Explanatory Memorandum
(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)Chapter 2 Statement of compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Corporations Legislation Amendment (Derivative Transactions) Bill 2012
2.1 This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .
Overview
2.2 The Bill amends the Australian Prudential Regulation Authority Act 1998, Australian Securities and Investments Commission Act 2001 , the Corporations Act 2001 , the Mutual Assistance in Business Regulation Act 1992 , and the Reserve Bank Act 1959 .
2.3 The Bill introduces new restrictions on the trading of over-the-counter derivatives (OTC derivatives). The Bill will allow the Minister for Financial Services to prescribe classes of derivatives in relation to certain mandatory obligations. Subject to a class of derivatives being prescribed for one or more mandatory obligations (trade reporting, central clearing or on platform execution), ASIC may make related derivatives transaction rules, with the Minister's consent. The Bill also introduces a licensing regime for trade repositories, a new type of financial market infrastructure.
2.4 The intention of the Bill is to improve transparency and risk management in the OTC derivatives market. This Bill is necessary for Australia to meet its G-20 commitments to strengthen the supervision of derivatives markets.
Human rights implications
Minimum guarantees in criminal proceedings
2.5 The requirement for trade repositories to report to ASIC any breaches they have committed of the requirements under their licence does not engage Article 14 of the International Covenant on Civil and Political Rights (ICCPR). Article 14 states that 'everyone shall be entitled ... not to be compelled to testify against himself or to confess guilt'.
2.6 The Bill requires a licensed trade repository to inform ASIC when it unable to meet its obligations to comply with its licence obligations, be registered as a foreign body corporate under Division 2 of Part 5B.2 of the Corporations Act 2001 , and take all reasonable steps to ensure that no disqualified individual (under Division 2 of Part 7.4 of the Corporations Act 2001 ) becomes, or remains, involved in the operator. However, these requirements are civil in nature and therefore Article 14 of the ICCPR is not engaged.
Privacy
2.7 The mandatory reporting of derivative transactions to a trade repository engages Article 17 of the ICCPR. Article 17 guarantees that 'no one will be subject to arbitrary or unlawful interference with his privacy'. Legislation that involves for collection of personal information may have implications for individuals' right to privacy.
2.8 The Bill allows the Minister to prescribe certain classes of derivatives as subject to ASIC rule-making powers. ASIC is then empowered to introduce a requirement that individuals trading in that class of derivatives must report information related to those trades to licensed trade repositories.
2.9 The Bill pursues a legitimate objective and the limitation on the right to privacy is not arbitrary. Effective regulation of the OTC derivatives market requires regulators to have detailed data on derivatives exposures where these will pose a systemic risk. A requirement to report transactions is the most effective method of achieving this goal.
2.10 The Bill does not impose a blanket requirement for reporting. Instead, ASIC will be required to assess the need for mandatory trade reporting for each class of derivatives once they have been prescribed by the Minister, and on an ongoing basis after that. Any mandate will require public consultation, and ministerial consent. As a legislative instrument the ASIC rules will also require the preparation of a regulation impact statement and a human rights compatibility statement. This ensures that the requirement will only apply to individuals where such a requirement has a clear public interest.
2.11 The Bill provides for the protection of trade data through imposing restrictions on the use and disclosure of reported data, including that trade repositories will be prohibited from using data other than for purposes provided for under the Bill. The regulations and derivate trade repository rules that ASIC is required to make will also impose requirements in relation to the integrity and security of a trade repository's systems. These regulations and rules will also require a human rights compatibility statement.
2.12 Therefore, consistent with Article 17 of the ICCPR, limitations on the privacy of trading data is only interfered with as much as is strictly necessary to achieve the objective of risk management in the over-the-counter derivatives market and only where there is a clear public interest to do so. Where the collection of information is required, safeguards exist to protect that information.