the Insurance
Act;
. clarify that the prudential standards may exclude assets
from being 'assets in Australia' for the purposes of
section 28 of the Insurance Act;
. clarify the relationship between section 28 of the
Insurance Act and sections 62M, 62ZZC and 62ZZE of that
Act;
. enable prudential standards under the Banking Act to
exclude assets and amounts from being 'assets in
Australia' for the purposes of subsection 13(4) of that
Act; and
. enable incorporation by reference in prudential standards
made under the Banking, Insurance and Life Insurance Acts.
Comparison of key features of new law and current law
|New law |Current law |
|APRA may, by legislative |APRA cannot set criteria|
|instrument, set criteria |for authorisation by |
|for granting |legislative instrument. |
|authorisation to carry on|APRA sets such criteria |
|business as an ADI, |by guidelines. |
|insurer or authorised | |
|NOHC of an ADI or | |
|insurer. | |
|A notice to revoke an |Section 29GB of the |
|authorisation to carry on|Superannuation Industry |
|business as an ADI or |(Supervision) Act |
|insurer or be a NOHC of |provides a similar power|
|an ADI or insurer may |for the purposes of that|
|state that the |Act. |
|authorisation continues |No current equivalent |
|in effect in relation to |under the Banking, |
|a specified matter or a |Insurance or Life |
|specified period, as |Insurance Acts. |
|though the revocation had| |
|not happened, for an APRA| |
|purpose. | |
|A prudential standard |Under section 32 of the |
|made under the Insurance |Insurance Act APRA may |
|Act may require: |make prudential |
|each general insurer or |standards to be complied|
|authorised NOHC; or |with by general |
|a specified class of |insurers, NOHCs and |
|general insurers or |their subsidiaries |
|authorised NOHCs; or |separately. However, |
|one or more specified |APRA is not able to make|
|general insurers or |prudential standards in |
|authorised NOHCs; |respect of corporate |
|to ensure that the |groups, or parts of |
|company's subsidiaries |groups, as a whole. |
|(or particular | |
|subsidiaries), or the | |
|company and the company's| |
|subsidiaries (or | |
|particular subsidiaries),| |
|collectively satisfy | |
|particular requirements | |
|in relation to prudential| |
|matters. | |
|The prudential standards |The prudential standards|
|may exclude assets or |may exclude amounts from|
|amounts from being |being 'assets in |
|'assets in Australia' for|Australia' for the |
|the purposes of |purposes of section 28 |
|section 28 of the |of the Insurance Act. |
|Insurance Act. | |
|New law |Current law |
|Clarify that the term |The relationship between|
|'assets in Australia' for|section 28 of the |
|the purposes of |Insurance Act and |
|sections 62M, 62ZZC and |sections 62M, 62ZZC and |
|62ZZE of the Insurance |62ZZE of that Act is not|
|Act does not include |clear. |
|assets or amounts | |
|excluded by the | |
|prudential standards | |
|under section 28 of that | |
|Act. | |
|Prudential standards made|No current equivalent. |
|under the Banking Act may| |
|exclude assets or amounts| |
|from being 'assets in | |
|Australia' for the | |
|purposes of | |
|subsection 13(4) of that | |
|Act. | |
|Prudential standards made|Only the Insurance Act |
|under the Banking, |contains a provision |
|Insurance and Life |allowing prudential |
|Insurance Acts may |standards to incorporate|
|incorporate documents by |documents by reference. |
|reference. | |
Detailed explanation of new law
Minimum criteria for authorisation or registration
17. The Banking, Insurance and Life Insurance Acts permit a body
corporate to apply to APRA for authorisation to carry on a
regulated business in Australia or be a NOHC of a regulated
business. If an application is made, APRA may grant or refuse the
application.
18. The Bill amends the Banking, Insurance and Life Insurance Acts to
provide that APRA may, by legislative instrument, set criteria for
the granting of such an authorisation. [Schedule 1, items 5 and 8,
schedule 2, items 9 and 12, and schedule 3, items 2 and 4,
subsections 9(2A) and 11AA(1A) of the Banking Act 1959,
subsections 12(1B) and 18(2A) of the Insurance Act 1973, and
subsections 20(2A) and 28A(2A) of the Life Insurance Act 1995]
19. 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.
Continuing licence in-effect
20. The Banking, Insurance and Life Insurance Acts provide APRA with
the power to revoke an authorisation in certain circumstances.
However, none of the Acts presently provide that APRA may continue
an authorisation in effect upon revocation, as is the case under
section 29GB of the Superannuation Industry (Supervision) Act in
relation to RSE licences.
21. The Bill inserts an equivalent provision to section 29GB of the
Superannuation Industry (Supervision) Act into the Banking,
Insurance and Life Insurance Acts. The effect of the provisions is
that a notice to revoke an authorisation may state that the
authorisation continues in effect in relation to a specified matter
or a specified period, as though the revocation had not happened,
for the purposes of a Commonwealth law administered by APRA or a
provision of the prudential standards and that any such statement
has effect accordingly. [Schedule 1, items 7 and 9, schedule 2,
items 11 and 13, and schedule 3, items 3 and 5, subsections 9A(5A)
and 11AB(5A) of the Banking Act 1959, sections 16A and 22A of the
Insurance Act 1973, and sections 28 and 28E of the Life Insurance
Act 1995]
Prudential standards in respect of corporate groups
22. Section 32 of the Insurance Act currently provides that APRA may
determine prudential standards relating to prudential matters that
must be complied with by:
. all general insurers; or
. all authorised NOHCs; or
. the subsidiaries of general insurers or authorised NOHCs;
or
. a specified class of general insurers, authorised NOHCs or
subsidiaries of general insurers or authorised NOHCs; or
. one or more specified general insurers, authorised NOHCs
or subsidiaries of general insurers or authorised NOHCs.
This allows APRA to require the head entity of a corporate group
and its subsidiaries to comply with prudential standards
individually. However, it does not allow APRA to make prudential
standards in respect of corporate groups, or parts of groups, as a
whole.
23. In contrast, section 11AF of the Banking Act currently prescribes
that prudential standards may require an ADI or its authorised NOHC
to ensure that its subsidiaries (or particular subsidiaries), or it
and its subsidiaries (or particular subsidiaries), collectively
satisfy particular requirements in relation to prudential matters.
This allows APRA to make prudential standards for groups or parts
of groups under the Banking Act.
24. The Bill harmonises the Insurance Act with the Banking Act by
permitting APRA to make prudential standards for corporate groups,
or parts of groups, as a whole under the Insurance Act.
25. The Bill achieves this by amending section 32 of the Insurance Act
to provide that without limiting the prudential matters in relation
to which APRA may determine a prudential standard, a prudential
standard may require:
. each general insurer or authorised NOHC; or
. a specified class of general insurers or authorised NOHCs;
or
. one or more specified general insurers or authorised
NOHCs;
to ensure that the company's subsidiaries (or particular
subsidiaries), or the company and the company's subsidiaries (or
particular subsidiaries), collectively satisfy particular
requirements in relation to prudential matters. [Schedule 2, item
18, subsection 32(3) of the Insurance Act 1973]
26. 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.
Prudential standard to determine assets in Australia
Amendments to the Insurance Act
27. Section 28 of the Insurance Act currently requires all general
insurers to maintain assets in Australia (excluding goodwill and
other amounts set out in the prudential standard) of a value that
equals or exceeds the total amount of the general insurer's
liabilities in Australia. This requirement is designed to ensure
that the total value of assets held within the jurisdictional reach
of APRA and the Australian courts is sufficient to meet a general
insurer's liabilities in Australia for the purposes of subsection
116(3) of the Insurance Act.
28. There is uncertainty, however, as to whether the current reference
to 'amounts' in section 28 enables APRA to exclude all relevant
'assets' for the purposes of the section.
29. In response, the Bill amends section 28 of the Insurance Act to
clarify that APRA can exclude assets, in addition to amounts, from
being assets in Australia for purposes of that provision by
prudential standards. [Schedule 2, item 17, paragraph 28(a) of the
Insurance Act 1973]
30. The Bill also makes amendments to other provisions of the Insurance
Act to clarify their relationship with section 28 of the Act.
. Paragraph 62M(a)(ii) currently provides that the Federal
Court of Australia (Federal Court) may make an order that
a general insurer be placed under judicial management if
the Court is satisfied that the general insurer is a
foreign general insurer and is, or is likely to become
unable to meet, from its assets in Australia, its
liabilities in Australia. The Bill amends the subsection
to clarify that the foreign general insurer's 'assets in
Australia' for the purposes of the paragraph do not
include any assets or amounts excluded by the prudential
standards under section 28. [Schedule 2, item 48,
subparagraph 62M(a)(ii) of the Insurance Act 1973]
. Subsection 62ZZC(1) of the Insurance Act currently
provides that the Minister may declare that the FCS
applies in relation to a foreign general insurer if the
insurer is under judicial management and APRA has advised
the Minister that it considers the insurer is unable to
pay, from its assets in Australia, all its debts that are
liabilities in Australia, as and when those debts become
due and payable. The Bill amends the subsection to
clarify that the foreign general insurer's 'assets in
Australia' for the purposes of the subsection do not
include any assets or amounts excluded by the prudential
standards under section 28. [Schedule 2, item 62,
subparagraph 62ZZC(1)(b)(ii) of the Insurance Act 1973] A
related amendment is also made to APRA's power to advise
the Minister of its belief that the insurer's 'assets in
Australia' are insufficient. [Schedule 2, item 63,
paragraph 62ZZE(1)(b) of the Insurance Act 1973]
31. The Bill makes consequential amendments to two notes in
subsection 16A(1) of the Insurance Act as a result of the above
amendments. [Schedule 2, items 89 and 90, subsections 116A(1)
(note 2) and 116A(1) (note 3) of the Insurance Act 1973]
32. The Bill also amends subsection 116A(3) of the Insurance Act so
that it makes reference to section 116 of that Act. [Schedule 2,
item 91, subsection 116A(3) of the Insurance Act 1973]
33. Section 116A currently defines when a liability is taken to be a
liability in Australia for the purposes of particular sections.
Part of this definition is contained in subsection 116A(2) and part
in subsection 116A(3). Subsection 116A(2) is presently drafted so
as to apply to section 116 of the Act, but subsection 116A(3) is
not.
34. The amendment rectifies this inconsistency. By doing so, it
clarifies that the relevant provisions in section 116A apply to the
requirement in section 116 that, in winding up, a general insurer's
assets in Australia are firstly applied to meeting its liabilities
in Australia.
Amendments to the Banking Act
35. A similar provision to section 28 of the Insurance Act exists in
subsection 13A(4) of the Banking Act. That subsection provides
that an ADI is guilty of an offence if it does not hold assets
(excluding goodwill) in Australia of a value that is equal to or
greater than the total amount of its deposit liabilities in
Australia and APRA has not authorised the ADI to hold assets of a
lesser value.
36. Unlike section 28 of the Insurance Act, however, subsection 13A(4)
of the Banking Act does not currently enable APRA to exclude assets
or amounts from being treated as assets in Australia for the
purposes of the subsection.
37. The ability for APRA to exclude assets or amounts from being
treated as assets in Australia in the banking context is desirable
for similar reasons to those for which it presently exists in the
general insurance context. In particular, it enables APRA to
exclude assets and amounts which may not be held by a court to fall
within the definition of 'assets in Australia' or which APRA
considers to have doubtful or no value to depositors in Australia
in the event of an ADI becoming insolvent.
38. To address this situation, the Bill amends subsection 13A(4) to
enable APRA to exclude assets or amounts from being assets in
Australia for the purposes of that subsection by prudential
standards. [Schedule 1, item 23, subsection 13A(4)(a) of the
Banking Act 1959]
Incorporation by reference in prudential standards
39. Currently, the Banking and Life Insurance Acts do not contain a
provision for the incorporation by reference of documents into
prudential standards. The Insurance Act contains such a provision.
40. The Bill amends the Banking and Life Insurance Acts to enable
prudential standards to provide for a matter by applying, adopting
or incorporating, with or without modification, any matter
contained in any instrument or other writing as in force or
existing from time to time despite: section 64AA of the Acts
Interpretation Act 1901; and section 14 of the Legislative
Instrument Act 2003. [Schedule 1, item 11, and schedule 3, item
50, subsection 11AF(7BA) of the Banking Act 1959 and
subsection 230A(12C) of the Life Insurance Act 1995]
41. The amendments harmonise the Banking, Insurance and Life Insurance
Acts and allow for updated versions of documents which are referred
to in APRA's prudential standards (such as the Audit and Assurance
Standards Board's Audit Guidance) to be automatically applied in
prudential standards made under the Banking and Life Insurance
Acts.
Chapter 2
Amendments to APRA's correction powers
Outline of chapter
42. Schedules 1 to 3 of the Bill amend the Banking, Insurance and Life
Insurance Acts to enhance APRA's power to correct breaches of the
prudential framework by issuing directions.
Context of amendments
43. Effective enforcement powers ensure that APRA is able to compel
compliance with, and rectify breaches of, minimum standards. APRA
is equipped with various enforcement powers and sanctions including
the power to enter into court-enforceable undertakings, issue
directions, and seek court injunctions to enable it to respond
proportionately to compliance issues.
44. In most situations, APRA is able to address prudential concerns by
working cooperatively with the Board and management of a supervised
entity, thereby allowing the Board and senior management to
maintain full responsibility for decisions made by the entity.
45. However, there may be times where APRA judges that it is necessary
to use more direct tools to rectify or manage prudential concerns.
In particular, directions powers enable APRA to specify how an
entity should resolve compliance issues and therefore enable APRA
to compel an entity to take specific action to address prudential
risks that have been identified.
46. The Banking, Insurance, and Life Insurance Acts each enable APRA to
issue directions to regulated entities under specified
circumstances. Refining and, where appropriate, enhancing the
triggers that allow the issue of directions would ensure APRA can
respond in a timely and decisive way to emerging prudential
concerns which affect an entity, the entity's group or affect the
financial system more broadly.
Summary of new law
47. Schedules 1 to 3 of the Bill amend the Banking, Insurance and Life
Insurance Acts to:
. enhance the triggers for issuing directions;
. make it an offence for a NOHC of a general insurer to fail
to comply with a direction to remove a director or senior
manager; and
. clarify that APRA may issue directions to foreign ADIs
relating to their control of assets and their
responsibility for liabilities.
Comparison of key features of new law and current law
|New law |Current law |
|APRA may give directions |APRA may give directions|
|to regulated entities |to regulated entities |
|under the Banking, |under the Banking, |
|Insurance and Life |Insurance and Life |
|Insurance Acts if APRA |Insurance Acts if APRA |
|has reason to believe |has reason to believe |
|that there has been, or |that there has been, or |
|there might be, a |there might be, a sudden|
|material deterioration in|material deterioration |
|the entity's financial |in the entity's |
|condition. |financial condition. |
|In deciding whether to |It is not clear whether |
|give a direction to an |ARPA may disregard any |
|ADI under section 11CA of|external support for an |
|the Banking Act, APRA may|ADI in deciding whether |
|disregard any external |to give a direction |
|support for an ADI. |under section 11CA of |
| |the Banking Act. |
|APRA may issue directions|APRA has the power to |
|to an ADI, insurer or an |direct regulated |
|authorised NOHC of an ADI|entities to control the |
|or insurer under relevant|actions of their |
|provisions as a result of|subsidiaries, where a |
|the conduct or condition |directions trigger is |
|of a subsidiary of such |met. However, the |
|an entity, in certain |triggers do not |
|circumstances. |presently make any |
| |reference to |
| |subsidiaries of such |
| |entities. |
|Subsection 27(7) of the |Subsection 27(7) of the |
|Insurance Act is amended |Insurance Act makes it |
|to make it also an |an offence for general |
|offence for an authorised|insurers and corporate |
|NOHC to fail to comply |agents to fail to comply|
|with a direction from |with a direction to |
|APRA to remove a director|remove a director or |
|or senior manager. |senior manager. |
|Clarify that APRA may |It is not clear that |
|issue a direction to a |APRA may issue a |
|foreign ADI relating to |direction to a foreign |
|its control of assets or |ADI relating to its |
|its responsibility for |control of assets or its|
|liabilities. |responsibility for |
| |liabilities. |
Detailed explanation of new law
Triggers for issuing direction
48. Under the Banking, Insurance and Life Insurance Acts, triggers must
be satisfied prior to APRA issuing a direction. The Bill amends
the triggers for giving a direction to an ADI, general insurer,
life insurer or an authorised NOHC of these entities.
Deterioration in financial condition
49. Currently, paragraphs 11CA(1)(h) of the Banking Act, 104(1)(g) of
the Insurance Act and 230B(1)(g) of the Life Insurance Act provide
that APRA may issue a direction if there is 'a sudden material
deterioration in the body corporate's financial condition'
[Emphasis added].
50. The Bill amends the relevant provisions to remove the word
'sudden'. 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. [Schedule 1, item 13, Schedule 2, item 86,
Schedule 3, item 54, paragraph 11CA(1)(h) of the Banking Act 1959,
paragraph 104(1)(g) of the Insurance Act 1973, and paragraph
230B(1)(g) of the Life Insurance Act 1995]
ADI receiving external support
51. The Bill amends section 11CA of the Banking Act to clarify that
APRA may disregard any external support for an ADI in deciding
whether to give a direction under the section. [Schedule 1, item
16, subsection 11CA(1B) of the Banking Act 1959]
52. Currently, it is unclear whether APRA may disregard external
support, for example, the provision of Australian Government
(Government) support to an ADI, in determining whether to give a
direction to an ADI under section 11CA of the Banking Act. The
amendment clarifies that APRA may disregard such support.
53. The Bill also enables regulations made under the Banking Act to
specify that a particular form of support is not external support
for the purposes of the above mentioned amendment. This enables
the regulations to clarify any types of external support that are
not to be disregarded by APRA in deciding whether to give a
direction under section 11CA of the Banking Act. [Schedule 1, item
16, subsection 11CA(1C) of the Banking Act 1959]
Reference to subsidiaries
54. The Bill amends the grounds for giving directions under
section 11CA of the Banking Act, section 104 of the Insurance Act
and section 230B of the Life Insurance Act so that a direction can
be given in certain circumstances as a result of the conduct or
circumstances of subsidiaries of regulated entities. [Schedule 1,
item 14, Schedule 2, item 87, Schedule 3, item 55, subsection
11CA(1AA) of the Banking Act 1959, subsection 104(1A) of the
Insurance Act 1973, and subsection 230B(1AA) of the Life Insurance
Act 1995]
55. Currently, APRA has the power to direct a regulated entity to do,
or cause a subsidiary to do, certain things if a directions trigger
is met. However, the triggers themselves do not presently refer to
subsidiaries.
56. The Bill amends the sections identified above to enable APRA to use
its existing powers to direct a body corporate that is an ADI,
insurer or authorised NOHC of an ADI or insurer, if:
. APRA has reason to believe that:
- a subsidiary of the body corporate is, or is about to
become, unable to meet the subsidiary's liabilities; or
- there is, or there might be, a material risk to the
security of the assets of a subsidiary of the body
corporate; or
- there has been, or there might be, a material
deterioration in the financial condition of a subsidiary
of the body corporate; or
- a subsidiary of the body corporate is conducting the
subsidiary's affairs in an improper or financially
unsound way; or
- a subsidiary of the body corporate is conducting the
subsidiary's affairs in a way that may cause or promote
instability in the Australian financial system; and
. APRA considers that the direction is reasonably necessary
for one or more prudential matters relating to the body
corporate. [Schedule 1, item 14, Schedule 2, item 87,
Schedule 3, item 55, subsection 11CA(1AA) of the Banking
Act 1959, subsection 104(1A) of the Insurance Act 1973,
and subsection 230B(1AA) of the Life Insurance Act 1995]
57. 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.
58. The Bill also makes amendments to sections 11CA of the Banking Act,
104 of the Insurance Act and 230B of the Life Insurance Act to
clarify that:
. the new direction power triggers do not limit the existing
triggers in those sections in any way; and
. the existing direction power triggers in those sections do
not limit the new triggers in any way. [Schedule 1, items
12 and 14, Schedule 2, items 85 and 87, Schedule 3, items
53 and 55, subsections 11CA(1) and 11CA(1AA) of the
Banking Act 1959, subsections 104(1) and 104(1A) of the
Insurance Act 1973, and subsections 230B(1) and 230B(1AA)
of the Life Insurance Act 1995]
59. As a result of the amendments inserting the new triggers,
consequential amendments are made to paragraph 11CA(1A)(b) of the
Banking Act, paragraph 104(2)(b) of the Insurance Act and
paragraph 203B(1A)(b) of the Life Insurance Act. The amendments
insert a reference to the new triggers into those paragraphs.
[Schedule 1, items 15, schedule 2, item 88, and schedule 3,
item 56, paragraph 11CA(1A)(b) of the Banking Act 1959,
paragraph 104(2)(b) of the Insurance Act 1973, and
paragraph 203B(1A)(b) of the Life Insurance Act 1995]
Failure by an authorised NOHC to comply with a direction to remove a
director under the Insurance Act
60. Section 27 of the Insurance Act presently allows APRA to direct
general insurers, corporate agents and authorised NOHCs of general
insurers to remove a person from the position of director or senior
manager, in certain circumstances.
61. Subsection 27(7) of the Insurance Act presently makes it an offence
(penalty: 300 penalty units) for a general insurer or corporate
agent to fail to comply with such a direction. However, it does
not presently make it an offence for an authorised NOHC of a
general insurer to fail to so comply.
62. The Bill rectifies this inconsistency by amending subsection 27(7)
of the Insurance Act so as to apply it to a NOHC of a general
insurer on the same terms as it presently applies to general
insurers and corporate agents. As a result, a NOHC of a general
insurer commits an office if: the NOHC does, or fails to do, an
act; and by doing or failing to do the act, the NOHC fails to
comply with a direction under section 27 of the Insurance Act.
[Schedule 2, items 15 and 16, subsection 27(7), paragraphs 27(7)(a)
and (b) of the Insurance Act 1973]
Directions to foreign ADIs regarding assets and liabilities
63. The Bill amends the Banking Act to clarify that APRA may direct a
foreign ADI:
. to act in a way that a particular asset, or a particular
class of assets, of the ADI is returned to the control
(however described) of the part of the ADI's banking
business that is carried on in Australia; or a particular
liability, or a particular class of liabilities, of the
ADI ceases to be the responsibility (however described) of
the part of the ADI's banking business that is carried on
in Australia; or
. to not act in a way that a particular asset, or a
particular class of assets, of the ADI ceases to be under
the control (however described) of the part of the ADI's
banking business that is carried on in Australia; or a
particular liability, or a particular class of
liabilities, of the ADI becomes the responsibility
(however described) of the part of the ADI's banking
business that is carried on in Australia. [Schedule 1,
item 17, subsection 11CA(2B) of the Banking Act 1959]
64. 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.
65. The amendment does not limit the generality of paragraph 11CA(2)(p)
of the Banking Act. That paragraph presently provides that APRA
may give an ADI (including a foreign ADI) or an authorised NOHC of
an ADI a direction to do, or cause a subsidiary to do, anything
related to the way in which the affairs of the body corporate are
to be conducted or not conducted. [Schedule 1, item 17, subsection
11CA(2B) of the Banking Act 1959]
Chapter 3
Amendments to APRA's and the ATO's investigation powers
Outline of chapter
66. Schedules 1 to 4 of the Bill contain amendments relating to APRA's
and the ATO's investigation powers.
67. The schedules amend the Banking, Insurance, Life Insurance,
Superannuation Industry (Supervision), Retirement Savings Accounts,
and APRA Acts to:
. clarify APRA's and the ATO's investigation powers during
the winding-up of a regulated entity;
. respond to the High Court's decision in Rich v ASIC;
. harmonise record keeping provisions for APRA-regulated
entities with respect to their accessibility by APRA; and
. enhance the protection and sharing of information by APRA.
Context of amendments
Investigations during wind-up
68. APRA currently has the power to investigate, or appoint an
inspector to investigate, the affairs of all APRA-regulated
institutions. The ATO has similar powers in relation to the
superannuation entities which it regulates. However, 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.
69. This uncertainty is undesirable. Investigation powers are
important for gathering information and evidence for the purposes
of administering and enforcing relevant laws.
Disqualification
70. The High Court's decision in Rich v ASIC[2] overturned the view
that disqualification proceedings were protective and not penal in
nature.
71. Amendments have been made to the Corporations Act and the Trade
Practices Act to overcome the potential implications of the High
Court's decision. However, no such amendments have been made to
relevant laws administered by APRA, or in the case of certain
superannuation entities, the ATO.
72. Similar amendments to those applying in the Corporations and Trade
Practices Acts contexts, should also apply in the context of the
Banking, Insurance, Life Insurance and Superannuation Industry
(Supervision) Acts. Persons subject to disqualification
proceedings under these Acts are in a position of considerable
responsibility with respect to the assets of others and the
stability of Australia's financial system. It would not be
desirable, for example, if such a person was able through the
relevant privilege to retain their position with a financial
institution in circumstances where they are in fact not a fit and
proper person to do so.
Record-keeping by financial institutions
73. The Insurance, Life Insurance, and Superannuation Industry
(Supervision) Acts currently contain provisions with respect to the
keeping of records by regulated entities. The Banking Act does not
contain such provisions. Entities regulated under the Banking Act
are, however, subject to the record keeping requirements in the
Corporations Act.
74. The current record keeping provisions are 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.
Protection and sharing of information
75. Section 56 of the APRA Act provides for the protection and sharing
of protected information and documents by APRA.
76. 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.
Summary of new law
77. Schedules 1 to 4 of the Bill contain amendments relating to APRA's
investigation powers. In particular, the schedules:
. amend the Banking, Insurance, Life Insurance, and
Superannuation (Supervision) Acts to clarify that APRA's
investigation powers apply to a regulated entity that is,
or becomes, externally administrated or insolvent under
external administration;
. amend the Banking, Insurance, Life Insurance,
Superannuation (Supervision) and RSA Acts so that a person
cannot refuse to provide information or documents under
relevant laws or during relevant proceedings on the
grounds that the information or documents might tend to
make the person liable to a penalty by way of
disqualification;
. amend the Banking, Insurance, Life Insurance, and
Superannuation (Supervision) Acts to harmonise the record
keeping provisions for APRA-regulated entities with
respect to their accessibility by APRA; and
. amend the definitions of protected information and
documents in section 56 of the APRA Act so that they
capture all information or documents collected under
prudential laws from a financial sector entity within the
meaning of the FSCODA.
Comparison of key features of new law and current law
|New law |Current law |
|Clarifies that APRA's |It is not clear that |
|investigation powers |APRA's investigation |
|under the Banking, |powers under the |
|Insurance, and Life |Banking, Insurance, and |
|Insurance Acts apply to a|Life Insurance Acts |
|regulated entity that is,|apply to a regulated |
|or becomes, externally |entity that is, or |
|administrated. |becomes externally |
|Clarifies that APRA's and|administered. |
|the ATO's investigation |It is not clear that |
|power under the |APRA's and the ATO's |
|Superannuation Industry |investigation power |
|(Supervision) Act applies|under the Superannuation|
|to a superannuation |Industry (Supervision) |
|entity that is wound up, |Act applies to a |
|dissolved or terminated |superannuation entity |
|or whose trustee becomes |that is wound up, |
|externally administrated |dissolved or terminated |
|or insolvent under |or whose trustee becomes|
|external administration. |externally administrated|
| |or insolvent under |
| |external administration.|
|A person is not entitled |A person is entitled to |
|to refuse to provide |refuse to provide |
|information or documents |information or documents|
|under relevant laws or |under relevant laws or |
|during relevant |during relevant |
|proceedings on the |proceedings on the |
|grounds that it might |grounds that it might |
|tend to make the person |tend to make the person |
|liable to a penalty by |liable to a penalty by |
|way of disqualification |way of disqualification.|
|APRA-regulated entities |The record keeping |
|are required to keep |provisions applying to |
|their records in |APRA-regulated entities |
|Australia; notify APRA of|are inconsistent with |
|their location and any |respect to their |
|change to that location |accessibility by APRA. |
|within 28 days; and keep |Various features of the |
|the records in English or|new law apply to some |
|in a form readily |but not all such |
|convertible into English.|entitles. |
|Section 56 |Section 56 |
|(Secrecy-general |(Secrecy-general |
|obligations) of the APRA |obligations) of the APRA|
|Act applies to any |Act applies to much of |
|information or documents |the information or |
|collected by APRA under |documents collected by |
|prudential laws relating |APRA under prudential |
|to the affairs of a |laws relating to the |
|financial sector entity |affairs of a financial |
|within the meaning of the|sector entity within the|
|FSCODA. |meaning of the FSCODA. |
Detailed explanation of new law
Investigations during wind-up
78. The Bill amends sections 13, 13A, 61 and 62 of the Banking Act,
section 52 of the Insurance Act, and section 137 of the Life
Insurance Act to provide, for the avoidance of doubt, that the
sections apply to a relevant institution that is, or becomes, an
externally administered body corporate (within the meaning of the
Corporations Act) in the same way as the sections applies to any
other relevant institution. [Schedule 1, items 19, 24, 43 and 44,
schedule 2, item 46, and schedule 3, item 40, sections 13, 13A, 61
and 62 of the Banking Act 1959, section 52 of the Insurance Act
1973 and section 137 of the Life Insurance Act 1995]
79. An equivalent amendment is also made to section 263 of the
Superannuation Industry (Supervision) Act. That amendment
provides, for the avoidance of doubt, that the section applies to a
superannuation entity, in the same way as it applies to any other
superannuation entity, if: the superannuation entity is wound up,
dissolved or terminated; or, the trustee of the superannuation
entity is or becomes an externally-administered body corporate
(within the meaning of the Corporations Act 2001), or insolvent
under administration. [Schedule 4, item 36, section 263 of the
Superannuation Industry (Supervision) Act 1993]
80. The amendments clarify that APRA may commence or continue an
investigation after an ADI, general insurer or life insurer enters
external administration, or, in the case of a superannuation
entity, after the entity is wound up, dissolved or terminated or
its trustee enters external administration or becomes insolvent
under external administration.
Disqualification
81. The Bill amends the Banking Act, Insurance Act, Life Insurance Act,
Superannuation Industry (Supervision) Act and RSA Act to provide
that a person is not entitled to fail to comply with a requirement
under those respective Acts:
. to answer a question or give information;
. to produce books, accounts or other documents; or
. to do any other act whatever;
on the grounds that the answer or information, production of the
book or other thing, or doing that other act, as the case may be,
might tend to make the person liable to a penalty by way of a
disqualification under relevant laws. [Schedule 1, item 40 ,
schedule 2, item 14, schedule 3, item 58, and schedule 4, items 28,
and 34, subsection 22A(3) of the Banking Act 1959,
subsection 26A(3) of the Insurance Act 1973, subsection 245C(3) of
the Life Insurance Act 1995, subsection 67AA(3) of the Retirement
Savings Accounts Act 1997, and subsection 126L(3) of the
Superannuation Industry (Supervision) Act 1993]
82. The Bill further amends the Acts to provide that in any proceeding
under, or arising out of, them, a person is not entitled to refuse
or fail to comply with a requirement:
. to answer a question or give information;
. to produce books, accounts or other documents; or
. to do any other act whatever;
on the ground that the answer or information, production of the
book or other thing, or doing that other act, as the case may be,
might tend to make the person liable to a penalty by way of a
disqualification under the Acts. This applies whether or not the
subject person is a defendant in, or a party to, the proceeding or
any other proceeding. [Schedule 1, item 40 , schedule 2, item 14,
schedule 3, item 58, and schedule 4, items 28, and 34,
subsections 22A(1) and 22A(2) of the Banking Act 1959,
subsections 26A(1) and 26A(2) of the Insurance Act 1973,
subsections 245C(1) and 245C(2) of the Life Insurance Act 1995,
subsections 67AA(1) and 67AA(2) of the Retirement Savings Accounts
Act 1997, and subsections 126L(1) and 126L(2) of the Superannuation
Industry (Supervision) Act 1993]
83. Amendments are also made by the Bill to facilitate the operation of
the above amendments.
84. 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.
85. Similarly, to facilitate the operation of the new provisions the
Bill provides that they have effect despite anything in any
provision of the respective Acts or the Administrative Appeals
Tribunal Act 1975. This includes, in the case of the Banking,
Insurance, and Superannuation Industry (Supervision) Acts, the
provisions in those Acts that provide that the Federal Court is to
apply the rules of evidence and procedure for civil matters when
hearing proceedings for a pecuniary penalty order. [Schedule 1,
item 40 , schedule 2, item 14, schedule 3, item 58, and schedule 4,
items 28, and 34, subsections 22A(4) and 22A(5) of the Banking Act
1959, subsections 26A(4) and 26A(5) of the Insurance Act 1973,
subsections 245C(4) and 245C(5) of the Life Insurance Act 1995,
subsections 67AA(4) and 67AA(5) of the Retirement Savings Accounts
Act 1997, and subsections 126L(4) and 126L(5) of the Superannuation
Industry (Supervision) Act 1993]
86. Finally, for the purposes of the new provisions, the Bill defines
penalty as including forfeiture. [Schedule 1, item 40 , schedule
2, item 14, schedule 3, item 58, and schedule 4, items 28, and 34,
subsection 22A(6) of the Banking Act 1959, subsection 26A(6) of the
Insurance Act 1973, subsection 245C(6) of the Life Insurance Act
1995, subsection 67AA(6) of the Retirement Savings Accounts Act
1997, and subsection 126L(6) of the Superannuation Industry
(Supervision) Act 1993]
87. The amendments respond to the High Court's decision in Rich v ASIC,
which overturned the view that disqualification proceedings were
protective and not penal in nature. The amendments are modelled on
the amendments made to the Corporations Act in 2007. Similar
amendments have also been made to the Trade Practices Act.
88. In the case of the Superannuation Industry (Supervision) Act, the
amendments are inserted into Subdivision C of Division 3 of Part 15
of that Act. As a result, the heading to that section is changed
from 'Offences relating to disqualified persons' to 'Other matters
relating to disqualification'. The amended heading better reflects
the provisions in the subdivision after the relevant amendments are
inserted. [Schedule 4, item 33 , Subdivision C of Division 3 of
Part 15 (heading) of the Superannuation Industry (Supervision) Act
1993]
Record-keeping
89. The Insurance, Life Insurance, and Superannuation Industry
(Supervision) Acts currently contain provisions with respect to the
keeping of records by regulated entities. The Banking Act does not
contain such provisions. Entities regulated under the Banking Act
are, however, subject to the record keeping requirements in the
Corporations Act.
90. The Bill makes amendments to the above-mentioned Acts to harmonise
the record keeping provisions for APRA-regulated entities with
respect to their accessibility by APRA. In particular, the
amendments require that the records are kept in Australia; that
APRA is notified, in the approved form, of their location and any
change to that location within 28 days; and that the records are
kept in English or in a form in which they are readily convertible
into writing in English. Each of these requirements, with the
exception of the requirement to notify APRA of the location at
which records are kept, currently applies to some but not all APRA-
regulated entities. [Schedule 1, item 42 , schedule 2, items 40,
and 41, schedule 3, item 9, and schedule 4, items 30 to 32,
subsections 60(1) and 60(3) to 60(5) of the Banking Act 1959,
paragraphs 49Q(1)(a) and 49Q(1)(b) and subsections 49Q(1B) to
49Q(1D) of the Insurance Act 1973, subsections 76A(1) and 76A(3) to
76A(5) of the Life Insurance Act 1995, and paragraph 35A(2)(b) and
subsections 35A(2B) to 35A(2D) of the Superannuation Industry
(Supervision) Act 1993]
91. The Bill provides APRA with discretion to approve an entity keeping
its records in a country other than Australia. This approval may
be given subject to specified conditions and is reviewable on its
merits by the Administrative Appeals Tribunal. [Schedule 1, item
42 , schedule 2, items 41 and 43, schedule 3, items 9 and 57, and
schedule 4, items 30 and 32, subsections 60(2) and 60(7) of the
Banking Act 1959, subsections 49Q(1A) and 49Q(3) of the Insurance
Act 1973, subsections 76A(2) and 263(1) of the Life Insurance Act
1995, and subsections 10(1) and 35A(2A) of the Superannuation
Industry (Supervision) Act 1993]
92. The Bill amends the Banking and Life Insurance Acts to make it an
offence (penalty 200 penalty units) for a relevant entity to
contravene the requirements to keep their records in Australia (or
other approved country) and in English or in a form in which they
are readily convertible into writing in English. In the case of
the Insurance Act and the Superannuation Industry (Supervision)
Act, the present offences in sections 49Q and 35A of those
respective Acts apply. [Schedule 1, item 42 , schedule 2, item 42,
and schedule 3, item 9, subsection 60(6) of the Banking Act 1959,
subsection 49Q(2) of the Insurance Act 1973, and subsection 76A(6)
of the Life Insurance Act 1995]
93. To support the notification requirements referred to above, the
Bill inserts a definition of 'approved form' into the Banking,
Insurance and Life Insurance Act. The term is defined for relevant
purposes to mean a form approved, in writing, by APRA. The term is
already defined in the Superannuation Industry (Supervision) Acts.
[Schedule 1, item 3, schedule 2, item 1, and schedule 3, item 59,
subsection 5(1) of the Banking Act 1959, subsection 3(1) of the
Insurance Act 1973, and dictionary in the schedule to the Life
Insurance Act 1995]
Protection and sharing of information
94. Section 56 of the APRA Act provides for the protection and sharing
of protected information and documents by APRA.
95. The Bill amends the definitions of protected information and
documents in section 56 of the APRA Act so that they include any
information or documents obtained or produced under a prudential
law which relates to the affairs of a financial sector entity
within the meaning of the FSCODA. [Schedule 4, item 1,
subsection 56(1) of the Australian Prudential Regulation Authority
Act 1998]
96. The amendment ensures that information and documents collected from
such financial sector entities are subject to the protection of
section 56 and the information sharing regime it contains. At
present, some but not all financial sector entities are covered by
section 56.
Chapter 4
Amendments to APRA's failure management powers
Outline of chapter
1. Schedules 1 to 4 of the Bill contain amendments relating to APRA's
failure management powers.
97. The schedules amend the Banking, Insurance, Life Insurance, RBA,
and Business Transfer and Group Restructure Acts in relation to:
. the appointment of a judicial manager to a general or life
insurer, and APRA's powers with respect to judicial
management of general and life insurers, and the statutory
management of an ADI;
. compulsory transfer of business provisions with regard to
a general or life insurer;
. matters relating to the winding up of an ADI, general
insurer or life insurer; and
. the recapitalisation of an ADI, general insurer or life
insurer.
Context of amendments
98. Recognising that prudential regulation does not (and, in a market
economy, cannot) have a 'no failure' objective, it is important
that APRA has effective powers to intervene when regulated
financial institutions are at risk of experiencing financial
difficulties that threaten their ongoing viability, and to ensure
the effective resolution of the situation in a manner which
maintains the stability of the financial system and protects
depositors and policyholders.
Statutory and judicial management
99. APRA currently has the power to appoint a statutory manager to an
ADI, and apply to the Federal Court for the appointment of a
judicial manager to a general or life insurer, when one or more of
the grounds for appointment (set out in the respective legislation)
are met. However, in some respects there is a lack of clarity in
relation to APRA's powers in relation to these appointments,
specifically APRA's ability to collect information relating to the
affairs of an ADI in statutory management, and APRA's ability to
seek information from a judicial manager.
100. APRA's powers in these respects should be clear.
Transfer of business
101. Transferring the business of an entity in financial distress to a
healthy institution may be a less disruptive and costly means of
resolving problems in financial institutions than wind-up.
102. Currently, Part 4 of the Business Transfer and Group Restructure
Act contains compulsory transfer of business powers that may be
used to transfer business from a distressed ADI. This Part also
provides for compulsory transfers of business from a distressed
life insurer to a healthy life insurer that is willing to receive
(purchase) the business. However, it does not currently provide
for compulsory transfers of business between general insurers or a
transfer from a life insurer to an entity that is not a life
insurer. APRA's failure management powers would be enhanced by
addressing these deficiencies.
Winding up
Priority provisions
103. Subsection 13A(3) of the Banking Act presently provides that if an
ADI becomes unable to meet its obligations or suspends payment, its
assets in Australia are to be available to meet its liabilities in
the following order:
. first, the ADI's liabilities (if any) to APRA because of
the rights APRA has against the ADI because of section
16AI (relating to payouts to depositors under the FCS);
. second, the ADI's debts (if any) to APRA under section
16AO (relating to expenses incurred in administering the
FCS);
. third, the ADI's deposit liabilities in Australia (other
than any such liabilities covered under paragraph
13A(3)(a));
. fourth, the ADI's other liabilities (in the order of their
priority apart from subsection 13A(3)).
104. The section, however, does not provide priority for debts owed to
the Reserve Bank of Australia (RBA) or under industry support
contracts.
Definition of foreign ADI
105. Section 11E of the Banking Act provides that Division 2 (Protection
of depositors) of the Act does not apply to a foreign ADI.
Section 11D defines foreign ADI for the purposes of section 11E as
not including the Bank of China.
106. The Bank of China was originally subject to the depositor
protection provisions of the Banking Act as it accepted retail
deposits. However, the Bank of China has now ceased to accept
retail deposits and should be treated like all other foreign ADIs
for the purposes of the depositor protection provisions of the Act.
Liquidation of an insurer following judicial management
107. The Insurance Act does not specify whether a winding up of a
general insurer, following the recommendation of a judicial
manager, is to be conducted according to the Corporations Act.
This may lead to uncertainty and therefore should be resolved.
Recapitalisation
108. When an ADI, general insurer or life insurer is in financial
distress, there is uncertainty over the extent of APRA's powers to
issue a direction to the entity that requires the entity to
recapitalise. Legal powers to facilitate mandatory
recapitalisation only exist with certainty where an ADI is in
statutory management or a general or life insurer is in judicial
management.
Summary of new law
109. Schedules 1 to 4 of the Bill contain amendments relating to APRA's
failure management powers. In particular, the schedules:
. amend the Banking Act to specify that APRA may appoint a
statutory manager to an ADI if doing so is in the
interests of depositors, or for financial system
stability, or both;
. amend the Insurance and Life Insurance Acts to clarify
that, before applying to appoint an external administrator
to an insurer, a person is required to give to APRA all
documents that will be filed in support of an application;
. amend the Insurance and Life Insurance Acts to clarify
that APRA has the right to be heard in proceedings for the
replacement of a judicial manager;
. amend the Banking Act to enable APRA, by written notice,
to require a person to provide information, or documents
containing information, that relate to the affairs of an
ADI that is under statutory management;
. amend the Insurance and Life Insurance Acts to enable APRA
to seek information from a judicial manager to assist it
in carrying out its functions and duties relating to the
FCS;
. amend the Business Transfer and Group Restructure Act to
provide APRA with additional flexibility in relation to a
compulsory transfer of the businesses of a life insurer,
and the ability to require the compulsory transfer of the
businesses of a general insurer;
. amend the Banking Act and the RBA Act to clarify the
priority of debts to the RBA and under industry support
contracts in the winding up of an ADI;
. amend the Banking Act to clarify that, as the Australian
branch of the Bank of China no longer takes retail
deposits, the deposit protection provisions in the Act
will no longer apply to the branch consistent with the
treatment of all foreign banks;
. amend the Insurance Act to clarify that, where a Court
orders that a general insurer be wound up on the basis of
a recommendation from a judicial manager, the wind up will
be conducted in accordance with the Corporations Act; and
. amend the Banking, Insurance and Life Insurance Acts to
enable APRA to issue a recapitalisation direction to an
ADI, general insurer or life insurer, in certain
circumstances.
Comparison of key features of new law and current law
|New law |Current law |
|APRA may appoint a |APRA may appoint a |
|statutory manager to an |statutory manager to an |
|ADI if it is in the |ADI if it is in the |
|interests of depositors |interests of depositors |
|or for financial system |and for financial system|
|stability (or both). |stability. |
|A person who wants to | A person who wants to |
|apply to a court for the |apply to a court for the|
|appointment of an |appointment of an |
|external administrator to|external administrator |
|a general insurer or life|to a general insurer or |
|insurer is required to |life insurer is required|
|first give specified |to inform APRA before |
|documents to APRA before |making the application. |
|making the application. | |
|APRA has the right to be |It is not clear that |
|heard in proceedings for |APRA has the right to be|
|the cancellation of the |heard in proceedings for|
|appointment of a judicial|the cancellation of the |
|manager of a general or |appointment of a |
|life insurer. |judicial manager. |
|A judicial manager of a |A judicial manager of a |
|general or life insurer |general or life insurer |
|is vested with the powers|is vested with the |
|of the Board of the |powers of the directors,|
|insurer. |but not of the Board of |
| |the insurer. |
|APRA may, by written |Under subsection 14A(2) |
|notice, require a person |of the Banking Act, a |
|to provide information, |statutory manager may, |
|or documents containing |for the purposes of |
|information, that relate |protecting depositors, |
|to the affairs of an ADI |require a person who |
|that is under statutory |has, at any time, been |
|management. |an officer of the ADI to|
|The power does not affect|give the ADI statutory |
|the operation of |manager any information |
|subsection 14A(2) of the |relating to the business|
|Banking Act. |of the ADI that the ADI |
| |statutory manager |
| |requires. |
|APRA may request |APRA has limited powers |
|information from a |to seek information or |
|judicial manager of a |documents from a |
|general or life insurer |judicial manager. |
|about specified matters, | |
|including matters that | |
|enable APRA to perform | |
|its functions in relation| |
|to the FCS. | |
|New law |Current law |
|APRA may require a |APRA may require a |
|compulsory transfer of a |compulsory transfer of a|
|regulated business from |regulated business from |
|one general insurer to |one life insurer to |
|another general insurer. |another life insurer. |
| |It does not have the |
|APRA may require a |power to require the |
|compulsory transfer of a |transfer of |
|component of a general |non-regulated business |
|insurer's or life |of a life insurer to an |
|insurer's business (not |entity that is not a |
|being a regulated |life insurer. |
|business) to an |APRA does not have |
|unregulated entity. |powers under the Act to |
|APRA may require the |require a compulsory |
|compulsory business |transfer of the business|
|transfer of a general or |of a general insurer. |
|life insurer on the basis| |
|of a recommendation of a | |
|judicial manager. | |
|Subsection 13A(3) of the |Subsection 13A(3) of the|
|Banking Act specifies the|Banking Act does not |
|priority of debts to the |specify the priority of |
|RBA and liabilities under|debts to the RBA and |
|industry support |liabilities under |
|arrangements if an ADI |industry support |
|becomes unable to meet |arrangements if an ADI |
|its obligations or |becomes unable to meet |
|suspends payment. |its obligations or |
| |suspends payment. |
|Depositor protection |Depositor protection |
|provisions of the Banking|provisions of the Act |
|Act do not apply to the |apply to the Bank of |
|Bank of China. |China. |
|Where the Court approves |When the Court approves |
|a recommendation by a |a recommendation by a |
|judicial manager to wind |judicial manager to wind|
|up a general insurer, the|up a general insurer, it|
|winding up is conducted |is not clear that the |
|in accordance with the |winding up is conducted |
|Corporations Act. |in accordance with the |
| |Corporations Act. |
|APRA may direct an ADI, |There is uncertainty |
|general insurer or life |over whether APRA may |
|insurer to recapitalise |issue a direction that |
|in circumstances similar |requires an ADI, general|
|to those which presently |insurer or life insurer |
|allow APRA to appoint a |to recapitalise. A |
|statutory or judicial |statutory manager of an |
|manager and require |ADI or judicial manager |
|recapitalisation of an |of a general or life |
|entity. |insurer has explicit |
|APRA is able to specify |powers to recapitalise |
|that the ADI, general |the entity under |
|insurer or life insurer |management. |
|increase the capital that| |
|it holds to a specified | |
|level by issuing equity, | |
|or other capital | |
|instruments specified by | |
|regulations. | |
Detailed explanation of new law
External administration
Triggers for appointing a statutory manager
110. The Bill amends section 13A of the Banking Act to specify that APRA
may appoint a statutory manager to an ADI if:
. it is likely that the ADI will be unable to carry on
banking business in Australia consistently with the
interest of its depositors; or
. it is likely that the ADI will be unable to carry on
banking business in Australia consistently with the
stability of the financial system in Australia.
111. The amendment allows the appointment of a statutory manager when
either or both triggers are met.
112. 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.
113. The amendment enables APRA to appoint a statutory manager in a
timely and responsive manner where there is a need for early
intervention to prevent detriment to the depositors of the affected
ADI or the stability of the financial system, or both. [Schedule
1, items 20 and 21, subparagraph 13A(1)(b)(iii) and subparagraph
13A(1)(b)(iv) of the Banking Act 1959]
Information about applications to appoint an external administrator
to a general and life insurer
114. The Bill amends section 62ZQ of the Insurance Act and section 179C
of the Life Insurance Act to require a person to give the following
documents to APRA before making an application for the appointment
of an external administrator of a general insurer:
. a copy of the application; and
. a copy of all the documents that will be filed in support
of the application.
115. The Bill amends the current offences in subsection 62ZQ(4) of the
Insurance Act and subsection 179C(4) of the Life Insurance Act so
that they apply to a failure to provide the specified documents.
The Bill also repeals subsection 65ZQ(3) of the Insurance Act and
subsection 179C(3) of the Life Insurance Act because the details
prescribed in these subsections are contained in the amended
subsections 62ZQ(1A) and 179C(1A).
116. This amendment enables APRA to receive these details prior to the
hearing so as to understand the circumstances giving rise to the
application, and so that it can take appropriate and timely action.
[Schedule 2, items 54 to 56, and Schedule 3, items 45 to 47,
subsections 62ZQ(1) to 62ZQ(4) of the Insurance Act 1973 and
subsections 179C(1) to 179C(4) of the Life Insurance Act 1995]
Right to be heard in proceedings to replace a judicial manager
117. It is important to ensure that a person appointed as judicial
manager under the Insurance or Life Insurance Acts has appropriate
expertise and experience.
118. Currently, APRA has the right to be heard when the Federal Court of
Australia appoints a judicial manager or terminates judicial
management. However, when the Federal Court decides to replace one
judicial manager with another, it is not clear that APRA has the
right to be heard.
119. The Bill amends section 62R of the Insurance Act and section 163 of
the Life Insurance Act to clarify that APRA has the right to be
heard in proceedings related to the replacement of a judicial
manager. 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. [Schedule 2, item 50, and schedule 3, item
42, subsection 62R(3) of the Insurance Act 1973, and
subsection 163(3) of the Life Insurance Act 1995]
Powers relating to statutory and judicial managers
120. The Bill amends the Banking Act to enable APRA, by written notice,
to require a person to provide information, or documents containing
information, that relate to the affairs of an ADI that is under
statutory management. The amendment does not limit section 14A of
the Banking Act which currently provides for the powers and
functions of a statutory manager.
121. The notice must specify the period within which the information or
documents must be given to APRA, and may specify the form and
manner in which the information or documents must be given.
122. If APRA is the statutory manager, it may issue the notice if:
. APRA reasonably believes that the person has the
information or documents; and
. APRA requires the information for the purposes of
Division 2, Part 2 of the Banking Act (protection of
depositors).
123. If APRA is not the statutory manager, APRA may issue the notice if:
. the statutory manager requests, in writing, that APRA
require such information or documents from the person;
. APRA reasonably believes that the person has the
information or documents; and
. APRA is satisfied that the statutory manager requires the
information for the purposes of Division 2, Part 2 of the
Banking Act (protection of depositors).
124. A person that fails to comply with APRA's requirement to give
information or documents commits an offence that is punishable by
50 penalty units or 12 months imprisonment, or both.
125. 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.
126. The Bill amends section 62ZD of the Insurance Act to enable APRA to
request information from the judicial manager about the following
matters:
. the conduct of judicial management;
. the financial position of the general insurer under
judicial management;
. a matter that, APRA considers, will enable APRA to perform
its functions under Part VC (FCS for Policyholders with
Insolvent General Insurers) of the Insurance Act.
127. The notice must specify a period within which the information is to
be given to APRA, which must be a reasonable period.
128. This is equivalent to APRA's ability to require information from a
general insurer or a liquidator of a general insurer.
129. If a judicial manager fails or refuses to give APRA such
information on request, it commits an offence. The fault-based
offence is punishable by 100 penalty units or six months
imprisonment, or both. The strict liability offence is punishable
by 60 penalty units. 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.
130. 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. [Schedule 1, item 27 and
schedule 2, item 52, section 14AD of the Banking Act 1959, and
section 62ZD of the Insurance Act 1973]
Powers of a judicial manager
131. The Bill amends subsection 62T(1) of the Insurance Act and
subsection 165(1) of the Life Insurance Act to specify that a
judicial manager of a general or life insurer has the powers of the
Board of the insurer as well as the powers of the management of the
insurer.
132. 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.
133. These amendments apply to a judicial manager whether or not the
judicial manager was appointed before, on, or after the
commencement of these amendments. [Schedule 2, items 51 and 93,
and schedule 3, items 43 and 63, subsection 62T(1) of the Insurance
Act 1973, and subsection 165(1) of the Life Insurance Act 1995]
Business transfer
134. The Bill amends section 25 of the Business Transfer and Group
Restructure Act to give APRA additional powers in relation to the
compulsory transfer of the businesses of a general or life insurer,
so that they are consistent with APRA's powers in relation to the
compulsory transfer of an ADI's businesses.
135. Before APRA may issue a compulsory transfer determination, APRA
must have considered the interests of policy owners of the insurer
whose business will be transferred (when viewed as a group) and
considered that, having regard to those interests, it is
appropriate for the transfer to be made. APRA must also be
satisfied that the conditions specified in subsection 25(2) are
met.
136. The conditions in subsection 25(2) relate to the consent of the
company that is receiving the transfer, the interests of the
financial system as a whole and other relevant matters, the
existence of relevant State or Territories legislation supporting
the transfer, and the consent of the Minister (or a decision by the
Minister that their consent is not required).
137. The Bill inserts subsection 25(1D), which enables APRA to require
the compulsory transfer of a life insurer's (other than a friendly
society's) non-regulated business to an entity that is not a life
insurer, if APRA is satisfied that:
. the life insurer concerned has contravened the Life
Insurance Act, instruments made or conditions imposed
under that Act; or
. APRA has given the life insurer written notice that APRA
proposes to investigate the entity's life insurance
business; or
. a judicial manager of the transferring body has
recommended that the business or part of the business of
the life insurer be transferred to another company; or
. APRA has made a determination under subsection 25(1C) of
the Act for the transfer of some or all of the life
insurer's regulated business to another life insurer
(whether or not the transfer has yet happened).
138. The Bill inserts subsection 25(1E), which enables APRA to require
the compulsory transfer of some or all of a general insurer's
business to another general insurer. The Bill also inserts
subsection 25(1F), which enables APRA to require the compulsory
transfer of a general insurer's non-regulated business to an entity
that is not a general insurer.
139. For both types of compulsory transfer, APRA is required to be
satisfied of any of the following triggers:
. the general insurer concerned has contravened the
Insurance Act, any regulations or other instruments made
or conditions imposed under that Act;
. APRA has served a written notice on the general insurer
that an investigation is to be made;
. a judicial manager of the general insurer has recommended
that its business be transferred to another general
insurer.
140. Additionally, for a compulsory transfer of non-regulated business
from a general insurer to an entity that is not a general insurer
(subsection 25(1F)), APRA may also be satisfied that APRA has made
a determination under subsection 25(1E) for the transfer of some or
all of the general insurer's regulated business to another general
insurer (whether or not the transfer has yet happened).
141. Transfers are exempt from Part IV of the Trade Practices Act (which
would be re-named the Competition and Consumer Act 2010 if the
Trade Practices Legislation Amendment (Australian Consumer Law) Act
(No 2) 2010 receives Royal Assent).
142. The Bill makes consequential amendments to section 62ZI of the
Insurance Act and section 175 of the Life Insurance Act so that a
judicial manager of a general or life insurer may recommend that a
compulsory business transfer takes place under the Business
Transfer and Group Restructure Act.
143. Lastly, the Bill also amends subsection 25(1C) of the Act to
reflect the fact that one of the possible preconditions for a
compulsory transfer is that a judicial manager of a life insurer
has recommended that such a transfer be made. [Schedule 2, item
53, schedule 3, item 44, and schedule 4, items 4 and 5, paragraph
62ZI(2)(aa) of the Insurance Act 1973, paragraph 175(2)(aa) of the
Life Insurance Act 1995, subparagraph 25(1C)(a)(iii) and
subsections 25(1D) to 25(1F) of the Financial Sector (Business
Transfer and Group Restructure) Act 1999]
Winding up
Priority provisions
144. The Bill amends subsection 13A(3) of the Banking Act so that it
provides for liabilities to be paid in the following order:
. first, the ADI's liabilities (if any) to APRA because of
the rights APRA has against the ADI because of section
16AI;
. second, the ADI's debts (if any) to APRA under section
16AO;
. third, the ADI's liabilities (if any) in Australia in
relation to protected accounts that account-holders keep
with the ADI;
. fourth, the ADI's debts (if any) to the RBA;
. fifth, the ADI's liabilities (if any) under an industry
support contract that is certified under section 11CB;
. sixth, the ADI's other liabilities (if any) in the order
of their priority apart from subsection 13A(3). [Schedule
1, item 22, subsection 13A(3) of the Banking Act 1959]
145. The amendments reflect changes made by the Financial System
Legislation Amendment (FCS and Other Measures) Act 2008 (FCS Act)
to the depositor protection and compensation arrangements under the
Banking Act. They also provide appropriate priority for debts owed
to the RBA and liabilities under industry support contracts.
146. The Bill clarifies that the amendments apply in relation to an ADI
that becomes unable to meet its obligations, or suspends payment,
on or after the commencement of the amendments. [Schedule 1, item
46, Application-priorities for application of the assets of an ADI
in Australia]
147. A related amendment is also be made to section 86 of the RBA Act.
That section presently provides that notwithstanding anything
contained in any law relating to the wind-up of companies, but
subject to subsection 13A(3) of the Banking Act, debts due to the
Bank by an ADI shall, in the wind-up, have priority over all other
debts other than debts due to the Commonwealth. The amendment
removes the words 'other than debts due to the Commonwealth' from
section 86 to reflect changes in the law regarding the priority of
the Commonwealth. [Schedule 4, item 27, section 86 of the Reserve
Bank Act 1959]
Definition of foreign ADI
148. The Bill repeals section 11D of the Banking Act, so that
section 11E (and the remaining provisions of Division 1B) of the
Act apply to the Bank of China as they do to all other foreign
ADIs. [Schedule 1, item 18, section 11D of the Banking Act 1959]
149. The Bank of China was originally subject to the depositor
protection provisions of the Banking Act as it accepted retail
deposits through its branch operations in Australia. However, the
Bank of China has now ceased to accept retail deposits and should
be treated like all other foreign ADIs for the purposes of the
depositor protection provisions of the Act. That is, it should be
exempted from those provisions and subject to the remaining
provisions of Division 1B (Provisions relating to certain ADIs) of
the Banking Act.
Liquidation of a general insurer following judicial management
150. The Bill amends section 3 of the Insurance Act to insert a
definition of 'wind up'. The definition provides that wind up, in
relation to a company, means the wind up of the company is
conducted in accordance with the Corporations Act.
151. This definition is used in section 62ZI of the Insurance Act. The
section enables a judicial manager to recommend that the general
insurer under judicial management be wound up, and section 62ZU of
the Insurance Act, enables the Court to order the wind up of a
general insurer upon the recommendation of a judicial manager. A
now redundant reference to a wind up conducted in accordance with
the Corporations Act is also removed from section 62ZV of the
Insurance Act.
152. The amendments ensure that where the Court approves a
recommendation by a judicial manager to wind up a general insurer,
the winding up is conducted in accordance with the Corporations
Act. [Schedule 2, items 6 and 57, subsections 3(1) and 62ZV(2) of
the Insurance Act 1973]
Recapitalisation
153. The Bill amends the Banking, Insurance and Life Insurance Acts to
insert a new definition of 'recapitalisation direction' as a
direction given by APRA under, respectively, subsection 13E(1) of
the Banking Act, subsection 103B of the Insurance Act and
subsection 230AB(1) of the Life Insurance Act.
154. The Bill inserts new Subdivision AA, Division 2, Part 2 of the
Banking Act, new Division 1, Part 9 of the Insurance Act and new
Subdivision A, Division 2, Part 10A of the Life Insurance Act, to
give APRA the power to issue a recapitalisation direction to an
ADI, general insurer or life insurer, and without the entity being
in statutory or judicial management.
155. The triggers for the issue of a recapitalisation direction are:
. the ADI, general insurer or life insurer informs APRA that
it may cease meeting obligations or may suspend payment;
or
. APRA believes that the ADI, general insurer or life
insurer may cease meeting obligations or suspend payment;
or
. APRA believes that the ADI, general insurer or life
insurer's conduct is contrary to depositors or
policyholders' interests or financial system stability; or
. the ADI, general insurer or life insurer ceases to meet
obligations or suspends payment.
156. The Bill inserts a provision that provides that a recapitalisation
direction is not a legislative instrument. 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. [Schedule 1, item 25, schedule 2, item 83,
and schedule 3, item 51, subsection 13E(4) of the Banking Act 1959,
subsection 103B(3) of the Insurance Act 1973, and subsection
230AB(3) of the Life Insurance Act 1995]
157. APRA is required to consult with the Australian Competition and
Consumer Commission (ACCC) before issuing a recapitalisation
direction.
158. APRA is able to require the ADI, general insurer or life insurer to
increase the capital that it holds to a specified level by issuing
shares, rights to acquire shares, or other capital instruments that
are specified by regulation.
159. Before issuing a recapitalisation direction, APRA is required to
obtain an independent expert valuation report to ascertain the
value of the shares, rights to acquire share or capital
instruments. However, the failure to obtain such a report does not
invalidate the recapitalisation direction, or anything done in
compliance with such a direction.
160. The Minister may, by written notice, issue valuation assumptions
that are to be used by the expert in creating the valuation report.
The Minister may also, by further written notice given to the
expert, revoke but not vary, the notice of assumptions.
161. The Bill provides that such notices given by the Minister are not
legislative instruments. The provision is included to assist
readers, as the instruments are not a legislative instrument within
the meaning of section 5 of the Legislative Instruments Act 2003.
[Schedule 1, item 25, schedule 2, item 83, and schedule 3, item 51,
subsections 13J(4) and 13K(4) of the Banking Act 1959, subsections
103F(4) and 103G(4) of the Insurance Act 1973, and subsections
230AF(4) and 230AG(4) of the Life Insurance Act 1995]
162. The ADI, general insurer or life insurer may comply with the
direction despite any provision of:
. the Corporations Act;
. the company constitution;
. any contracts or arrangements to which the entity is a
party; and
. any listing rules of a financial market that is defined
under section 761A of the Corporations Act (such as those
of the ASX).
163. If the ADI, general insurer or life insurer is party to a contract,
the fact that it is subject to a recapitalisation direction does
not allow other parties to the contract (other than the ADI,
general or life insurer) to:
. deny any obligation under a contract;
. accelerate any debt under a contract; or
. close out any transactions relating to the contract.
164. An acquisition of shares, rights to acquire shares or other capital
instruments as a direct result of the recapitalisation direction
are exempt from the competition provisions of Part IV of the Trade
Practices Act 1974. The Trade Practices Act would be renamed the
Competition and Consumer Act 2010 if the Trade Practices Amendment
(Australian Consumer Law) Act (No 2) 2010 receives Royal Assent.
165. As soon as practicable after the recapitalisation, the ADI, general
insurer or life insurer is required to write to its members to
identify the transaction and explain its effect on those members.
166. APRA may publish certain information relating to a recapitalisation
direction in the Gazette, and must provide information about the
direction to the Minister or the RBA if requested to do so.
167. It is a criminal offence, punishable by a fine of 50 penalty units,
for an ADI, general insurer or life insurer to do, or refuse or
fail to do, an act which results in a contravention of a
recapitalisation direction given to the ADI, general insurer or
life insurer. This is a continuing offence and is the same penalty
which applies to APRA's other directions powers.
168. However, the offence provisions do not apply if:
. the ADI, general insurer or life insurer made reasonable
efforts to comply with the recapitalisation direction; and
. the ADI, general insurer or life insurer's contravention
is due to circumstances beyond its control.
169. It is also a criminal offence, punishable by a fine of 50 penalty
units, for an officer of the ADI, general insurer or life insurer
(whose duties include ensuring that the insurer complies with the
direction, or with a class of directions that includes the
direction) to fail to take reasonable steps to ensure compliance.
This is a continuing offence and also is the same penalty which
applies to APRA's other directions powers in relation to officers.
For the purpose of the offence, 'officer' is defined as having the
meaning given by section 9 of the Corporations Act.
170. The Bill makes consequential amendments to the Insurance Act
relating to the issue of, and compliance with, a recapitalisation
direction. These amendments allow APRA, or an inspector of a
general insurer, to recommend that a recapitalisation direction be
given to the general insurer; and allow APRA to seek the
appointment of a judicial manager if a general insurer has failed
to comply with a recapitalisation direction. [Schedule 1, items 4,
25 and 26, schedule 2, items 5, 47, 49, 83, and 84, and schedule 3,
items 51,52, and 61, section 5, subdivision AA, division 2, part 2,
and section 13R of the Banking Act 1959, section 3, section 60,
section 62M, division 1 of part 9, and section 103N of the
Insurance Act 1973, subdivision A, division 2, part 10A,
section 230AM and Dictionary in the Schedule of the Life Insurance
Act 1995]
Chapter 5
Amendments relating to auditors and actuaries
Outline of chapter
171. Schedules 1 to 4 of the Bill contain amendments enhancing the
regulatory framework that applies to the auditors and actuaries of
regulated entities.
Context of amendments
Appointment of auditors and conduct of audits
172. Currently, under the Banking, Insurance, and Life Insurance Acts
there are various provisions relating to the appointment of
auditors and the conduct of audits. These provisions vary across
the Acts.
173. Further, 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 FSCODA 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.
Offences relating to auditors
174. Currently there are no statutory prohibitions under the Banking
Act, Insurance Act, Life Insurance Act, Superannuation Industry
(Supervision) Act, Retirement Savings Accounts Act 1997 (RSA Act)
or the FSCODA against misleading or otherwise interfering with an
auditor in carrying out its functions. Further, the Acts do not
require an auditor to advise APRA or the ATO (as relevant) where a
person has sought to interfere with the auditor carrying out their
duties and functions.
175. However, such provisions presently exist under the Corporations
Act. Section 1309 of the Corporations Act makes it an offence for
an officer or employee of a corporation to knowingly mislead an
auditor of a corporation, or if the corporation is controlled by
another corporation an auditor of the other corporation.
Section 311 of the Corporations Act makes it an offence for
auditors to fail to report to ASIC within 28 days attempts to
unduly influence, coerce, manipulate or mislead them; or, attempts
to otherwise interfere with the proper conduct of the audit.
176. 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.
Information from auditors and actuaries of life insurers
177. Section 49 of the Insurance Act currently permits APRA to give a
written notice to any person who is, or has been, an auditor of a
general insurer requiring them:
. to give APRA information about the insurer; or
. to produce books, accounts or documents about the insurer;
if APRA considers that the provision of the information, or the
production of the books, accounts or documents, will assist APRA in
performing APRA's functions under the Insurance Act.
178. However, no equivalent provision currently exists in the life
insurance context. As a result, at present APRA cannot issue a
notice to auditors and actuaries of life companies to gather
information that it may require to perform its functions in the
life insurance context.
Summary of new law
179. Schedules 1 to 4 of the Bill contain amendments to the Banking,
Insurance, Life Insurance, Superannuation Industry (Supervision),
Financial Sector (Collection of Data) and Retirement Savings
Accounts Acts that:
. harmonise the provisions relating to the appointment of
auditors and the conduct of audits under the Banking,
Insurance and Life Insurance Acts, as appropriate;
. enhance the auditing of data under the FSCODA;
. insert equivalent offences (as relevant) to those
contained in sections 311 and 1309 of the Corporations Act
into the Banking, Insurance, Life Insurance,
Superannuation Industry (Supervision),
Financial Sector (Collection of Data) and Retirement
Savings Accounts Acts; and
. require auditors and actuaries of life insurers to give
information to APRA on request that relates to APRA's
functions under the Life Insurance Act or the FSCODA.
Comparison of key features of new law and current law
|New law |Current law |
|Clarifies that without |The Banking, Insurance |
|limiting the prudential |and Life Insurance Acts |
|matters in relation to |provide that APRA may, |
|which APRA may determine |in writing, determine |
|a prudential standard |prudential standards in |
|under the Banking, |relation to prudential |
|Insurance and Life |matters to be complied |
|Insurance Acts, a |with by ADIs, insurers |
|standard may provide for |and authorised NOHCs. |
|matters relating to: | |
|the appointment of | |
|auditors; or | |
|the conduct of audits. | |
|If prudential standards |Under sections 49J of |
|made under the Banking |the Insurance Act and 83|
|Act require an auditor to|of the Life Insurance |
|be appointed (appointed |Act, auditors of |
|auditor), the auditor |insurers must perform |
|must perform the |for the insurer the |
|functions and duties of |functions of an auditor |
|an auditor set out in the|set out in the |
|prudential standards. |prudential standards. |
| |No current equivalent |
| |under the Banking Act. |
|An appointed auditor |Under section 41 of the |
|under the Banking Act and|Insurance Act, auditors |
|auditors appointed by |of general insurers must|
|life companies must |comply with prudential |
|comply with prudential |standards in performing |
|standards in performing |their duties or |
|their functions and |exercising their powers.|
|duties or exercising | |
|their powers, as |No current equivalent |
|relevant. |under the Banking or |
| |Life Insurance Acts. |
|ADIs and authorised NOHCs|Under sections 49J of |
|must make any |the Insurance Act and 83|
|arrangements that are |of the Life Insurance |
|necessary to enable |Act, an insurer must |
|appointed auditors to |make arrangements that |
|perform their functions |are necessary to enable |
|and duties. |auditors to perform |
| |their functions as set |
| |out in the prudential |
| |standards. |
| |No current equivalent |
| |under the Banking Act. |
|A life insurer must |Under section 39 of the |
|appoint another person as|Insurance Act, a general|
|its auditor within 6 |insurer must appoint |
|weeks of the office being|another person as its |
|vacated. |auditor within 6 weeks |
| |of the office being |
| |vacated. |
| |No current equivalent |
| |under the Life Insurance|
| |Act. |
|APRA may, by written |The Insurance and Life |
|notice, require an |Insurance Acts require |
|insurer to appoint a |insurers to have an |
|person specified in the |auditor appointed by the|
|notice to be an auditor |insurer to perform the |
|for a purpose specified |functions of an auditor |
|in the notice. |set out in the |
| |prudential standards. |
| |However, the Acts do not|
| |provide for the |
| |appointment of |
| |additional auditors for |
| |specific purposes. |
|Under the Banking Act, |Section 1309 of the |
|Insurance Act, Life |Corporations Act |
|Insurance Act, |contains equivalent |
|Superannuation Industry |offences for |
|(Supervision) Act, FSCODA|Corporations Act |
|and Retirement Savings |purposes. |
|Accounts Act it is an |No current equivalent |
|offence for an employee, |under the Banking Act, |
|officer or trustee of a |Insurance Act, Life |
|regulated entity |Insurance Act, |
|(including authorised |Superannuation Industry |
|NOHC) to: |(Supervision) Act, |
|knowingly mislead an |FSCODA or Retirement |
|auditor of the entity; or|Savings Accounts Act. |
| | |
|fail to take reasonable | |
|steps to ensure that | |
|information given, or | |
|allowed to be given, by | |
|them is not misleading. | |
|Under the Banking Act, |Section 311 of the |
|Insurance Act, Life |Corporations Act |
|Insurance Act, |contains an equivalent |
|Superannuation Industry |offence for Corporations|
|(Supervision) Act, FSCODA|Act purposes. |
|and Retirement Savings |No current equivalent |
|Accounts Act it is an |under the Banking Act, |
|offence for auditors of |Insurance Act, Life |
|regulated entities |Insurance Act, |
|(including authorised |Superannuation Industry |
|NOHCs) to fail to report |(Supervision) Act, |
|to APRA within 28 days: |FSCODA or Retirement |
|attempts to unduly |Savings Accounts Act. |
|influence, coerce, | |
|manipulate or mislead | |
|them in the performance | |
|of their functions or | |
|duties; or | |
|attempts to otherwise | |
|interfere with the | |
|performance of their | |
|functions or duties. | |
|APRA may, by written |Section 49 (Duty of |
|notice given to a person |auditors and actuaries |
|who is, or was, an |to give information when|
|auditor or actuary of a |required) of the |
|life insurer, require the|Insurance Act provides |
|person: |APRA with a similar |
|to give APRA information |power in relation to |
|about the insurer; or |auditors and actuaries |
|to produce books, |of general insurers. |
|accounts or documents |No current equivalent |
|about the insurer; |under the Life Insurance|
|if APRA considers that |Act. |
|the giving of the | |
|information, or the | |
|production of the books, | |
|accounts or documents, | |
|will assist APRA in | |
|performing APRA's | |
|functions under the Life | |
|Insurance Act or the | |
|FSCODA. | |
Detailed explanation of new law
Appointment of auditors and conduct of audits
180. Currently, under the Banking, Insurance, and Life Insurance Acts
there are various provisions relating to the appointment of
auditors and the conduct of audits. However, the provisions vary
across the Acts.
181. The Bill amends the Banking, Insurance and Life Insurance Acts to
harmonise the obligations of auditors and actuaries under the Acts,
where appropriate. In particular, the Bill:
. Amends the Banking, Insurance and Life Insurance Acts to
provide that prudential standards made under the Acts may
provide for matters relating to the appointment of
auditors or the conduct of audits. This clarifies the
existing law. [Schedule 1, item 10, schedule 2, item 18,
and schedule 3, item 49, subsection 11AF(1AB) of the
Banking Act 1959, paragraph 32(3)(b) of the Insurance Act
1973, and subsection 230A(1A) of the Life Insurance Act
1995]
. Amends the Banking Act to provide that an auditor
appointed in accordance with prudential standards
(appointed auditor) must perform the functions and duties
of an auditor set out in the prudential standards.
Similar provisions presently exist in the Insurance and
Life Insurance Acts. [Schedule 1, items 2 and 36,
subsections 5(1), 16AV(1) and 16AV(2) of the Banking Act
1959]
. Amends the Banking and Life Insurance Acts to provide that
an appointed auditor of an ADI or auditor appointed by a
life insurer must comply with prudential standards in
performing their duties and functions or exercising their
powers, as relevant. Auditors of general insurers are
currently subject to an express duty to comply with APRA's
prudential standards. The proposal ensures that auditors
of ADIs and life insurers are also subject to this duty.
[Schedule 1, item 36, and schedule 3, item 11,
subsections 16AV(1) and 16AV(3) of the Banking Act 1959,
and section 83B of the Life Insurance Act 1995]
. Amends the Banking Act to provide that ADIs and authorised
NOHCs of ADIs must make any arrangements that are
necessary to enable an appointed auditor to perform their
functions and duties. Currently, under the Insurance and
Life Insurance Acts, an insurer must make arrangements
necessary to enable the auditor to perform the functions
specified in the prudential standards. The amendment
ensures that ADIs and authorised NOHCs of ADIs are subject
to this requirement. [Schedule 1, item 36,
subsections 16AV(1) and 16AV(4) of the Banking Act 1959]
. Amends the Life Insurance Act to require a life insurer to
appoint another person as its auditor within 6 weeks of
that office being vacated. General insurers are presently
subject to an equivalent requirement. [Schedule 3, item
11, subsections 83(2) of the Life Insurance Act 1995]
182. The Bill also amends the Insurance and Life Insurance Acts to
provide that APRA may, by written notice, require an insurer to
appoint a person specified in the notice to be an auditor for a
purpose specified in the notice. At present, the Acts require
insurers to have an auditor. The amendments empower APRA to
require insurers to appoint additional auditors for particular
purposes, for example, to conduct a special purpose audit. For
ADIs, the prudential standards provide for such audits. [Schedule
2, item 28, and schedule 3, item 11, subsection 40(1) of the
Insurance Act 1973, and subsection 83A(1) of the Life Insurance Act
1995]
183. As a result of this amendment, the Bill creates a distinction
between the 'principal auditor' of an insurer and 'an auditor' of
an insurer. The latter term captures both the principal auditor
and an auditor appointed for a specific purpose by notice from
APRA.
184. 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,[3] 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'. [Schedule 2, items 4, 19, 21 to 34, 36 to
39, 44, and 45, and schedule 3, items 10 to 26, 28, 32 to 36, 38,
41, and 60, subsection 3(1), paragraphs 38AA(3)(a) and 38AA(7)(a),
subparagraphs 38A(2)(a)(ii), 38E(1)(b)(i) and 38E(1)(c)(i),
division 1 of Part IV (heading), subsections 39(2) to 39(4),
subsections 40(2), 43(2), 46(1), and 46(2), paragraphs 49(1)(a),
49A(1)(a), 49A(11)(c), and 49B(a), subsections 49J(1) to 49J(4),
and paragraphs 49R(1)(a) and 49R(3)(a) of the Insurance Act 1973,
and subsection 80(3), section 83, subsection 83A(2), section 84,
paragraph 84(a), subsection 85(1), paragraphs 85(1)(a), 85(2)(a)
and 85(2)(b), subsection 85(2), section 86, subsections 87(1),
87(3), 87(4), 88(1), to 88(2A), paragraphs 88(2B)(c), 88(3)(a) and
88(4)(b), subsections 88(4), and 89(1), paragraphs 125(1)(b) and
125A(1)(a), subsection 126(1), paragraphs 132A(3)(a) and
132A(7)(a), subparagraphs 156A(2)(a)(ii), 156E(1)(b)(i) and
156E(1)(c)(i), and the dictionary in the schedule of the Life
Insurance Act 1995]
185. The Bill also makes similar amendments to the Banking Act to
clarify whether particular provisions apply only to appointed
auditors (that is, auditors appointed under the prudential
standards) or to all auditors of relevant entities. [Schedule 1,
items 37, 39, 41 and 45, paragraphs 16BA(11)(c), subsection 17(1),
subparagraphs 52A(2)(a)(ii), 52E(1)(b)(i) and 52E(1)(c)(i), and
paragraphs 62A(1A)(a) and 62A(1D)(a) of the Banking Act 1959]
186. The Bill includes saving provisions to ensure that the amendments
relating to the appointment of auditors under the Insurance and
Life Insurance Acts do not unintentionally affect any present
appointments. Those appointments continue as if they had been made
after the relevant amendments commence. In addition, the saving
provisions clarify that any auditor presently appointed under the
Insurance or Life Insurance Acts is the principal auditor of the
insurer after the amendments commence. [Schedule 2, item 92, and
schedule 3, item 62, saving provisions-appointment as an auditor of
a general insurer or life company]
187. Finally, the Bill amends the FSCODA to provide for the appointment
of auditors and the conduct of audits under that Act.
188. 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.
189. The Bill addresses this situation by:
. amending subsection 13(2) of the FSCODA so that reporting
standards may include matters relating to the auditing of
reporting documents; and
. setting out the functions and duties of auditors appointed
under reporting standards. [Schedule 4, item 14 and 20,
paragraphs 13(2)(bb) and section 17B of the Financial
Sector (Collection of Data) Act 2001]
190. The functions and duties of an auditor appointed under a reporting
standard are equivalent to those applying in the banking and
insurance contexts. The auditor must perform the functions and
duties of an auditor that are set out in the reporting standards
and must comply with the reporting standards in performing those
functions and duties. In addition, the financial sector entity
that appoints the auditor must make any arrangements that are
necessary to enable the auditor to perform their functions and
duties. [Schedule 4, item 20, section 17B of the Financial Sector
(Collection of Data) Act 2001]
191. The above provisions do not apply in circumstances in which APRA
may presently audit data that is collected under the FSCODA.
Rather, the provisions apply if a financial sector entity is
required to appoint an auditor under reporting standards that
relate to the collection of information that APRA requires:
. to perform APRA's functions in relation to the FCS;
. to assist a financial sector agency perform its functions
or exercise its powers; or
. under a reporting standard issued on the direction of the
Minister. [Schedule 4, item 20, section 17A of the
Financial Sector (Collection of Data) Act 2001]
Offences relating to auditors
192. Currently there are no statutory prohibitions under the Banking
Act, Insurance Act, Life Insurance Act, Superannuation Industry
(Supervision) Act, RSA Act or the FSCODA against misleading or
otherwise interfering with an auditor in carrying out their
functions. Further, the Acts do not require an auditor to advise
APRA or the ATO (as relevant) where a person has sought to
interfere with the auditor carrying out their duties and functions.
193. However, such provisions presently exist under the Corporations Act
for the purposes of that Act. Section 1309 of the Corporations Act
makes it an offence for an officer or employee of a corporation to
knowingly mislead an auditor of a corporation, or if the
corporation is controlled by another corporation an auditor of the
other corporation. Section 311 of the Corporations Act makes it an
offence for auditors to fail to report to ASIC within 28 days
attempts to unduly influence, coerce, manipulate or mislead them;
or, attempts to otherwise interfere with the proper conduct of the
audit.
194. The Bill addresses this inconsistency, by inserting equivalent
offences to those in the Corporations Act into the Banking Act,
Insurance Act, Life Insurance Act, Superannuation Industry
(Supervision) Act, RSA Act and the FSCODA.
Auditor must notify APRA of attempts to unduly influence them
195. First, the Bill amends the Acts to require auditors to notify APRA
in writing as soon as practicable, and in any case within 28 days,
of becoming aware of certain circumstances. These circumstances
are:
. any attempt by any person to unduly influence, coerce,
manipulate or mislead the auditor in connection with the
performance of the auditor's functions or duties; or
. any attempt by any person to otherwise interfere with the
performance of the auditor's functions or duties.
196. It is an offence (punishable by 12 months imprisonment or a fine of
50 penalty units, or both) for an auditor to fail to comply with
the above mentioned requirement. The penalty mirrors that
applicable to the equivalent offence that presently exists in
section 311 of the Corporations Act.[4] [Schedule 1, item 38,
schedule 2, item 35, schedule 3, item 29, schedule 4, items 20, 29
and 35, section 16D of the Banking Act 1959, section 49D of the
Insurance Act 1973, section 90 of the Life Insurance Act 1995,
section 17C of the Financial Sector (Collection of Data) Act 2001,
section 69 of the Retirement Savings Accounts Act 1997, and
section 130BA of the Superannuation Industry (Supervision) Act
1993]
Person knows the information is false or misleading
197. Second, the Bill amends the Acts to make it an offence for an
employee, officer or trustee of a regulated entity to knowingly
give false or materially misleading information relating to the
affairs of the entity to an auditor of the entity, or to knowingly
allow such information to be so given. [Schedule 1, item 38,
schedule 2, item 35, schedule 3, item 29, schedule 4, items 20, 29
and 35, subsection 16E(1) of the Banking Act 1959,
subsection 49DA(1) of the Insurance Act 1973, subsection 91(1) of
the Life Insurance Act 1995, subsection 17D(1) of the Financial
Sector (Collection of Data) Act 2001, subsection 70(1) of the
Retirement Savings Accounts Act 1997, and subsection 130BB(1) of
the Superannuation Industry (Supervision) Act 1993]
198. The penalty for the offence is imprisonment for five years or a
fine of 200 penalty units, or both. The penalty mirrors that
applicable to the equivalent offence that presently exists in
section 1309 of the Corporations Act.[5]
Person fails to ensure the information is not false or misleading
199. Finally, the Bill amends the Acts to make it an offence for an
employee, officer or trustee of a regulated entity to give false or
materially misleading information relating to the affairs of the
entity to an auditor of the entity, or to allow such information to
be so given, in circumstances where they did not take reasonable
steps to ensure the information was not false or materially
misleading. [Schedule 1, item 38, schedule 2, item 35, schedule 3,
item 29, schedule 4, items 20, 29 and 35, subsection 16E(2) of the
Banking Act, subsection 49DA(2) of the Insurance Act 1973,
subsection 91(2) of the Life Insurance Act 1995, subsection 17D(2)
of the Financial Sector (Collection of Data) Act 2001,
subsection 70(2) of the Retirement Savings Accounts Act 1997, and
subsection 130BB(2) of the Superannuation Industry (Supervision)
Act 1993]
200. The penalty for the offence is imprisonment for 2 years or a fine
of 100 penalty units, or both. The penalty mirrors that applicable
to the equivalent offence that presently exists in section 1309 of
the Corporations Act.[6]
201. For the purpose of the above mentioned offences, if the information
given to the auditor is in response to a question asked by the
auditor, the information and the question must be considered
together in determining whether the information is false or
misleading. [Schedule 1, item 38, schedule 2, item 35, schedule 3,
item 29, schedule 4, items 20, 29 and 35, subsection 16E(3) of the
Banking Act 1959, subsection 49DA(3) of the Insurance Act 1973,
subsection 91(3) of the Life Insurance Act 1995, subsection 17D(3)
of the Financial Sector (Collection of Data) Act 2001,
subsection 70(3) of the Retirement Savings Accounts Act 1997, and
subsection 130BB(3) of the Superannuation Industry (Supervision)
Act 1993]
Information from auditors and actuaries of life insurers
202. The Bill amends the Life Insurance Act to provide that APRA may, by
written notice, given to a person who is, or was, an auditor or
actuary of a life insurer, require the person:
. to give APRA information about the insurer; or
. to produce books, accounts or documents about the insurer;
if APRA considers that the giving of the information, or the
production of the books, accounts or documents, will assist APRA in
performing APRA's functions under the Life Insurance Act, the
FSCODA, or the First Home Saver Accounts Act 2008. [Schedule 3,
items 8, 27 and 30, subsections 74(2), 88B(1) and 98B(1) of the
Life Insurance Act 1995]
203. It is an offence for a person to fail to comply with such a notice,
or in complying with such a notice for them to give APRA
information that is false or misleading. The penalty for the
offence is 60 penalty units if prosecuted as an offence of strict
liability. Otherwise, the penalty is imprisonment for 6 months or
a fine of 100 penalty units, or both. [Schedule 3, items 27 and
30, subsections 88B(2) to 88B(5) and 98B(2) to 98B(5) of the Life
Insurance Act 1995]
204. Similar provisions presently apply under the Insurance Act in
relation to persons who are, or have been, auditors and actuaries
of general insurers. It is important that APRA can obtain accurate
information from such persons to ensure that it can effectively
perform its functions, including protecting the interests of the
owners and prospective owners of insurance policies in a manner
consistent with the continued development of a viable, competitive
and innovative insurance industry.
205. As a result of the amendments, consequential amendments are made to
subsections 132A(3) and 132A(7) of the Life Insurance Act to update
notes in those subsections that informs readers of the provisions
in the Act related to auditors and actuaries giving information to
APRA. [Schedule 3, items 37 and 39, subsections 132A(3) (note 1)
and 132A(7) (note 1) of the Life Insurance Act 1995]
Chapter 6
Amendments to the Financial Claims Scheme
Outline of chapter
206. Schedules 1 and 2 of the Bill contain amendments relating to the
FCS provided for in the Banking Act and the Insurance Act.
Context of amendments
207. The FCS was introduced by the FCS Act.
208. The FCS is administered by APRA and provides depositors in
Australian-incorporated ADIs with a guarantee of their deposits to
a threshold prescribed by regulations. The threshold is currently
set at $1 million per account-holder per ADI. In addition, the FCS
provides compensation to eligible policyholders with claims against
a failed general insurer.
Amendments to the scheme provided for in the Banking Act
209. While the FCS provided for in the Banking Act has operated
effectively to achieve its objectives, its operation would benefit
from clarifying:
. the rate of interest that applies to protected accounts
for the purposes of determining entitlements under the
scheme, where the rate is not clear from the terms and
conditions of the protected account itself;
. how the scheme operates in relation to pooled trust
accounts; and
. APRA's power to require a liquidator to assist it in
paying account-holders their entitlements under the FCS.
Amendments to the scheme provided for in the Insurance Act
210. Similarly, the FCS provided for in the Insurance Act would benefit
from:
. clarifying that the scheme may apply to policies that are
transferred to a declared general insurer, in addition to
policies issued by the insurer itself;
. enhancing APRA's ability to administer the scheme by
enabling it to issue approved forms in respect of common
administrative matters and enabling it to settle claims in
appropriate circumstances;
. enabling the scheme to operate in relation to claims made
under section 601AG (Claims against insurers of
deregistered company) of the Corporations Act;
. ensuring that entitlements paid under the FCS are treated
as if paid by the failed general insurer under the terms
and conditions of its policy, for all relevant purposes;
. enabling it to be declared in relation to any insolvent
insurer, not just insurers under judicial management; and
. enabling APRA to seek reasonable assistance, and specified
information, from a judicial manager of a general insurer,
where doing so would would enable APRA to perform its
duties and functions in relation to the FCS.
Summary of new law
211. Schedules 1 and 2 contain amendments relating to the FCS.
212. Schedule 1 of the Bill amends the Banking Act to:
. enable APRA to determine the rate of interest that applies
to protected accounts for the purposes of determining
entitlements under the FCS, where APRA considers that the
rate of interest is not certain;
. clarify the operation of the FCS in relation to pooled
trust accounts; and
. clarify that APRA may require a liquidator to assist it in
paying account-holders their entitlements under the FCS.
213. Schedule 2 of the Bill amends the Insurance Act to:
. clarify that the FCS applies to policies that were
transferred to the declared general insurer, as well as
policies that were issued by the declared general insurer;
. enhance APRA's ability to administer the scheme by
enabling it to issue approved forms in respect of common
administrative matters and enabling it to settle claims
under the scheme;
. enable the scheme to operate in relation to claims against
insurers of deregistered companies under section 601AG of
the Corporations Act;
. ensure entitlements paid under the FCS are treated as if
paid by the failed general insurer under the terms and
conditions of its policy, for all relevant purposes;
. enable the Minister to declare that the FCS applies to an
insolvent insurer under external administration or
judicial management; and
. enable APRA to seek reasonable assistance, and specified
information, from a judicial manager of a general insurer,
where doing so would enable APRA to perform its duties and
functions in relation to the FCS.
Comparison of key features of new law and current law
|New law |Current law |
|APRA may determine the |No current equivalent. |
|rate of interest that | |
|applies to protected | |
|accounts for the | |
|purposes of determining | |
|entitlements under the | |
|FCS provided for in the | |
|Banking Act, where the | |
|rate is not certain. | |
|The net credit balance |There are no specific |
|in favour of each trust |provisions relating to |
|in a pooled trust |pooled trust accounts. |
|account is aggregated | |
|for FCS purposes under | |
|the Banking Act. The | |
|trustee receives a | |
|single FCS payment in | |
|respect of these | |
|amounts. | |
|Clarifies that |Section 16AJ of the |
|section 16AJ of the |Banking Act empowers APRA |
|Banking Act enables APRA|to require a liquidator to|
|to require a liquidator |give APRA reasonable |
|to assist it in paying |assistance in the |
|account-holders their |performance of its |
|entitlements under the |functions, and the |
|FCS. |exercise of its powers, |
| |under the FCS. |
|Clarifies that the FCS |It is not clear that the |
|applies to policies that|FCS may apply to |
|are transferred to a |policyholders whose |
|declared general |policies were transferred |
|insurer. |from one general insurer |
| |to another. |
|APRA can issue approved |APRA has limited powers to|
|forms in relation to the|issue forms in relation to|
|administration of the |the administration of the |
|FCS under the Insurance |FCS under the Insurance |
|Act. |Act. |
|APRA can settle claims |APRA does not have the |
|under the FCS provided |power to settle claims |
|for in the Insurance |under the FCS provided for|
|Act. |in the Insurance Act. |
|APRA may require |APRA may require |
|reasonable assistance |reasonable assistance and |
|and information from a |information from a general|
|general insurer, its |insurer or its liquidator |
|liquidator or its |in relation to the FCS. |
|judicial manager, in | |
|relation to the FCS. | |
|The FCS can apply to |The FCS cannot apply to |
|claims against insurers |claims under section 601AG|
|of deregistered |of the Corporations Act. |
|companies under section | |
|601AG of the | |
|Corporations Act. | |
|The Insurance Act |The Insurance Act provides|
|provides that payments |that payments made under |
|made under the FCS in |the FCS in connection with|
|connection with a |a general insurer and |
|general insurer and |protected policy are taken|
|protected policy are |to have been paid by the |
|taken to have been paid |general insurer under the |
|by the general insurer |terms and conditions of |
|under the terms and |the policy for the purpose|
|conditions of the policy|of subrogation and any |
|for all purposes except |purpose prescribed by |
|those prescribed by |regulation. |
|regulation. | |
|The Minister may declare|The Minister may declare |
|the FCS in respect of a |the FCS in respect of a |
|general insurer that is |general insurer that is |
|under external |under judicial management.|
|administration or | |
|judicial management. | |
Detailed explanation of new law
Determining the applicable rate of interest
214. The Bill amends section 16AF of the Banking Act to clarify the
calculation of interest payable on protected accounts for the
purposes of determining entitlements under the FCS. Interest is
payable at the rate of interest that is payable according to the
terms and conditions of the protected account unless APRA considers
that rate is not certain. In that case, the rate of interest is
that which APRA declares in writing to be payable. [Schedule 1,
item 29, section 16AF(1A) of the Banking Act 1959]
215. This amendment ensures that, where there is uncertainty about the
rate of interest that applies to a protected account, APRA has the
power to issue a determination to provide certainty.
216. The Bill also provides that such a declaration is not a legislative
instrument. [Schedule 1, item 29, section 16AF(1B) of the Banking
Act 1959]. This provision is included only to inform readers that
the notice is not a legislative instrument within the meaning of
section 5 of the Legislative Instruments Act 2003.
Pooled Trust Accounts
217. Sections 16AF to 16AI of the Banking Act currently provide for the
payment of account-holders under the FCS. To calculate the amounts
payable to depositors the scheme administrator aggregates the net
credit balance in each protected account the account-holder has
with the declared ADI. The account-holder is not, however,
entitled to be paid any amounts totalling more than the limit on
payments prescribed by the regulations (currently $1 million).
218. An account-holder can be an individual or an entity as defined by
the Income Tax Assessment Act 1997 (ITAA). This means that an
account-holder can include an individual, a body corporate, a body
politic, a partnership, any other unincorporated association or
body of persons, a trust, a superannuation fund, or an approved
deposit fund for the purposes of the ITAA.
219. The Bill clarifies the rules relating to pooled trust accounts
(PTAs). These are accounts in which a trustee is permitted to hold
the funds of two or more trusts. The Bill provides that a PTA
constitutes a single protected account for purposes of paying
account-holders of a declared ADI under the FCS. This is achieved
by:
. amending section 16AF of the Banking Act to clarify that
if: one person holds a protected account; and the person
is the trustee of 2 or more trusts; and the net credit
balance of the account consists of the trust funds of 2 or
more of those trusts; then the person is entitled to be
paid the amount worked out under subsection 16AF(1); and
[Schedule 1, item 30, section 16AF of the Banking Act
1959]
. amending the definition of account-holder in
subsection 5(1) of the Banking Act to clarify that an
account-holder for FCS purposes is the entity that holds
in its name, or keeps in its name, the subject account.
[Schedule 1, item 1, subsection 5(1) of the Banking Act
1959]
Liquidator of an ADI to assist in making payments under FCS
220. The Bill amends section 16AJ of the Banking Act to clarify that
APRA may require a liquidator (including a provisional liquidator)
to assist APRA in APRA's function of paying account-holders their
entitlements under the FCS. This is in addition to the general
assistance that APRA may request from a liquidator under subsection
16AJ(1) of the Banking Act. [Schedule 1, item 33,
subsections 16AJ(2) to 16AJ(9) of the Banking Act 1959]
221. Section 16AJ presently enables APRA to issue a notice on the
liquidator of the declared ADI, requiring the liquidator to give
APRA reasonable assistance in the performance of its functions, and
the exercise of its powers, in relation to the FCS. The amendment
clarifies that this provision extends to the liquidator being
required to assist APRA in APRA's functions of paying account-
holders their FCS entitlements.
222. For example, the amendment enables APRA, by notice issued under
section 16AJ, to require the liquidator to:
. carry on the business of the ADI insofar as necessary, or
do any other things, to facilitate APRA paying account-
holders their entitlements under the FCS;
. seek to re-enter the ADI into a payment system; or
. transfer the entitlements of the account-holders to
accounts held by the account-holders in another ADI.
[Schedule 1, item 33, subsection 16AJ(3) of the Banking
Act 1959]
223. The requirements of such notices take precedence over the other
aspects of the wind up of the ADI, including the duties and
functions of the liquidator under the Corporations Act. [Schedule
1, item 33, subsection 16AJ(4) of the Banking Act 1959]. In
addition, the amendments ensure that a liquidator has the powers
that are necessary or convenient to comply with the notice.
[Schedule 1, item 33, subsection 16AJ(6) of the Banking Act 1959]
224. The amendments also ensure that the liquidator's costs will be met.
The liquidator is not required to comply with a notice issued by
APRA unless:
. there is sufficient property available to meet the costs
that are likely to be incurred by the liquidator in
complying with the notice; or
. APRA indemnifies the liquidator for those costs.
[Schedule 1, item 33, subsection 16AJ(5) of the Banking
Act 1959]
225. The amendments also specify that a liquidator's costs of complying
with such a notice issued by APRA are taken to be expenses properly
incurred for the purposes of section 556 (Priority payments) of the
Corporations Act. That section relates to the priority for
applying the assets of a company during winding up. [Schedule 1,
item 33, subsection 16AJ(7) of the Banking Act 1959]
226. For the purposes of the above provisions the liquidator's costs
include: any remuneration, or fees for services payable to the
liquidator for complying with such a notice issued by APRA; and any
expenses incurred by a liquidator in complying with such a notice
issued by APRA. [Schedule 1, item 33, subsection 16AJ(8) of the
Banking Act 1959]
227. Finally, the Bill makes two consequential amendments to
section 16AJ as a result of the above mentioned amendments. The
first changes the numbering of the section. The second omits the
words '(including a provisional liquidator)' from the current
wording of paragraph 16AJ(c). The words are redundant due to the
insertion of the subsection 16AJ(9) which provides that a reference
in section 16AJ to a liquidator includes a reference to a
provisional liquidator. [Schedule 1, items 31 to 33, section 16AJ,
paragraph 16AJ(c), and subsection 16AJ(9) of the Banking Act 1959]
Declaring FCS for a general insurer under external administration
228. The Bill amends section 62ZZC of the Insurance Act to enable the
Minister to declare that the FCS applies in respect of a general
insurer when an external administrator has been appointed to the
general insurer under Chapter 5 of the Corporations Act, if APRA
also believes that the general insurer is insolvent. [Schedule 2,
item 61, paragraph 62ZZC(1)(a) of the Insurance Act 1973]
229. The amendment expands the circumstances under which the Minister
may declare the FCS in respect of a general insurer. Currently,
under section 62ZW of the Insurance Act the Minister may only
declare the FCS in respect of a general insurer that is under
judicial management and that APRA believes is insolvent.
230. There may be circumstances where it is appropriate for the Court to
appoint an external administrator, within the meaning of Chapter 5
of the Corporations Act, to a general insurer, rather than a
judicial manager. However, such an appointment should not prevent
the Minister from declaring the FCS in respect of the general
insurer and assisting eligible policyholders where it is
appropriate to do so.
231. A consequential amendment is also made to section 62ZW of the
Insurance Act, which provides an outline of the operations of the
FCS. [Schedule 2, item 58, paragraph 62ZW(a) of the Insurance Act
1973]
Eligibility of transferred policies and claims against deregistered
companies
232. The Bill makes two amendments to the Insurance Act relating to
eligibility to make a claim under the FCS.
233. The Bill amends section 62ZZF of the Insurance Act to clarify that
a policyholder that is entitled to make a claim under a protected
policy, and whose policy liability has been accepted by the
declared general insurer before the FCS was declared in respect of
the general insurer, is eligible to claim under the FCS.
[Schedule 2, item 64, paragraph 62ZZF(1)(a) of the Insurance Act
1973]
234. The amendment clarifies the law. It not clear whether the current
reference to policy issued by a declared general insurer in section
62ZZF includes policies that have been transferred from another
general insurer. The amendment clarifies that the FCS provided for
in the Insurance Act applies to protected policies issued by the
general insurer as well as any protected policy in relation to
which liability was accepted by the insurer, before becoming a
declared general insurer.
235. Consequential amendments are made to sections 62ZZH (Entitlement on
basis of notionally extended cover), 62ZZI (APRA must determine
insurer's liability in respect of claim) and 62ZZJ (APRA must make
a determination relating to eligibility on receiving an application
under the Scheme) as a result of the above amendment. [Schedule 2,
items 67, 68 and 72, subsection 62ZZH(1), subsection 62ZZI(1), and
subsection 62ZZJ(3) of the Insurance Act 1973]
236. The Bill also amends section 62ZZJ of the Insurance Act to ensure
that claims under section 601AG (Claims against insurers of
deregistered company) of the Corporations Act are eligible claims
for the purposes of the FCS. [Schedule 2, items 71 and 73,
subsections 62ZZJ(3) and paragraph 62ZZJ(4)(a) of the Insurance Act
1973]
237. Section 601AG provides that a person may recover from the insurer
of a deregistered company the amount that would have been payable
to the deregistered company if the following are satisfied:
. the company had a liability to the person; and
. the insurance contract covered that liability immediately
before the company's deregistration.
238. The amendment aligns the treatment of claims under section 601AG of
the Corporations Act with the treatment of claims under section 51
(Right of third party to recover against insurer) of the
Insurance Contracts Act 1984, to which the FCS may currently apply.
Approved forms
239. The Bill amends sections 62ZZF and 62ZZG of the Insurance Act to
enable APRA to issue approved forms. 'Approved form' is defined in
section 3 of the Insurance Act as a form approved in writing by
APRA (except in section 62ZZKA, where it refers to an approved form
that is issued by the Australian Taxation Office). [Schedule 2,
item 1, subsection 3(1) of the Insurance Act 1973]
240. Subsection 62ZZF(1) relates to the entitlement to payment of
claimants under a protected policy. Such policyholders are
currently required to make a claim under insurance cover provided
by a protected policy in order to be entitled to payment under the
FCS. The Bill amends subsection 62ZZF(1) to require that the
relevant claim be made in the approved form, if such a form has
been issued by APRA. [Schedule 2, item 65, paragraph 62ZZF(1)(b)
of the Insurance Act 1973]
241. Similarly, subsection 62ZZG(1) relates to the entitlement to
payment of third parties under the FCS (that is, claims supported
by section 601AG of the Corporations Act and section 51 of the
Insurance Contracts Act). The Bill amends the section to require
such claimants to make their claim in the approved form, if one has
been issued by APRA. [Schedule 2, item 66, paragraphs 62ZZG(1)(a)
and 62ZZG(1)(aa) of the Insurance Act 1973]
242. The Bill also requires a person making a claim under
section 62ZZG(1) to do so within the period prescribed by the
regulation. This requirement is consistent with that which
presently applies to claims under subsection 62ZZF(1). However, as
is currently the case with subsection 62ZZF(1), APRA may allow
extra time for a claimant to make their claim. [Schedule 2, items
59 and 66, subsection 62ZZA(1) and paragraph 62ZZG(1)(aa) of the
Insurance Act 1973]
243. Amendments are also made to subsection 62ZZJ(1) and (3) of the
Insurance Act. Currently, those subsections refer to 'the form (if
any) approved by APRA'. As a result of the insertion of the
definition of 'approved form' in subsection 3(1) of the Act, the
above references are replaced with references to 'the approved form
(if any)'. [Schedule 2, item 70, subsections 62ZZJ(1) and 62ZZJ(3)
of the Insurance Act 1973]
244. Finally, the Bill repeals section 62ZZB of the Insurance Act. That
section currently enables APRA to approve forms for the purposes of
subsections 62ZZJ(1) and 62ZZJ(3). The section is redundant as a
result of the above mentioned amendments to APRA's form making
powers under the Insurance Act. [Schedule 2, item 60, section
62ZZB of the Insurance Act 1973]
Claims settlement
245. The Bill amends subsection 62ZZI(1) of the Insurance Act to enable
APRA to determine the amount of liability in respect of a protected
policy by coming to an agreement (or settlement) with the
policyholder or claimant. [Schedule 2, item 69,
subsection 62ZZI(1) of the Insurance Act 1973]. The Bill also
amends section 62ZZJ of the Insurance Act to enable APRA to do the
same to determine the amount of liability in respect of a third
party claim supported by section 601AG of the Corporations Act or
section 51 of the Insurance Act. [Schedule 2, item 74,
subsection 62ZZJ(4) of the Insurance Act 1973]
246. This power allows APRA to negotiate a timely and fair settlement
with the claimant where it is appropriate to do so. This may
assist the claimant by enabling earlier payment under the FCS and
may assist APRA in efficiently administering the scheme.
Payments made under the FCS taken to be payments made by general insurer
247. The Bill amends section 62ZZM of the Insurance Act to provide that
when a person's entitlement under the FCS connected to a general
insurer and a protected policy is met, the person is taken to have
been paid the amount by the general insurer under the terms and
conditions of the policy for all purposes except those prescribed
by the regulations. [Schedule 2, items 75 and 76, subsections
62ZZM(1) and 62ZZM(2) of the Insurance Act 1973]
248. Currently, section 62ZZM is more limited in relation to when a
person is taken to have been paid by the general insurer under the
terms and conditions of their policy. The section presently
provides that such payments will only be taken to have been paid by
the general insurer under the terms and conditions of the policy
for the purpose of subrogation or a purpose prescribed by the
regulations.
249. This amendment provides enhanced clarity and certainty to the
scheme administrator and others dealing with the scheme.
APRA may require assistance from a judicial manager
250. The Bill amends section 62ZZO of the Insurance Act to enable APRA,
by issuing a written notice, to seek reasonable assistance from a
judicial manager of a general insurer in the performance of its
functions, and the exercise of its powers, under the FCS.
[Schedule 2, items 77 and 78, section 62ZZO and paragraph 62ZZO(c)
of the Insurance Act 1973]. Currently, under section 62ZZO APRA
may require such assistance from a general insurer (whether or not
it is a declared general insurer) and a liquidator (including
provisional liquidator) or a general insurer.
251. Similarly, the Bill amends section 62ZZP of the Insurance Act to
enable APRA, by written notice, to require a judicial manager of a
general insurer to give a specified person, within a reasonable
specified time, specified information relevant to:
. identifying a person who may have an entitlement under the
FCS;
. determining whether a person has an entitlement under the
FCS;
. determining the amount of an entitlement under the FCS;
. meeting an entitlement under the FCS;
. preparing or giving a statement or report required under
applicable taxation laws;
. complying with an obligation under a taxation law; or
. assessing whether and how information could be provided by
a general insurer (or its liquidator) to enable one of the
above actions to be taken if the general insurer were to
become a declared general insurer. [Schedule 2, items 79
and 80, paragraph 62ZZP(1)(b) and subsection 62ZZP(1) of
the Insurance Act 1973]
252. APRA can presently obtain such information under section 62ZZP from
a general insurer (whether or not it is a declared general insurer)
or a liquidator of a general insurer, but not a judicial manager.
253. The Bill inserts a civil penalty provision and an offence provision
to support APRA's new powers in relation to a judicial manager.
. A judicial manager is subject to a civil penalty of 200
penalty units if they do not comply with a requirement
made of them under section 62ZZO or subsection 62ZZP(1);
and [Schedule 2, item 81, subsection 62ZZQ(8) of the
Insurance Act 1973]
. A judicial manager commits an indictable offence (penalty:
100 penalty units) if: they do, or refuse to do, an act;
and the doing of the act, or failure to do the act,
results in a contravention of a requirement made under
section 62ZZO or subsection 62ZZP(1). [Schedule 2, item
81, subsections 62ZZQ(9) and 62ZZQ(10) of the Insurance
Act 1973]
254. These amendments recognise that it may be necessary for APRA to
receive reasonable assistance and/or specific information from the
judicial manager in order to properly perform its functions in
relation to the FCS.
Chapter 7
Amendments to APRA's data collection powers
Outline of chapter
255. Schedule 4 of the Bill amends the data collection regime in the
FSCODA. Schedule 3 of the Bill makes a related amendment to the
Life Insurance Act.
Context of amendments
Collection of data to assist the Minister and other financial sector
agencies
256. The FSCODA aims to recognise APRA as the central repository for the
collection of financial data and to harmonise and increase the
flexibility of the collection and publishing regime for such data.
257. Currently, APRA can collect data under the FSCODA to assist it in
the prudential regulation or monitoring of bodies in the financial
sector and to facilitate the RBA's formulation of monetary policy.
258. 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.
Collection of data related to the FCS
259. APRA can currently obtain the information it requires to perform
its functions under the FCS from individual ADIs and general
insurers under the Banking and Insurance Acts respectively.
However, there is uncertainty as to whether APRA can use the FSCODA
to obtain such information from a class of ADIs or general
insurers.
260. Should APRA be unable to collect FCS related information from a
class of institutions, its ability to efficiently administer the
FCS may be impeded.
Reporting standards containing confidential information
261. 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 reveal the sensitive information it
has sought to collect or which has led it to make the collection.
262. 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.
Urgent reporting standards
263. Subsection 13(6) of the FSCODA presently exempts APRA from its
obligation to consult with relevant financial sector entities when
preparing proposed reporting standards, in circumstances where it
is satisfied that the delay that would be involved in holding the
consultations would prejudice the interests of depositors,
policyholders or members of the financial sector entity or entities
concerned.
264. However, subsection 13(6) does not presently provide an exception
from the requirement to consult where the resulting delay would
have a detrimental effect on financial system stability.
Exemptions from requirements contained in reporting standards
265. Under section 16 of the FSCODA APRA may currently exempt a single
entity from requirements in reporting standards via a legislative
instrument. Such decisions are of an administrative rather than
legislative nature.
Annual financial statements and returns
266. Currently, section 124 of the Life Insurance Act provides that an
owner of a policy issued by a life insurer is entitled, upon
request, to be provided by the insurer with a copy of the latest
annual financial statements and returns given by the insurer to
APRA under the FSCODA.
267. Life insurers are required to give a number of financial statements
and returns to APRA under the FSCODA. There is uncertainty as to
which of these statements and returns are required to be provided
to policy owners under section 124 of the Life Insurance Act.
Summary of new law
268. The FSCODA related amendments in the Bill promote the harmonisation
and flexibility of the data-collection and publishing regime and
APRA's role as the central repository for the collection of
financial data. The amendments also assist APRA administer the
FCS.
269. Schedule 4 of the Bill amends the FSCODA to:
. ensure APRA can collect data to assist the Minister
formulate financial policy or to assist another financial
sector agency perform its functions or exercise its
powers;
. enable APRA to collect data from an expanded class of
financial sector entities on direction from the Minister;
. clarify that APRA may collect data relating to the FCS
under the FSCODA;
. protect confidential information in reporting standards
from publication where publication is likely to
detrimentally effect the stability of the financial system
or financial institutions and the requested data is
required urgently by APRA for a specified purpose;
. ensure APRA is not delayed by having to consult when
preparing reporting standards where such delay would have
a detrimental effect on financial system stability; and
. enable APRA to exempt an individual entity from
requirements of reporting standards by written notice that
is not a legislative instrument.
270. Schedule 3 of the Bill amends section 124 of the Life Insurance Act
to provide that the documents required to be provided by a life
insurer to a policy owner upon request are those specified by a
reporting standard.
Comparison of key features of new law and current law
|New law |Current law |
|APRA can collect data to |APRA can collect data to|
|assist: |assist it prudentially |
|it prudentially regulate |regulate or monitor |
|or monitor bodies in the |bodies in the financial |
|financial sector; |sector and to facilitate|
|another financial sector |the formulation by the |
|agency to perform its |RBA of monetary policy. |
|functions or powers; and | |
|the Minister to formulate| |
|financial policy. | |
|Upon direction of the |APRA may determine |
|Minister APRA is |reporting standards to |
|empowered to determine |be complied with by |
|reporting standards for |prudentially regulated |
|those persons who provide|entities, medical |
|financial services or |indemnity entities, or |
|participate in payment |discretionary mutual |
|systems that are not |funds. |
|presently subject to the | |
|Act. | |
|Clarify that APRA may |APRA may collect data |
|collect FCS data under |relating to the FCS from|
|the FSCODA. |individual ADIs and |
| |general insurers under |
| |the Banking and |
| |Insurance Acts. |
| |However, it is not clear|
| |that APRA can collect |
| |FCS data from a class of|
| |such institutions under |
| |the FSCODA. |
|APRA may make a reporting|All reporting standards |
|standard pertaining to |made under the FSCODA |
|non-ongoing data |are legislative |
|collections under the |instruments. |
|FSCODA (without the | |
|requirement for a | |
|legislative instrument) | |
|where publication of the | |
|reporting standard is | |
|likely to detrimentally | |
|affect the stability of | |
|the financial system or a| |
|financial institution and| |
|the requested data is | |
|required urgently by APRA| |
|for a specified purpose. | |
|APRA must report the | |
|making of any such | |
|standard in its annual | |
|report and provide a copy| |
|of it to the Minister. | |
|APRA does not have to |APRA does not have to |
|consult with industry |consult with industry |
|when preparing reporting |when preparing reporting|
|standards if it is |standards if it is |
|satisfied that the |satisfied that the |
|resulting delay would: |resulting delay would |
|prejudice the interests |prejudice the interests |
|of depositors, |of depositors, |
|policyholders or members |policyholders or members|
|of the institutions |of the institutions |
|concerned; or |concerned. |
|have a detrimental effect| |
|on financial system | |
|stability. | |
|Exemptions for individual|Exemptions for |
|entities from |individual entities from|
|requirements of reporting|requirements of |
|standards are not |reporting standards are |
|legislative instruments. |legislative instruments.|
|Reporting standards made |Section 124 of the Life |
|under the FSCODA specify |Insurance Act provides |
|which documents are to be|that a policy owner is |
|provided, upon request, |entitled, upon request, |
|to a policy owner under |to be provided by the |
|section 124 of the Life |insurer with a copy of |
|Insurance Act. |the latest annual |
| |financial statements and|
| |returns given by the |
| |insurer to APRA under |
| |the FSCODA. |
Detailed explanation of new law
Collection of data to assist the Minister and other financial sector
agencies
271. The global financial crisis highlighted that the Minister and
regulators may require specific data to inform decisions and
monitor subsequent outcomes that cannot presently be collected by
APRA under the FSCODA. The Bill amends section 3 (Objects of the
Act), section 5 (Entities covered by the Act), and related
provisions of the FSCODA to address this situation.
272. Currently, section 3 of the FSCODA provides that the object of the
Act is to enable APRA to collect data to assist it in the
prudential regulation or monitoring of bodies in the financial
sector and to facilitate the RBA's formulation of monetary policy.
This may limit the ability of APRA to collect data under the Act to
assist the Minister formulate financial policy or to assist other
financial sector agencies perform functions or exercise powers not
presently covered by section 3.
273. As a result, the Bill amends section 3 of the FSCODA to ensure that
APRA can also collect data under the Act to assist another
financial sector agency perform its functions or exercise its
powers, and to assist the Minister formulate financial policy.
Financial sector agency is defined to mean: ASIC or the RBA; or a
Commonwealth, State or Territory authority prescribed by the
regulations. [Schedule 4, items 7 and 22, subsection 3(1) and
section 31 of the Financial Sector (Collection of Data) Act 2001]
274. The amendment ensures that data can be collected by APRA under the
FSCODA to assist the Minister or another financial sector agency,
where it would be efficient and appropriate to do so. For example,
it ensures that data can be collected under the Act to assist the
RBA monitor financial system stability.
275. To facilitate the operation of the above mentioned amendments, the
Bill makes consequential amendments to section 31 (Definitions) of
the FSCODA that are minor and technical. [Schedule 4, items 23 to
25, section 31 of the Financial Sector (Collection of Data) Act
2001]
276. The Bill also empowers APRA upon receipt of a direction from the
Minister to determine reporting standards to be complied with by
any person, not presently covered by the Act, that provides a
financial service or participates in a payment system (with the
exception of the RBA). [Schedule 4, items 8, 9, and 11, section 5
and paragraph 13(1)(a) of the Financial Sector (Collection of Data)
Act 2001]
277. Section 5 of the FSCODA defines those entities which are covered by
the Act. The definition presently covers entities regulated by
APRA as well as discretionary mutual funds. However, the
definition does not extend to other persons who provide financial
services or participate in a payment system. As a result,
reporting standards to be complied with by such persons cannot
presently be made.
278. The Bill addresses this situation by amending section 5 so that
such persons are covered by the Act and by making related
amendments to the FSCODA that allow APRA upon direction of the
Minister to determine reporting standards to be complied with by
them.
279. Persons required to provide data under such a reporting standard
are subject to the same rights and obligations as presently apply
in relation to existing collections of data under the FSCODA.
Similarly, the process which APRA is required to follow in
collecting the data is the same as that presently applicable to
existing collections under the Act.
280. To assist with the administration of the new provisions, the Bill
provides that the Minister may, in writing, delegate all or any of
their functions under the FSCODA to: the Secretary of the
Treasury; or any SES employee, or acting SES employee, in the
Treasury. [Schedule 4, item 21, Section 29A of the Financial
Sector (Collection of Data) Act 2001]
Collection of FCS data
281. The Bill amends section 13 of the FSCODA to ensure that reporting
standards may require financial sector entities to provide
information (including personal information or tax file numbers) to
APRA that it requires to perform its functions under the FCS.
[Schedule 4, item 15, subsection 13(2A) of the Financial Sector
(Collection of Data) Act 2001]
282. APRA can currently obtain information (including personal
information and tax file numbers) that it requires to perform its
functions under the FCS from individual ADIs and general insurers
under the Banking Act and Insurance Act respectively. However,
there is uncertainty as to whether APRA can use the FSCODA to
obtain such information from a class of ADIs or general insurers.
283. The amendment ensures that such information can be collected under
the FSCODA to further the efficient administration of the FCS.
Reporting standards containing confidential information
284. 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 reveal the sensitive information it
has sought to collect or which has led it to make the collection.
285. 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.
286. As a result, the Bill amends the FSCODA to exempt a reporting
standard from the Legislative Instruments Act 2003 where:
. APRA considers, on reasonable grounds, that the reporting
standard includes confidential information the publication
of which is likely to have a detrimental effect on
financial system stability, or on the stability of one or
more financial institutions;
. the information to be contained in the reporting documents
is required urgently by APRA for any of the following
purposes: to determine the financial or prudential
condition of financial sector entities; to determine the
nature or level of exposure that financial sector entities
have to risks, including risks relating to particular
transactions, entities, business sectors, asset classes or
events; to assess potential threats to financial system
stability; to assist APRA, the Minister or the RBA to
respond to any such threats; or to determine what, if any,
action should be taken by, or in relation to, one or more
financial sector entities; and
. the reporting standard does not require the information
referred to above to be given on an ongoing basis.
[Schedule 4, item 13, subsection 13(1) of the Financial
Sector (Collection of Data) Act 2001]
287. If such a reporting standard is determined, APRA must, as soon as
practicable after the reporting standard is determined, give a copy
of the standard to each financial sector entity that is required to
comply with the standard. This ensures that those responsible for
complying with the standard are made aware of it. [Schedule 4,
item 17, paragraph 13A(1)(a) of the Financial Sector (Collection of
Data) Act 2001]
288. The making of the standard and the confidential information it
contains are protected from inappropriate disclosure. It is an
offence (punishable by imprisonment for two years) for a financial
sector entity to disclose to any person: that the entity has been
given a copy of the relevant standard; or any confidential
information that is included in the standard. However, the offence
does not apply if:
. the disclosure is to APRA for the purposes of APRA
performing its functions under a law of the Commonwealth;
or
. the disclosure is to an employee, officer or contractor of
the financial sector entity for the purposes of them
performing their duties in relation to the reporting
standard; or
. the disclosure is to a lawyer for the financial sector
entity; or
. the disclosure is authorised under an Act or other law; or
. the confidential information included in the reporting
standard has already been lawfully made available to the
public from other sources. [Schedule 4, item 17, section
13B of the Financial Sector (Collection of Data) Act 2001]
289. 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 explanation must be by way of a
written statement given to the entity at the same time that it is
given a copy of the relevant reporting standard by APRA. [Schedule
4, item 17, subsection 13A(2) of the Financial Sector (Collection
of Data) Act 2001]
290. As noted above, 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. [Schedule 4, items 2 and 17,
paragraph 59(2)(b) of the Australian Prudential Regulation
Authority Act 1998, paragraph 13A(1)(b) of the Financial Sector
Collection of Data Act 2001]
291. Finally, the Bill makes consequential amendments to
paragraphs 13(1)(a) and 13(1)(b) of the FSCODA that result from the
new distinction between reporting standards which are and are not
legislative instruments. [Schedule 4, items 10 and 12,
paragraphs 13(1)(a) and 13(1)(b) of the Financial Sector
(Collection of Data) Act 2001]
Urgent reporting standards
292. Subsection 13(5) of the FSCODA requires APRA, when preparing
proposed reporting standards, to consult with those affected by the
standard or, in certain circumstances, with other associations or
bodies representing them.
293. Subsection 13(6) of the FSCODA exempts APRA from its obligation to
consult under subsection 12(5), in circumstances where it is
satisfied that the delay that would be involved in holding the
consultations would prejudice the interests of depositors,
policyholders or members of the financial sector entity or entities
concerned.
294. However, subsection 13(6) does not presently provide an exception
from the requirement to consult where the resulting delay would
have a detrimental effect on financial system stability. It would
not be appropriate for APRA to consult in such circumstances.
295. The Bill rectifies this situation by amending subsection 13(6) of
the FSCODA so that APRA does not have to consult under
subsection 13(5) of the Act where it is satisfied that the delay
that would be involved in holding the consultations would have a
detrimental effect on financial system stability. [Schedule 4, 16,
subsection 13(6) of the Financial Sector (Collection of Data) Act
2001]
Exemption from requirement to comply with a reporting standard
296. Section 16 of the FSCODA currently provides that APRA may, by
legislative instrument, exempt a financial sector entity, or a
class or kind of financial sector entities, from the requirement to
comply with:
. all the requirements contained in any one or more
applicable reporting standards; or
. a specified requirement or requirements contained in an
applicable reporting standard or applicable reporting
standards.
297. The Bill amends section 16 of the FSCODA to enable APRA to exempt a
single entity from the above mentioned requirements by way of a
written notice which is not a legislative instrument. The
amendment reflects that a decision to so exempt a single entity is
of an administrative nature rather than of a legislative nature.
[Schedule 4, item 18, subsections 13(1) and 13(1A) of the Financial
Sector (Collection of Data) Act 2001].
298. An exemption for a class or kind of financial sector entities
remains a legislative instrument. [Schedule 4, item 18,
subsections 16(1B) of the Financial Sector (Collection of Data) Act
2001]
299. The Bill also makes a consequential amendment to section 16 of the
FSCODA to reflect the amended structure of the section following
the change referred to above. [Schedule 4, item 19,
subsections 16(2) of the Financial Sector (Collection of Data) Act
2001]
300. To ensure that the amendments do not affect present exceptions
under subsection 16(1) of the FSCODA, the Bill includes a saving
provision. The provision provides that any exemption under
subsection 16(1) in force immediately before the commencement of
the amendments has effect, after that commencement, as if the
exemption had been made under subsection 16(1) as in force in its
amended form. [Schedule 4, item 37, saving-exemptions under
subsection 16(1) of the Financial Sector (Collection of Data) Act
2001]
Annual financial statements and returns of a life insurer
301. The Bill amends section 124 of the Life Insurance Act so that it
provides that an owner of a policy issued by a life insurer is
entitled to be provided by the company with a copy of a reporting
document (within the meaning of the FSCODA) relating to the
company, or part of the document, if:
. a reporting standard determined under section 13 of the
FSCODA specified that a copy of that document, or part of
that document, is to be so provided on the request of an
owner of the policy; and
. the owner of the policy requests a copy of that document
or part of that document. [Schedule 3, item 31,
subsections 124(1) of the Life Insurance Act 1995]
302. Currently, section 124 of the Life Insurance Act provides that an
owner of a policy issued by a life insurer is entitled, upon
request, to be provided by the insurer with a copy of the latest
annual financial statements and returns given by the insurer to
APRA under the FSCODA.
303. Life insurers are required to give a number of financial statements
and returns to APRA under the FSCODA. There is uncertainty as to
which of these statements and returns are required to be provided
to policy owners under section 124 of the Life Insurance Act.
304. The amendment resolves this uncertainty.
Chapter 8
Amendments relating to levies
Outline of chapter
305. Schedule 4 of the Bill amends the Financial Institutions
Supervisory Levies Collection Act 1998.
306. Schedule 5 of the Bill amends the Authorised Deposit-taking
Institutions Supervisory Levy Imposition Act 1998; the Life
Insurance Supervisory Levy Imposition Act 1998; the General
Insurance Supervisory Levy Imposition Act 1998; the Retirement
Savings Account Providers Supervisory Levy Imposition Act 1998; the
Superannuation Supervisory Levy Imposition Act 1998; and the First
Home Saver Account Providers Supervisory Levy Imposition Act 2008
(the levy imposition Acts).
307. Schedule 7 of the Bill repeals the Authorised Non-operating Holding
Companies Supervisory Levy Determination Validation Act 2000; the
General Insurance Supervisory Levy Determination Validation Act
2000; the Life Insurance Supervisory Levy Determination Validation
Act 2000; the Retirement Savings Account Providers Supervisory Levy
Determination Validation Act 2000; and the Superannuation
Supervisory Levy Determination Validation Act 2000.
Context of amendments
308. APRA's capacity to undertake the various elements of its prudential
supervision task is funded through industry levies which are
determined annually by the Government.
309. The levies also cover consumer protection and market integrity
functions of ASIC and the Australian Taxation Office in relation to
APRA-regulated institutions.
310. The legislative framework for levies comprises the following
arrangements:
. the Financial Institutions Supervisory Levies Collection
Act 1998 which prescribes the timing of payment and the
collection of levies; and
. the levy imposition Acts which impose levies on regulated
entities and prescribe related matters.
311. On 1 July 2008, the then Assistant Treasurer announced an
examination of the methodologies governing the determination of
financial sector levies. This was in response to industry views on
the methodologies and the fact that the methodologies had not been
considered for some time.
312. The review of the levy methodologies was undertaken by Treasury and
APRA. As a result of this work, the review team recommended the
following legislative changes to the Assistant Treasurer:
. that a drafting error in subparagraph 9(2)(a)(i) of the
Financial Institutions Supervisory Levies Collection Act
be corrected;
. that the levy date for new starters under the
Superannuation Supervisory Levy Imposition Act 1998 should
be amended so as to bring it into line with the other
imposition Acts; and
. that the imposition Acts be amended to provide more
flexibility by enabling a valuation basis other than
assets to be used on a case-by-case basis in the annual
determinations.
313. In addition, it has been identified that the following Acts are
redundant: the Authorised Non-operating Holding Companies
Supervisory Levy Determination Validation Act 2000; the General
Insurance Supervisory Levy Determination Validation Act 2000; the
Life Insurance Supervisory Levy Determination Validation Act 2000;
the Retirement Savings Account Providers Supervisory Levy
Determination Validation Act 2000; and the Superannuation
Supervisory Levy Determination Validation Act 2000.
Summary of new law
314. Schedules 4 and 5 of the Bill improve the methodologies governing
the determination of financial sector levies by implementing
recommendations of the 2009 Report of the Review of Financial
Sector Levies and making related amendments.
315. Schedule 4 of the Bill replaces the reference to 'Treasurer' in
paragraph 9(2)(a)(i) of the Financial Institutions Supervisory
Levies Collection Act 1998 with a reference to 'trustee'.
316. Schedule 5 of the Bill:
. amends section 7 of the Superannuation Supervisory Levy
Imposition Act 1998 so that the levy payable by a new
starter is based on the entity's asset value on the day it
became a superannuation entity; and
. replaces all references to 'asset value' in the levy
imposition Acts with references to 'levies base' so that a
valuation basis other than assets can be used in
determining levies payable.
317. In addition, schedule 7 of the Bill repeals the redundant Acts
identified above.
Comparison of key features of new law and current law
|New law |Current law |
|Paragraph 9(2)(a)(i) of |Paragraph 9(2)(a)(i) of |
|the Financial |the Financial |
|Institutions Supervisory |Institutions Supervisory|
|Levies Collection Act |Levies Collection Act |
|provides that the levy |provides that the levy |
|payable for a financial |payable for a financial |
|year by a trustee of |year by a trustee of |
|certain superannuation |certain superannuation |
|entities is due and |entities is due and |
|payable on a business day|payable on a business |
|that is specified in a |day that is specified in|
|notice given by APRA to |a notice given by APRA |
|the Trustee. |to the Treasurer. |
|Under subparagraph |Under subparagraph |
|7(1A)(a)(ii) of the |7(1A)(a)(ii) of the |
|Superannuation |Superannuation |
|Supervisory Levy |Supervisory Levy |
|Imposition Act the |Imposition Act the |
|restricted levy component|restricted levy |
|for a financial year for |component for a |
|a superannuation entity |financial year for a |
|that was an unregulated |superannuation entity |
|entity on 30 June of the |that was an unregulated |
|previous financial year |entity on 30 June of the|
|is calculated based on |previous financial year |
|the entity's asset value |is calculated based on |
|on the day when it became|the entity's asset value|
|a superannuation entity. |on 30 June of the |
| |previous financial year.|
|Under the imposition Acts|Under the imposition |
|levies are determined by |Acts levies are |
|reference to a relevant |determined by reference |
|entity's 'levy base'. |to a relevant entity's |
| |'asset value'. |
Detailed explanation of new law
Subparagraph 9(2)(a)(i) of the Financial Institutions Supervisory Levies
Collection Act
318. Currently subparagraph 9(2)(a)(i) of the Financial Institutions
Supervisory Levies Collection Act 1998 establishes that the levy
payable for a financial year by a trustee of a superannuation
entity is due and payable on a business day that is specified in a
notice given by APRA to the Treasurer, if the entity is a
superannuation entity on 1 July of the financial year and became a
superannuation entity before that day.
319. The Bill amends subparagraph 9(2)(a)(i) of the Act to refer to 'a
notice given by APRA to the trustee' instead of 'a notice given by
APRA to the Treasurer'. [Schedule 4, item 3,
subparagraph 9(2)(a)(i) of the Financial Institutions Supervisory
Levies Collection Act 1998]
320. The present reference to 'Treasurer' in the subparagraph is a
drafting error. The amendment corrects this error.
Regulated levy component for new starters under the Superannuation
Supervision Levy imposition Act
321. The Superannuation Supervisory Levy Imposition Act 1998 imposes a
levy on superannuation entities. Section 5 of the Levy Act defines
a 'superannuation entity' to mean a superannuation entity within
the meaning of the Superannuation Industry (Supervision) Act, other
than a self-managed superannuation fund.
322. Under section 7 of the Superannuation Supervisory Levy Imposition
Act, the levy comprises two components: a restricted levy
component and an unrestricted levy component. Each component
requires the application of a levy percentage to the superannuation
entity's asset value.
323. Subparagraph 7(1A)(a)(ii) of the Superannuation Supervisory Levy
Imposition Act provides that if the superannuation entity was an
unregulated entity on 30 June of the previous financial year ('a
new starter') then, for the purpose of working out the restricted
levy component, the restricted levy percentage is applied to the
entity's asset value on 30 June of the previous financial year.
324. 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.
325. The Bill rectifies this situation by amending subparagraph
7(1A)(a)(ii) of the Superannuation Supervisory Levy Imposition Act
so that the restricted levy component for a new starter is the
restricted levy percentage of the entity's levy base on the day
when it became a superannuation entity. [Schedule 4, item 30,
subparagraph 7(1A)(a)(ii) of the Superannuation Supervisory Levy
Imposition Act 1993]
326. 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.
327. The Bill also amends subsection 7(1B), which relates to the
unrestricted levy component, to align its structure with that
adopted in subsection 7(A) and to ensure that it operates
consistently with subsection 7(A). [Schedule 4, item 32,
subsection 7(1B) of the Superannuation Supervisory Levy Imposition
Act 1993]
Valuation basis for determining levies
328. From inception, gross assets have been used as the primary measure
for determining levies. This has generally proved to be a
reasonable measure, but from time to time it has generated
particular anomalies. For example, using assets as a valuation
basis may not be appropriate for a financial institution which has
a large volume of transactions but holds minimum assets and as a
result is subject to the minimum levy, or where a participant
otherwise does not conform to the general characteristics of other
entities within the industry.
329. The Bill addresses this by amending the imposition Acts to provide
flexibility so that a valuation basis other than assets can be used
by the Minister in determining levies on a case-by-case basis.
This is achieved by replacing all relevant references to 'asset
value' in the imposition Acts with references to 'levy base'.
[Schedule 5, items 1 to 4, 6 to 21, 23 to 29, 31 and 33, section 7
of the Authorised Deposit-taking Institutions Supervisor Levy
Imposition Act 1998, section 7 of the First Home Saver Account
Providers Supervisory Levy imposition Act 2008, section 8 of the
General Insurance Supervisory Levy Imposition Act 1998, section 7
of the Life Insurance Supervisory Levy Imposition Act 1998, section
7 of the Retirement Savings Account Providers Supervisory Levy
Imposition Act 1998, and section 7 of the Superannuation
Supervisory Levy Imposition Act 1998]
330. As a consequence of this amendment, the Bill also repeals
subsection 7(4A) of the Life Insurance Supervisory Levy Imposition
Act 1998 and subsection 7(4A) of the Authorised Deposit-taking
Institutions Supervisory Levy Imposition Act 1998. These provide
that the asset value of a life insurance company or ADI must
exclude an amount equal to the total balances of all first home
saver accounts (within the meaning of the First Home Saver Accounts
Act). [Schedule 5, items 5 and 22, subsection 7(4A) of the
Authorised Deposit-taking Institutions Supervisor Levy Imposition
Act 1998 and subsection 7(4A) of the Life Insurance Supervisory
Imposition Act 1998]
331. The provisions are not desirable due to the above mentioned
amendments that replace references to 'asset value' with references
to 'levy base'. As a result of the change to 'levy base', it is
preferable that any relevant adjustments to levies payable be done
in the ministerial annual determinations.
Repeal of redundant Acts
332. Schedule 7 of the Bill repeals the following Acts:
. the Authorised Non-operating Holding Companies Supervisory
Levy Determination Validation Act 2000;
. the General Insurance Supervisory Levy Determination
Validation Act 2000;
. the Life Insurance Supervisory Levy Determination
Validation Act 2000;
. the Retirement Savings Account Providers Supervisory Levy
Determination Validation Act 2000; and
. the Superannuation Supervisory Levy Determination
Validation Act 2000. [Schedule 7, items 1 to 5, the
Authorised Non-operating Holding Companies Supervisory
Levy Determination Validation Act 2000, General Insurance
Supervisory Levy Determination Validation Act 2000, the
Life Insurance Supervisory Levy Determination Validation
Act 2000, the Retirement Savings Account Providers
Supervisory Levy Determination Validation Act 2000 and the
Superannuation Supervisory Levy Determination Validation
Act 2000]
333. The five Acts validate levy determinations made on 11 August 1998,
before they were notified in the Gazette on 13 August 1998.
According to the validation Acts, the determinations are taken to
be effective on and at all times after 1 July 1998. The Acts
provided legal support to relevant levy collection actions taken
from 1 July 1998 to 13 August 1998.
334. The Acts are now redundant as the relevant levy determinations were
revoked in 1999.
Chapter 9
Minor or technical amendments
Outline of chapter
335. The Bill makes amendments of a minor or technical nature to the
Banking Act, Insurance Act, Life Insurance Act, Superannuation
(Industry) Supervision Act and Financial Sector Legislation
Amendment (Simplifying Regulation and Review) Act.
Context of amendments
336. During the drafting of the Bill a series of minor or technical
amendments were identified that correct drafting errors, reflect
current drafting practice, or ensure that present laws operate as
intended.
Summary of new law
337. Schedules 1, 2, 3, 4 and 6 of the Bill make amendments of a minor
or technical nature to the Banking Act, Insurance Act, Life
Insurance Act, Superannuation (Industry) Supervision Act, Business
Transfer and Group Restructure Act and Financial Sector Legislation
Amendment (Simplifying Regulation and Review) Act to correct
drafting errors, reflect drafting practice, or ensure that present
provisions in those Acts operate as intended.
Comparison of key features of new law and current law
|New law |Current law |
|APRA may refuse an |APRA may refuse an |
|application by a body |application by a body |
|corporate for |corporate for |
|authorisation to carry on|authorisation to carry |
|banking or insurance |on banking or insurance |
|business in Australia if |business in Australia if|
|the body corporate is a |the body corporate is a |
|subsidiary of another |subsidiary of a NOHC |
|body corporate that does |that does not hold a |
|not hold a NOHC |NOHC authority. |
|authority. | |
|If an ADI is wound up on |If an ADI is wound up on|
|application by APRA, the |application by APRA, the|
|winding up is to be |winding up is to be |
|conducted in accordance |conducted in accordance |
|with the Corporations |with the Corporations |
|Act. |Act under which the ADI |
| |is incorporated or is |
| |taken to be |
| |incorporated. |
|The unnecessary |Subsections 16AO and |
|references to delegates |16AK of the Banking Act |
|in subsections 16AO and |and 62ZZU(1) of the |
|16AK of the Banking Act |Insurance Act make |
|and 62ZZU(1) of the |unnecessary references |
|Insurance Act are |to delegates. |
|deleted. | |
|Subsection 38AA(6) of the|Subsection 38AA(6) of |
|Insurance Act provides |the Insurance Act |
|that a body corporate |provides that a body |
|commits an offence if the|corporate commits an |
|body corporate |offence if the body |
|contravenes |corporate contravenes |
|subsection 38AA(4). |subsection 38AA(5). |
|A life insurer must not |A life insurer must not |
|borrow money, for the |borrow money, for the |
|purposes of the business |purposes of the business|
|of a statutory fund, by |of a statutory fund, by |
|means of an unsecured |means of an unsecured |
|borrowing if the result |borrowing if the result |
|would be that the total |would be that the total |
|amount of principal |amount of principal |
|outstanding under |outstanding under |
|unsecured borrowings for |unsecured borrowings for|
|the purposes of the |the purposes of the |
|business of the fund |business of the fund |
|would exceed an amount |would exceed an amount |
|ascertained in accordance|ascertained in |
|with the prudential |accordance with the |
|standards. |regulations. |
|Section 44 of the Life |Section 44 of the Life |
|Insurance Act is |Insurance Act provides |
|repealed. |for matters relating to |
| |the reporting of |
| |restricted investments. |
|Sections 3 and 209 of the|Sections 3 and 209 of |
|Life Insurance Act use |the Life Insurance Act |
|the terms 'policy owners'|use the terms |
|and 'policy owner', |'policyholders' and |
|respectively. |'policy-owner', |
| |respectively. |
|The definition of |The definition of |
|'prudential requirements'|'prudential |
|in subsection 36C(4) of |requirements' in |
|the Business Transfer and|subsection 36C(4) of the|
|Group Restructure Act |Business Transfer and |
|refers to prudential |Group Restructure Act |
|standards made under |refers to prudential |
|section 230A of the Life |standards made under |
|Insurance Act. |section 360A of the Life|
| |Insurance Act. |
|All references in the |Offence provisions of |
|Banking, Insurance, Life |the Banking, Insurance, |
|Insurance, and |Life Insurance, and |
|Superannuation Industry |Superannuation Industry |
|(Supervision) Acts to |(Supervision) Acts use |
|'Maximum penalty' are |the term 'Maximum |
|replaced with references |penalty'. |
|to 'Penalty'. | |
Detailed explanation of new law
Reference to NOHCs
338. The Bill amends subsection 9(2) of the Banking Act and
subsection 12(6) of the Insurance Act to replace references to 'a
subsidiary of a NOHC' with reference to 'a subsidiary of another
body corporate'. [Schedule 1, item 6, and schedule 2, item 10,
subsection 9(3A) of the Banking Act 1959 and subsection 12(3) of
the Insurance Act 1973]
339. Subsections 9(2) of the Banking Act and 12(6) of the Insurance Act
currently provide that APRA may refuse an application by a body
corporate for authorisation to carry on banking or insurance
business in Australia if the body corporate is a subsidiary of a
NOHC that does not hold a NOHC authority.
340. The term NOHC is defined in section 5 of the Banking Act and
section 3 of the Insurance Act, respectively. Those sections
define NOHC, in relation to a body corporate, to mean a body:
. of which the first body corporate is a subsidiary; and
. that does not carry on a business (other than a business
consisting of the ownership or control of other bodies
corporate); and
. that is incorporated in Australia.
341. The amendment promotes the effective operation of the authorisation
regime by ensuring that APRA may refuse an application to carry on
banking or insurance business in Australia if the body corporate is
a subsidiary of any body corporate (whether or not a NOHC as
defined) that does not hold a NOHC authority.
Winding up of an ADI on application by APRA
342. Subsection 14F(2) of the Banking Act currently provides that if an
ADI is wound up on application by APRA, the winding up is to be
conducted in accordance with the Corporations Act under which the
ADI is incorporated or is taken to be incorporated.
343. The Bill amends subsection 14F(2) to omit the words 'under which
the ADI is incorporated or is taken to be incorporated'. [Schedule
1, item 28, subsection 14F(2) of the Banking Act 1959]
344. The amendment reflects that ADIs are now all incorporated under the
Corporations Act. In the past some ADIs had been incorporated
under other laws.
References to delegates
345. The Bill removes references to delegates from subsections 16AK(2)
and 16AO(1) of the Banking Act and subsection 62ZZU(1) of the
Insurance Act. [Schedule 1, items 34 and 35, and schedule 2, item
82, paragraphs 16AK(2)(d) and 16AK(2)(e) and subsection 16AO(1) of
the Banking Act 1959, and subsection 62ZZU(1) of the Insurance Act
1973]
346. The references are not necessary given the operation of
section 34AB of the Acts Interpretation Act 1901. That section
provides that where an Act confers power on an authority to
delegate a function or power, the function or power when performed
or excised by a delegate is deemed to have been performed or
exercised by the authority.
Foreign reinsurers
347. The Bill amends the Insurance Act to ensure that foreign insurers
will only be exempt from the requirement to apply for authorisation
to carry on insurance business in Australia if they solely conduct
reinsurance business. If the foreign insurer conducts any other
insurance business in Australia they must be authorised. [Schedule
2, items 2, 3, 7 and 8, subsections 3(1), 3(5) to 3(6A) of the
Insurance Act 1973]
348. The amendments clarify the existing law.
Incorrect reference in subsection 38AA(6) of the Insurance Act
349. Subsection 38AA(6) of the Insurance Act currently provides that a
body corporate commits an offence if the body corporate contravenes
subsection 38AA(5).
350. The current reference to subsection 38AA(5) in subsection 38AA(6)
is incorrect. The reference should be to subsection 38AA(4).
351. The Bill corrects this drafting error, by replacing the reference
to subsection 38AA(5) in subsection 38AA(6) with a reference to
subsection 38AA(4). [Schedule 2, item 20, subsection 38AA(6) of
the Insurance Act 1973]
Reference to prudential standards in section 38 of the Life Insurance Act
352. Subsection 38(4) of the Life Insurance Act currently provides that
a life insurer must not borrow money, for the purposes of the
business of a statutory fund, by means of an unsecured borrowing if
the result would be that the total amount of principal outstanding
under unsecured borrowings for the purposes of the business of the
fund would exceed an amount ascertained in accordance with the
regulations.
353. The Bill replaces the current reference to 'regulations' in
subsection 38(4) of the Insurance Act with a reference to
'prudential standards'. [Schedule 3, item 6, subsection 38(4) of
the Life Insurance Act 1995]
354. The amendment ensures that APRA can provide for the relevant
matters in the prudential standards.
Repeal of section 44 of the Life Insurance Act
355. The Bill repeals section 44 of the Life Insurance Act. [Schedule
3, item 7, section 44 of the Life Insurance Act 1995]
356. Section 44 of the Life Insurance Act requires life insurance
companies to submit a half yearly 'restricted investments return'
to APRA. However, this requirement is redundant as APRA collects
the data under the Financial Sector (Collection of Data) Act 2001.
Therefore, the section is repealed.
357. As a result of the repeal of section 44, the Bill also repeals
items 274 and 275 of schedule 1 of the Financial Sector Legislation
Amendment (Simplifying Regulation and Review) Act. Those items
make amendments to section 44 of the Life Insurance Act that
commence on 1 July 2011. The items are redundant as a result of
the repeal of section 44. [Schedule 4, item 26, items 274 and 275
of schedule 1 of the Financial Sector Legislation Amendment
(Simplifying Regulation and Review) Act 2007]
Reference to 'policyholders' in the Life Insurance Act
358. The Bill replaces the reference to 'policyholders' in section 3
(Objectives of the Act) of the Life Insurance Act with a reference
to 'policy owners'. [Schedule 3, item 1, paragraph 3(2)(d) of the
Life Insurance Act 1995]. The Bill also replaces the references to
'policy-owner' in subsection 209(5) of the Life Insurance Act with
references to 'policy owner'. [Schedule 3, item 48, paragraphs
209(5)(a) and 209(5)(b) of the Life Insurance Act 1995]
359. The amendments make the relevant provisions consistent with the
remainder of the Act which uses the terms 'policy owners' and
'policy owner' rather than 'policyholders' and 'policy-owner'.
Incorrect reference in section 36C of the Business Transfer and Group
Restructure Act
360. The definition of 'prudential requirements' in subsection 36C(4) of
the Business Transfer and Group Restructure Act presently makes
reference to prudential standards in force under section 360A of
the Life Insurance Act.
361. The reference to section 360A of the Life Insurance Act is
incorrect. Under the Life Insurance Act, prudential standards are
in fact made under section 230A.
362. As a result, the Bill amends subsection 36C(4) of the Business
Transfer and Group Restructure Act to replace the reference to
subsection 360A of the Life Insurance Act with a reference to
section 230A of that Act. [Schedule 4, item 6, subsection 36C(4)
of the Financial Sector (Business Transfer and Group Restructure
Act) 1999]
References to maximum penalties
363. The Bill amends the Banking, Insurance, Life Insurance, and
Superannuation Industry (Supervision) Acts to replace all
references to 'Maximum penalty' with references to 'Penalty'.
364. The change reflects current drafting practice and does not affect
the operation of the relevant provisions. [Schedule 6, items 1 to
78, subsections 7(1), 8(1), 9(6), 10(3), 11(3), 11AA(5), 11CG(1)
and (2), 11E(2), 13(3), 13A(4), 13B(1A), 14A(2A), 16B(1A), 33(4),
36(1A) and (2A), 41(2), 42(1A) and (3), 45(1A) and (4), 46(2),
51B(7), 51D(3), 61(3), 62(1A), 63(1) and (4), 66(1) and (3),
66A(1), 67(1) and (3), and 69(3AA), (5A) and (7A) of the Banking
Act 1959, subsections 7A(1), 9(1), 10(1) and (2),14(1), 17(8),
20(1), 27(7), section 28, and subsections 49(3) and (4), 49A(3) and
(4), 49F(1) and (2), 49L(1), and 49Q(2) of the Insurance Act 1973,
subsections 16E(1) and (7), 16L(4), 16Q(4), 16R(6), 16U(4), 16V(7),
180(4), and 230F(1) and (3) of the Life Insurance Act 1995, and
subsections 11B(3) and (4), 11C(2), (3) and (4), 64(3) and (3A),
103(3), 104(2), 104A(3), 105(2), 107(3) and (4), 108(3) and (4),
122(2), 124(2), 131B(1) and (2), 141A(3) and (6), 154(2) and (2A),
252C(2) and (10), 254(4) and (5), 260(2) and (3), 262(1) and (2),
299C(3), 299F(4) and (4A), 299G(4) and (4A), 299H(6) and (7),
299J(6) and (7), 299K(6) and (7), 299L(6) and (7), 299M(4) and (5),
299Y(2) and (3), and 347A(6) of the Superannuation Industry
(Supervision) Act 1993]
Chapter 10
Regulation Impact Statement
Background
Scope of the Regulation Impact Statement
365. This Regulation Impact Statement addresses proposed amendments to
the Australian Prudential Regulation Authority Act 1998, the
Banking Act 1959, the Insurance Act 1973, the Life Insurance Act
1995, the Superannuation Industry (Supervision) Act 1993, the
Financial Sector (Business Transfer and Group Restructure) Act
1999, the Financial Sector (Collection of Data) Act 2001 and other
Acts, relating to Australia's crisis management and prudential
framework. The proposed amendments suggest changes to legislation
or regulations affecting business. Hence, the changes are
addressed in this Regulation Impact Statement ('RIS').
Prudential regulation and administration of the FCS
366. The purpose of the Australian Prudential Regulation Authority
(APRA) is to:
. regulate bodies in the financial sector in accordance with
laws of the Commonwealth that provide for prudential
regulation or for retirement income standards;
. administer the Financial Claims Scheme (FCS) provided for
in the Banking Act and Insurance Act; and
. develop the administrative practices and procedures to be
applied in performing that regulatory role and
administration.
367. In performing and exercising its functions and powers, APRA is
required to balance the objectives of financial safety and
efficiency, competition, contestability and competitive neutrality
and, in balancing those objectives, is to promote financial system
stability in Australia.
Prudential regulation
368. Prudential regulation aims to ensure that, under all reasonable
circumstances, financial promises made by regulated entities are
met within stable, efficient and competitive financial markets.
369. It is aimed at ensuring that the quality of a financial
institution's systems for identifying, measuring and managing the
various risks in its business act to reduce the risk of failure and
that, where failure does occur, public confidence in the financial
system is maintained while the failure is appropriately managed.
370. Australia's prudential framework is primarily risk-based,
consultative and consistent with international best practice. This
risk-based approach recognises that management and Boards of
supervised institutions are primarily responsible for the financial
soundness of their respective institution.
371. Where difficulties arise within a regulated financial institution,
intervention by the regulator will be proportionate to the
seriousness of the problem and level of risk to depositors,
policyholders and industry.
372. APRA has a range of supervisory powers which escalate from
preventive to corrective and through to failure management.
Preventive powers
Authorisation
373. APRA has an authorisation and minimum standard framework that
applies to entities seeking to operate in the regulated market.
Minimum standards for entry and participation in regulated
financial markets give consumers greater confidence, even in the
absence of full information, that financial promises will be met.
This, in turn, promotes the safety and stability of the financial
system as a whole.
Fitness and propriety
374. Under the prudential Acts, where APRA is satisfied that a director
or senior manager does not meet fit and proper standards, it has
the power to seek their disqualification or direct their removal.
It can also remove an actuary or auditor or seek their
disqualification.
Prudential standards
375. Prudential standards help improve the clarity and certainty of
prudential regulation and maintain flexibility in the prudential
regulation regime. APRA is able to determine standards that apply
to authorised deposit-taking institutions (ADIs) and general
insurers, as well as subsidiaries and non-operating holding
companies (NOHCs) of those entities. APRA is also able to
determine prudential standards for life insurance companies.
376. These standards are complemented by monitoring of regulated
entities and a compliance regime that encourages their continuing
adherence to the standards. This ensures that institutional and
regulatory arrangements are working as intended and assists in the
early detection of problems. Remedial action is taken in
circumstances where an entity or individual fails to meet the
minimum requirements.
377. APRA has powers to require information from regulated entities
regarding their operations. This information forms the basis of
assessments by APRA of the entity's prudential status and assists
in the early detection of any emerging risks.
Correction powers
378. Effective enforcement powers ensure that APRA is able to compel
compliance with, and rectify breaches of, minimum standards. APRA
is equipped with various enforcement powers and sanctions including
the power to enter court-enforceable undertakings, issue
directions, and seek court injunctions to enable it to respond
proportionately to compliance issues.
Court-enforceable undertakings
379. This power is intended to enable APRA to formalise and, if
necessary, enforce an agreement that is reached with market
participants. The Banking, Insurance and Life Insurance Acts
enable APRA to accept an enforceable undertaking that relates to a
matter regarding which APRA has a function or power under the Act.
Issuing of directions
380. In most situations, APRA is able to address prudential concerns by
working cooperatively with the Board and management of a supervised
entity, thereby allowing the Board and senior management to
maintain full responsibility for decisions made by the entity.
381. However, there may be times where APRA judges that it is necessary
to use more direct tools to rectify or manage prudential concerns.
Directions powers enable APRA to specify how an entity should
resolve compliance issues and therefore enable APRA to compel an
entity to take specific action to address prudential risks that
have been identified.
Court injunctions
382. The power to seek a court injunction enables APRA to act
immediately to protect relevant interests in very serious cases and
where other enforcement powers are insufficient. The Banking,
Insurance, Life Insurance and Superannuation Industry (Supervision)
Acts each contain a power for APRA to seek a court injunction.
Failure management
383. Recognising that prudential regulation does not (and, in a market
economy, cannot) have a 'no failure' objective, it is important
that APRA has effective powers to intervene when regulated
financial institutions are at risk of experiencing financial
difficulties that threaten their ongoing viability, and to ensure
the effective resolution of the situation in a manner which
maintains the stability of the financial system and protects
depositors and policyholders.
384. Key aspects of APRA's failure management powers include the ability
to apply for transfer of business of an entity that is in financial
distress to a healthy institution; initiate external
administration; and initiate wind-up.
Transfer of business
385. Transferring the business of an entity in financial distress to a
healthy institution may be a less disruptive and costly means of
resolving problems in financial institutions than wind-up.
386. The compulsory transfer of business powers in relation to ADIs are
contained in the Financial Sector (Business Transfer and Group
Restructure) Act, and for life insurers are contained in the
Financial Sector (Business Transfer and Group Restructure) Act and
the Life Insurance Act.
387. APRA currently has limited compulsory transfer powers in relation
to general insurers under the Insurance Act.
External administration
388. Under the Banking Act, APRA can appoint an administrator (known as
a statutory manager) if an ADI appears likely to become, or
becomes, unable to meet its obligations or suspends payment.
389. The Insurance and Life Insurance Acts contain a model of external
administration (known as judicial management) which allows APRA to
apply to a court for an order that a life insurer or general
insurer be placed under judicial management on a number of grounds.
These include where the entity indicates that such action is in
the interests of policyholders or where the company is, or is
likely to become, unable to meet its policy or other liabilities.
390. The Banking, Insurance and Life Insurance Acts empower a statutory
or judicial manager to recapitalise a financial institution by
issuing new shares, selling shares, cancelling existing shares or
varying or restricting rights attached to shares. A statutory or
judicial manager may also alter the governance arrangements of an
ADI or insurer, respectively.
Wind-up
391. The exercise of this power varies across each of the prudentially
regulated industries. For ADIs, APRA may initiate wind-up where an
entity is insolvent, or where a statutory manager is in control of
the ADI's business and APRA considers that the ADI could not be
restored to solvency within a reasonable period. The wind-up is
undertaken under corporations law, with depositors receiving first
preference over the assets of the ADI.
392. In the case of life insurers APRA may initiate wind-up of an entity
where it has conducted an investigation and is satisfied that it is
necessary or proper for a wind-up application to be made to the
court, or where the court has accepted the recommendation of the
judicial manager that the life insurer be wound up. The
application for wind-up is made under the Life Insurance Act, with
policy owners receiving first preference over the statutory assets
of the life insurer.
393. APRA may apply for the wind-up of a general insurer under the
Insurance Act and the Corporations Act 2001 where the insurer is
insolvent, or where an investigation into the insurer has been
completed and the company's liabilities exceed its assets. The
general insurer's creditors in Australia receive preference over
its assets in Australia.
Financial Claims Scheme
394. The Financial System Legislation Amendment (FCS and Other Measures)
Act 2008 (FCS Act) introduced the FCS.
395. The FCS is administered by APRA and provides depositors in
Australian-incorporated ADIs with a guarantee of their deposits to
a threshold prescribed by regulations. The threshold is currently
set at $1 million per account-holder per ADI.
396. In addition, the FCS provides compensation to eligible
policyholders with claims against a failed general insurer.
Data collection powers
397. The Financial Sector (Collection of Data) Act (FSCODA) aims to
ensure that APRA can collect the data it requires for the purposes
of its prudential functions. It also aims to harmonise and
increase the flexibility of the data collection and publishing
regimes and to recognise APRA as the central repository for the
collection of financial data.
398. The FSCODA covers the following broad areas:
. the entities covered by the Act;
. the registration of certain corporations and the
obligations on those corporations;
. the power for APRA to determine reporting standards that
will require compliance through the provision of reporting
documents by financial sector entities; and
. the application of the Commonwealth's criminal code to
certain offences in the Act.
399. The FSCODA allows APRA to develop an understanding of the condition
of financial institutions and to monitor their compliance with
prudential requirements.
400. The collection of financial data under the FSCODA also enables
general research and analysis to be undertaken into trends and
pressures affecting the financial sector and the publication of
relevant information.
Levy arrangements
401. APRA's capacity to undertake the various elements of its prudential
supervision task is funded through industry levies which are
determined annually by the Government.
402. The levies also cover consumer protection and market integrity
functions of the Australian Securities and Investments Commission
(ASIC) and the Australian Taxation Office (ATO) in relation to APRA-
regulated institutions.
403. The legislative framework for levies is comprised of the following
arrangements:
. the Financial Institutions Supervisory Levies Collection
Act 1998 which prescribes the timing of payment and the
collection of levies; and
. a series of imposition Acts which impose levies on
regulated entities and prescribes related matters.
404. The imposition Acts are the:
. Authorised Deposit-taking Institutions Supervisory Levy
Imposition Act 1998;
. Authorised Non-operating Holding Companies Supervisory
Levy Imposition Act 1998;
. Life Insurance Supervisory Levy Imposition Act 1998;
. General Insurance Supervisory Levy Imposition Act 1998;
. Retirement Savings Account Providers Supervisory Levy
Imposition Act 1998;
. Superannuation Supervisory Levy Imposition Act 1998; and
. First Home Saver Account Providers Supervisory Levy
Imposition Act 2008.
Assessing the problem
405. On 12 October 2008, the Government introduced the FCS Act, which
established the FCS and strengthened APRA's powers to manage a
financial sector crisis.
406. APRA and Treasury have undertaken work to operationalise the FCS
and to review Australia's prudential framework to ensure that it
provides for the effective supervision of, and where necessary,
management of distress at a prudentially regulated institution.
407. This is consistent with developments overseas where countries such
as the UK and the US have sought to review and strengthen their
financial regulatory frameworks.
408. The majority of proposals considered by this RIS would address
matters identified during the above process. The amendments would
address inconsistencies between the laws which APRA administers,
and between those and other laws. They are also required to ensure
that APRA can take appropriate action to assist in the prevention
of, and respond to, institutional distress.
409. The importance of consistent prudential regulations was recognised
by the 1997 Financial Systems Inquiry (Wallis inquiry). The
inquiry found that Australian financial service providers wanting
to compete in global markets would be disadvantaged by
inconsistencies in the regulatory framework, and that inconsistent
regulation may create opportunities for regulatory arbitrage. The
Inquiry also found that Australia's financial sector regulatory
framework was fragmented and unnecessarily complex, leading to
increased compliance costs for financial service providers.
410. It was following the inquiry that the government moved to establish
APRA, a single regulator for authorised ADIs, insurers and
superannuation entities, which was tasked with their prudential
regulation.
411. Reforms since the Inquiry have continued to harmonise Australia's
regulatory framework by removing inconsistencies, unnecessary
complexity, and fragmentation. The proposals outlined in this RIS
would continue this process to the benefit of business, consumers
and the financial system.
412. This RIS also considers proposed amendments to the levy
arrangements that were recommended by a Government review of the
arrangements or which are consequential to making those amendments.
413. On 1 July 2008, the then Assistant Treasurer announced an
examination of the methodologies governing the determination of the
financial sector levies. This was in response to industry views on
the methodologies and the fact that the methodologies had not been
considered for some time.
414. The review of the levy methodologies was undertaken by Treasury and
APRA. As a result of this work, the review team recommended the
following legislative changes to the Assistant Treasurer:
. that the levy date for new starters should be redefined;
. that the imposition Acts should 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; and
. that a drafting error in subparagraph 9(2)(a)(i) of the
Financial Institutions Supervisory Levies Collection Act
be corrected.
Objectives
415. The objective of the proposed amendments is to improve APRA's
ability to regulate bodies in the financial sector in accordance
with prudential laws and to enhance its ability to administer the
FCS. The amendments would achieve this by enhancing APRA's
preventive, correction, failure management and data collection
powers, and by enhancing the operation of the FCS.
416. The proposed amendments also aim to improve the methodologies
governing the determination of financial sector levies. The
amendments would achieve this by implementing recommendations of
the 2009 Report of the Review of Financial Sector Levies and making
related amendments.
Analysis of proposed amendments to APRA's preventive powers
Proposal 1 - Incorporation by reference in prudential standards
417. Currently, the Banking and Life Insurance Acts do not contain a
provision for the incorporation by reference of documents into
prudential standards. The Insurance Act contains such a provision.
418. The proposal would harmonise the Acts by inserting a provision in
the Banking and Life Insurance Acts which would allow for updated
versions of documents which are referred to in APRA's prudential
standards (such as the Audit and Assurance Standards Board's Audit
Guidance) to be automatically applied in prudential standards made
under those Acts.
419. The proposal is expected to have low compliance costs. It may
result in administrative efficiencies for APRA but would not affect
the ambit of prudential standards. Prudential standards are
generally legislative instruments which are subject to disallowance
and for which APRA must comply with best practice regulation
requirements at the time they are made.
Proposal 2 - Prudential standards in respect of corporate groups
420. The Insurance Act prescribes that APRA can make prudential
standards in respect of a single regulated entity or NOHC. This
allows APRA to regulate the head entity of a group and require it
to monitor its subsidiaries. However, it does not allow APRA to
make prudential standards in respect of corporate groups or parts
of groups.
421. The Banking Act prescribes that prudential standards may require an
ADI or its authorised NOHC to ensure that its subsidiaries, or it
and its subsidiaries, collectively satisfy particular requirements
in relation to prudential matters. This allows APRA to make
prudential standards for groups as a whole under the Banking Act.
422. The proposal would harmonise the Insurance Act with the Banking Act
by permitting APRA to make prudential standards for corporate
groups as a whole under the Insurance Act. It would also permit
APRA to make prudential standards with respect to parts of the
group.
423. The proposal reflects the corporate structures which general
insurers may adopt.
424. The proposal is expected to have low compliance costs. It may
result in administrative efficiencies for APRA but would not
materially affect the ambit of prudential standards. In addition,
as noted above prudential standards are generally legislative
instruments which are subject to disallowance and for which APRA
must comply with best practice regulation requirements at the time
they are made.
Proposal 3 - Prudential standard to determine assets
425. Subsection 13A(4) of the Banking Act provides that an ADI is guilty
of an offence if it does not hold assets (excluding goodwill) in
Australia of a value that is equal to or greater than the total
amount of its deposit liabilities in Australia and APRA has not
authorised the ADI to hold assets of a lesser value.
426. The proposal would amend subsection 13A(4) to enable APRA to
exclude assets or amounts from being assets in Australia for the
purposes of that subsection via prudential standards.
427. The proposal would also amend the equivalent provision in the
Insurance Act, paragraph 28(a), so that APRA can exclude assets, in
addition to amounts, from being assets in Australia for the
purposes of that provision via prudential standards.
428. The proposed amendments would harmonise subsection 13A(4) of the
Banking Act and paragraph 28(a) of the Insurance Act, as
applicable.
429. The proposal would also amend section 116A of the Insurance Act to
clarify that the definition of when a liability is taken to be in
Australia in that section, applies to the requirement in
section 116 that, in winding up, a general insurer's assets in
Australia are firstly applied to meeting its liabilities in
Australia.
430. The proposed amendments are expected to have low compliance costs.
The amendments to the Insurance Act are not expected to have a
material change on the present operation of the law. In regards to
the Banking Act amendment, APRA has advised that guidance on the
assets which may be excluded can be obtained from examining the
relevant prudential standard that presently applies in the context
of general insurers, that is, GPS 120. Such a prudential standard
would also be a legislative instrument. This being the case, APRA
would consult on a draft standard with industry as part of the
process of making the standard and its making would be subject to
best practice regulation requirements.
Proposal 4 - Minimum criteria for authorisation
431. Currently, the Banking, Insurance and Life Insurance Acts permit a
body corporate to apply to APRA for authorisation to carry on a
regulated business or be a NOHC of a regulated business. If an
application is made, APRA may grant or refuse the application.
432. The proposal would amend the Banking, Insurance and Life Insurance
Acts to permit APRA, by legislative instrument, to set criteria for
the granting of such an authorisation.
433. The proposed amendments would enhance the authorisation framework
by permitting minimum standards for entry and participation in
regulated financial markets to be made by legislative instrument.
Presently, such criteria are set out in guidelines made by APRA.
434. The proposal is expected to have low compliance costs. It will,
however, permit APRA to make minimum standards in a manner
providing greater certainty as to the regard courts and tribunals
must have to them.
Proposal 5 - Continuing an authorisation in-effect upon revocation
435. The Banking, Insurance and Life Insurance Acts provide APRA with
the power to revoke an authorisation in certain circumstances.
However, none of the Acts presently provide that APRA may continue
an authorisation in-effect upon revocation, as is the case under
section 29GB of the Superannuation Industry (Supervision) Act in
relation to RSE licences.
436. The proposal would insert an equivalent provision to section 29GB
of the Superannuation Industry (Supervision) Act into the Banking,
Insurance and Life Insurance Acts. The provisions would provide
that a notice to revoke an authorisation may state that the
authorisation continues in-effect in relation to a specified matter
or specified period, as though the revocation had not happened, for
the purposes of a prudential law.
437. The proposed amendment would ensure that APRA can continue to
appropriately monitor an entity, and act under relevant laws, after
the revocation of an authority in circumstances where it is
desirable to do so.
438. The proposal is expected to have low compliance costs.
Analysis of proposed amendments to APRA's correction powers
Proposal 1 - Triggers for issuing directions
439. Under the Banking, Insurance and Life Insurance Acts, triggers must
be satisfied prior to APRA issuing a direction.
440. The proposal would amend the triggers to:
. clarify the triggers for giving directions under the
Banking Act and Insurance Act where there is deterioration
in a regulated entity's financial condition;
- At present, the relevant provisions are that APRA may
issue a direction if there is 'a sudden material
deterioration in the body corporate's financial
condition' [emphasis added]. The proposal would remove
the word 'sudden' to reflect that it is not the speed
but the extent of the deterioration which should be
relevant to trigger the directions power.
. ensure APRA can issue a direction under the Banking Act
while a regulated entity is receiving external support;
and
- At present, it is unclear whether the provision of
Government financial support to an ADI would enable an
ADI to avoid triggering APRA's directions power. The
proposal would clarify that APRA may issue a direction
despite external assistance being given.
. amend the grounds for giving directions in the Banking,
Insurance and Life Insurance Acts so that they refer to
subsidiaries.
- At present, APRA has the power to direct a supervised
entity to control the actions of its subsidiaries where
a directions trigger is met. The proposal would amend
the triggers so that APRA may issue a direction to an
ADI, general insurer, life insurer or authorised NOHC as
a result of the conduct of a subsidiary, in appropriate
circumstances.
441. The proposal is not expected to have a significant impact on
business. The amended powers would ensure that APRA can use its
directions powers in the exceptional circumstances in which they
may be required, rather than effecting wider change. APRA would
continue to address prudential concerns by working cooperatively
with regulated entities where possible.
Proposal 2 - Failure by an authorised NOHC to comply with a
direction to remove a director under the Insurance Act
442. It is currently an offence under the Insurance Act for general
insurers and corporate agents to fail to comply with a direction to
remove a director or senior manager. However, it is not an offence
for an authorised NOHC to fail to comply with such a direction.
443. The proposal would rectify this inconsistency by making it an
offence under the Insurance Act for a NOHC to fail to comply with a
direction from APRA to remove a director or senior manager.
444. The provision would ensure that the existing direction power is
effective, rather than affecting the ambit of that power.
Proposal 3 - Directions to a foreign ADI regarding assets and
liabilities
445. The proposal would amend the Banking Act to clarify that APRA may
direct a foreign ADI:
. to act in a way so that: a particular asset or class of
assets of the ADI is returned to the control (however
described) of the part of the ADI's banking business that
is carried on in Australia; or a particular liability or
class of liabilities of the ADI ceases to be the
responsibility (however described) of the part of the
ADI's banking business that is carried on in Australia; or
. to not act in a way that: a particular asset or class of
assets of the ADI ceases to be under the control (however
described) of the part of the ADI's banking business that
is carried on in Australia; or a particular liability or
class of liabilities of the ADI becomes the responsibility
(however described) of the part of the ADI's banking
business that is carried on in Australia.
446. The amendment would clarify that APRA may issue a direction to
prevent inappropriate intra-entity transactions that may undermine
the financial position of the ADI's Australian operations.
447. This may be particularly important in a situation where the foreign
ADI is in financial distress and to ensure liability holders in
Australia are not disadvantaged in the winding up or other
resolution of the ADI.
448. The proposal is not expected to have a significant impact on
business. The proposal would clarify APRA's existing directions
powers to ensure that they capture the relevant transactions of a
foreign bank branch. Such clarity presently exists in relation to
equivalent transactions entered into by Australian subsidiaries of
foreign banks and other Australian banks.
Analysis of proposed amendments to APRA's failure management powers
External administration
Proposal 1 - Information about applications to appoint an external
administrator to a general insurer
449. Currently, where a creditor or another party seeks to apply to the
courts to appoint an external administrator to a general insurer or
life insurer, the person is required to give APRA notice of the
appointment, but is not required to provide details of the
application.
450. It is important for APRA to receive these details prior to the
hearing so as to understand the circumstances giving rise to the
application and take appropriate and timely action. For example,
APRA may seek to be heard in relation to the proposed external
administration of the general insurer or life insurer, or APRA may
apply to the Federal Court for the appointment of a judicial
manager who would replace any other form of external
administration.
451. The proposal would require a person who wants to apply to a court
for the appointment of an external administrator of a general
insurer to first give the following documents to APRA:
. a copy of the application; and
. a copy of all the documents that will be filed in support
of the application.
452. The cost to the party seeking external administration is expected
to be low as the party would only be required to provide existing
court documents to APRA. Moreover, this requirement may prevent
duplicate external administration processes, and thus may reduce
the costs of administration for the insurer, its policyholders and
affected third parties.
Proposal 2 - Triggers for appointing a statutory manager
453. The statutory preconditions and processes for appointing a
statutory manager are an important part of the failure management
regime. The statutory preconditions determine when APRA can
appoint a statutory manager.
454. Currently, the Banking Act may not allow the appointment of a
statutory manager to the ADI unless the intervention both is in the
depositors' interests and would promote the stability of the
financial system.
455. In exceptional circumstances, such as in the early stages of sector-
wide distress, it may be that APRA can only be satisfied of one of
these two factors with the result that it may be unable to appoint
a statutory manager until further events have unfolded, even if
there is a need for immediate intervention. Such a situation is
likely to be detrimental to the depositors of the affected ADI and
could reduce confidence in the financial system at a critical time.
456. The proposal would clarify that APRA may appoint a statutory
manager to an ADI if it is in the interests of depositors or for
financial system stability (or both). The proposal is not expected
to increase compliance costs.
Proposal 3 - Right to be heard in proceedings to replace a judicial
manager
457. It is important to ensure that a person appointed as judicial
manager under the Insurance or Life Insurance Acts has appropriate
expertise and experience.
458. Currently, APRA has the right to be heard when the Federal Court of
Australia appoints a judicial manager or terminates judicial
management. However, when the Federal Court decides to replace one
judicial manager with another, it is not clear that APRA has the
right to be heard.
459. The proposal would clarify that APRA has the right to be heard in
proceedings related to the replacement of a judicial manager. This
would ensure that APRA's views are taken into account in all
circumstances where the Federal Court may issue an order relating
to the appointment or termination of judicial management.
460. APRA would be required to bear the costs of appearing before the
Court, and the impact on other parties and the Court is not
expected to be significant.
Proposal 4 - Powers relating to statutory and judicial managers
461. It is important that the statutory or judicial manager has the
necessary powers to gather the information required to understand
the affairs of a distressed ADI, general insurer or life insurer
and to implement measures to resolve distress at the institution.
462. Under the Banking Act, a statutory manager would require
information about the financial condition and operations of the ADI
in a timely manner so as to maximise the chances of rehabilitation
or crisis resolution. Such information is most likely to be within
the knowledge of key personnel within the ADI or with whom the ADI
deals. The proposal would enable the statutory manager to question
these individuals, to assist in carrying out its duties and
functions.
463. Under the Insurance and Life Insurance Acts, a judicial manager is
vested with the powers of the directors, but not the powers of the
Board. There are certain decisions that may only be taken by the
Board, which may be required to be made by a judicial manager for
the purposes of fulfilling its functions. The proposal would vest
the powers of the Board in the judicial manager, thereby aligning
its powers with the powers of a statutory manager under the Banking
Act.
464. The proposal would also enable APRA to require information or
assistance from the judicial manager about matters that would
enable APRA to perform its functions in relation to the FCS. This
would be equivalent to APRA's ability to require information or
assistance from a general insurer or a liquidator of a general
insurer, and would enhance APRA's capacity to fulfil its duties and
functions in relation to the administration of the FCS.
465. The proposal is not expected to have a material impact on the cost
of an administration. Improving the efficient operation of the
relevant powers could, however, result in small administrative cost
savings.
Business transfer
466. The ability to transfer business from a distressed financial
institution to another buyer is an important mechanism for managing
some types of distress at financial institutions.
467. Part 4 of the Financial Sector (Business Transfer and Group
Restructure) Act contains compulsory transfer of business powers
that may be used to transfer business from a distressed ADI. This
Part also provides for compulsory transfers of business from a
distressed life insurer to a healthy life insurer that is willing
to receive (purchase) the business. However, it does not currently
provide for compulsory transfer of business between general
insurers.
468. The proposal would enable APRA to require a compulsory transfer of
business from one general insurer to another under the Financial
Sector (Business Transfer and Group Restructure) Act. This would
be equivalent to APRA's ability to require a compulsory transfer of
business from one ADI to another, or from one life insurer to
another.
469. The proposal would also enable APRA to require a compulsory
transfer of aspects of a general or life insurer's business to
another entity that is not a general or life insurer. This would
be equivalent to APRA's present ability to require a transfer of
business from an ADI to an unregulated entity, such as an asset
management company.
470. Existing requirements in relation to compulsory transfers would
apply. For example, APRA is required to consider the interests of
the policyholders, and the Board of the receiving entity must have
consented to the transfer.
471. This measure would impose some costs on the affected general
insurer at the time of compulsory transfer as it would be required
to give APRA information so as to allow the transfer to occur.
However, APRA would bear the bulk of the costs of reaching
agreement with the receiving general insurer, preparing the
transfer documents and drawing up the transfer scheme.
472. The equivalent power for ADIs and life insurers has been rarely
used as APRA would generally only consider a compulsory transfer if
it is necessary to avoid or minimise the high costs of an insurance
or ADI failure for the economy and consumers.
Winding up
Proposal 1 - Priority provisions
473. Subsection 13A(3) of the Banking Act presently provides that if an
ADI becomes unable to meet its obligations or suspends payment, its
assets in Australia are to be available to meet its liabilities in
the following order:
. first, the ADI's liabilities (if any) to APRA because of
the rights APRA has against the ADI because of
section 16AI;
. second, the ADI's debts (if any) to APRA under
section 16AO;
. third, the ADI's deposit liabilities in Australia (other
than any such liabilities covered under
paragraph 13A(3)(a));
. fourth, the ADI's other liabilities (in the order of their
priority apart from subsection 13A(3)).
474. The proposal would amend subsection 13A(3) so that it provides for
liabilities to be paid in the following order:
. first, the ADI's liabilities (if any) to APRA because of
the rights APRA has against the ADI because of
section 16AI;
. second, the ADI's debts (if any) to APRA under
section 16AO;
. third, the ADI's liabilities (if any) in Australia in
relation to protected accounts that account-holders keep
with the ADI;
. fourth, the ADI's debts (if any) to the Reserve Bank;
. fifth, the ADI's liabilities (if any) under an industry
support contract that is certified under section 11CB;
. sixth, the ADI's other liabilities (if any) in the order
of their priority apart from subsection 13A(3).
475. The amended provision would reflect changes made by the FCS Act to
the depositor protection and compensation arrangements under the
Banking Act. It would also provide appropriate priority for debts
owed to the Reserve Bank and liabilities under industry support
contracts.
476. A related amendment would also be made to section 86 of the Reserve
Bank Act 1959. That section presently provides that
notwithstanding anything contained in any law relating to the wind-
up of companies, but subject to subsection 13A(3) of the Banking
Act, debts due to the Bank by an ADI shall, in the wind-up, have
priority over all other debts other than debts due to the
Commonwealth. The amendment would remove the words 'other than
debts due to the Commonwealth' from section 86 to reflect changes
in the law regarding the priority of the Commonwealth.
477. The amendments are not expected to impose costs on business.
Proposal 2 - Definition of foreign ADI
478. Section 11E of the Banking Act provides that Division 2 (Protection
of depositors) of the Act does not apply to a foreign ADI.
Section 11D defines foreign ADI for the purposes of section 11E as
not including the Bank of China.
479. The Bank of China was originally subject to the depositor
protection provisions of the Banking Act as it accepted retail
deposits. However, the Bank of China has now ceased to accept
retail deposits and should be treated like all other foreign ADIs
for the purposes of the depositor protection provisions of the Act.
That is, it should be exempted from those provisions and subject
to the remaining provisions of Division 1B (Provisions relating to
certain ADIs) of the Banking Act.
480. The proposal would repeal section 11D of the Banking Act, so that
section 11E (and the remaining provisions of Division 1B) of the
Act apply to the Bank of China, as they do to all other foreign
ADIs.
481. The proposal is not expected to impose compliance costs.
Proposal 3 - Liquidation of an insurer following judicial
management
482. The proposal would amend the Insurance Act to clarify that, where
the Court approves a recommendation by a judicial manager to wind
up a general insurer, the winding up would be conducted in
accordance with the Corporations Act.
483. The amendment is not expected to impose compliance costs.
Increased certainty, however, may reduce costs associated with the
winding up of a general insurer.
Proposal 4 - Recapitalisation
484. The proposal would amend the Banking, Insurance and Life Insurance
Acts to enable APRA to direct an ADI, general insurer or life
insurer to recapitalise in circumstances equivalent to those which
would presently allow APRA to appoint a statutory or judicial
manager to them.
485. APRA would be able to require the ADI, general insurer or life
insurer to increase the capital that it holds to a specified level
by issuing equity, or other capital instruments specified by
regulations.
486. APRA would be required to consult with the Australian Competition
and Consumer Commission (ACCC) before issuing a direction that
requires an entity to recapitalise. However, the recapitalisation
direction would be subject to an exemption from the competition
provisions of Part IV of the Trade Practices Act 1974.
487. It would be a criminal offence, punishable by a fine of 50 penalty
units, for an ADI or insurer to fail to comply with a direction or
for a responsible officer to fail to take reasonable steps to
ensure compliance. This is the same penalty which applies to
APRA's other directions powers. However, the offence provisions do
not apply if: the ADI or insurer made reasonable efforts to comply
with the recapitalisation direction; and the ADI's or insurer's
contravention is due to circumstances beyond its control.
488. The proposal is not expected to have material cost implications for
business or shareholders.
. Similar recapitalisation powers can presently be exercised
when an ADI or insurer is in statutory or judicial
management. The proposal would, however, provide the
flexibility of allowing the powers to be used without
placing the institution into statutory or judicial
management in appropriate circumstances, such as when
doing so could adversely affect the ability to
recapitalise.
. As is the case with the recapitalisation powers under
statutory or judicial management, APRA must obtain an
expert's report on the fair value of any issue prior to
the exercise of the recapitalisation power unless it is
satisfied that doing so would detrimentally affect the
interests of depositors or policyholders, or the stability
of the financial system in Australia.
489. The proposal is not expected to have a material impact on
competition. A recapitalisation direction would only be issued
where the benefits of doing so outweighed the costs. The
requirement to consult with the ACCC would ensure that competition
effects are properly considered as part of this process. In
addition, the present recapitalisation power under statutory or
judicial management includes an equivalent exemption from the
competition provisions of the Trade Practices Act. If the
exemption was not included in the present regime, APRA may have to
place an institution into statutory or judicial management to
obtain the certainty required to recapitalise an institution in
circumstances where doing so would not be beneficial to depositors,
policyholders, other stakeholders or the financial system.
Analysis of proposed amendments to APRA's and the ATO's investigation
powers
Proposal 1 - Investigations during wind-up
490. APRA currently has the power to investigate, or appoint an
inspector to investigate, the affairs of all APRA-regulated
institutions. The ATO has similar powers in relation to the
superannuation entities which it regulates. However, there is
uncertainty as to whether APRA and the ATO may commence or continue
an investigation once such an entity enters external
administration.
491. This uncertainty is undesirable. Investigation powers are
important for gathering information and evidence for the purposes
of administering and enforcing relevant laws.
492. The proposal would amend the Banking, Insurance, Life Insurance and
Superannuation Industry (Supervision) Acts to clarify that APRA
(and the ATO as relevant) may commence or continue an investigation
after a regulated entity enters external administration or, in the
case of a superannuation entity, its trustee enters external
administration or becomes insolvent under external administration.
493. The proposal would provide certainty to business, APRA and the ATO
as to the ability of APRA and the ATO to investigate during
liquidation. Only a small number of entities, in particular those
in liquidation, would be affected by the proposal. In addition,
the statutory requirements for commencing an investigation would
still have to be met for APRA or the ATO to commence any
investigation.
Proposal 2 - Disqualification
494. The proposal would amend the Banking Act, Insurance Act, Life
Insurance Act, Superannuation Industry (Supervision) Act and
Retirement Savings Accounts Act 1997 to provide that a person is
not entitled to fail to comply with a requirement under those
respective Acts:
. to answer a question or give information;
. to produce books, accounts or other documents; or
. to do any other act;
on the ground that the answer or information, production of the
book or other thing, or doing that other act, as the case may be,
might tend to make the person liable to a penalty by way of a
disqualification under relevant laws.
495. The proposal would also amend the Acts to provide that in any
proceeding under, or arising out of, the Acts, a person is not
entitled to refuse or fail to comply with a requirement:
. to answer a question or give information;
. to produce books, accounts or other documents; or
. to do any other act;
on the ground that the answer or information, production of the
book or other thing, or doing that other act, as the case may be,
might tend to make the person liable to a penalty by way of a
disqualification under the Acts.
496. The proposal responds to the High Court's decision in Rich v
Australian Securities and Investments Commission[7] which
overturned the view that disqualification proceedings were
protective and not penal in nature. The amendments would be
modelled on the amendments made to the Corporations Act in 2007.
Similar amendments have also been made to the Trade Practices Act.
Proposal 3 - Record keeping
497. The Insurance, Life Insurance, and Superannuation Industry
(Supervision) Acts currently contain provisions with respect to the
keeping of records by regulated entities. The Banking Act does not
contain such provisions. Entities regulated under the Banking Act
are, however, subject to the record keeping requirements in the
Corporations Act.
498. The proposal would harmonise the record keeping provisions for APRA-
regulated entities with respect to their accessibility by APRA. In
particular, the proposal would ensure records are kept in
Australia; that APRA is notified of their location and any change
to that location within a reasonable time; and that the records are
kept in English or in a form in which they are readily convertible
into English. Each of these requirements, with the exception of
the requirement to notify APRA of the location at which records are
kept, currently applies to some but not all APRA-regulated
entities.
499. The proposal would restrict the location at which APRA-regulated
entities must keep their records. This could impose costs on
entities which would vary depending upon their particular
circumstances. It may also restrict the ability of entities to
outsource some functions overseas. In addition, it would require
an entity to report the location of its records to APRA using a
form prescribed by APRA.
500. To ensure the proposal does not have unintended consequences on
business, APRA would be provided with a discretion to exempt
entities from the requirement to keep records in Australia, where
appropriate. This discretion would also be extended to those APRA-
regulated entities, namely general insurers and superannuation
entities, which are presently required to keep their records in
Australia.
501. Reporting costs are expected to be low.
Proposal 4 - Protection and sharing of information
502. Section 56 of the Australian Prudential Regulation Authority Act
provides for the protection and sharing of protected information
and documents by APRA.
503. The proposal would amend the definitions of 'protected information'
and 'protected document' in section 56 of the Australian Prudential
Regulation Authority Act so that that they include any information
or documents obtained or produced under a prudential law which
relate to the affairs of a financial sector entity within the
meaning of the FSCODA.
504. The proposal would ensure that information and documents collected
from such financial sector entities are subject to the protection
of section 56 and the information sharing regime it contains. At
present, some but not all financial sector entities are covered by
section 56.
505. The proposal is not expected to impose compliance costs on
business.
Analysis of proposed amendments relating to auditors and actuaries
Proposal 1 - Appointment and conduct of audits
506. Currently, there are various provisions relating to auditors and
actuaries under the Banking, Insurance, and Life Insurance Acts.
However, the provisions vary across the Acts.
507. The proposal would harmonise the obligations of auditors and
actuaries under the Acts, where appropriate. In particular, the
proposal would:
. require auditors and actuaries of life insurers to give
information to APRA on request that will assist it perform
its functions under the Life Insurance Act, the FSCODA, or
the First Home Saver Accounts Act 2008. APRA currently
has equivalent power in relation to the auditors and
actuaries (as relevant) of general insurers and ADIs. The
proposal would ensure that the auditors and actuaries of
life insurers are treated in a similar manner;
. provide that prudential standards made under the Banking,
Insurance and Life Insurance Acts may set out matters
relating to the appointment of auditors or the conduct of
audits. This clarifies the existing law;
. ensure that auditors of an ADI perform the functions and
duties of an auditor that are set out in the prudential
standards. A similar provision presently exists in the
Insurance and Life Insurance Acts;
. require auditors of ADIs and life insurers to comply with
prudential standards in carrying out their duties and
functions. Auditors of general insurers are currently
subject to an express duty to comply with APRA's
prudential standards. The proposal would ensure that
auditors of life insurers and ADIs are also subject to
this duty;
. require ADIs and authorised NOHCs of ADIs to facilitate an
auditor in the performance of their functions under the
Banking Act. Currently, under the Insurance and Life
Insurance Acts, an insurer must make arrangements
necessary to enable the auditor to perform the functions
specified in the Act (for the Insurance Act) or prudential
standards and reporting standards made under the FSCODA
(for the Life Insurance Act); and
. permit APRA, by written notice, to require an insurer to
appoint a person specified in the notice to be an auditor
for a purpose specified in the notice. This would allow
APRA to appoint auditors for particular purposes, for
example, to conduct a special purpose audit. For ADIs the
prudential standards deal with such audits.
508. The proposal would also ensure that a reporting standard made by
APRA under section 13 of the FSCODA may include matters relating to
the auditing of reporting documents in certain circumstances. The
proposal would also require that:
. the auditor perform the functions and duties of an auditor
that are set out in the reporting standards;
. the auditor comply with the reporting standards in
performing the functions and duties; and
. the financial sector entity make any arrangements that are
necessary to enable the auditor to perform the functions
and duties.
509. The amendments would assist in ensuring the accuracy of the data
that APRA collects from the financial industry in relevant
circumstances.
510. The proposal is expected to have low compliance costs.
. It would only require auditors and actuaries to provide
information that they already have. It would not require
auditors and actuaries to obtain or prepare additional
information.
. Auditors would already carry out the duties set out in the
prudential standards in the usual performance of their
duties.
. ADIs are presently required to appoint an auditor under
prudential standards.
. ADIs and insurers typically already facilitate the work of
an auditor or actuary in the performance of their relevant
functions, which reflects existing industry practice.
Proposal 2 - Offences relating to auditors
511. Currently there are no statutory prohibitions under the Banking
Act, Insurance Act, Life Insurance Act, Superannuation Industry
(Supervision) Act, Retirement Savings Accounts Act or the FSCODA
against misleading or otherwise interfering with an auditor in
carrying out their functions. Further, the Acts do not require an
auditor to advise APRA or the ATO (as relevant) where a person has
sought to interfere with the auditor carrying out their duties and
functions.
512. However, such provisions presently exist under the Corporations Act
for the purposes of that Act. Section 1309 of the Corporations Act
makes it an offence for an officer or employee of a corporation to
knowingly mislead an auditor of a corporation, or if the
corporation is controlled by another corporation an auditor of the
other corporation. Section 311 of the Corporations Act makes it an
offence for auditors to fail to report to ASIC within 28 days
attempts to unduly influence, coerce, manipulate or mislead them;
or, attempts to otherwise interfere with the proper conduct of the
audit.
513. These 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.
514. The proposal would rectify this inconsistency, by applying
equivalent provisions to those in the Corporations Act to the above
Acts. Auditors would therefore be subject to the same
requirements, as relevant, for both Corporations Act and prudential
purposes.
515. The proposal is expected to have low compliance costs. As noted
above, auditors are presently subject to equivalent provisions for
Corporations Act purposes. The proposal may require reporting to
APRA or the ATO where the auditor is performing functions other
than Corporations Act functions. However, additional reporting
costs are expected to be low.
Analysis of proposed amendments to the FCS
516. The proposal would amend the Banking Act to:
. enable APRA to determine the rate of interest that applies
to protected accounts for the purposes of determining
entitlements under the FCS, where APRA considers that the
rate of interest is not certain;
. clarify the operation of the FCS in relation to pooled
trust accounts; and
. clarify that APRA may require a liquidator to assist it in
paying account-holders their entitlements under the FCS.
517. The proposal would also amend the Insurance Act to:
. ensure APRA can manage claims made under the FCS
efficiently and in line with standard industry practice,
including by issuing forms, determining policyholder
eligibility, negotiating settlement for claims and
rationalising third party claims;
. clarify that the FCS applies to policies that were
transferred to the declared general insurer, as well as
policies that were issued by the declared general insurer;
. enable third party claims specified in section 601AG of
the Corporations Act to be made to the FCS, in addition to
claims specified in section 51 of the
Insurance Contracts Act 1984;
. ensure the efficient use of public revenue by enabling
APRA to seek reinsurance recoveries and contributions from
a second insurer where a policyholder has double
insurance, in line with industry practice; and
. allow the Minister to declare that the FCS applies to an
insolvent insurer under external administration or
judicial management. Presently, the FCS may only be
declared in relation to an insurer under judicial
management.
518. These proposals are expected to reduce costs for consumers as they
are designed to facilitate the administration of the FCS, ensure
timely payment under the FCS, and clarify matters related to the
FCS's operation.
519. The changes in relation to the Policyholder Compensation Facility
ensure that general insurers would deal with the FCS in the same
way as with another general insurer. This would allow the FCS to
be implemented in respect of a general insurer without any new
compliance programs, thereby reducing the upfront cost of complying
with the FCS for the insurance industry as a whole.
Analysis of proposed amendments to APRA's data collection powers
Proposal 1 - Reporting standards and entities providing financial
services or participating in a payment system
520. APRA is the central repository for the collection of financial
data. Currently, APRA can collect data under the FSCODA to assist
it in the prudential regulation or monitoring of bodies in the
financial sector and to facilitate the Reserve Bank's formulation
of monetary policy.
521. The global financial crisis has highlighted that the Government may
require specific data to inform decisions and monitor subsequent
outcomes that cannot presently be obtained by APRA under the
FSCODA. This includes data from non-prudentially regulated bodies
which operate in the financial sector.
522. The proposal would expand APRA's powers to collect data under the
FSCODA upon receiving a direction from the Minister or their
delegate. In particular, APRA would be empowered after receiving
such a direction to determine reporting standards for entities (not
presently covered by the Act) that provide financial services or
participate in a payment system.
523. The entities from which the data would be collected would be
subject to the same rights and obligations as presently apply to
requests under the FSCODA. Similarly, the process which APRA would
be required to follow in collecting the data would be the same.
524. The proposal would enhance the Government's ability to collect the
data it requires to make policy decisions and monitor the outcomes
of those decisions across the financial sector. The amendment
would also be in line with international developments relating to
the collection of data.
525. The proposal may, however, impose compliance costs on businesses as
it would permit APRA to collect additional data under the FSCODA,
including data from businesses that are not presently subject to
the Act, upon request from the Government.
526. In response to the potential costs, the proposal would be subject
to the thresholds discussed above, including that a request be
received from Government. This would enable the Government to
consider the use of the expanded powers on a case by case basis
having regard to all relevant circumstances, including likely
costs, and the need for the relevant data.
527. In addition, APRA would be required to make a reporting standard
under the FSCODA prior to exercising the expanded power. A
reporting standard is a disallowable instrument in relation to
which best practice rule-making procedures, as overseen by the
Office of Best Practice Regulation, apply. Depending on the
circumstances of the individual reporting standard, this would
require consideration of compliance costs and other impacts on the
economy at the time a relevant standard was proposed.
528. The proposal would also ensure that data can be collected under the
FSCODA for the purposes and functions of ASIC, the RBA or another
prescribed financial sector agency where it is cost effective and
appropriate to do so.
Proposal 2 - Collection of FCS data
529. The proposal would amend the FSCODA to ensure that APRA can collect
information it requires to administer the FCS in both the banking
and insurance contexts.
530. The amendment may reduce compliance costs by clarifying the
operation of the Act in this respect. A reporting standard made by
APRA for the purposes of collecting such data would be a
legislative instrument in relation to which best practice
regulation requirements would apply.
Proposal 3 - Reporting standards containing confidential
information
531. While one-off information collection can be effected as legislative
instruments under the FSCODA, it may create problems insofar as it
may force APRA to reveal the sensitive information it has sought to
collect or which has led it to make the collection.
532. Such an outcome may be highly undesirable, especially when the
affected institution involved is itself a regulated entity or the
disclosure of the information may threaten financial system
stability.
533. As a result, the proposal would permit APRA to make a reporting
standard pertaining to non-ongoing data collections under section
13 of the FSCODA (without the requirement for a legislative
instrument) where:
. APRA considers, on reasonable grounds, that the reporting
standard includes confidential information the publication
of which is likely to have a detrimental effect on
financial system stability or on the stability of one or
more financial institutions; and
. the information to be contained in the reporting documents
is required urgently by APRA for any of the following
purposes: to determine the financial or prudential
condition of financial sector entities; to determine the
nature or level of exposure that financial sector entities
have to risks, including risks relating to particular
transactions, entities, business sectors, asset classes or
events; to assess potential threats to financial system
stability; to assist APRA, the Minister or the Reserve
Bank to respond to any such threats; or to determine what,
if any, action should be taken by, or in relation to, one
or more financial sector entities.
534. APRA will be required to report the use of the power to the
Minister as soon as possible and to report its use in its annual
report.
535. It would be a criminal offence (punishable by imprisonment for two
years) for the entity to which one of these special reporting
standards is issued to disclose to any person: that the entity has
been given a copy of the reporting standard; or any confidential
information that is included in the reporting standards. However,
the criminal offence would not apply in circumstances where, for
example, the disclosure is authorised by law, is made to APRA or an
employee or officer of the entity for a relevant purpose, or is to
a lawyer for the entity.
Proposal 4 - Urgent reporting standards
536. Subsection 13(6) of the FSCODA presently exempts APRA from its
obligation to consult with relevant financial sector entities when
preparing proposed reporting standards, in circumstances where it
is satisfied that the delay that would be involved in holding the
consultations would prejudice the interests of depositors,
policyholders or members of the financial sector entity or entities
concerned.
537. The proposal would amend subsection 13(6) so that APRA also does
not have to consult where it is satisfied that the delay would have
a detrimental effect on financial system stability.
538. It would not be appropriate for APRA to consult in such
circumstances.
539. The costs to business of not consulting are expected to be low and
outweighed by the public benefit of urgent collection where
financial system stability is at risk.
Proposal 5 - Annual financial statements and annual returns
540. Currently, section 124 of the Life Insurance Act provides that an
owner of a policy issued by a life insurer is entitled, upon
request, to be provided by the insurer with a copy of the latest
annual financial statements and returns given by the insurer to
APRA under the FSCODA.
541. Life insurers are required to give a number of financial documents
to APRA under the FSCODA.
542. The proposal would enable APRA to specify, in reporting standards
made under the FSCODA, which financial statements and returns are
required to be provided, upon request, to a policy owner under
section 124 of the Life Insurance Act.
543. The proposal is not expected to impose compliance costs. However,
benefits to life insurers and policy owners are expected to be
derived from clarifying the requirements of section 124.
Analysis of proposed amendments to the levy regime
Proposal 1 - Regulated levy component for new starters
544. The Superannuation Supervisory Levy Imposition Act 1998 (the Levy
Act) imposes a levy on superannuation entities. Section 5 of the
Levy Act defines a 'superannuation entity' to mean a superannuation
entity within the meaning of the Superannuation Industry
(Supervision) Act, other than a self-managed superannuation fund.
545. Under section 7 of the Levy Act, the levy comprises two components:
a restricted levy component and an unrestricted levy component.
Each component requires the application of a levy percentage to the
superannuation entity's asset value.
546. Subparagraph 7(1A)(a)(ii) of the Levy Act provides that if the
superannuation entity was an unregulated entity on 30 June of the
previous financial year then, for the purpose of calculating the
restricted levy component, the restricted levy percentage is
applied to the entity's asset value on 30 June of the previous
financial year.
547. This method of calculating the regulated 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.
548. The proposal would rectify this situation by amending the Levy Act
to allow the Minister to specify that the asset value of a new
starter be calculated as at the day that the new starter becomes a
superannuation entity, when calculating the restricted levy
component.
549. The proposal would 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.
Proposal 2 - Valuation basis for determining levies
550. From inception, gross assets have been used as the primary measure
for determining levies. This has generally proved to be a
reasonable measure, but from time to time it has generated
particular anomalies. For example, using assets as a valuation
basis may not be appropriate for a financial institution which has
a large volume of transactions but holds minimum assets and as a
result is subject to the minimum levy, or where a participant
otherwise does not conform to the general characteristics of other
entities within the industry.
551. The proposal would address this by amending the levy imposition
Acts to provide flexibility so that a valuation basis other than
assets can be used by the Minister in determining levies on a case-
by-case basis. This would be effected by changing the applicable
reference from 'asset value' to 'levy base'.
552. As a consequence of this amendment, the proposal would also repeal
subsection 7(4A) of the Life Insurance Supervisory Levy Imposition
Act 1998 and subsection 7(4A) of the Authorised Deposit-taking
Institutions Supervisory Levy Imposition Act 1998. These provide
that the asset value of a life insurance company or ADI must
exclude an amount equal to the total balances of all first home
saver accounts (within the meaning of the First Home Saver Accounts
Act 2008).
553. The provisions would not be desirable after references to 'asset
value' are replaced with references to 'levy base'. After the
change to 'levy base', the relevant adjustments could be done more
properly in the ministerial annual determinations.
554. The proposal would provide flexibility in determining levies, where
it is determined appropriate and equitable to do so. Beyond this,
it is not expected to impose costs.
Proposal 3 - Subparagraph 9(2)(a)(i) of the Financial Institutions
Supervisory Levies Collection Act
555. Currently subparagraph 9(2)(a)(i) of the Financial Institutions
Supervisory Levies Collection Act 1998 establishes that the levy
payable for a financial year by a trustee of a superannuation
entity is due and payable on a business day that is specified in a
notice given by APRA to the Treasurer, if the entity is a
superannuation entity on 1 July of the financial year and became a
superannuation entity before that day.
556. The proposal would amend subparagraph 9(2)(a)(i) of the Act to
refer to 'a notice given by APRA to the trustee' instead of 'a
notice given by APRA to the Treasurer'.
557. The proposal would correct an error in subparagraph 9(2)(a)(i) of
the Act. It would not have a material impact on the operation of
the Act or on business.
Conclusions and recommendations
558. The proposed amendments would improve APRA's ability to regulate
bodies in the financial sector in accordance with prudential laws
and enhance its ability to administer the FCS. The proposed
amendments would also improve methodologies governing the
determination of financial sector levies.
559. The amendments may impose compliance costs on business. However,
these costs are overall expected to be low and outweighed by the
benefits of the amendments. In addition, the amendments that may
have a material impact on business would only be used in
appropriate and exceptional circumstances.
Consultation
560. Under the terms of the intergovernmental Corporations Agreement
2002 the Commonwealth is required to consult with the Ministerial
Council for Corporations on those amendments which would affect the
scope or operation of the Corporations Act, prior to introducing
them into Parliament. The Agreement also requires public
consultation in certain circumstances.
561. In accordance with the requirements of the Agreement, an exposure
draft of the Bill was released for public consultation between
19 January 2010 and 16 March 2010.
562. Nine submissions were received in response to consultation on the
exposure draft of the Bill. There were eight public submissions
and one confidential submission.
563. The banking and insurance industries raised no major concerns with
the proposals contained in the exposure draft of the Bill.
564. CPA Australia, the Institute of Charted Accountants in Australia
and the National Institute of Accountants (the Joint Accounting
Bodies), supported the proposals in the exposure draft relating to
auditors.
565. The superannuation industry raised concerns about the proposed
offences relating to giving false or misleading information to
auditors and elements of the proposed harmonised record keeping
regime.
566. The proposed offences would be consistent with the equivalent
offences applicable in the Corporations Act and other contexts and
are drafted to enable the Court to take into account all relevant
circumstances in determining whether they have been breached,
including the circumstances in which the information is
communicated to the auditor. In addition, the proposed offence
provisions and penalties would apply to all superannuation
entities, consistent with the present regime for regulating
superannuation entities.
567. The record keeping regime would be consistent with that applicable
to other industries regulated by APRA. In response to concerns
that records may be able to be kept overseas, this would only be
approved in appropriate circumstances. As to the requirement to
notify APRA of the location of records, the form which APRA would
develop for this purpose would specify requirements.
568. APRA, ASIC, the RBA and the ATO were also consulted regarding the
proposals.
Implementation and review
Changes to the prudential regulation framework laws
569. The proposals will need to be implemented by passing amending
legislation through the Commonwealth Parliament.
Enforcement
570. APRA would have responsibility for enforcing the amended Acts, with
the exception of the Reserve Bank Act and certain provisions of the
Superannuation Industry (Supervision) Act that are enforced by the
Reserve Bank and ATO respectively.
571. There would be various penalties ranging from fines to imprisonment
for breaching the amended laws.
Review
572. The effectiveness of the proposed amendments would be informally
reviewed by Treasury after a sufficient period of time had elapsed.
Do not remove section break
Index
Schedule 1: Amendment of the Banking Act
|Bill reference |Paragraph |
| |number |
|Item 1, subsection 5(1) of the Banking Act |6.14 |
|1959 | |
|Item 2, subsections 5(1) of the Banking Act |5.11 |
|1959 | |
|Item 3, subsection 5(1) of the Banking Act |3.28 |
|1959 | |
|Item 4, section 5 of the Banking Act 1959 |4.75 |
|Item 5, subsection 9(2A) of the Banking |1.18 |
|Act 1959 | |
|Item 6, subsection 9(3A) of the Banking Act |9.4 |
|1959 | |
|Item 7, subsections 9A(5A) of the Banking |1.21 |
|Act 1959 | |
|Item 8, subsection 11AA(1A) of the Banking |1.18 |
|Act 1959 | |
|Item 9, subsection 11AB(5A) of the Banking |1.21 |
|Act 1959 | |
|Item 10, subsection 11AF(1AB) of the Banking|5.11 |
|Act 1959 | |
|Item 11, subsection 11AF(7BA) of the Banking|1.40 |
|Act 1959 | |
|Item 12, subsection 11CA(1) of the Banking |2.17 |
|Act 1959 | |
|Item 13, paragraph 11CA(1)(h) of the Banking|2.9 |
|Act 1959 | |
|Item 14, subsection 11CA(1AA) of the Banking|2.17 |
|Act 1959 | |
|Item 14, subsection 11CA(1AA) of the |2.15 |
|Banking Act 1959 | |
|Item 14, subsection 11CA(1AA) of the Banking|2.13 |
|Act 1959 | |
|Item 15, paragraph 11CA(1A)(b) of the |2.18 |
|Banking Act 1959 | |
|Item 16, subsection 11CA(1B) of the Banking |2.10 |
|Act 1959 | |
|Item 16, subsection 11CA(1C) of the Banking |2.12 |
|Act 1959 | |
|Item 17, subsection 11CA(2B) of the Banking |2.22, 2.24 |
|Act 1959 | |
|Item 18, section 11D of the Banking Act 1959|4.53 |
|Item 19, section 13 of the Banking Act 1959 |3.13 |
|Item 20, subparagraph 13A(1)(b)(iii) of the |4.18 |
|Banking Act 1959 | |
|Item 21, subparagraph 13A(1)(b)(iv) of the |4.18 |
|Banking Act 1959 | |
|Item 22, subsection 13A(3) of the Banking |4.49 |
|Act 1959 | |
|Item 23, subsection 13A(4)(a) of the Banking|1.38 |
|Act 1959 | |
|Item 24, section 13A of the Banking Act 1959|3.13 |
|Item 25 subdivision AA, division 2, part 2 |4.75 |
|of the Banking Act 1959 | |
|Item 25, subsections 13J(4) and 13K(4) of |4.66 |
|the Banking Act 1959 | |
|Item 25, subsection 13E(4) of the Banking |4.61 |
|Act 1959 | |
|Item 26, section 13R of the Banking Act 1959|4.75 |
|Item 27, section 14AD of the Banking Act |4.35 |
|1959 | |
|Item 28, subsection 14F(2) of the Banking |9.9 |
|Act 1959 | |
|Item 29, section 16AF(1B) of the Banking Act|6.11 |
|1959 | |
|Item 29, section 16AF(1A) of the Banking Act|6.9 |
|1959 | |
|Item 30, section 16AF of the Banking Act |6.14 |
|1959 | |
|Item 31, section 16AJ of the Banking Act |6.22 |
|1959 | |
|Item 32, paragraph 16AJ(c) of the Banking |6.22 |
|Act 1959 | |
|Item 33, subsection 16AJ(6) of the Banking |6.18 |
|Act 1959 | |
|Item 33, subsection 16AJ(5) of the Banking |6.19 |
|Act 1959 | |
|Item 33, subsection 16AJ(7) of the Banking |6.20 |
|Act 1959 | |
|Item 33, subsection 16AJ(8) of the Banking |6.21 |
|Act 1959 | |
|Item 33, subsections 16AJ(2) to 16AJ(9) of |6.15 |
|the Banking Act 1959 | |
|Item 33, subsection 16AJ(3) of the Banking |6.17 |
|Act 1959 | |
|Item 33, subsection 16AJ(4) of the Banking |6.18 |
|Act 1959 | |
|Item 33, subsection 16AJ(9) of the Banking |6.22 |
|Act 1959 | |
|Item 34, paragraphs 16AK(2)(d) and |9.11 |
|16AK(2)(e) of the Banking Act 1959 | |
|Item 35, subsection 16AO(1) of the Banking |9.11 |
|Act 1959 | |
|Item 36, subsections 16AV(1) and 16AV(2) of |5.11 |
|the Banking Act 1959 | |
|Item 36, subsections 16AV(1) and 16AV(4) of |5.11 |
|the Banking Act 1959 | |
|Item 36, subsections 16AV(1) and 16AV(3) of |5.11 |
|the Banking Act 1959 | |
|Item 37, paragraph 16BA(11)(c) of the |5.15 |
|Banking Act 1959 | |
|Item 38, subsection 16E(3) of the Banking |5.31 |
|Act 1959 | |
|Item 38, section 16D of the Banking Act 1959|5.26 |
|Item 38, subsection 16E(1) of the Banking |5.27 |
|Act 1959 | |
|Item 38, subsection 16E(2) of the Banking |5.29 |
|Act | |
|Item 39, subsection 17(1) of the Banking Act|5.15 |
|1959 | |
|Item 40, subsection 22A(3) of the Banking |3.16 |
|Act 1959 | |
|Item 40, subsections 22A(1) and 22A(2) of |3.17 |
|the Banking Act 1959 | |
|Item 40, subsections 22A(4) and 22A(5) of |3.20 |
|the Banking Act 1959 | |
|Item 40, subsection 22A(6) of the Banking |3.21 |
|Act 1959 | |
|Item 41, subparagraphs 52A(2)(a)(ii), |5.15 |
|52E(1)(b)(i) and 52E(1)(c)(i) of the Banking| |
|Act 1959 | |
|Item 42, subsection 60(6) of the Banking Act|3.27 |
|1959 | |
|Item 42, subsections 60(1) and 60(3) to |3.25 |
|60(5) of the Banking Act 1959 | |
|Item 42, subsections 60(2) and 60(7) of the |3.26 |
|Banking Act 1959 | |
|Item 43, section 61 of the Banking Act 1959 |3.13 |
|Item 44, section 62 of the Banking Act 1959 |3.13 |
|Item 45, paragraphs 62A(1A)(a) and |5.15 |
|62A(1D)(a) of the Banking Act 1959 | |
|Item 46, Application-priorities for |4.51 |
|application of the assets of an ADI in | |
|Australia | |
Schedule 2: Amendment of the Insurance Act 1973
|Bill reference |Paragraph |
| |number |
|Item 1, subsection 3(1) of the Insurance Act|6.34 |
|1973 | |
|Item 1, subsection 3(1) of the Insurance Act|3.28 |
|1973 | |
|Item 2, subsection 3(1) of the Insurance Act|9.13 |
|1973 | |
|Item 3, subsection of the Insurance Act 1973|9.13 |
|Item 4, subsection 3(1) of the Insurance Act|5.14 |
|1973 | |
|Item 5, section 3 of the Insurance Act 1973 |4.75 |
|Item 6, subsection 3(1) of the Insurance |4.57 |
|Act 1973 | |
|Item 7, subsection 3(5) of the Insurance Act|9.13 |
|1973 | |
|Item 8, subsection 3(6A) of the Insurance |9.13 |
|Act 1973 | |
|Item 9, subsection 12(1B) of the Insurance |1.18 |
|Act 1973 | |
|Item 10, subsection 12(3) of the Insurance |9.4 |
|Act 1973 | |
|Item 11, section 16A of the Insurance Act |1.21 |
|1973 | |
|Item 12, subsection 18(2A) of the Insurance |1.18 |
|Act 1973 | |
|Item 13, section 22A of the Insurance Act |1.21 |
|1973 | |
|Item 14, subsections 26A(1) and 26A(2) of |3.17 |
|the Insurance Act 1973 | |
|Item 14, subsection 26A(3) of the Insurance |3.16 |
|Act 1973 | |
|Item 14, subsections 26A(4) and 26A(5) of |3.20 |
|the Insurance Act 1973 | |
|Item 14, subsection 26A(6) of the Insurance |3.21 |
|Act 1973 | |
|Item 15, subsection 27(7) of the Insurance |2.21 |
|Act 1973 | |
|Item 16, paragraphs 27(7)(a) and (b) of the |2.21 |
|Insurance Act 1973 | |
|Item 17, paragraph 28(a) of the Insurance |1.29 |
|Act 1973 | |
|Item 18, subsection 32(3) of the Insurance |1.25 |
|Act 1973 | |
|Item 18, paragraph 32(3)(b) of the Insurance|5.11 |
|Act 1973 | |
|Item 19, paragraph 38AA(3)(a) of the |5.14 |
|Insurance Act 1973 | |
|Item 20, subsection 38AA(6) of the Insurance|9.17 |
|Act 1973 | |
|Item 21, paragraph 38AA(7)(a) of the |5.14 |
|Insurance Act 1973 | |
|Item 22, subparagraphs 38A(2)(a)(ii), |5.14 |
|38E(1)(b)(i) and 38E(1)(c)(i) of the | |
|Insurance Act 1973 | |
|Item 23, division 1 of Part IV (heading) of |5.14 |
|the Insurance Act 1973 | |
|Item 24, subsections 39(2) of the Insurance |5.14 |
|Act 1973 | |
|Item 25, subsections 39(2) of the Insurance |5.14 |
|Act 1973 | |
|Item 26, subsections 39(3) of the Insurance |5.14 |
|Act 1973 | |
|Item 27, subsections 39(4) of the Insurance |5.14 |
|Act 1973 | |
|Item 28, subsections 40(2) of the Insurance|5.14 |
|Act 1973 | |
|Item 28, subsection 40(1) of the Insurance |5.14 |
|Act 1973 | |
|Item 29, subsection 43(2) of the Insurance |5.14 |
|Act 1973 | |
|Item 30, subsection 46(1) of the Insurance |5.14 |
|Act 1973 | |
|Item 31, subsection 46(2) of the Insurance |5.14 |
|Act 1973 | |
|Item 32, paragraphs 49(1)(a) and 49A(1)(a) |5.14 |
|of the Insurance Act 1973 | |
|Item 33, paragraphs 49A(11)(c) of the |5.14 |
|Insurance Act 1973 | |
|Item 34, paragraph 49B(a) of the Insurance |5.14 |
|Act 1973 | |
|Item 35, section 49D of the Insurance Act |5.26 |
|1973 | |
|Item 35, subsection 49DA(1) of the Insurance|5.27 |
|Act 1973 | |
|Item 35, subsection 49DA(2) of the Insurance|5.29 |
|Act 1973 | |
|Item 35, subsection 49DA(3) of the Insurance|5.31 |
|Act 1973 | |
|Item 36, subsection 49J(1) of the Insurance |5.14 |
|Act 1973 | |
|Item 37, subsection 49J(2) of the Insurance |5.14 |
|Act 1973 | |
|Item 38, subsection 49J(3) of the Insurance |5.14 |
|Act 1973 | |
|Item 39, subsection 49J(4) of the Insurance |5.14 |
|Act 1973 | |
|Item 40, paragraphs 49Q(1)(a) and 49Q(1)(b) |3.25 |
|of the Insurance Act 1973 | |
|Item 41, subsections 49Q(1B) to 49Q(1D) of |3.25 |
|the Insurance Act 1973 | |
|Item 41, subsections 49Q(1A) of the |3.26 |
|Insurance Act 1973 | |
|Item 42, subsection 49Q(2) of the Insurance |3.27 |
|Act 1973 | |
|Item 43, subsection 49Q(3) of the Insurance |3.26 |
|Act 1973 | |
|Item 44, paragraph 49R(1)(a) of the |5.14 |
|Insurance Act 1973 | |
|Item 45, paragraph 49R(3)(a) of the |5.14 |
|Insurance Act 1973 | |
|Item 46, section 52 of the Insurance Act |3.13 |
|1973 | |
|Item 47 section 60 of the Insurance Act 1973|4.75 |
|Item 48, subparagraph 62M(a)(ii) of the |1.30 |
|Insurance Act 1973 | |
|Item 49, section 62M of the Insurance Act |4.75 |
|1973 | |
|Item 50, subsection 62R(3) of the Insurance |4.24 |
|Act 1973 | |
|Item 51, subsection 62T(1) of the Insurance |4.38 |
|Act 1973 | |
|Item 52, section 62ZD of the Insurance Act |4.35 |
|1973 | |
|Item 53, paragraph 62ZI(2)(aa) of the |4.48 |
|Insurance Act 1973 | |
|Item 54, subsection 62ZQ(1) of the Insurance|4.21 |
|Act 1973 | |
|Item 55, subsection 62ZQ(3) of the Insurance|4.21 |
|Act 1973 | |
|Item 56, subsection 62ZQ(4) of the Insurance|4.21 |
|Act 1973 | |
|Item 57, subsection 62ZV(2) of the Insurance|4.57 |
|Act 1973 | |
|Item 58, paragraph 62ZW(a) of the Insurance |6.26 |
|Act 1973 | |
|Item 59, subsection 62ZZA(1) of the |6.37 |
|Insurance Act 1973 | |
|Item 60, section 62ZZB of the Insurance Act |6.39 |
|1973 | |
|Item 61, paragraph 62ZZC(1)(a) of the |6.23 |
|Insurance Act 1973 | |
|Item 62, subparagraph 62ZZC(1)(b)(ii) of the|1.30 |
|Insurance Act 1973 | |
|Item 63, paragraph 62ZZE(1)(b) of the |1.30 |
|Insurance Act 1973 | |
|Item 64, paragraph 62ZZF(1)(a) of the |6.28 |
|Insurance Act 1973 | |
|Item 65, paragraph 62ZZF(1)(b) of the |6.35 |
|Insurance Act 1973 | |
|Item 66, paragraphs 62ZZG(1)(a) and |6.36 |
|62ZZG(1)(aa) of the Insurance Act 1973 | |
|Item 66, paragraph 62ZZG(1)(aa) of the |6.37 |
|Insurance Act 1973 | |
|Item 67, subsection 62ZZH(1) of the |6.30 |
|Insurance Act 1973 | |
|Item 68, subsection 62ZZI(1) of the |6.30 |
|Insurance Act 1973 | |
|Item 69, subsection 62ZZI(1) of the |6.40 |
|Insurance Act 1973 | |
|Item 70, subsections 62ZZJ(1) and 62ZZJ(3) |6.38 |
|of the Insurance Act 1973 | |
|Item 71, subsections 62ZZJ(3) of the |6.31 |
|Insurance Act 1973 | |
|Item 72, subsection 62ZZJ(3) of the |6.30 |
|Insurance Act 1973 | |
|Item 73, paragraph 62ZZJ(4)(a) of the |6.31 |
|Insurance Act 1973 | |
|Item 74, subsection 62ZZJ(4) of the |6.40 |
|Insurance Act 1973 | |
|Item 75, subsections 62ZZM(1) of the |6.42 |
|Insurance Act 1973 | |
|Item 76, subsection 62ZZM(2) of the |6.42 |
|Insurance Act 1973 | |
|Item 77, section 62ZZO of the Insurance Act |6.45 |
|1973 | |
|Item 78, paragraph 62ZZO(c) of the Insurance|6.45 |
|Act 1973 | |
|Item 79, paragraph 62ZZP(1)(b) of the |6.46 |
|Insurance Act 1973 | |
|Item 80, subsection 62ZZP(1) of the |6.46 |
|Insurance Act 1973 | |
|Item 81, subsections 62ZZQ(9) and 62ZZQ(10) |6.48 |
|of the Insurance Act 1973 | |
|Item 81, subsection 62ZZQ(8) of the |6.48 |
|Insurance Act 1973 | |
|Item 82, subsection 62ZZU(1) of the |9.11 |
|Insurance Act 1973 | |
|Item 83, division 1 of part 9 of the |4.75 |
|Insurance Act 1973 | |
|Item 83, subsection 103B(3) of the Insurance|4.61 |
|Act 1973 | |
|Item 83, subsections 103F(4) and 103G(4) of |4.66 |
|the Insurance Act 1973 | |
|Item 84, section 103N of the Insurance Act |4.75 |
|1973 | |
|Item 85, subsections 104(1) of the Insurance|2.17 |
|Act 1973 | |
|Item 86, paragraph 104(1)(g) of the |2.9 |
|Insurance Act 1973 | |
|Item 87, subsection 104(1A) of the Insurance|2.17 |
|Act 1973 | |
|Item 87, subsection 104(1A) of the Insurance|2.15 |
|Act 1973 | |
|Item 87, subsection 104(1A) of the Insurance|2.13 |
|Act 1973 | |
|Item 88, paragraph 104(2)(b) of the |2.18 |
|Insurance Act 1973 | |
|Item 89, subsection 116A(1) (note 2) of the |1.31 |
|Insurance Act 1973 | |
|Item 90, subsection 116A(1) (note 3) of the |1.31 |
|Insurance Act 1973 | |
|Item 91, subsection 116A(3) of the Insurance|1.32 |
|Act 1973 | |
|Item 92, saving provisions-appointment as an|5.16 |
|auditor of a general insurer | |
|Item 93, Application-powers and functions of|4.38 |
|a judicial manager | |
Schedule 3: Amendments of the Life Insurance Act 1995
|Bill reference |Paragraph |
| |number |
|Item 1, paragraph 3(2)(d) of the Life |9.24 |
|Insurance Act 1995 | |
|Item 2, subsections 20(2A) of the Life |1.18 |
|Insurance Act 1995 | |
|Item 3, section 28 of the Life Insurance Act|1.21 |
|1995 | |
|Item 4, subsection 28A(2A) of the Life |1.18 |
|Insurance Act 1995 | |
|Item 5, section 28E of the Life Insurance |1.21 |
|Act 1995 | |
|Item 6, subsection 38(4) of the Life |9.19 |
|Insurance Act 1995 | |
|Item 7, section 44 of the Life Insurance Act|9.21 |
|1995 | |
|Item 8, subsection 74(2) of the Life |5.32 |
|Insurance Act 1995 | |
|Item 9, subsections 76A(1) and 76A(3) to |3.25 |
|76A(5) of the Life Insurance Act 1995 | |
|Item 9, subsection 76A(2) of the Life |3.26 |
|Insurance Act 1995 | |
|Item 9, subsection 76A(6) of the Life |3.27 |
|Insurance Act 1995 | |
|Items 10 to 26, subsection 80(3), |5.14 |
|section 83, subsection 83A(2), section 84, | |
|paragraph 84(a), subsection 85(1), | |
|paragraphs 85(1)(a), 85(2)(a) and 85(2)(b), | |
|subsection 85(2), section 86, | |
|subsections 87(1) of the Life Insurance Act | |
|1995 | |
|Item 11, subsections 83(2) of the Life |5.11 |
|Insurance Act 1995 | |
|Item 11, subsection 83A(1) of the Life |5.12 |
|Insurance Act 1995 | |
|Item 11, section 83B of the Life Insurance |5.11 |
|Act 1995 | |
|Item 27, subsection 88B(1) of the Life |5.32 |
|Insurance Act 1995 | |
|Item 27, subsections 88B(2) to 88B(5) of the|5.33 |
|Life Insurance Act 1995 | |
|Item 28, subsection 89(1) of the Life |5.14 |
|Insurance Act 1995 | |
|Item 29, section 90 of the Life Insurance |5.26 |
|Act 1995 | |
|Item 29, subsection 91(1) of the Life |5.27 |
|Insurance Act 1995 | |
|Item 29, subsection 91(2) of the Life |5.29 |
|Insurance Act 1995 | |
|Item 29, subsection 91(3) of the Life |5.31 |
|Insurance Act 1995 | |
|Item 30, subsection 98B(1) of the Life |5.32 |
|Insurance Act 1995 | |
|Item 30, subsections 98B(2) to 98B(5) of the|5.33 |
|Life Insurance Act 1995 | |
|Item 31, subsections 124(1) of the Life |7.47 |
|Insurance Act 1995 | |
|Item 32 to 36, paragraphs 125(1)(b) and |5.14 |
|125A(1)(a), subsection 126(1), | |
|paragraphs 132A(3)(a) of the Life Insurance | |
|Act 1995 | |
|Item 37, subsections 132A(3) (note 1) of the|5.35 |
|Life Insurance Act 1995 | |
|Item 38, paragraph 132A(7)(a) of the Life |5.14 |
|Insurance Act 1995 | |
|Item 39, subsections 132A(7) (note 1) of the|5.35 |
|Life Insurance Act 1995 | |
|Item 40, section 137 of the Life Insurance |3.13 |
|Act 1995 | |
|Item 41, subparagraphs 156A(2)(a)(ii), |5.14 |
|156E(1)(b)(i) and 156E(1)(c)(i) of the Life | |
|Insurance Act 1995 | |
|Item 42, subsection 163(3) of the Life |4.24 |
|Insurance Act 1995 | |
|Item 43, subsection 165(1) of the Life |4.38 |
|Insurance Act 1995 | |
|Item 44, paragraph 175(2)(aa) of the Life |4.48 |
|Insurance Act 1995 | |
|Items 45 to 47, subsections 179C(1) to |4.21 |
|179C(4) of the Life Insurance Act 1995 | |
|Item 48, paragraphs 209(5)(a) and 209(5)(b) |9.24 |
|of the Life Insurance Act 1995 | |
|Item 49, subsection 230A(1A) of the Life |5.11 |
|Insurance Act 1995 | |
|Item 50, subsection 230A(12C) of the Life |1.40 |
|Insurance Act 1995 | |
|Item 51, subsection 230AB(3) of the Life |4.61 |
|Insurance Act 1995 | |
|Item 51, subsections 230AF(4) and 230AG(4) |4.66 |
|of the Life Insurance Act 1995 | |
|Item 51, subdivision A, division 2, part |4.75 |
|10A, of the Life Insurance Act 1995 | |
|Item 52, section 230AM of the Life Insurance|4.75 |
|Act 1995 | |
|Item 53, subsections 230B(1) of the Life |2.17 |
|Insurance Act 1995 | |
|Item 54, paragraph 230B(1)(g) of the Life |2.9 |
|Insurance Act 1995 | |
|Item 55, subsection 230B(1AA) of the Life |2.15 |
|Insurance Act 1995 | |
|Item 55, subsection 230B(1AA) of the Life |2.13 |
|Insurance Act 1995 | |
|Item 55, subsection 230B(1AA) of the Life |2.17 |
|Insurance Act 1995 | |
|Item 56, paragraph 203B(1A)(b) of the Life |2.18 |
|Insurance Act 1995 | |
|Item 57, subsection 263(1) of the Life |3.26 |
|Insurance Act 1995 | |
|Item 58, subsections 245C(1) and 245C(2) of |3.17 |
|the Life Insurance Act 1995 | |
|Item 58, subsection 245C(3) of the Life |3.16 |
|Insurance Act 1995 | |
|Item 58, subsections 245C(4) and 245C(5) of |3.20 |
|the Life Insurance Act | |
|Item 58, subsection 245C(6) of the Life |3.21 |
|Insurance Act 1995 | |
|Item 59, Dictionary in the schedule to the |3.28 |
|Life Insurance Act 1995 | |
|Item 60, dictionary in the schedule of the |5.14 |
|Life Insurance Act 1995 | |
|Item 61, dictionary in the Schedule of the |4.75 |
|Life Insurance Act 1995 | |
|Item 62, saving provisions-appointment as an|5.16 |
|auditor of a life company | |
|Item 63, subsection 165(1) of the Life |4.38 |
|Insurance Act 1995 | |
Schedule 4: Amendment of other Acts
|Bill reference |Paragraph |
| |number |
|Item 1, subsection 56(1) of the Australian |3.30 |
|Prudential Regulation Authority Act 1998 | |
|Item 2, paragraph 59(2)(b) of the Australian|7.36 |
|Prudential Regulation Authority Act 1998 | |
|Item 3, subparagraph 9(2)(a)(i) of the |8.15 |
|Financial Institutions Supervisory Levies | |
|Collection Act 1998 | |
|Item 4, subparagraph 25(1C)(a)(iii) of the |4.48 |
|Financial Sector (Business Transfer and | |
|Group Restructure) Act 1999 | |
|Item 5, subsections 25(1D) to 25(1F) of the |4.48 |
|Financial Sector (Business Transfer and | |
|Group Restructure) Act 1999 | |
|Item 6, subsection 36C(4) of the Financial |9.28 |
|Sector (Business Transfer and Group | |
|Restructure Act) 1999 | |
|Item 7, subsection 3(1) of the Financial |7.19 |
|Sector (Collection of Data) Act 2001 | |
|Item 8, section 5 of the Financial Sector |7.22 |
|(Collection of Data) Act 2001 | |
|Item 9, section 5 of the Financial Sector |7.22 |
|(Collection of Data) Act 2001 | |
|Item 10, paragraph 13(1)(a) of the Financial|7.37 |
|Sector (Collection of Data) Act 2001 | |
|Item 11, paragraph 13(1)(a) of the Financial|7.22 |
|Sector (Collection of Data) Act 2001 | |
|Item 12, paragraph 13(1)(b) of the Financial|7.37 |
|Sector (Collection of Data) Act 2001 | |
|Item 13, subsection 13(1) of the Financial |7.32 |
|Sector (Collection of Data) Act 2001 | |
|Item 14, paragraph 13(2)(bb) of the |5.19 |
|Financial Sector (Collection of Data) Act | |
|2001 | |
|Item 15, subsection 13(2A) of the Financial |7.27 |
|Sector (Collection of Data) Act 2001 | |
|Item 16, subsection 13(6) of the Financial |7.41 |
|Sector (Collection of Data) Act 2001 | |
|Item 17, paragraph 13A(1)(b) of the |7.36 |
|Financial Sector Collection of Data Act 2001| |
|Item 17, subsection 13A(2) of the Financial |7.35 |
|Sector (Collection of Data) Act 2001 | |
|Item 17, paragraph 13A(1)(a) of the |7.33 |
|Financial Sector (Collection of Data) Act | |
|2001 | |
|Item 17, section 13B of the Financial Sector|7.34 |
|(Collection of Data) Act 2001 | |
|Item 18, subsections 13(1) and 13(1A) of the|7.43 |
|Financial Sector (Collection of Data) Act | |
|2001 | |
|Item 18, subsection 16(1B) of the Financial |7.44 |
|Sector (Collection of Data) Act 2001 | |
|Item 19, subsection 16(2) of the Financial |7.45 |
|Sector (Collection of Data) Act 2001 | |
|Item 20, section 17B of the Financial Sector|5.19 |
|(Collection of Data) Act 2001 | |
|Item 20, section 17A of the Financial Sector|5.21 |
|(Collection of Data) Act 2001 | |
|Item 20, section 17C of the Financial Sector|5.26 |
|(Collection of Data) Act 2001 | |
|Item 20, subsection 17D(1) of the Financial |5.27 |
|Sector (Collection of Data) Act 2001 | |
|Item 20, subsection 17D(2) of the Financial |5.29 |
|Sector (Collection of Data) Act 2001 | |
|Item 20, section 17B of the Financial Sector|5.20 |
|(Collection of Data) Act 2001 | |
|Item 20, subsection 17D(3) of the Financial |5.31 |
|Sector (Collection of Data) Act 2001 | |
|Item 21, Section 29A of the Financial Sector|7.26 |
|(Collection of Data) Act 2001 | |
|Item 22, section 31 of the Financial Sector |7.19 |
|(Collection of Data) Act 2001 | |
|Item 23, section 31 of the Financial Sector |7.21 |
|(Collection of Data) Act 2001 | |
|Item 24, section 31 of the Financial Sector |7.21 |
|(Collection of Data) Act 2001 | |
|Item 25, section 31 of the Financial Sector |7.21 |
|(Collection of Data) Act 2001 | |
|Item 26, items 274 and 275 of schedule 1 of |9.23 |
|the Financial Sector Legislation Amendment | |
|(Simplifying Regulation and Review) Act 2007| |
|Item 27, section 86 of the Reserve Bank Act |4.52 |
|1959 | |
|Item 28, subsections 67AA(1) and 67AA(2) of |3.17 |
|the Retirement Savings Accounts Act 1997 | |
|Item 28, subsection 67AA(3) of the |3.16 |
|Retirement Savings Accounts Act 1997 | |
|Item 28, subsections 67AA(4) and 67AA(5) of |3.20 |
|the Retirement Savings Accounts Act 1997 | |
|Item 28, subsection 67AA(6) of the |3.21 |
|Retirement Savings Accounts Act 1997 | |
|Item 29, section 69 of the Retirement |5.26 |
|Savings Accounts Act 1997 | |
|Item 29, subsection 70(1) of the Retirement |5.27 |
|Savings Accounts Act 1997 | |
|Item 29, subsection 70(2) of the Retirement |5.29 |
|Savings Accounts Act 1997 | |
|Item 29, subsection 70(3) of the Retirement |5.31 |
|Savings Accounts Act 1997 | |
|Item 30, subsection 10(1) of the |3.26 |
|Superannuation Industry (Supervision) Act | |
|1993 | |
|Item 30, paragraph 35A(2)(b) Superannuation |3.25 |
|Industry (Supervision) Act 1993 | |
|Item 31, paragraph 35A(2)(b) Superannuation |3.25 |
|Industry (Supervision) Act 1993 | |
|Item 32, subsections 35A(2B) to 35A(2D) of |3.25 |
|the Superannuation Industry (Supervision) | |
|Act 1993 | |
|Item 32, subsection 35A(2A) of the |3.26 |
|Superannuation Industry (Supervision) Act | |
|1993 | |
|Item 33, Subdivision C of Division 3 of Part|3.23 |
|15 (heading) of the Superannuation Industry | |
|(Supervision) Act 1993 | |
|Item 34, subsections 126L(1) and 126L(2) of |3.17 |
|the Superannuation Industry (Supervision) | |
|Act 1993 | |
|Item 34, subsection 126L(3) of the |3.16 |
|Superannuation Industry (Supervision) Act | |
|1993 | |
|Item 34, subsections 126L(4) and 126L(5) of |3.20 |
|the Superannuation Industry (Supervision) | |
|Act 1993 | |
|Item 34, subsection 126L(6) of the |3.21 |
|Superannuation Industry (Supervision) Act | |
|1993 | |
|Item 35, section 130BA of the Superannuation|5.26 |
|Industry (Supervision) Act 1993 | |
|Item 35, subsection 130BB(1) of the |5.27 |
|Superannuation Industry (Supervision) Act | |
|1993 | |
|Item 35, subsection 130BB(2) of the |5.29 |
|Superannuation Industry (Supervision) Act | |
|1993 | |
|Item 35, subsection 130BB(3) of the |5.31 |
|Superannuation Industry (Supervision) Act | |
|1993 | |
|Item 36, section 263 of the Superannuation |3.14 |
|Industry (Supervision) Act 1993 | |
|Item 37, saving-exemptions under |7.46 |
|subsection 16(1) of the Financial Sector | |
|(Collection of Data) Act 2001 | |
Schedule 5: Amendments relating to levies
|Bill reference |Paragraph |
| |number |
|Items 1 to 4, 6 to 21, 23 to 29, 31 and 33, |8.25 |
|section 7 of the Authorised Deposit-taking | |
|Institutions Supervisor Levy Imposition Act | |
|1998, section 7 of the First Home Saver | |
|Account Providers Supervisory Levy | |
|imposition Act 2008, section 8 of the | |
|General Insurance Supervisory Levy | |
|Imposition Act 1998, section 7 of the Life | |
|Insurance Supervisory Levy Imposition Act | |
|1998, section 7 of the Retirement Savings | |
|Account Providers Supervisory Levy | |
|Imposition Act 1998, and section 7 of the | |
|Superannuation Supervisory Levy Imposition | |
|Act 1998 | |
|Items 5 and 22, subsection 7(4A) of the |8.26 |
|Authorised Deposit-taking Institutions | |
|Supervisor Levy Imposition Act 1998 and | |
|subsection 7(4A) of the Life Insurance | |
|Supervisory Imposition Act 1998 | |
|Item 30, subparagraph 7(1A)(a)(ii) of the |8.21 |
|Superannuation Supervisory Levy Imposition | |
|Act 1993 | |
|Item 32, subsection 7(1B) of the |8.23 |
|Superannuation Supervisory Levy Imposition | |
|Act 1993 | |
Schedule 6: Technical amendments
|Bill reference |Paragraph |
| |number |
|Items 1 to 78, subsections 7(1), 8(1), 9(6),|9.30 |
|10(3), 11(3), 11AA(5), 11CG(1) and (2), | |
|11E(2), 13(3), 13A(4), 13B(1A), 14A(2A), | |
|16B(1A), 33(4), 36(1A) and (2A), 41(2), | |
|42(1A) and (3), 45(1A) and (4), 46(2), | |
|51B(7), 51D(3), 61(3), 62(1A), 63(1) and | |
|(4), 66(1) and (3), 66A(1), 67(1) and (3), | |
|and 69(3AA), (5A) and (7A) of the Banking | |
|Act 1959, subsections 7A(1), 9(1), 10(1) and| |
|(2),14(1), 17(8), 20(1), 27(7), section 28, | |
|and subsections 49(3) and (4), 49A(3) and | |
|(4), 49F(1) and (2), 49L(1), and 49Q(2) of | |
|the Insurance Act 1973, subsections 16E(1) | |
|and (7), 16L(4), 16Q(4), 16R(6), 16U(4), | |
|16V(7), 180(4), and 230F(1) and (3) of the | |
|Life Insurance Act 1995, and subsections | |
|11B(3) and (4), 11C(2), (3) and (4), 64(3) | |
|and (3A), 103(3), 104(2), 104A(3), 105(2), | |
|107(3) and (4), 108(3) and (4), 122(2), | |
|124(2), 131B(1) and (2), 141A(3) and (6), | |
|154(2) and (2A), 252C(2) and (10), 254(4) | |
|and (5), 260(2) and (3), 262(1) and (2), | |
|299C(3), 299F(4) and (4A), 299G(4) and (4A),| |
|299H(6) and (7), 299J(6) and (7), 299K(6) | |
|and (7), 299L(6) and (7), 299M(4) and (5), | |
|299Y(2) and (3), and 347A(6) of the | |
|Superannuation Industry (Supervision) Act | |
|1993 | |
Schedule 7: Repeal of Acts
|Bill reference |Paragraph |
| |number |
|Items 1 to 5, the Authorised Non-operating |8.28 |
|Holding Companies Supervisory Levy | |
|Determination Validation Act 2000, General | |
|Insurance Supervisory Levy Determination | |
|Validation Act 2000, the Life Insurance | |
|Supervisory Levy Determination Validation | |
|Act 2000, the Retirement Savings Account | |
|Providers Supervisory Levy Determination | |
|Validation Act 2000 and the Superannuation | |
|Supervisory Levy Determination Validation | |
|Act 2000 | |
-----------------------
[1] This authorisation is described by the term 'authority' under the
Banking Act, the term 'authorisation' under the Insurance Act and the
term 'registration' under the Life Insurance Act, respectively.
[2] [2004] HCA 42 (9 September 2004)
[3] It is this auditor that is defined by the Bill to be the principal
auditor.
[4] See item 105 of schedule 3 (Penalties) of the Corporations Act.
[5] See item 336 of schedule 3 (Penalties) of the Corporations Act.
[6] See item 337 of schedule 3 (Penalties) of the Corporations Act.
[7] [2004] HCA 42 (9 September 2004).