House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)

Chapter 7 - Monitoring and investigation

Outline of chapter

7.1 Part 6 of the Prudential Supervision Bill provides for monitoring and investigation provisions, including:

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power for APRA to request information and documents for general supervisory purposes; and

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power to investigate a private health insurer, including the appointment of an inspector, obtaining information and warrants for entry of premises and the conduct of examinations.

7.2 Unless otherwise stated, all references in this Chapter relate to the Prudential Supervision Bill.

Summary of new law

7.3 These provisions draw on provisions from a number of different pieces of legislation, including Divisions 194 and 214 of the PHI Act, certain provisions from the SIS Act and the Regulatory Powers Act.

7.4 In general, the Regulatory Powers Act is intended to provide a framework of standard powers for monitoring and information gathering provisions. However, certain provisions in the Regulatory Powers Act, in particular the investigation provisions in Part 3 of that Act, only apply where there has been a breach of an offence provision or a civil penalty provision.

7.5 The monitoring provisions are designed to ensure that APRA has the power to require an insurer to provide information and documents for general supervisory purposes without the need for suspecting the contravention of a provision. Similar provisions exist in APRA's current legislation (for example, sections 254(2) and 255 of the SIS Act and section 62 of the Banking Act 1959). The inclusion of these provisions will enable APRA to obtain information, where appropriate, for routine monitoring purposes and for other purposes. There is no equivalent in the Prudential Supervision Bill of section 191-1 of the PHI Act (which provides that the Council may seek an explanation from a private health insurer), as that capacity will be covered by the monitoring provisions.

7.6 The investigation provisions replace, and update, for APRA's purposes, two overlapping investigation powers currently located in Divisions 194 and 214 of the PHI Act. This will avoid the duplication that currently exists in the PHI Act and the updating of certain provisions (for example, in relation to warrants, obtaining consent to entry and identity cards) will bring the investigation powers more into line with the Regulatory Powers Act. The investigation powers will cover matters relating to compliance with the risk equalisation fund provisions that will remain in the PHI Act (including relating to the levy, which APRA will collect).

7.7 APRA will be able to conduct an investigation where APRA reasonably suspects that the affairs of an insurer are, or are about to be, carried on in a way that is not in the interests of policy holders of a health benefits fund, mirroring the trigger for an investigation by the Council under section 214-1(1)(a) of the PHI Act. APRA will also have power to investigate a contravention, or suspected contravention, of an enforceable obligation, which is similar to the Council's power in section 194-1 of the PHI Act to investigate where an insurer might have contravened a Council-supervised obligation.

Comparison of key features of new law and current law

Detailed explanation of new law

Part 6 - Monitoring and investigation

Division 1 - Introduction

Simplified outline of this Part

7.8 APRA may, for the purposes of the Prudential Supervision Bill or the risk equalisation levy legislation, require insurers to provide information, reports or documents, and may require officers of insurers to provide documents. [Part 6, Division 1, section 126]

7.9 APRA may appoint an inspector to investigate the affairs of a private health insurer in certain circumstances. The powers of an inspector include power to require a person to provide documents or to appear for examination, and power to enter premises (either with consent or under a warrant) and exercise search powers. [Part 6, Division 1, section 126]

Division 2 - Monitoring

Purposes for which powers may be exercised etc.

7.10 The monitoring powers in Division 2 may be exercised for the purposes of the Prudential Supervision Bill or the risk equalisation levy legislation. Section 4 of the Prudential Supervision Bill defines 'risk equalisation levy legislation' to mean the Risk Equalisation Levy Act 2003 and the provisions of the PHI Act that apply in relation to the Risk Equalisation Levy Act 2003 and the Risk Equalisation Special Account. The powers cannot be exercised for another purpose. [Part 6, Division 2, subsection 127(1)]

7.11 The monitoring powers of Division 2 may be exercised in relation to a particular private health insurer, even if an investigation is being conducted in relation to the affairs of the insurer. [Part 6, Division 2, subsection 127(2)]

7.12 All information and reports provided to APRA by private health insurers under sections 128 and 129 will be covered by the secrecy provisions in section 56 of the APRA Act (as amended by the Consequential Amendments and Transitional Provisions Bill) as well as the Privacy Act 1988, unless the information is already in the public domain.

Power to require private health insurer to provide information and reports

7.13 APRA may give a written notice requiring an insurer to give APRA particular information, or a report on particular matters, relating to the affairs of the insurer, by a specified time. The period specified in the notice must be reasonable, and must end at least seven days after the day on which the notice is given. [Part 6, Division 2, section 128]

7.14 A refusal or failure to comply with the notice is an offence under section 148 of the Prudential Supervision Bill with a maximum penalty of 30 penalty units for an individual.

Power to require production of documents

7.15 APRA may give a written notice requiring a private health insurer or an officer of the insurer to produce to APRA any documents relating to the insurer's affairs at a reasonable time and place. APRA, or an APRA staff member, may inspect, take extracts or make copies of such a document. The time specified in the notice must be reasonable, and must be at least seven days after the day on which the notice is given. The place specified in the notice must also be reasonable. [Part 6, Division 2, subsections 129(1), (2) and (4)]

7.16 APRA may require any such produced document which is not in English to be produced in written English. [Part 6, Division 2, subsection 129(3)]

7.17 Refusal or failure to comply with this requirement is an offence under section 148 of the Prudential Supervision Bill with a maximum penalty of 30 penalty units for an individual.

Division 3 - Investigation

Investigation of private health insurers by inspectors

7.18 APRA may in writing appoint an APRA staff member to be an inspector to investigate the affairs of a private health insurer if APRA has reason to suspect:

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that the affairs of the insurer are not, or are about to not be, carried on in the interests of the policy holders of a health benefits fund of the insurer (this reflects paragraph 214-1(1)(a) of the PHI Act); or

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a contravention of an enforceable obligation (this reflects section 194-1(2) of the PHI Act. [Part 6, Division 3, subsection 130(1)]

7.19 The first test (affairs of the insurer not being carried on in interests of policy holders of a health benefits fund) is intended to focus on concerns of a general or prudential nature, for example a concern about the ability of the insurer to meet its obligations to policy holders.

7.20 APRA must not appoint an APRA staff member to be an inspector unless APRA is satisfied that the staff member has suitable qualifications and experience to exercise properly the powers of an inspector. The inspector's instrument of appointment must specify:

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what APRA suspects and why; and

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the matters the investigation will relate to. [Part 6, Division 3, subsection 130(2) and (3)]

7.21 APRA may, in writing, at any time terminate an investigation; or terminate the appointment of a person as an inspector; or appoint another APRA staff member to be an inspector for the purposes of an investigation. [Part 6, Division 3, subsection 130(4)]

Identity cards for inspectors

7.22 APRA must issue an identity card to each inspector. The card must be in the form prescribed under APRA rules and contain a recent photograph [Part 6, Division 3, subsections 131(1) and (2)]. An inspector must carry the card at all times when exercising their powers under the Prudential Supervision Bill. [Part 6, Division 3, subsection 131(5)]

7.23 It is an offence if a person who ceased to be an inspector does not return their identity card to APRA within 14 days after ceasing to be an inspector. This does not apply if the card was lost or destroyed. [Part 6, Division 3, subsection 131(3) and (4)]

Power of inspectors

7.24 An inspector may, by written notice, require a person who the inspector believes to have some knowledge of the affairs of the private health insurer under investigation:

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to produce to the inspector any or all of the records under the person's custody or control that relate to the insurer; or

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to give the inspector all reasonable assistance in the person's power in connection with the investigation; or

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to appear before the inspector for examination concerning relevant matters within the knowledge of the person. [Part 6, Division 3, subsection 132(1)]

7.25 The period specified in the notice must be reasonable, and must end at least seven days after the day on which the notice is given. It is an offence to refuse or fail to comply with a notice (see section 148). [Part 6, Division 3, subsections 132(1) and (2)]

7.26 An inspector may take possession of records produced under subsection 131(1) for as long as the inspector thinks necessary, and to take copies or extracts of the records. [Part 6, Division 3, subsection 132(3)]

7.27 An inspector must allow a person to inspect the records if the person would have been able to inspect them if the insurer was not holding them. [Part 6, Division 3, subsection 132(4)]

Person may be represented by lawyer when being examined

7.28 A lawyer acting for a person being examined by an inspector may attend the examination and, to the extent that the inspector allows, address the inspector and examine the person in relation to matters on which the person has been questioned. [Part 6, Division 3, section 133]

Access to premises

The functions of an inspector under this section

7.29 An inspector who is empowered to investigate all or part of the affairs of a private health insurer and enters premises under subsections 134(3) or (4) may exercise search powers in relation to records that the inspector reasonably believes to relate to the affairs of the insurer. [Part 6, Division 3, subsections 134(1) and (2)]

Entry with consent

7.30 An inspector may enter any premises with the consent of the occupier to carry out their functions. [Part 6, Division 3, subsection 134(3)]

Entry under warrant

7.31 An inspector may apply for a warrant to enter premises (see section 135) if the inspector believes, on reasonable grounds, that records are held there relating to the private health insurer whose affairs the inspector is investigating. [Part 6, Division 3, subsection 134(4)]

General provisions relating to obtaining consent to enter premises

7.32 Before obtaining an occupiers' consent for the purposes of subsection 134(3), an inspector must tell the occupier they can refuse consent. [Part 6, Division 3, subsection 135(1)]

7.33 An occupier's consent is only valid if it is voluntary and the occupier remains free to withdraw consent at any time or to consent to entry only during a certain time period. [Part 6, Division 3, subsections 135(2), (3) and (4)]

7.34 An inspector or authorised person must leave the premises if consent is withdrawn. [Part 6, Division 3, subsection 135(5)]

7.35 If an inspector enters premises with consent of the occupier, but the inspector has not shown his or her identity card before entering the premises, the inspector must do so as soon as practicable after entering the premises. [Part 6, Division 3, subsection 135(6)]

Investigation warrants

7.36 An inspector may apply to a magistrate for an investigation warrant. The magistrate may issue the warrant if satisfied there are reasonable grounds for suspecting there are documents at the premises (or may be within the next 72 hours) about the insurer's affairs which the inspector is investigating. [Part 6, Division 3, subsections 136(1) and (2)]

7.37 The warrant must not be issued by the magistrate unless the inspector (or another person) has given the magistrate orally or by affidavit any further information the magistrates requires about the reasons for the warrant. [Part 6, Division 3, subsection 136(3)]

7.38 The warrant must state the details specified in subsection 136(4) which include setting out the legislative power under which the warrant is issued, the name of the inspector who applied for it, what the warrant authorises and when it expires (which must be no later than a week from its issue). [Part 6, Division 3, subsection 136(4)]

Announcement before entry under investigation warrant

7.39 Before entering a premises under an investigation warrant, the inspector must announce they are authorised to enter the premises, show their identity card to the occupier (or their representative) if present, and give the occupier the opportunity to provide access. [Part 6, Division 3, subsection 137(1)]

7.40 An inspector need not do this if they believe on reasonable grounds they must immediately enter the premises to ensure the execution of the warrant is not frustrated. [Part 6, Division 3, subsections 137(2)]

7.41 This is subject to an exception where the inspector believes on reasonable grounds that immediate entry is required, in which case the inspector must as soon as practicable after entering the premises show his or her identify card to the occupier or other person. [Part 6, Division 3, subsection 137(3)]

Inspector to be in possession of investigation warrant

7.42 When executing an investigation warrant, the inspector must have the warrant, or a copy of it. [Part 6, Division 3, section 138]

Details of warrant etc. to be given to occupier

7.43 An inspector is required to provide a copy of the warrant to the occupier of the premises, or an occupier's apparent representative, if either are present, and to inform the person of their rights and responsibilities under sections 140 (right to observe execution warrant) and 141 (responsibility to provide facilities and assistance). This obligation ensures that occupiers and representatives, who are present when a warrant is executed, are granted an opportunity to examine the warrant and are informed about their rights and responsibilities. [Part 6, Division 3, section 139]

Right to observe execution of warrant

7.44 The occupier of premises or their representative (or the person is apparently their representative), who is present when a warrant is executed, has a right to observe the execution of the warrant on their premises. This right does not limit how the warrant may be executed, or place an occupier or their representative under an obligation to witness all of an authorised person's activities, but it does recognise that a person should not be excluded during the execution of a warrant unless they attempt to obstruct the inspection. [Part 6, Division 3, subsections 140(1) and (2)]

7.45 This right does not prevent an execution of warrants in more than one place at the same time. [Part 6, Division 3, subsection 140(3)]

Responsibility to provide facilities and assistance

7.46 An occupier of premises, or their apparent representative has an obligation to provide reasonable facilities and assistance to the authorised person and any person assisting, as required to effectively carry out the warrant powers. This obligation recognises that investigation powers are authorised by issuing officers for the purpose of determining whether laws are being complied with and should not be impeded by lack of reasonable co-operation. The failure of an occupier or their representative to provide reasonable facilities and assistance carries a penalty of 30 penalty units. [Part 6, Division 3, section 141]

Concealing etc. records

7.47 A person commits an offence with a penalty of 60 penalty units or imprisonment for 12 months or both if the person engages in conduct that results in the concealment, destruction, mutilation or alteration of the documents relating to particular affairs of a private health insurer whose affairs are being investigated. [Part 6, Division 3, subsection 142(1)]

7.48 It is a defence if the person did not act with intent to defeat the purposes of this Division or delay or obstruct the investigation. [Part 6, Division 3, subsection 142(2)]

Reports of inspectors

7.49 An inspector must report in writing to APRA on completion of the investigation and comply with any directions of APRA to provide reports. The section also allows the inspector to make one or more additional reports, at the inspector's discretion, during the investigation. [Part 6, Division 3, subsection 143(1)]

7.50 The inspector may make any recommendation in the report they consider is appropriate, but is precluded from including in a report recommendations relating to criminal proceedings or opinions that a person has committed a criminal offence. The inspector must state any opinion that criminal proceedings ought to be instituted or that a person has committed a criminal offence, in writing, to APRA, but this must be done separately from the report. [Part 6, Division 3, subsections 143(2), (3)and (4)]

Dissemination of reports

7.51 APRA must give a copy of an inspector's report under paragraph 143(1)(a) to the private health insurer to which it relates, unless APRA thinks that a copy should not be provided having regard to proceedings that have been or might be instituted. [Part 6, Division 3, subsections 144(1) and (2)]

7.52 If APRA has given a copy of the report to the insurer it may, if it thinks it in the public interest, publish the whole or part of a report. [Part 6, Division 3, subsection 144(3)]

7.53 A court hearing proceedings under the Prudential Supervision Bill or risk equalisation levy legislation against an insurer or another person in respect of matters dealt with in a report may order that a copy of the report be provided to the insurer or other person. [Part 6, Division 3, subsection 144(4)]

Liability for publishing reports etc.

7.54 A person (excluding APRA or an APRA staff member) publishing in good faith a copy of, or a fair extract from, an inspector's report published under subsection 144(3) is protected from any action or proceeding. [Part 6, Division 3, section 145]

7.55 An action is generally in good faith if the person making it is nor actuated by ill will or any other improper motive.

7.56 APRA and its staff will be covered by the indemnity in section 58 of the APRA Act in relation to the above matters.

Powers of magistrates

7.57 The power conferred on a magistrate under Division 3 is conferred on the magistrate in their personal capacity and not as a representative of the court. A magistrate is not obligated to accept the power conferred. Magistrates are granted the protection and immunities of the court and members of the court when exercising these powers. This recognises that issuing a warrant is an executive function and not an exercise of judicial power. [Part 6, Division 3, section 146]

Delegation by inspectors

7.58 An inspector may delegate in writing any of their powers under Division 3 to an APRA staff member. [Part 6, Division 3, subsection 147(1)]

7.59 A delegate must produce the instrument of delegation (or a copy) to any person who may be affected by the exercise of the delegated powers and who asks to see the instrument. [Part 6, Division 3, subsection 147(2)]

Division 4 - Other matters

Refusing or failing to comply with requirements

7.60 A person commits an offence with a penalty of 30 penalty units if the person fails to comply with a requirement under section 128, 129 or 132. The person need only comply with such a requirement to the extent they are capable of doing so. [Part 6, Division 4, section 148]

Self-incrimination

7.61 A person is not excused from providing answers, information, or a report or document, in an investigation on the ground that they may be incriminated or liable to a penalty on the ground that this might incriminate them or make them liable to a penalty. In order to protect the integrity of the regulatory regime, and protect the interests of policy holders, it is necessary to override the privilege against self-incrimination so that APRA can acquire all relevant information relating to the financial position of a private health insurer and the insurer's and other relevant persons' compliance with the regulatory regime. This is consistent with the approach taken in the PHI Act (for example, section 214-15, relating to compliance with requirements of inspectors) and other legislation administered by APRA (for example section 287 of the SIS Act). [Part 6, Division 4, subsection 149(1)]

7.62 However, if the person is an individual, any information, document or thing obtained because of a person's assistance is not admissible in evidence against them in any proceedings (either criminal or civil) except proceedings in relation to section 137.1 or 137.2 of the Criminal Code (which relate to the provision of false or misleading information) or proceedings under section 120 for disqualification (see subsection 122(4)). This provides immunity in relation to direct use of the information, document or thing in other proceedings (except, as noted, where the other proceedings are for disqualification under section 120). It does not provide for derivative use immunity, that is, immunity in relation to anything obtained as a direct or indirect consequence of the production of the information, document or thing. [Part 6, Division 4, subsection 149(2)]

7.63 In this respect the provision is consistent with the majority of self-incrimination provisions in the other legislation administered by APRA, including section 287 of the SIS Act. A difficulty with derivative use immunity is that it means that further evidence obtained through a chain of inquiry resulting from the protected evidence cannot be used in relevant proceedings even if the additional evidence would have been uncovered by the regulator through independent investigation processes. A related issue is that it can be very difficult and time-consuming in a complex investigation to prove whether evidence was obtained as a consequence of the protected evidence or obtained independently. In other respects section 149 offers broader protection than similar provisions in other legislation in that it does not require the person to first state that the answer might tend to incriminate them, and the protection applies to civil proceedings (other than for disqualification) as well as criminal proceedings.

Protection from liability

7.64 A person's compliance with a requirement made of the person under Part 6 or of an inspector does not lead them to incur any liability to any other person because of that compliance. [Part 6, Division 4, section 150]