House of Representatives

Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)

Chapter 7 - Foreign branches

Outline of chapter

7.1 Schedules 1 to 4 to this Bill amend the Industry Acts and the Transfer Act to expand APRA's crisis management powers with respect to the Australian branches of foreign regulated entities.

Context of amendments

7.2 Foreign ADIs in Australia provide a range of important services, such as corporate lending, trade finance, wholesale lending (including to and from other ADIs), the provision of risk hedging to ADIs and corporate clients (for example, through interest rate and currency swaps and options), and securities trading. [6]

7.3 Foreign insurers also provide important services in the Australian financial services system, including providing a significant amount of reinsurance capacity to the Australian general insurance market.

7.4 Some of APRA's existing crisis resolution powers apply to Australian branches of foreign regulated entities. For example, APRA already has the power to apply to the Court for a judicial manager to be appointed to a foreign insurer. However, some important crisis resolution powers either do not apply to foreign branches or their application is currently unclear. In particular:

·
APRA cannot appoint a statutory manager to assume control of the Australian business (or any other business) of a foreign regulated entity;
·
it is unclear whether APRA may invoke the voluntary or compulsory transfer of business powers available in the Transfer Act in respect of a foreign regulated entity; and
·
there is some ambiguity as to whether APRA can apply for the winding up of a foreign ADI's Australian business.

7.5 Given the risks that a distressed foreign regulated entity could pose to depositors or policyholders, or to financial system stability in Australia, this Bill enhances APRA's crisis management powers with respect to foreign ADIs and foreign insurers operating in Australia. These enhancements address the gaps in APRA's powers described above at 7.4.

7.6 These enhancements broadly reflect the international standard on resolution powers over branches as set out in the Key Attributes. The Key Attributes note that authorities should have resolution powers over local branches of foreign firms and the capacity to use the powers either to support a resolution carried out by a foreign home authority or, in exceptional cases, to take measures on its own initiative.

7.7 The powers would operate within the context of the challenges that may arise in the resolution of an entity with significant cross-border operations. In these cases, cooperation between the authorities in different jurisdictions will be important in ensuring that relevant powers can be applied in an effective and coordinated manner. Without this, it is possible that powers applied in one jurisdiction will not be recognised in other jurisdictions, leading to uncertainty for relevant stakeholders and a greater risk of disorderly outcomes. APRA will continue to develop its coordination of resolution plans with relevant authorities in other jurisdictions as part of resolution planning where relevant (see 10.5).

7.8 Where appropriate, APRA will be able to give due consideration to using the powers to facilitate the resolution of the relevant entity by its home resolution authority. In other circumstances, APRA may consider using the powers in instances where foreign authorities are unable or unwilling to intervene, or intervene in a manner that is inconsistent with the interests of Australian depositors or policyholders, or with financial system stability in Australia.

Summary of new law

7.9 Schedules 1 to 4 to this Bill amend the Industry Acts and the Transfer Act to:

·
provide APRA with powers to appoint a statutory manager to the Australian branch of a foreign regulated entity;
·
clarify APRA's powers to apply to wind up the Australian branch of a foreign regulated entity;
·
harmonise the power to direct a foreign regulated entity not to transfer assets out of Australia across the Industry Acts;
·
clarify APRA's powers to implement a voluntary or compulsory transfer of business of the Australian branch of a foreign regulated entity; and
·
provide APRA with an explicit power to revoke the authorisation of a foreign regulated entity in Australia if the entity's authorisation is revoked by a foreign country.

Comparison of key features of new law and current law

New law Current law
Definition of Australian business assets and liabilities of a foreign regulated entity
The Australian business assets and liabilities of a foreign regulated entity are defined in the Industry Acts to mean the assets and liabilities of the foreign regulated entity in Australia and other assets and liabilities of the entity related to its operations in Australia that are of a class or kind prescribed in regulations. Although the Industry Acts refer to 'business carried on in Australia' or 'business carried on outside Australia' in relation to a foreign regulated entity, these concepts are not clearly defined.
Appointing a statutory manager to the Australian business assets and liabilities of a foreign regulated entity
A statutory manager can be appointed to the Australian business assets and liabilities of a foreign regulated entity where certain pre-conditions are met. No equivalent.
Clarify APRA's ability to apply to the Court for the winding up of a foreign regulated entity
APRA may apply for the winding up of a foreign regulated entity on certain grounds. It is unclear whether APRA may apply for the winding up of a foreign ADI.
Enable APRA to revoke the authorisation of a foreign regulated entity if the entity's authorisation is revoked in a foreign country
APRA may revoke the authorisation of a foreign regulated entity in Australia if that entity's authorisation is revoked in a foreign country, including part of a foreign country. No equivalent.
Harmonise the power to direct a foreign regulated entity to not transfer assets out of Australia across the Industry Acts
The Insurance and Life Insurance Acts include equivalent provisions to those under the Banking Act that explicitly provide APRA with the power to direct that a foreign regulated entity transfer, or not transfer, assets or liabilities either to or out of Australia. The Banking Act explicitly provides for APRA to direct a foreign ADI to transfer, or not transfer, assets or liabilities either to or out of Australia.
Implementing a voluntary or compulsory transfer of the Australian business assets and liabilities of a foreign regulated entity
APRA may implement a voluntary or compulsory transfer of the Australian business assets and liabilities of a foreign regulated entity where certain pre-conditions are met. It is unclear whether the Transfer Act allows APRA to implement a voluntary or compulsory transfer of business of a foreign regulated entity.

Detailed explanation of new law

General provisions

Definition of Australian business assets and liabilities

7.10 The Bill amends the Industry Acts and the Transfer Act to include a new definition, 'Australian business assets and liabilities', which is defined as:

·
the assets and liabilities of the foreign regulated entity in Australia;
·
any other assets and liabilities of the foreign regulated entity related to its operations in Australia that are of a kind specified in regulations. [Schedule 1, items 4 and 59, subsections 5(1) and 11E(3) of the Banking Act; Schedule 2, items 1 and 66, subsections 3(1) and 62ZVA(3) of the Insurance Act; Schedule 3, items 6 and 110, subsection 16ZE(6) and Schedule Dictionary of the Life Insurance Act; Schedule 4, item 3, subsection 4(1) of the Transfer Act]

7.11 This definition determines the scope of assets and liabilities of a foreign regulated entity that may be placed under statutory or judicial management, or the subject of voluntary or compulsory transfer under Part 4 of the Transfer Act.

7.12 For the purposes of defining Australian business assets and liabilities, the terms 'asset' and 'liability' are also defined in each of the Industry Acts by reference to the way these terms are currently defined in section 4 of the Transfer Act. [Schedule 1, item 59, subsection 11E(3) of the Banking Act; Schedule 2, item 66, subsection 62ZVA(4) of the Insurance Act; Schedule 3, item 6, subsection 16ZE(6) of the Life Insurance Act]

7.13 The new regulation-making power in these provisions is intended to provide the flexibility to specify additional kinds of assets and liabilities of foreign regulated entities that should be considered part of its Australian business assets and liabilities for the purposes of the relevant provisions in the Industry Acts and the Transfer Act. For example, consideration might be given to using the regulations to prescribe assets and liabilities that are critical to the operation of a foreign regulated entity's activities in Australia, such as offshore servicing facilities or information technology infrastructure controlled by the Australian branch.

7.14 Note that, in the Industry Acts, these terms are defined in this way only for the purposes of the definition of 'Australian business assets and liabilities'. References to 'asset' or 'liability', or the location of an asset or liability, in other parts of the Industry Acts, whether in respect of domestically incorporated and/or foreign entities (for example, section 11F of the Banking Act, or sections 62ZZC and 116A of the Insurance Act) retain their original meaning.

Application of legislative provisions to foreign regulated entities

7.15 The Bill amends the Industry Acts to extend certain powers to foreign regulated entities.

7.16 The Bill amends the Industry Acts to apply provisions relating to statutory management, judicial management, and certain provisions on external administration, to foreign regulated entities. These provisions include:

·
Sections 12, 13BA, 13C and Subdivision B of Division 2 of the Banking Act (relating to statutory management of ADIs and target bodies corporate);
·
subsections 13A(1) and 13A(2) of the Banking Act, to the extent that those subsections relate to statutory management;
·
sections 62B, 62C, 62D and 62E of the Banking Act (relating to external administration of ADIs);
·
Divisions 1, 1A, and 2 of Part VB of the Insurance Act (relating to statutory and judicial management of general insurers and target bodies corporate, as well as to external administration of general insurers); and
·
Part 8 of the Life Insurance Act (relating to statutory and judicial management of life insurers and target bodies corporate, as well as to external administration of life insurers). [Schedule 1, item 59, section 11E of the Banking Act; Schedule 2, item 66, section 62ZVA of the Insurance Act; Schedule 3, item 6, section 16ZE of the Life Insurance Act]

7.17 To the extent that these powers do apply to foreign ADIs and foreign insurers, the amendments limit the scope of the powers to the 'Australian business assets and liabilities' of the foreign regulated entity and, where relevant, to the management of the foreign regulated entity as it relates to its Australian business assets and liabilities. The powers apply to foreign life insurers in a substantially similar way; see 7.19 to 7.22 [Schedule 1, item 59, subsection 11E(1) of the Banking Act; Schedule 2, item 66, subsection 62ZVA(1) of the Insurance Act]

7.18 The Insurance Act and Life Insurance Act currently include foreign insurers within the scope of the judicial management regime in each of those Acts. However, the "insurance business carried on outside Australia by a foreign general insurer" and the "life insurance business carried on outside Australia" by a foreign life company is currently excluded from the scope of judicial management (see existing section 62ZO of the Insurance Act and existing section 16ZE and subsection 165(4) of the Life Insurance Act). The position in relation to ancillary (non-insurance) business is less clear under the existing provisions. Depending on the circumstances, the amendments may expand the scope of assets and liabilities that a judicial manager may be appointed to control.

Scope of application in the Life Insurance Act

7.19 Existing Part 8 of the Life Insurance Act includes provisions relating to judicial management, external administration and winding up. It is amended to include the new statutory management provisions (see Chapter 2). In order to ensure that Part 8 is applied to foreign life insurers appropriately, a number of amendments are made to existing section 16ZE, which currently provides that the Life Insurance Act does not apply in relation to life insurance business carried on outside Australia by an eligible foreign life insurance company.

7.20 Under the Bill, all of Part 8, except for sections 180, 181, and 182 (which relate to applications for the winding up of life companies), will apply to only the Australian business assets and liabilities and the management of that business of a foreign life company. This covers the majority of provisions in Part 8, including the existing judicial management regime and new statutory management regime. [Schedule 3, item 6, subsections 16ZE(3) and 16ZE(4) of the Life Insurance Act]

7.21 Sections 180, 181, and 182 also apply to foreign life insurers. However, the Bill does not confine the application of these sections to the foreign life insurer's business that comprises its Australian business assets and liabilities, or to the management thereof. These sections relate to the winding up of life insurers, and allow APRA to apply for the winding up of a life insurer (including a foreign life insurer). The amendments exclude these sections in order to rely on the existing provisions in Part 5.7 of the Corporations Act that define the Australian courts' powers to wind up a foreign corporation. It will be a matter for the Court to determine the scope of the winding up order. This is particularly important in order to ensure that the scope assets and liabilities of the foreign life insurer that may be subject to such order is appropriate. In relation to provisions outside Part 8, section 16ZE will continue to provide that these do not apply in relation to life insurance business carried on outside Australia by an eligible foreign life insurance company. [Schedule3, item 6, subsection 16ZE(2) of the Life Insurance Act]

7.22 See 7.42 to 7.48 and Chapter 9 generally for more information about how the amendments to this Bill affect APRA's powers to apply for the winding up of regulated entities.

Consequential impact on the existing provisions of the Industry Acts

7.23 The Bill also repeals and replaces certain existing provisions of the Industry Acts that define the way that the Industry Acts apply to foreign regulated entities. This is necessary to provide certainty as to how these powers may be applied to foreign regulated entities. In particular, the Bill repeals section 62ZO of the Insurance Act (which currently excludes insurance business carried on outside Australia by a foreign general insurer from the scope of judicial management), and replaces it with a new section which provides that that the judicial management and new statutory management provisions only apply to the Australian business assets and liabilities, and related management, of a foreign general insurer. The Bill also makes extensive amendments to section 11E of the Banking Act (which sets out how the protection of depositor provisions in Division 2 of Part II of that Act apply in relation to foreign insurers) and 16ZE of the Life Insurance Act (which explains how the Act applies in relation to foreign life companies). [Schedule 1, items 58 and 59, section 11E of the Banking Act; Schedule 2, items 57 and 66, sections 62ZO and 62ZVA of the Insurance Act; Schedule 3, item 6, section 16ZE of the Life Insurance Act]

7.24 With respect to the Banking Act, the Bill preserves the existing position that Division 2 of Part II (except as it relates to statutory management) and Division 2AA of Part II of the Banking Act do not apply to foreign ADIs. Division 2 of Part II includes provisions relating to statutory management and recapitalisation directions. The recapitalisation direction provisions in Division 2 will not apply to foreign ADIs, but the statutory management provisions will apply in relation to the Australian business assets and liabilities of the foreign ADI and related management functions. Division 2AA relates to the financial claims scheme for protected account holders and it will not apply to a foreign ADI. [Schedule 1, item 58, section 11E(1B) of the Banking Act]

7.25 The Bill also ensures that the existing requirements in section 11F do not affect APRA's ability to take control of a foreign ADI's Australian business assets and liabilities. Section 11F currently provides that if a foreign ADI (whether in or outside Australia) suspends payment or becomes unable to meet its obligations, the assets of the ADI in Australia are to be available to meet the ADI's liabilities in Australia in priority to all other liabilities of the ADI. The Bill will amend this to ensure that this does not have the unintended effect of requiring a statutory manager to wind up the Australian business of a foreign ADI. (Similar amendments are made to section 13A of the Banking Act - see 2.87, 2.88 and 2.89.) APRA's resolution objectives, and the methods used to achieve those objectives during statutory management, are not intended to be constrained by the existing law that requires, in the event that a foreign ADI suspends payment or becomes unable to meet its obligations, the foreign ADI's assets in Australia to be available to meet its liabilities in Australia in priority to all other liabilities of the ADI. [Schedule 1, items 61 and 62, subsection 11F(2) of the Banking Act]

Appointing a statutory manager to the Australian business of a foreign regulated entity

Grounds for taking control of a foreign regulated entity

7.26 The Bill amends the Industry Acts to provide that the statutory management regime applicable to domestically-incorporated entities is also applicable to foreign regulated entities with respect to their Australian business assets and liabilities and the management of the foreign entity to the extent that the management relates to such business. In general, the grounds for such an appointment are the same as those on which a statutory manager may be appointed to a domestically-incorporated regulated entity, apart from the additional ground discussed at 7.27 and 7.28. [Schedule 1, item 58 and 59, section 11E of the Banking Act; Schedule 2, item 66, section 62ZVA of the Insurance Act; Schedule 3, item 6, section 16ZE of the Life Insurance Act]

7.27 The Bill also amends the Industry Acts to add further specific grounds for appointing a statutory or judicial manager to a foreign regulated entity where an external administrator has been appointed to that entity (or other similar appointment) in a foreign country, or there has been an application for the external administration of that entity (or another similar procedure) in a foreign country with respect that entity. this additional basis for appointment is described at 2.56, 2.67, 2.68 and 2.69. [Schedule 1, item 64, paragraph 13A(1)(e) of the Banking Act; Schedule 2, item 58, paragraph 62ZOA(2)(e) of the Insurance Act; Schedule 3, item 52, paragraph 179AA(2)(e) of the Life Insurance Act]

7.28 In the case of a foreign regulated entity, the new grounds for appointing a statutory manager or judicial manager also refer to processes similar to external administration, or applications for processes similar to external administration, that may be instituted overseas in respect of that entity. These processes include an action by a resolution authority in another jurisdiction to administer or otherwise take control (whether directly or indirectly) of the business of a foreign regulated entity. In a cross-border context there may be a need for resolution actions to be coordinated between authorities in different jurisdictions. As such, it is important for APRA to have the powers to respond to a foreign resolution authority implementing a resolution action in respect of a foreign regulated entity. APRA could use its power to take control of a foreign regulated entity to support or facilitate action by a foreign resolution authority or to take measures on its own initiative to resolve the entity's operations in Australia.

Effect of statutory management on directors and management of a foreign regulated entity

7.29 The Bill amends the Industry Acts to provide greater certainty about the effects of statutory management on the governance arrangements for a foreign regulated entity. [Schedule 1, item 174, subsections 15(3A) to 15(3C) of the Banking Act; Schedule 2, item 58, subsections 62ZOP(7) to 62ZOP(9) of the Insurance Act; Schedule 3, item 52, subsections 179AP(7) to 179AP(9) of the Life Insurance Act]

7.30 While the appointment of a statutory manager to a domestically-incorporated entity causes its directors to cease to hold office, this approach would not be appropriate regarding a foreign regulated entity which will have other operations outside Australia that are not within the scope of statutory management in Australia.

7.31 Instead, the amendments provide that the directors of the foreign regulated entity are prevented from acting in relation to the Australian business assets and liabilities of a foreign regulated entity, or the management of the body corporate to the extent that it relates to such assets and liabilities, once the entity is under statutory management. [Schedule 1, item 174, subsections 15(3B) and 15(3C) of the Banking Act; Schedule 2, item 58, subsections 62ZOP(7) and 62ZOP(9) of the Insurance Act; Schedule 3, item 52, subsections 179AP(7) and 179AP(9) of the Life Insurance Act]

7.32 The Bill also provides that the appointment of an agent in Australia of a foreign general insurer, and the Compliance Committee members of a foreign life insurer, ceases to have effect once a statutory manager takes control of the entity's Australian business assets and liabilities. Further, such a person may not be reappointed for the duration of statutory management. It is intended that the statutory manager have the powers and functions of the agent in Australia or Compliance Committee members for the duration of statutory management. As is the case for directors of the foreign insurer, any acts or purported acts by the former agent in Australia or Compliance Committee after the commencement of statutory management are invalid and of no effect. [Schedule 2, item 58, subsections 62ZOP(3) , 62ZOP(4) and 62ZOP(6) of the Insurance Act; Schedule 3, item 52, subsections 179AP(3), 179AP(4) and 179AP(6)of the Life Insurance Act]

Termination of statutory management of a foreign regulated entity

7.33 The Bill amends the Insurance and Life Insurance Acts to implement specific provisions for the termination of statutory management of foreign insurers. In particular, the amendments change the matters to be addressed by APRA before the ultimate termination of control of a foreign insurer under the Insurance and Life Insurance Acts.

7.34 The harmonised statutory management regime under each of the Industry Acts requires APRA to take certain steps before it can terminate the statutory management of a regulated entity. These steps require APRA to ensure that the regulated entity has directors in place. This can be by ensuring that directors are validly appointed under the entity's constitution or by the statutory manager appointing directors to the entity. Alternatively, APRA is required to ensure that a liquidator has been appointed to the entity.

7.35 The amendments create further requirements where APRA is terminating the statutory management of a foreign insurer under the Insurance or Life Insurance Acts. Before ending the statutory management of a foreign insurer, APRA must ensure that an agent in Australia is appointed in the case of a foreign general insurer, or a Compliance Committee established in the case of a foreign life insurer. Otherwise, APRA must ensure that a liquidator has been appointed to the Australian business assets and liabilities of the foreign insurer. [Schedule 2, item 58, subsection 62ZOC(2) of the Insurance Act; Schedule 3, item 52, subsection 179AC(2) of the Life Insurance Act]

7.36 These amendments are intended to ensure foreign insurers have functional local governance structures to continue operations in Australia after statutory management.

Effect of judicial management on agents in Australia and Compliance Committees of foreign insurers

7.37 The Bill amends the Insurance and Life Insurance Acts to provide that an agent in Australia for a foreign general insurer and the members of a Compliance Committee for a foreign life insurer cease to have their powers and functions upon the appointment of a judicial manager to a foreign insurer, and they lose these powers and functions for the period that the foreign insurer is under judicial management. [Schedule 2, item 38, subsection 62T(1) of the Insurance Act; Schedule 3, item 33, subsection 165(1) and 165(2) of the Life Insurance Act]

7.38 The Insurance Act requires all foreign general insurers and subsidiaries of foreign general insurers to have an agent in Australia (see existing section 118 of the Insurance Act). Similarly, the Life Insurance Act requires all foreign life insurers to have a Compliance Committee (see existing section 16ZF of the Life Insurance Act). Agents in Australia and Compliance Committees have a number of powers and functions with respect to the Australian operations of a foreign insurer. However, the current law does not explain the effect of judicial management on the agent in Australia or the members of a Compliance Committee.

7.39 These amendments interact with the amendments to the judicial management provisions in the Insurance and Life Insurance Acts (explained in Chapter 2 - see 2.115 to 2.121) that ensure that persons with the powers and functions of an officer of an insurer cease to have those powers and functions for the duration of judicial management.

7.40 The amendments put beyond doubt that agents in Australia and members of Compliance Committees cannot exercise their powers and functions during the judicial management of a foreign insurer, given that this would conflict with a judicial manager's control of a foreign insurer with respect to its Australian business assets and liabilities.

7.41 The Bill also ensures that, upon the cancellation of judicial management of a foreign insurer, the agent in Australia or members of the Compliance Committee (as appropriate) regain their powers and functions. [Schedule 2, item 50, paragraph 62ZF(5)(c) of the Insurance Act; Schedule 3, item 45, paragraph 172(5)(c) of the Life Insurance Act]

Clarify that APRA may apply to the Court for the winding up of a foreign regulated entity

7.42 The Bill amends the Industry Acts to include specific provisions relating to the winding up of a foreign regulated entity. These amendments clarify that APRA may apply to the Federal Court of Australia for the winding up of a foreign regulated entity.

7.43 Regarding foreign ADIs, the Bill provides three grounds on which APRA may apply for the winding up of a foreign ADI;

·
where the foreign ADI is unable to meet its liabilities in Australia, or in one or more foreign countries, as and when they become due and payable;
·
where application for the winding up or other external administration of the foreign ADI, or for a similar procedure in respect of the foreign ADI, has been made in one or more foreign countries; or
·
an external administrator has been appointed to the foreign ADI, or a similar appointment in respect of the foreign ADI has been made, in one or more foreign countries. [Schedule 1, item 60, section 11EA of the Banking Act]

7.44 In a cross-border context there may be a need for resolution actions to be coordinated between authorities in different jurisdictions. As such it is important for APRA to have the powers to respond to the application for, or commencement of, procedures in foreign jurisdictions, such as a foreign resolution authority implementing a resolution action in respect of a foreign regulated entity. APRA could use its power to apply for winding up to support or facilitate action by a foreign resolution authority or to take measures on its own initiative to quickly secure the assets of a distressed foreign ADI in order to meet its liabilities in Australia. If APRA's application results in an order for the winding up of a foreign ADI, the winding up is to be conducted in accordance with the Corporations Act.

7.45 The amendments also adapt the existing requirement in subsection 14E(3), providing that APRA must notify the Minister if it has made an application for the winding up of a foreign ADI. [Schedule 1, item 60, subsection 11EA(3) of the Banking Act]

7.46 The Bill also includes amendments to existing section 181 of the Life Insurance Act in relation to foreign life insurers to provide that APRA may apply for the winding up of a foreign life insurer where an application for, the appointment of, an external administrator (or similar procedure) has been commenced or occurred in a foreign country. [Schedule 3, item 54, subsection 181(2) of the Life Insurance Act]

7.47 The current law already provides that APRA may apply for the winding up of a general insurer, including a foreign general insurer, under the Insurance Act (under section 62ZU) or under the Corporations Act (under section 62ZV). As such, analogous amendments to the Insurance Act of the kind made to the Banking Act are not necessary because APRA may apply for the winding up of a foreign general insurer under the Corporations Act in circumstances set out in that Act.

7.48 As a minor amendment, a note has been added to section 62ZV to explain the relationship between sections 62ZU and 62ZV of the Insurance Act and sections 459P and 462 of the Corporations Act. [Schedule 2, item 65, section 62ZV of the Insurance Act]

Enable APRA to revoke the authorisation of a foreign-regulated entity if the entity's authorisation is revoked by a foreign country

7.49 The Bill amends the Industry Acts to enable APRA to revoke the authorisation of a foreign regulated entity to carry on banking or insurance business if the entity's authorisation is revoked or otherwise withdrawn in a foreign country.

7.50 The amendments provide APRA with the power to revoke a foreign regulated entity's authorisation in Australia if its authorisation has been revoked or withdrawn in a foreign country, without having to satisfy further grounds for revocation. This may be important where the entity's conduct in a foreign country has been of such prudential concern as to warrant the revocation of its authorisation to conduct banking or insurance business in Australia. It is not intended to be relevant in a situation where an authorisation in a foreign country has been withdrawn for reasons that do not give rise to prudential concerns, for example where the entity has ceased its operations in the foreign country.

7.51 To this end, the Bill includes this new power within the relevant parts of the Industry Acts. [Schedule 1, item 16, paragraph 9A(2)(j) of the Banking Act; Schedule 2, item 11, paragraph 15(1)(fa) of the Insurance Act; Schedule 3, item 8, paragraph 26(1)(h) of the Life Insurance Act]

7.52 Note that a reference to a 'foreign country' is intended to include any jurisdictions within a foreign country. For example, where a foreign regulated entity has its licence revoked by an authority within a state of a foreign country.

Harmonise the power to direct that a foreign regulated entity not transfer assets out of Australia across the Industry Acts

7.53 The Bill amends the Insurance and Life Insurance Acts to provide APRA with an explicit power to direct foreign insurers in respect of transfers of assets and liabilities in or out of Australia.

7.54 The Banking Act already includes a specific power for APRA to make a direction to a foreign ADI to require that it transfer, or not transfer, assets or liabilities either to or out of Australia. In general terms existing subsection 11CA(2B) of the Banking Act gives APRA power to direct a foreign ADI to:

·
return assets to the control of the Australian business;
·
not transfer them out of the control of the Australian business;
·
ensure that liabilities ceases to be the responsibility of the Australian business; or
·
not act in a way that results in them becoming the responsibility of the Australian business.

7.55 These amendments add equivalent provisions to the Insurance and Life Insurance Acts so that APRA can make a direction of this kind to a foreign insurer. [Schedule 2, item 118, subsection 104(4A) of the Insurance Act; Schedule 3, item 88, subsection 230B(3A) of the Life Insurance Act]

7.56 These provisions are not intended to limit the scope of APRA's other directions powers, which are also applicable to foreign regulated entities.

7.57 Minor stylistic amendments have been made to improve the expression of paragraphs 11CA(2B)(a) and 11CA(2B)(b) of the Banking Act, and these amendments have been copied into the new provisions of the Insurance and Life Insurance Acts. [Schedule 1, items 40 and 41, paragraphs 11CA(2B)(a) and 11CA(2B)(b) of the Banking Act]

Implementing a voluntary or compulsory transfer of Australian business assets and liabilities of a foreign regulated entity

7.58 The Bill amends the Transfer Act to include specific provisions for the transfer of Australian business assets and liabilities of a foreign regulated entity.

7.59 While the Transfer Act does not explicitly exclude the possibility of voluntary or compulsory transfers of business from foreign regulated entities, it does not address the practicalities of such a transfer.

7.60 In particular, the Transfer Act does not establish the scope of assets and liabilities of a foreign regulated entity that might be transferred under the powers in that Act, and it includes some provisions which might be taken to imply that such transfers are not possible. In particular, existing paragraphs 11(1)(d) and 25(2)(f) currently provide that, in order for APRA to approve or determine a transfer, APRA must be satisfied that complementary State or Territory legislation exists where the transferring and receiving bodies are established. This arguably means that a transfer is only possible where the transferring and receiving bodies are established in Australia.

7.61 The Bill includes new definitions of 'eligible foreign life insurance company', 'foreign ADI', and 'foreign general insurer' that correspond to the equivalent definitions in the Industry Acts, as well as a definition of 'Australian business assets and liabilities' which aligns with the equivalent definition added to the Industry Acts under the amendments described at 7.10 to 7.17. [Schedule 4, items 3and 6, subsection 4(1) of the Transfer Act]

7.62 Further, the Bill inserts a new provision that states that, for the purposes of a voluntary or compulsory transfer of business from a foreign regulated entity, the Australian business assets and liabilities of the foreign regulated entity are to be treated as if they comprised the entire business for the purposes of the relevant provisions in the Transfer Act. [Schedule 4, item 96, section 43A of the Transfer Act]

7.63 These amendments only relate to transfers under the Transfer Act. They do not affect the existing provisions for the voluntary transfer of business of a general insurer or life insurer (including a foreign insurer) under Part III, Division 3A of the Insurance Act or Part 9 of the Life Insurance Act.

7.64 These amendments are intended to remove any ambiguity in Australian law about which assets and liabilities are covered under a transfer of business from a foreign regulated entity under Part 3 or Part 4 of the Transfer Act.

7.65 The Bill also amends existing paragraphs 11(1)(d) and 25(2)(f) to remove any inference that the transferring and receiving bodies must be established in Australia. Those provisions will now be expressed to apply "where" these bodies are established in Australia. For other changes affecting these provisions, see 4.43. [Schedule 4, items 28 and 53, paragraphs 11(1)(d) and 25(2)(f) of the Transfer Act]

Consequential amendments

Foreign insurers may issue policies during judicial management in certain circumstances

7.66 The Bill includes new provisions that explicitly permit the issuing of policies by a foreign insurer that is under judicial management in the course carrying on life insurance business carried on outside Australia. This position reflects the current law in subsection 62T(3) and section 62ZO of the Insurance Act and section 16ZE and subsection 165(4) of the Life Insurance Act. [Schedule 2, item 66, subsection 62ZVA(2) of the Insurance Act; Schedule 3, item 6, subsection 16ZE(5) of the Life Insurance Act]

Application and transitional provisions

7.67 Directions given by APRA to insurers (see 7.54) apply to directions given on or after the commencement time. [Schedule 2, Part 2, item 140; Schedule 3, item 119]


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