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

Chapter 7 - Amendments to APRA's data collection powers

Outline of chapter

7.1 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

7.2 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.

7.3 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.

7.4 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

7.5 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.

7.6 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

7.7 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.

7.8 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

7.9 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.

7.10 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

7.11 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

7.12 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.

7.13 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

7.14 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.

7.15 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.

7.16 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 assist:

·
it prudentially regulate or monitor bodies in the financial sector;
·
another financial sector agency to perform its functions or powers; and
·
the Minister to formulate financial policy.

APRA can collect data to assist it prudentially regulate or monitor bodies in the financial sector and to facilitate the formulation by the RBA of monetary policy.
Upon direction of the Minister APRA is empowered to determine reporting standards for those persons who provide financial services or participate in payment systems that are not presently subject to the Act. APRA may determine reporting standards to be complied with by prudentially regulated entities, medical indemnity entities, or discretionary mutual funds.
Clarify that APRA may collect FCS data under the FSCODA. APRA may collect data relating to the FCS from 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 standard pertaining to non-ongoing data collections under the 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.
All reporting standards made under the FSCODA are legislative instruments.
APRA does not have to consult with industry when preparing reporting standards if it is satisfied that the resulting delay would:

·
prejudice the interests of depositors, policyholders or members of the institutions concerned; or
·
have a detrimental effect on financial system stability.

APRA does not have to consult with industry when preparing reporting standards if it is satisfied that the resulting delay would prejudice the interests of depositors, policyholders or members of the institutions concerned.
Exemptions for individual entities from requirements of reporting standards are not legislative instruments. Exemptions for individual entities from requirements of reporting standards are legislative instruments.
Reporting standards made under the FSCODA specify which documents are to be provided, upon request, to a policy owner under section 124 of the Life Insurance Act. Section 124 of the Life Insurance Act provides that a policy owner 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.

Detailed explanation of new law

Collection of data to assist the Minister and other financial sector agencies

7.17 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.

7.18 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.

7.19 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]

7.20 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.

7.21 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]

7.22 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]

7.23 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.

7.24 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.

7.25 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.

7.26 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

7.27 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]

7.28 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.

7.29 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

7.30 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.

7.31 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.

7.32 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]

7.33 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]

7.34 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]

7.35 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]

7.36 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]

7.37 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

7.38 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.

7.39 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.

7.40 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.

7.41 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

7.42 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.

7.43 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].

7.44 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]

7.45 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]

7.46 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

7.47 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]

7.48 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.

7.49 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.

7.50 The amendment resolves this uncertainty.


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