Explanatory MemorandumCirculated By the Authority of the Treasurer, the Hon Wayne Swan Mp
General outline and financial impact
The Financial System Legislation Amendment (Financial Claims Scheme and Other Measures) Bill 2008 (the Bill) introduces measures to implement a Financial Claims Scheme (FCS), including a three-year 100 per cent guarantee of deposits in authorised deposit-taking institutions (ADIs), and other arrangements to deal with distressed or failing financial institutions.
Schedule 1 of the Bill amends the Banking Act 1959 , the Insurance Act 1973 and other Acts to establish an FCS, administered by the Australian Prudential Regulation Authority (APRA), to provide depositors in authorised deposit taking institutions a full guarantee of their depositors for a period of three years.
After three years the general provisions of the FCS will come into operation, limiting its operation to Australian denominated currency deposits. The Bill includes a mechanism to impose a cap on deposit coverage at that time. The Government has indicated that it will consider this issue at that stage.
In addition, the FCS provides compensation to eligible policyholders with claims against a failed general insurer in the event of a general insurer failure.
Schedule 1 also includes:
- appropriation arrangements for the FCS's administration and the advancing of funds to depositors and policyholders under the deposit guarantee and FCS; and
- arrangements for the recovery of funds advanced by the FCS and of administration costs through the sale of the closed institution's assets (see also recovery of funds via industry levies under the Financial Claims Scheme (ADIs) Levy Bill 2008 and Financial Claim Scheme (General Insurers) Levy Bill 2008).
Schedule 2 of the Bill amends the Banking Act 1959 to establish arrangements to improve statutory management of ADIs and the recapitalisation of an ADI.
Schedule 3 of the Bill amends the Insurance Act 1973 to establish arrangements to provide for the judicial management of general insurers and facilitate the recapitalisation of a general insurer.
Schedule 4 of the Bill amends the Life Insurance Act 1995 to establish arrangements to improve judicial management of life insurers and facilitate the recapitalisation of a life insurer.
Schedule 5 of the Bill amends the Financial Sector (Business Transfer and Group Restructure) Act 1999 to establish enhanced arrangements to facilitate the transfer of assets and liabilities between institutions.
Date of effect : Amendments in Section 1 to 3 apply from the date of Royal Assent. Schedules 2 to 5 apply from the day after Royal Assent. Provisions in Schedule 1 apply immediately after Schedules 2 to 5.
Proposal announced : The measures were announced in the Treasurer's Press Release No. 061 of 2 June 2008 and in the Prime Minister's Press Release of 12 October 2008.
Financial impact : Nil. Where the FCS or other arrangements are activated, there will be no net impact on taxpayers as the monies provided are subject to recovery.
Compliance cost impact : Low.