Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)Chapter 3 Objects of the Banking Act
Outline of Chapter
3.1 Schedule 4 to the Bill modernises the Banking Act by inserting an objects provision. Similar industry Acts, the Life Insurance Act 1995 and the Insurance Act 1973 contain objects provisions which guide the reader on the main purposes of the Act.
Context of amendments
3.2 These amendments are being made in order to modernise the Banking Act and ensure consistency with similar industry Acts. While the amendments do not have any operative effect, they provide a clear signal to the reader of the objects and purposes of the Banking Act.
Summary of new law
3.3 An objects provision is being inserted to the Banking Act to signal that Act's primary purposes including the protection of depositors in ADIs consistent with the continued development of a viable, innovative and competitive banking industry.
Comparison of key features of new law and current law
| New law | Current law |
| A new objects provision will be inserted to the Banking Act to outline the high level objectives of the Act. | No equivalent in current law. |
Detailed explanation of new law
3.4 The current Banking Act was first enacted to law in 1959. In the intervening years, many significant events have occurred in the industry, including the establishment of APRA in 1998. While there has been significant amendment made to the original Banking Act, an objects clause had not been included.
3.5 The Banking Act is currently subject to several significant amendments reflecting the importance of a strong banking sector to the Australian economy. As a result of the Crisis Resolution amendments, the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2017 which will establish the BEAR and the measures contained in this Bill, a comprehensive update of the Banking Act is underway.
3.6 Updating the Banking Act with an objects provision assists the reader to understand the multiple objectives of the Act.
3.7 The main objects continue to be the protection of depositors in ADIs consistently with the continued development of a viable, competitive and innovative banking industry and the promotion of financial system stability in Australia. [Schedule 4, item 1, paragraphs 2A(1)(a) and (b)]
3.8 The objects provision notes that the Banking Act, together with prudential standards as determined by APRA, promote the main objects by restricting who can carry on banking business in Australia and establishing prudential standards for the prudent management of ADIs in Australia. [Schedule 4, item 1, paragraphs 2A(2)(a) and (b)]
3.9 Further, the objects provision notes that non-Authorised Deposit-taking Institutions lender rules will enable APRA to ensure that this sector of the financial services industry is not engaged provision of finance which could result in material risks to the stability of the Australian financial system. [Schedule 4, item 1, paragraph 2A(2)(g)]
3.10 Incorporating changes made by the Crisis Resolution amendments, the Banking Act will provide for APRA to manage or respond to circumstances in which the ability of an ADI to meet its obligations may be threatened. The objects provisions also illustrates APRA's role as the administrator of the FCS.
3.11 The objects provision will also reference the new BEAR powers which are being provided to APRA. The BEAR will impose heightened obligations on bank executives in line with their position of trust and influence in these important financial institutions. [Schedule 4, item 1, paragraph 2A(2)(e)]
3.12 The ability of APRA to take into account a range of factors in addressing any systemic risks to the Australian financial system stability is also captured in the objects clause. These factors can include, but are not limited to, geographic, sectoral or other issues and APRA's analysis of potential risk will continue to reflect on these factors. [Schedule 4, item 1, subsection 2A(3A)]
3.13 The objects provision does not apply to those parts of the Banking Act which deal with foreign exchange, foreign investment, gold or interest rates. Nor does it apply to any provisions within the Banking Act which deal with these subject matters as captured by Parts III, IV and V of the Banking Act. [Schedule 4, item 1, subsection 2A(4)]