Explanatory Memorandum
(Circulated by authority of the Assistant Minister for Productivity, Competition, Charities and Treasury, the Hon Dr Andrew Leigh MP)Chapter 3: Frequency of Financial Regulator Assessment Authority reviews
Outline of chapter
3.1 Schedule 3 to the Bill amends the FRAA Act to reduce the frequency of FRAA's reviews of ASIC and APRA to every five years. This change lessens the regulatory burden on ASIC and APRA and allows for more comprehensive reviews by the FRAA.
Context of amendments
3.2 The FRAA is an independent statutory body, tasked with assessing and reporting on the effectiveness and capability of ASIC and APRA. It was established in 2021 following recommendations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, which identified a need for regular capability reviews of ASIC and APRA as well as a new, independent oversight authority to assess the effectiveness and capability of the financial regulators.
3.3 The FRAA is comprised of three panel members – the Chair and two other members. Members are appointed by the Minister under section 24 of the FRAA Act by written instrument for periods not exceeding five years, and are supported in their role by a secretariat of Treasury staff.
3.4 Both ASIC and APRA operate within complex accountability and regulatory frameworks. Reviews into both regulators therefore involve extensive consideration of both the regulatory framework and the effectiveness and capabilities of the financial regulators.
3.5 Consistent with recommendations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the FRAA Act established the FRAA to conduct these reviews every two financial years. However, following the conduct of the first of these statutory reviews, it was considered that this did not provide ASIC and APRA with sufficient time to adequately respond to findings or implement recommendations in between FRAA reviews. Changing the review frequency will also provide the FRAA with more time to meaningfully evaluate the performance of the regulators. Reviews will be broader in scope and will be able to consider the operation of the regulators as a whole, rather than only a specific aspect.
Summary of new law
3.6 Schedule 3 to the Bill amends the FRAA's legislation to require reviews of each regulator to be conducted by the FRAA every five years, rather than on a rolling biennial basis.
3.7 These changes will reduce the administrative burden on ASIC and APRA and will allow for a more comprehensive review process for these financial system regulators.
3.8 Schedule 3 to the Bill also provides that there is no requirement that the FRAA have members at any particular time, to allow for periods between reviews where there are no members.
Detailed explanation of new law
Frequency of reviews by FRAA reduced
3.9 Schedule 3 to the Bill amends the FRAA Act to provide that the FRAA must undertake assessments of ASIC and APRA every five years. This is a reduction in the reporting frequency from the current requirement of assessment every two years. [Schedule 3, item 8, subsection 13(1) of the FRAA Act]
3.10 '5-yearly report' is defined to mean a report mentioned in paragraphs 12(1)(a) and (b) of the FRAA Act, which specify that two of the functions of the FRAA are to assess and report to the Minister on the effectiveness and capability of APRA and ASIC, respectively. The definition of 'biennial report' is repealed. [Schedule 3, items 2 and 3, section 5 of the FRAA Act]
3.11 References to '2 years' and 'biennial' throughout the Act are omitted and substituted with '5 financial years' and '5-yearly'. [Schedule 3, items 1, 4, 7, 9 and 10, sections 4, 8, 13 (heading), 17 (heading) and 17 of the FRAA Act]
3.12 The requirement to review ASIC and APRA every two years necessarily meant that the FRAA would be able to review only a portion of the regulators' functions in each review. This extended review cycle improves the FRAA's ability to achieve its objectives under the FRAA Act and encourages future reviews to be more comprehensive. It is intended that this will deliver more holistic and valuable feedback on the performance of ASIC and APRA, despite the reviews being less regular. Additionally, the regulators will have sufficient time to consider and respond to recommendations, and potentially implement changes, before the next review is commenced.
3.13 The first of these five-yearly assessments must take place between 1 July 2023 and 30 June 2028. Subsequent assessments must be undertaken once in each successive period of five financial years thereafter. [Schedule 3, item 8, subsection 13(1) of the FRAA Act]
The FRAA may have vacancies from time to time
3.14 Due to the extension of time between reviews, it is anticipated that there will be no members appointed to the FRAA for periods when the FRAA is not actively performing its statutory role as an assessor of the financial regulators. It is intended that the Minister will make new appointments in anticipation of a new reporting cycle, or when there is a requirement for an ad hoc review. [Schedule 3, items 5, 6, 11 and 12, subsections 10(1), 10(2), 24(4) and 24(6) of the FRAA Act]
3.15 Under section 11 of the FRAA Act, the FRAA is taken to be part of the Department of Treasury, so the Secretary of the Department of Treasury, as the accountable authority of the Department, is also the accountable authority for the FRAA for the purposes of the Public Governance, Performance and Accountability Act 2013. The Secretary therefore has the range of obligations, duties and functions of the accountable authority for the FRAA under that Act (for example, ensuring that the secretariat is adequately resourced in anticipation of a new resourcing cycle) which continue during any period where there are no members of the FRAA. This arrangement means that the Secretary will remain responsible for any ongoing public accountability responsibilities of the FRAA during any period of inactivity, including in respect of annual reporting and financial management.
3.16 Similarly, the Secretary, as the agency head for the staff who assist the FRAA under section 36 of the FRAA Act, has the responsibilities of an agency head for the APS staff who provide the secretariat for the FRAA. As these responsibilities lie with the Secretary, periods in which the FRAA does not have any members will not necessarily affect employment arrangements for the Secretariat.
Commencement provisions
3.17 Schedule 3 to the Bill commences the day after Royal Assent.