House of Representatives

Treasury Laws Amendment (2016 Measures No. 1) Bill 2016

Explanatory Memorandum

(Circulated by authority of the Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer MP)

General outline and financial impact

Amendment to the scope of the Terrorism Insurance Act 2003

Schedule 1 to this Bill amends the Terrorism Insurance Act 2003 (Terrorism Insurance Act) to clarify that losses attributable to terrorist attacks using chemical or biological means are covered by the terrorism insurance scheme under the Terrorism Insurance Act.

Date of effect: This measure applies from 1 July 2017.

Proposal announced: The Terrorism Insurance Act Review 2015 was published on the Treasury website on 15 December 2015.

Financial impact: The amendment in schedule 1 does not have a financial impact.

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 1, paragraphs 1.177 to 1.180.

Compliance cost impact: There are no compliance cost impacts arising from this amendment.

Summary of regulation impact statement

Regulation impact on business

Impact: This amendment to remove doubt about whether losses attributable to terrorist attacks using chemical or biological means are covered by the terrorism insurance scheme under the Terrorism Insurance Act could create regulatory costs for insurers, as they may need to closely consider the impact of these amendments on their business. However, these regulatory impacts are unquantifiable and are likely to be minor

Main points:

Under section 41 of the Terrorism Insurance Act, the Minister is required to prepare every three years a report that reviews the need for the Terrorism Insurance Act to continue in operation.
The latest review, which was completed in 2015, has been certified to have undertaken a process and analysis equivalent to a Regulatory Impact Statement, and is included in Chapter 1 below.

Improving Employee Share Schemes

Schedule 2 to this Bill amends the Corporations Act 2001 (Corporations Act) so that employee share scheme (ESS) disclosure documents lodged with the Australian Securities and Investments Commission (ASIC) are not made publicly available for certain start-up companies.

Date of effect: These amendments apply from the date of commencement which is the day after Royal Assent.

Proposal announced: The proposal was announced as part of the National Innovation and Science Agenda on 7 December 2015.

Financial impact: None

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - see Chapter 2, paragraphs 2.42 to 2.45.

Compliance cost impact: None

Deductible gift recipients

Schedule 3 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to add six organisations as deductible gift recipients: The Australasian College of Dermatologists, College of Intensive Care Medicine of Australia and New Zealand, The Royal Australian and New Zealand College of Ophthalmologists, Australian Science Innovations Incorporated, The Ethics Centre Incorporated and Cambridge Australia Scholarships Limited.

Date of effect: The law takes effect on commencement.

Proposal announced: The measure was announced in the 2016-17 Budget.

Financial impact: These amendments will have the following financial impact:

2015-16 2016-17 2017-18 2018-19 2019-20
- .. -0.1 -0.1 -0.1

- considered to be zero

.. considered not to be zero but rounded to zero

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 3, paragraphs 3.20 to 3.23.

Compliance cost impact: Nil.

Ex-gratia disaster recovery payments to New Zealand special category visa (subclass 444) holders

Schedule 4 to this Bill provides income tax relief to eligible New Zealand special category visa (subclass 444) (SCV) holders who are impacted by disasters in Australia by:

amending the Income Tax Assessment Act 1936 (ITAA 1936) to provide a tax rebate for the ex-gratia Income Support Allowance (ISA), and
amending the Income Tax Assessment Act 1997 (ITAA 1997) to provide an income tax exemption for the ex-gratia Disaster Recovery Payment (DRP).

Date of effect: This measure applies to ex-gratia ISA and DRP payments received for disasters occurring in the 2014-15 year and later years.

Financial impact: Negligible.

Human rights implications: This Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 4, paragraphs 4.29 to 4.32.

Derivative money of retail clients

Schedule 5 to the Treasury Laws Amendment (2016 Measures No. 1) Bill 2016 amends the Corporations Act 2001 (Corporations Act) to provide greater protection for retail client money and property held by financial services licensees in relation to over-the-counter derivative products. These amendments align the Australian client money regime with community expectations regarding the level of protection that should be afforded to retail consumers of complex financial products and services.

Date of effect: The amendments made by this Schedule commence on the day after the end of the period of 12 months beginning on the day the Treasury Laws Amendment (2016 Measures No. 1) Bill 2016 receives Royal Assent.

Certain amendments made by this Schedule apply to uses of retail client money and property on or after commencement, whether the money or property was paid to the licensee before, on or after that commencement.

Proposal announced: On 20 October 2015, the Government announced that it would develop legislative amendments to improve protections for client monies held in relation to derivatives. This commitment was made as part of the Government's response to the Financial System Inquiry.

On 22 December 2015, the Government released a policy paper, 'Enhanced Protection of Client Money', to explain and consult on the proposed changes. An Exposure Draft of this Schedule was also released for consultation on 29 February 2016.

Financial impact: The financial impact of the amendments made by this Schedule is nil.

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - paragraphs 5.288 to 5.291.

Compliance cost impact: The reform will deliver an overall net benefit. While licensees' compliance costs will increase by around $517,000, the reform should promote investor confidence in the industry and its regulation and will markedly enhance retail consumer protections. The costs do not reflect the cost to business for any loss of revenue due to changes in the law.

Summary of regulation impact statement

Regulation impact on business

Impact: The measure will impact Australian financial services licensees that provide retail derivatives, in particular, over-the-counter issuers.

Main points:

The current regulatory framework does not adequately protect retail clients, as it exposes their over-the-counter derivative client money to risks they may not be aware of.
Licensees have few restrictions on how they can deal with client monies connected to over-the-counter derivatives, whereas other client money (connected with other financial services and products) is generally to be held in trust.
Investor confidence depends on robust and responsive regulation of the financial system. Inappropriate risks can undermine the confidence in the financial system, especially where those risks are not able to be overseen by regulators or understood by investors, particularly retail investors. The Australian Securities and Investments Commission (ASIC) as the financial services regulator is unequivocal about the need for reform in this area.
To better protect retail clients, the Government has considered prohibiting licensees use of over-the-counter derivative client money; continuing to allow AFSLs to use over-the-counter derivative client money to hedge, provided there are safeguards in place; and maintaining the status quo.
The Government has consulted extensively on its reform package. In late 2015 and early 2016, the Government sought public comment on a policy paper, draft legislation and regulation. Since then, officials have met with a broad range of stakeholders - including Australian financial services licensees, regulators, and other experts - to explore and test the case for change.
Having considered the available options for reform, the Government has concluded that by prohibiting the use of retail over-the-counter derivative client money by Australian financial services licensees for their own and other clients' purposes, client money will be much safer and investor confidence in the industry likely to increase.
Following a one year transition period for industry, the Government will seek ASIC's assistance in monitoring the impacts of reform, and advice on mitigation as needed.


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