House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Jim Chalmers MP)

Glossary

This Explanatory Memorandum uses the following abbreviations and acronyms.

General outline and financial impact

Implementation of Government response to the RBA Review

Outline

The Bill amends the RB Act and the Banking Act to implement the Government's response to the RBA Review. The amendments strengthen the RBA's governance framework, monetary policy framework, structures and systems. The Bill establishes a separate Monetary Policy Board and Governance Board and reinforces the independence of the RBA in the operation of monetary policy.

Date of effect

The amendments commence on the later of:

•

the first day of the next calendar month following the end of the period of three months starting on the day after Royal Assent; and

•

1 July 2024.

Proposal announced

This Bill partially implements the Government's response to the RBA Review, announced on 20 April 2023.

Financial impact

The changes will have a financial cost for the RBA, which it will manage through its internal budget. This includes the remuneration of additional statutory appointees.

The RBA does not receive an annual appropriation, and is not currently expected to pay a dividend to Government for a number of years (however, transfers from the RBA's earnings in the future will be formally determined by the Treasurer after consulting the RBA each year). It is therefore unlikely that the proposed changes will have a direct Budget impact.

Human rights implications

This Bill does not raise human rights issues. See Statement of Compatibility with Human Rights - Chapter 2.

Compliance cost impact

This measure does not have any impact on compliance costs.

Chapter 1: Implementation of the Government Response to the RBA Review

Outline of chapter

1.1 The Bill partially implements the Government's response to the RBA Review.

1.2 The amendments reinforce the independence of the RBA in the operation of monetary policy, renew the statutory objectives of the RBA, and strengthen decision making, accountability and transparency in monetary policy decisions and the RBA's corporate governance.

1.3 The amendments replace the existing Reserve Bank Board with a new Monetary Policy Board and Governance Board.

•

The Monetary Policy Board is responsible for the monetary and financial system stability policies of the RBA.

•

The Governance Board is the accountable authority of the RBA for the purposes of the PGPA Act. It determines the policy of the RBA with respect to matters relevant to the functions of the RBA but not within the remit of the Monetary Policy Board or the Payments System Board.

•

The Payments System Board continues to set payments system policy.

1.4 The amendments modify the legislative objectives for monetary policy, to clarify the accountabilities of the RBA.

1.5 The amendments also remove the Government's power to override decisions of the Reserve Bank Board, and remove the RBA's power to determine the lending policy of banks.

1.6 All legislative references in this chapter are to the RB Act, unless specified otherwise.

Context of amendments

The RBA

1.7 The RBA is Australia's central bank. It is tasked with promoting the economic welfare of the people of Australia through the use of its monetary and financial policies and operations.

1.8 In the existing structure, the RBA has two boards with separate functions:

•

the Reserve Bank Board, which has been responsible for setting the monetary and banking policy of the RBA and the RBA's policy on all other matters except for its payments system policy. This included exercising its functions to best contribute to:

-

the stability of the currency;

-

the maintenance of full employment in Australia; and

-

the economic prosperity and welfare of the people of Australia;

•

the Payments System Board, which is responsible for the RBA's payments system policy. The Payments System Board must direct its payments system policy to the greatest advantage of the people of Australia.

1.9 Additionally, the RBA is responsible for delivering efficient and effective banking services to the Australian Government, and the provision of secure and reliable banknotes.

The RBA Review

1.10 Over recent decades the economic and financial environment has become more complex. To best meet current and future challenges, the Government is committed to improving Australia's monetary policy framework and decision-making processes.

1.11 In July 2022, the Treasurer commissioned an independent and comprehensive review of the RBA. The RBA Review's recommendations were designed to ensure that Australia's monetary policy arrangements and the operations of the RBA across its remit continue to support strong macroeconomic outcomes for Australia in a complex and continuously evolving landscape.

1.12 The RBA Review was the first independent and comprehensive review of the RBA since flexible inflation targeting was introduced in the 1990s. The RBA Review looked back over the past three decades to identify opportunities to strengthen Australia's monetary policy framework and the central bank's culture and processes to support ongoing public confidence in the RBA.

1.13 The RBA Review was provided to the Government on 31 March 2023 and released publicly, along with the Government's initial response, on 20 April 2023.

1.14 The RBA Review found that the RBA is a well-regarded institution that has served Australia well. It also identified opportunities to strengthen Australia's monetary policy framework and strengthen the RBA into the future.

1.15 The RBA Review made 51 specific recommendations under 14 broader headings, organised under five themes:

•

a clearer monetary policy framework;

•

stronger monetary policy decision making and accountability;

•

an open and dynamic RBA;

•

more robust corporate governance;

•

RBA leaders drive institutional and cultural change.

1.16 The RBA Review's recommendations aim to build on the RBA's strengths as a high performing institution that best supports decision makers to pursue an overarching objective of promoting the economic prosperity and welfare of the people of Australia, both now and into the future.

1.17 The Government, in its initial response to the RBA Review, committed in-principle to the implementation of the RBA Review's recommendations.

1.18 Amendments to the RB Act and the Banking Act are required to implement some of the RBA Review's recommendations. The following recommendations are wholly or partially implemented by the Bill:

•

Recommendation 1 - affirm the RBA's independence and clarify its statutory monetary policy objectives;

•

Recommendation 5 - legislate the RBA's financial stability role;

•

Recommendation 8 - constitute an expert Monetary Policy Board with diverse perspectives and knowledge;

•

Recommendation 12 - update RBA oversight and accountability by establishing a Governance Board.

1.19 The remaining recommendations are being implemented administratively by the RBA and the Government, including through the Statement on the Conduct of Monetary Policy. The Statement has historically been agreed between the Reserve Bank Governor and the Treasurer. Future statements would be agreed by the Reserve Bank Board or Monetary Policy Board and the Government. Several recommendations are also being progressed by the Council of Financial Regulators (which includes the RBA as a member).

Comparison of key features of new law and current law

Table 1.1 Comparison of new law and current law

Detailed explanation of new law

Affirming the RBA's independence

Removing the Government's policy override power

1.20 The RB Act provided a mechanism to settle differences of opinion between the RBA and the Government on policy (see former section 11 of the RB Act). Where the RBA and the Government disagreed on a policy determined by one of the boards of the RBA (being the Reserve Bank Board and the Payments System Board) and were unable to reach agreement, the Governor General-in-Council was empowered to determine the policy of the RBA by order.

1.21 No Australian Government has used this power. However, the RBA Review recognised that the continued existence of such a power risks the independent operation of monetary policy.

1.22 The RBA Review cited evidence that the independence of monetary policy and the application of inflation targeting frameworks have coincided with an increase in the credibility of central banks' commitment to price stability and lower inflation outcomes. Conversely, where governments in other jurisdictions have asserted influence over monetary policy settings, this has contributed to high inflation and poor macroeconomic outcomes (see page 82 of the Review Report).

1.23 The RBA Review recommended that the existing mechanism for Government to overrule a decision of the RBA should be removed (Recommendation 1.1). The amendments repeal that mechanism, except in relation to decisions of the Payments System Board.

[Schedule 1, items 2 to 6, section 11]

1.24 Broadly consistent with the existing approach in the RB Act, the newly established Monetary Policy Board and Payments System Board are to keep the Government informed, from time to time, about the performance of their functions and the exercise of their powers, including the policies that are determined by each board. The Governance Board as accountable authority for the RBA under the PGPA Act has a duty to keep the Government informed more broadly about the activities of the RBA (see paragraphs 1.141 to 1.145).

[Schedule 1, item 1, section 11A]

Secretary of the Treasury

1.25 The Bill codifies the convention that the Secretary of the Treasury acts independently of the Government in their role on the Monetary Policy Board, and cannot be directed by the Treasurer (see paragraphs 1.66 to 1.71).

Removing RBA's power to determine the lending policy of banks

1.26 The Banking Act provides the RBA with the power to direct the lending activity of private banks. The RBA Review notes that the RBA was granted these powers when it had responsibility for the supervision of the banking sector. That responsibility was transferred to APRA in 1998.

1.27 With responsibility for the banking sector, including the responsibility for setting lending policy, clearly sitting with APRA, the RBA Review recognised that it is inappropriate for the RBA to maintain a power to determine the lending policy of banks (Recommendation 1.3). The RBA has not used this power since responsibility was transferred to APRA.

1.28 The amendments repeal the RBA's power to direct the lending activity of private banks under section 36 of the Banking Act, so that the RBA can no longer determine lending policies for private banks.

[Schedule 1, items 7 and 8, paragraph 2A(4)(a) and Division 5 of Part II of the Banking Act]

Objectives of the RBA

Objectives of monetary policy

1.29 Section 10 of the RB Act previously required the Reserve Bank Board to ensure that the monetary and banking policy of the RBA is directed to the greatest advantage of the people of Australia, and that the powers of the RBA (other than those overseen by the Payments System Board) are exercised in such a manner that will best contribute to:

•

the stability of the currency of Australia;

•

the maintenance of full employment in Australia; and

•

the economic prosperity and welfare of the people of Australia.

1.30 The amendments clarify that the RBA's objectives for monetary policy are a dual mandate to contribute to price stability and full employment. The Monetary Policy Board must exercise its function to determine the monetary policy of the RBA in a way that best contributes to price stability and full employment in Australia.

[Schedule 1, item 17, paragraph 9B(1)(a)]

1.31 These objectives matter for the welfare of Australians, are enduring, and are what monetary policy can best affect. Together they require the RBA to strike a balance between controlling inflation and supporting employment, in both the short and longer term.

1.32 The amendments change the reference to 'stability of currency' in the RB Act to 'price stability' as recommended by the RBA Review. The Statement on the Conduct of Monetary Policy suggests the modern interpretation of 'stability of currency' is to mean 'price stability'. The RBA Review was supportive of updating the legislation to match the modern interpretation of this objective.

1.33 These changes are not a substantial departure from the status quo. According to the Review Report, senior RBA officials have indicated, at times, that they already consider the objectives of monetary policy in these terms.

Overarching objective of the RBA

1.34 The amendments establish an overarching objective for the RBA that is distinct from the objectives of monetary policy (see Recommendation 1.2 of the RBA Review). Promoting the economic prosperity and welfare of the people of Australia, both now and into the future, is legislated to be the overarching objective for the RBA in the exercise of all its powers.

[Schedule 1, items 9 and 10, subsection 5(1) and subsection 8AA(1)]

1.35 As an overarching objective, each board of the RBA must conduct its activities in pursuit of this objective.

1.36 This overarching objective is lifted from the prior objective of monetary policy in the RB Act. It is not suited to be an additional objective for monetary policy, because this provides too much discretion to the RBA.

1.37 It is important to note that the RBA does not have responsibility for ensuring the maximum economic prosperity and welfare of the people of Australia. Rather, all its activities should be aimed towards contributing to that objective.

Financial stability function

1.38 Additionally, the amendments confirm that the RBA is responsible for contributing to the stability of Australia's financial system (see Recommendation 5.1 of the RBA Review).

[Schedule 1, item 59, section 45]

1.39 The Statement on the Conduct of Monetary Policy notes that the RBA promotes the stability of the Australian financial system in cooperation with other government agencies, including APRA, ASIC and the Treasury.

1.40 The Monetary Policy Board determines the policies of the RBA (other than its payments system policy) for its contribution to the stability of Australia's financial system (see paragraph 1.49).

Interaction of these objectives

1.41 The intent of these amendments is not to change what is the current understood objective of the RBA, nor to change the understood aims of its monetary policy, financial system stability policy or other polices. Rather, separating the overarching objective of the RBA from other objectives (such as the dual mandate of monetary policy) better defines the responsibilities of the RBA as an institution and the specific aims of its policies.

1.42 The RBA Review explained the change as follows (see page 88 of the Review Report):

The Review's recommendation reflects the importance of welfare in broad terms as a guide for the RBA's work, while creating the necessary focus of monetary policy objectives that would best match central bank tools and support clear accountability. Focusing monetary policy on price stability and full employment would not preclude the RBA considering a broad array of factors that influence economic outcomes, and from using flexibility in the monetary policy framework.

1.43 The following examples show how this is intended to work in practice:

•

The Monetary Policy Board, in setting the monetary policy of the RBA, fulfils the RBA's overarching objective of contributing to the economic prosperity and welfare of the people of Australia by contributing to price stability and full employment.

•

In setting policies to contribute to the stability of Australia's financial system, the Monetary Policy Board's overarching objective is to contribute to the economic prosperity and welfare of the people of Australia.

•

The RBA's bank note policies are to be determined by the Governance Board according to the overarching objective.

1.44 The RBA has functions conferred on it both by the RB Act and other Commonwealth laws. While the RBA must perform its functions and exercise its powers in a way that achieves the RBA's overarching objective, this is subject to any other Commonwealth law conferring functions or powers on the RBA. For example, the overarching objective is not intended to override the application of the public interest tests in the Payment Systems (Regulation) Act 1998.

[Schedule 1, item 10, subsections 8AA(2) and (3), section 8AB and note to section 8AB]

New Boards

1.45 A Monetary Policy Board, along with a Governance Board, replace the existing Reserve Bank Board.

[Schedule 1, item 25, sections 14 to 22B]

1.46 The Monetary Policy Board, Governance Board and Payments System Board make up the three Boards of the RBA.

[Schedule 1, item 17, subsection 9(1)]

Monetary Policy Board

1.47 The RBA Review recommended that, compared with the existing Reserve Bank Board, the Monetary Policy Board should contain more members with deep formal expertise on economic and financial system matters. Other members who bring a broader skillset, such as from business experience, should have sufficient knowledge, experience or training to make a significant and informed contribution to the formulation of monetary and financial system policy.

1.48 To this end, the amendments establish a separate board under the RB Act, the Monetary Policy Board, that is responsible for monetary policy and financial system stability policy.

[Schedule 1, item 17, section 9A]

Functions

1.49 The Monetary Policy Board's functions are:

•

to determine the monetary policy of the RBA in a way that, in the Board's opinion, best contributes to price stability and the maintenance of full employment in Australia;

•

to determine the policies of the RBA (other than its payments system policy) for its contribution to the stability of Australia's financial system;

•

to promote the proper, efficient and effective implementation of the policies that the Board is responsible for determining;

•

any other functions conferred on the Board by the RB Act; and

•

to do anything incidental or conducive to the performance of any of the above functions.

[Schedule 1, item 17, subsection 9B(1)]

1.50 The Board has the power to do all things necessary or convenient to be done for or in connection with the performance of its functions.

[Schedule 1, item 17, subsection 9B(2)]

1.51 For example, the Monetary Policy Board has the power to use the RBA's balance sheet to achieve the objectives of monetary policy. This is one way in which the Monetary Policy Board can contribute to the achievement of RBA's overarching objective through its functions.

1.52 When the Board is exercising its powers, it must have regard to the duties of the Governance Board as the RBA's accountable authority under the PGPA Act. See paragraphs 1.202 to 1.221 for further explanation on how the boards are intended to interact.

[Schedule 1, item 17, subsection 9B(3)]

1.53 However, the Board's failure to consider the duties of the Governance Board as the accountable authority does not invalidate the Monetary Policy Board's performance of its functions or the exercise of its powers. Nor does this give rise to an action or other proceeding for damages.

[Schedule 1, item 17, subsection 9B(4)]

1.54 The provision expressly preserves the validity of anything done despite the board's failure to consider a necessary factor. This provision is necessary to give legal certainty to decisions of the Monetary Policy Board, which should not be invalidated on the ground of a technical failure. It is important for there to be legal certainty about board decisions given the market-sensitive nature of those decisions and their far-reaching consequences across the economy.

Board members

Composition

1.55 The Monetary Policy Board comprises the Governor, Deputy Governor, the Secretary of the Treasury and six external members. The Governor is the Chair of the Monetary Policy Board and the Deputy Governor is the Deputy Chair.

[Schedule 1, item 56, section 25AA and subsections 25AC(1) and (2)]

1.56 The inclusion of six external members, representing a majority of the members on the Monetary Policy Board, provides a counterbalance to the influence of internal members and ensures monetary policy decisions are contestable and made with the benefit of a range of perspectives.

1.57 Consistently with that rationale, the previous ability under the Reserve Bank Board for one of the six to be an official is not carried across for the successor boards.

[Schedule 1, items 56 and 58, subsections 25AB(2) and 25NB(2)]

Conduct of members

1.58 Subject to the RB Act and other laws of the Commonwealth, members of the Monetary Policy Board must act in an independent and impartial manner when exercising their powers and performing their functions and duties. They cannot be directed by anyone including the Government. In particular, the Secretary of the Treasury is a member of the Board in their individual capacity.

[Schedule 1, item 56, section 25AK]

1.59 This provision implements Recommendation 8.3 in the RBA Review, which was specifically aimed at providing legislative certainty for the independence of the Secretary of the Treasury in undertaking their role as a member of the Monetary Policy Board (see paragraph 1.69). It also affirms that members of the RBA's boards do not represent sectional interests. This aligns with equivalent provisions for the Payments System Board (see paragraph 1.1291.129) and Governance Board (see paragraph 1.160).

1.60 All members of the Monetary Policy Board must make an oath or affirmation of allegiance and make a declaration of secrecy prior to commencing their role. However, this requirement does not apply to a member of the Monetary Policy Board who is also a member of the Governance Board or the Payments System Board and has already made the relevant declarations prior to joining the Monetary Policy Board.

[Schedule 1, item 56, subsections 25AJ(1) and (4)]

1.61 The oath or affirmation of allegiance, and declaration of secrecy, must be made before a justice of the peace or a commissioner for taking affidavits. The oath or affirmation of allegiance must be made in accordance with the form set out in the Schedule to the Constitution and the declaration of secrecy must be made in the prescribed form.

[Schedule 1, item 56, subsections 25AJ(2) and (3)]

1.62 The Government will seek to amend the Reserve Bank Regulation 2016 to update the prescribed forms for RBA board members' declaration of secrecy, to correspond with the new boards, in time for commencement of the Bill's reforms.

Chair and Deputy Chair

1.63 As recommended by the RBA Review, the Governor is to be the Chair of the Monetary Policy Board (Recommendation 8.2). The Governor has a depth of expertise and strong familiarity with monetary policy issues, including as a contributor to many regional and international bodies, and is a member of all three of the RBA's boards. The Governor is also responsible for communicating the decisions and reasoning of the Monetary Policy Board through regular press conferences.

[Schedule 1, item 56, subsection 25AC(1)]

1.64 The Deputy Governor, as Deputy Chair, acts as the Chair when the office of the Governor is vacant, or if the Governor is absent from duty or unable to perform the duties of the office. Section 33A of the AIA confirms the validity of actions performed by a person who is acting as the Chair.

[Schedule 1, item 56, subsections 25AC(2) and (3)]

1.65 The Deputy Governor as the Deputy Chair will provide valuable independent perspectives on monetary policy issues. They will (as was already the case) be free to take a position that differs from the Governor.

Secretary

1.66 The Bill maintains and strengthens existing arrangements under the RB Act for the Secretary of the Treasury to serve as an ex officio voting member on the RBA board responsible for monetary policy (the Board). The Secretary provides an independent economic perspective to the Board in their individual capacity, which can complement and challenge the views of RBA executive.

1.67 The Secretary has direct access to expert Treasury views on economic conditions and separate forecasts, which provide the Secretary with a different perspective from other Board members, including the Governor and Deputy Governor. In particular, the Secretary can provide insight on fiscal policy and serve an important function during crises as an information channel between monetary policy (the RBA) and fiscal policy (the Treasury) decision-makers.

1.68 In the past, the RB Act has not expressly provided for the independence of the Secretary, or provided clear direction on the Secretary's role on the Board. However, the independence of the Secretary on the Board is a well-established convention. The RBA Review found that the Secretary has not been directed in recent decades to argue the position of the Treasurer on the Board. The current Secretary has stated publicly that he is acting in an individual capacity when on the Board.

1.69 The Bill codifies this convention in the RB Act by clarifying that the Secretary acts independently of the Government in their role on the Monetary Policy Board and cannot be directed by the Treasurer in this regard (Recommendation 8.3).

[Schedule 1, item 56, section 25AK]

1.70 By doing so, this amendment adds safeguards around the continued involvement of the Secretary in monetary policy decision making and reinforces the Secretary's role as an avenue for information sharing between monetary and fiscal authorities.

1.71 The amendment is not intended to affect the Secretary's roles and responsibilities under section 57 of the Public Service Act 1999 and the Secretary's duties as the accountable authority of the Treasury under the PGPA Act.

External Board members

1.72 External Monetary Policy Board members are appointed by the Treasurer on a part-time basis by written instrument.

[Schedule 1, item 56, subsection 25AB(1)]

1.73 The RBA Review recommeded that future appointments should be supported by a skills matrix, which would set out the skills, experience and capabilities considered essential for the effectiveness of the Monetary Policy Board. The skills matrix will be implemented outside the RB Act, so it is flexible to evolving needs (see page 130 of the Review Report).

1.74 A person cannot be appointed as an external member of the Monetary Policy Board if they are employed by the Reserve Bank Service, a person appointed or engaged under the Public Service Act 1999, or a director, officer or employee of an authorised deposit-taking institution.

[Schedule 1, item 56, subsection 25AB(2)]

1.75 External Monetary Policy Board members are appointed for the period specified in the instrument of appointment, which cannot exceed a maximum term of five years.

[Schedule 1, item 56, subsection 25AD(1)]

1.76 An external Monetary Policy Board member may be reappointed consistent with section 33AA of the AIA. However, an external Monetary Policy Board member can only serve on the Board for a total of seven years. That is, the period of the reappointment can only be up to two years in addition to the five-year original term.

[Schedule 1, item 56, subsection 25AD(2)]

1.77 The option of reappointment for an additional two years affords flexibility to ensure appointments are appropriately staggered and promotes the independence of the Board. While the RBA Review recommended reappointments of up to one year (Recommendation 8.6), the Bill strikes a more flexible balance between renewal of the Monetary Policy Board and retaining talent.

1.78 A reappointment can be longer than two years if the original term was shorter than five years, as long as the seven-year maximum is not exceeded.

1.79 It is intended that an individual could serve on more than one of the RBA's boards concurrently, or sequentially, without the time served on one board counting towards the limit for another board. However, given the distinct roles of the boards, it is not expected that concurrent or sequential service would occur outside exceptional circumstances.

1.80 The Treasurer may, by written instrument, appoint a person to act as an external member of the Monetary Policy Board during a vacancy in the office of an external Monetary Policy Board member, during the absence of an external member, or where an external member is unable to perform the duties of the office. These acting appointments are subject to the rules in sections 33AB and 33A of the AIA.

[Schedule 1, item 56, section 25AE]

1.81 An external Monetary Policy Board member holds office subject to the terms and conditions (if any), in relation to matters not covered by the RB Act, as determined by the Treasurer.

[Schedule 1, item 56, section 25AF]

Remuneration and leave

1.82 The Remuneration Tribunal determines the remuneration of an external Monetary Policy Board member in accordance with the Remuneration Tribunal Act 1973. If no determination is in operation, the member is to be paid the remuneration as may be prescribed in regulations. Regulations may also prescribe allowances, subject to that Act.

[Schedule 1, item 56, section 25AG]

1.83 This is the standard provision for remuneration according to current legislative drafting practice, including the ability for regulations to prescribe remuneration and allowances.^[1]

1.84 The Monetary Policy Board can grant an external member leave of absence subject to terms and conditions determined by the Board.

[Schedule 1, item 56, section 25AH]

Resignation and termination

1.85 An external member of the Monetary Policy Board can resign their appointment by giving the Treasurer a written resignation. The resignation takes effect from the day the Treasurer receives it unless specified otherwise in the resignation.

[Schedule 1, item 56, sections 25AL]

1.86 The appointment of an external Monetary Policy Board member must be terminated by the Treasurer if the member:

•

becomes bankrupt;

•

applies to take the benefit of any law for the relief of bankrupt or insolvent debtors;

•

compounds with the member's creditors;

•

makes an assignment of the member's remuneration for the benefit of the member's creditors;

•

does not attend two consecutive meetings, or three meetings in any period of 12 months, unless they are on leave of absence;

•

is or becomes a staff member of the Reserve Bank Service;

•

is or becomes a person appointed or engaged under the Public Service Act 1999; or

•

is or becomes a director, officer or employee of an authorised deposit-taking institution.

[Schedule 1, item 56, subsection 25AM(2)]

1.87 The Treasurer may also terminate the appointment of an external Monetary Policy Board member due to a contravention of general duties of officials under section 30 of the PGPA Act.

[Schedule 1, items 15 and 56, subparagraph 7F(a)(i) and note to section 25AM]

1.88 The Treasurer may also terminate the appointment of an external Monetary Policy Board member due to misbehaviour, or if the member does not have the mental or physical capacity to perform the duties of the member's office.

[Schedule 1, item 56, subsection 25AM(1)]

Meetings

Frequency

1.89 The RBA Review recommended that the Monetary Policy Board meet at least eight times each calendar year to discuss issues that relate to the performance of its functions, including forecasts, strategy and monetary policy (Recommendation 9.1). The RBA announced in July 2023 that it intends to shift to this meeting pattern in 2024.

1.90 The RBA is adopting this frequency administratively, rather than the Bill stipulating the precise pattern. Instead, the Bill requires the Monetary Policy Board to hold such meetings as the Board determines are necessary for the efficient performance of its functions.

[Schedule 1, item 56, subsection 25AN(1)]

1.91 The Chair of the Monetary Policy Board can convene a meeting at any time and must preside at all meetings. If the Chair is not present at a meeting of the Monetary Policy Board, the Deputy Chair presides. If neither the Chair nor Deputy Chair are present, the other members of the Monetary Policy Board present must appoint one of themselves to preside.

[Schedule 1, item 56, subsection 25AN(2) and section 25AP]

Conduct of meetings

1.92 The Monetary Policy Board can regulate aspects of its proceedings not covered by the RB Act in any way it considers is appropriate. This includes regulating the way Board members can participate in meetings (see also section 33B of the AIA).

[Schedule 1, item 56, section 25AT]

1.93 A quorum is constituted by five members of the Monetary Policy Board. Members of the Board count towards determining if a quorum is present if they are either physically present at the meeting or participating through any means of communication agreed by the Board, for example, by telephone, video conferencing platform or closed-circuit television.

[Schedule 1, item 56, section 25AQ]

1.94 Voting at Monetary Policy Board meetings is by majority of the members present and voting. The presiding member has a deliberative vote and, in the case of a tie, a casting vote.

[Schedule 1, item 56, section 25AR]

1.95 If the Secretary of the Treasury is not present, the Secretary may nominate by written instrument a person who is an SES employee or acting SES employee in the Treasury to attend all or a singular Monetary Policy Board meeting. The nominated person is subject to the conditions contained within Part IIIAA of the RB Act as though they were the Secretary - including the duty to undertake their participation on the Board independently. This is consistent with the prior legislated arrangements for the Secretary's membership of the old Reserve Bank Board.

[Schedule 1, item 56, section 25AS]

Decisions out of session

1.96 The Monetary Policy Board can make a decision out of session if the Board has determined beforehand that it may make decisions of that kind without a meeting. The Board may only do so if the following conditions are met:

•

a majority of the members entitled to vote on the proposed decision must indicate their agreement;

•

the majority would have constituted a quorum if they were meeting;

•

the members must indicate their agreement in accordance with a method agreed by the Board beforehand; and

•

all members must have been informed of the proposed decision (or reasonable efforts must have been made to inform them).

[Schedule 1, item 56, subsections 25AU(1) and 25AU(2)]

1.97 A member is entitled to vote out of session if they would have been entitled to vote on the proposal at a meeting, and conversely a member cannot vote out of session if they would not have been entitled to vote on the proposal at a meeting.

[Schedule 1, item 56, subsection 25AU(3)]

1.98 The Monetary Policy Board must also keep a record of decisions made out of session.

[Schedule 1, item 56, subsection 25AU(4)]

Application of PGPA Act

Status of members

1.99 Monetary Policy Board members (except for the Governor and Deputy Governor) are taken not to be 'officials' for the purposes of the PGPA Act. Despite this exception, the general duties of officials outlined in sections 25 to 29 of the PGPA Act still apply to Monetary Policy Board members. This maintains the prior arrangement for external members of the old Reserve Bank Board.

1.100 The general duties of officials are applied to Monetary Policy Board members to ensure that members are held to the single set of high standards that apply to all officials across the Commonwealth. The general duties are based on the fiduciary duties in the Corporations Act 2001 and create consistency across the public, private and not-for-profit sectors. The general duties assist Board members who may have other roles to be clearer about their responsibilities and obligations as a Monetary Policy Board member.

1.101 By ensuring that external members of the Board are not classified as officials, other requirements that apply to officials under the PGPA Act are not applied to Monetary Policy Board members. For example, under section 20A of the PGPA Act the Governance Board, as the accountable authority of the RBA, can make accountable authority instructions that must be complied with by officials working in the RBA. These instructions would not apply to external members of the Monetary Policy Board. This structure ensures external members of the Board are effectively required to adhere to the behavioural standards of officials whilst promoting Board members' independence, which is crucial in performing their role.

[Schedule 1, item 15, section 7C]

Disclosures

1.102 The amendments transfer the prior arrangements, regarding the disclosure of material interests by Reserve Bank Board members when deciding matters of monetary policy, to Monetary Policy Board members making the same decisions.

1.103 Monetary Policy Board members, when deciding a monetary policy or financial system stability policy matter, can be present for discussion and vote on such matters where they have a material interest in the matter. However, members can only be present and vote if they have disclosed the interest to the Treasurer within the past 12 months, and since the disclosure there has been no substantial change in the interest. Where the interest has been disclosed and the member participates in discussion and votes on a relevant matter, they are taken to have complied with their duty to disclose interests and any rules made in relation to that duty.

[Schedule 1, item 15, section 7D]

1.104 In every other case where a Monetary Policy Board member has a material personal interest that relates to a matter being considered at a meeting, the settings in section 29 of the PGPA Act and sections 12, 14, 15 and 16D of the PGPA Rule apply as though the Monetary Policy Board were the accountable authority.

[Schedule 1, item 15, paragraph 7E(1)(a) and subsections 7E(2) and (3)]

1.105 For a matter in which a Monetary Policy Board member has a material personal interest that relates to the affairs of the RBA but is not being considered at a meeting of that Board, the settings in section 29 of the PGPA Act and accompanying provisions of the PGPA Rule apply.

Payments System Board

1.106 The Payments System Board is responsible for the RBA's payments system policy. The functions and remit of the Payments System Board was not within the RBA Review's terms of reference.

1.107 Amendments made to Part IIIA of the RB Act are generally consequential to other amendments made in the Bill to implement the RBA Review's recommendations, are made to ensure consistency across each of the RBA's boards, or are made to reflect current legislative drafting practice.

1.108 It is not the intention of the amendments to change the responsibilities or remit of the Payments System Board as existing prior to the commencement of the amendments.

Functions

1.109 Section 10B outlining the functions of the Payments System Board is repealed and replaced to restate the existing functions of the Payments System Board within the new three-board structure. It is not intended to change the scope of the Payments System Board's functions.

Preserved arrangements

1.110 The Payments System Board functions are:

•

to determine the RBA's payments system policy in a way that, in the Board's opinion, is directed to the greatest advantage of the people of Australia;

•

to promote the proper, efficient and effective implementation of the policies that the Board is responsible for determining;

•

to ensure the RBA's functions and powers under the Payment Systems (Regulation) Act 1998 and the Payment Systems and Netting Act 1998 are performed and exercised in a way that best contributes to:

-

controlling risk in the financial system;

-

promoting the efficiency of the payments system;

-

promoting competition in the market for payment services;

•

to ensure the RBA's powers and functions under Part 7.3 of the Corporations Act 2001 are performed and exercised in a way that best contributes to overall stability of the financial system;

•

any other functions conferred on the Board by the RB Act; and

•

to do anything incidental or conducive to the performance of any of the above functions.

[Schedule 1, item 19, subsection 10B(1)]

1.111 The Payments System Board has the power to do all things necessary or convenient to be done for or in connection with the performance of its functions.

[Schedule 1, item 19, subsection 10B(2)]

New arrangements

1.112 When the Board is exercising its powers, it must have regard to the duties of the Governance Board as the RBA's accountable authority under the PGPA Act. See paragraphs 1.202 to 1.221 for further explanation on how the boards are intended to interact.

[Schedule 1, item 19, subsection 10B(3)]

1.113 However, the Board's failure to consider the duties of the Governance Board as the accountable authority does not invalidate the Payments System Board's performance of its functions or the exercise of its powers. Nor does this give rise to an action or other proceeding for damages.

[Schedule 1, item 19, subsection 10B(4)]

1.114 The provision expressly preserves the validity of anything done despite the board's failure to consider a necessary factor. This provision is necessary to give legal certainty to decisions of the Payments System Board, which should not be invalidated on the ground of a technical failure. It is important for there to be legal certainty about board decisions given the market-sensitive nature of those decisions and their far-reaching consequences across the economy.

Amendments updating nomenclature

1.115 These amendments do not seek to change the existing composition of the Board.

External members of the Board

1.116 The non-ex-officio members of the Payments System Board appointed by the Treasurer are now defined as 'external Payments System Board members'. These members were previously referred to as 'other members'.

[Schedule 1, items 11, 30 and 33, subsection 5(1), paragraph 25A(d) and subsection 25B(3)]

1.117 Amendments to provisions dealing with resignation and termination reflect this change in definition.

[Schedule 1, items 41 and 45, paragraph 25K(c) and subsection 25L(4)]

The member appointed by the Governor

1.118 The member appointed by the Governor is now defined as 'the Bank's PSB member'. That person was previously referred to in paragraph 25A(b) of the RB Act as the 'representative of the Bank'.

[Schedule 1, items 11, 29 and 31, subsection 5(1), paragraph 25A(b) and subsection 25B(1)]

1.119 Amendments to provisions dealing with resignation and termination reflect this change in definition.

[Schedule 1, items 40 and 42, paragraph 25K(a) and subsection 25L(1)]

1.120 As with existing arrangements, the member of the Payments System Board appointed by the Governor must be a member of the Reserve Bank Service or one of the other two boards of the RBA.

[Schedule 1, item 32, subsection 25B(1)]

1.121 Where the RBA's Payments System Board member ceases to be a member of either or both of the Monetary Policy Board or Governance Board, or if the member ceases to be a staff member of the Reserve Bank Service, the member's appointment is terminated immediately.

[Schedule 1, item 43, paragraph 25L(1)(b)]

1.122 As with existing arrangements, the RBA's Payments System Board member is the Deputy Chair of the Board.

[Schedule 1, item 34, subsection 25D(1)]

Amendments for consistency

1.123 Several amendments are made to the governance and procedure provisions of the Payments System Board to ensure consistency of approach across each of the RBA's three boards.

Disclosures

1.124 The Bill amends the existing provisions about disclosing conflicts as part of overhauling the relevant provisions across the three boards, but without changing the substance of the settings for the Payments System Board.

1.125 It remains the case that where a member of the Payments System Board has a material personal interest that relates to a matter being considered at a meeting of the Board, the settings in section 29 of the PGPA Act and sections 12, 14, 15 and 16D of the PGPA Rule apply as though the Payments System Board were the accountable authority.

[Schedule 1, item 15, paragraph 7E(1)(b) and subsections 7E(2) and (3)]

1.126 For a matter in which a Payments System Board member has a material personal interest that relates to the affairs of the RBA but is not being considered at a meeting of that Board, the settings in section 29 of the PGPA Act and accompanying provisions of the PGPA Rule apply.

Acting appointments

1.127 The Treasurer may, by written instrument, appoint a person to act as an external member of the Payments System Board during a vacancy in the office of an external Payments System Board member, during the absence of an external member, or where an external member is unable to perform the duties of the office. These acting appointments are subject to the rules in section 33A of the AIA.

[Schedule 1, item 35, section 25DA]

Declarations

1.128 As with existing arrangements, all members of the Payments System Board must make an oath or affirmation of allegiance and make a declaration of secrecy prior to commencing their role. However, the Bill updates this requirement so that it does not apply to a member who is also a member of the Monetary Policy Board or Governance Board and has already made the relevant declarations prior to joining that board.

[Schedule 1, items 36 and 37, subsections 25E(1) and (4)]

Independence of members

1.129 Subject to the RB Act and other laws of the Commonwealth, members of the Payments System Board must act in an independent and impartial manner when exercising their powers and performing their functions and duties. They cannot be directed by anyone including the Government.

[Schedule 1, item 38, section 25EA]

1.130 The rationale for this provision is detailed in paragraph 1.59 above, in the explanation of the equivalent for the Monetary Policy Board. This also aligns with an equivalent provision for the Governance Board (see paragraph 1.160).

Decisions out of session

1.131 The Bill amends the existing provision for the Payments System Board to make a decision out of session, for drafting consistency with the Monetary Policy Board and Governance Board equivalents.

[Schedule 1, item 39, subsections 25H(1) and (2)]

1.132 As it does for the other boards, the Bill:

•

adds clarification that a Payments System Board member cannot vote out of session if they would not have been entitled to vote on the proposal at a meeting; and

•

requires the Payments System Board to keep a record of decisions made out of session.

[Schedule 1, item 39, subsections 25H(3) and (4)]

Termination

1.133 The Treasurer may terminate the appointment of an external Payments System Board member for misbehaviour or where the member is no longer able to perform the duties of the member's office because of physical or mental incapacity. This is consistent with the Bill's drafting of this ground for the Monetary Policy Board and Governance Board.

[Schedule 1, item 44, subsection 25L(3)]

1.134 The Bill repeals the ground for mandatory termination that the member becomes permanently incapable of performing the member's duties, given that it overlaps with the discretionary ground that the member is no longer able to perform the duties of the member's office because of physical or mental incapacity. This is consistent with the approach for the other RBA boards, and the other grounds for mandatory termination remain in place.

[Schedule 1, item 46, paragraph 25L(4)(a)]

1.135 As with existing arrangements, the Treasurer may also terminate an external Payments System Board member under section 30 of the PGPA Act if the member has contravened one of the general duties of officials.

[Schedule 1, items 15 and 47, subparagraph 7F(a)(ii) and note to subsection 25L(4)]

Governance Board

1.136 The RBA Review recommended establishing a Governance Board to update and strengthen the RBA's corporate governance and to provide guidance and oversight for RBA management in the running of the organisation.

1.137 To this end, the Bill establishes a new Governance Board under the RB Act. It also makes the Governance Board, instead of the Governor, the accountable authority of the RBA for PGPA Act purposes.

[Schedule 1, items 15 and 20, sections 7A and 10C]

Functions

1.138 The Governance Board's functions are:

•

to oversee, and determine policies for, the management and organisational affairs of the RBA (including the RBA's balance sheet management to the extent that it does not limit the Monetary Policy Board's actions on the RBA's balance sheet);

•

to determine the policies of the RBA for the performance of the RBA's functions in relation to:

-

delivering banking services to the Commonwealth as the Commonwealth's banker and financial agent;

-

issuing, re-issuing and cancelling Australian notes;

•

to determine the policies of the RBA in relation to any matter not covered by the functions of the Monetary Policy Board or the Payments System Board;

•

any other functions conferred on the Board by the RB Act or any other Act (for example, the PGPA Act); and

•

to do anything incidental or conducive to the performance of any of the above functions.

[Schedule 1, item 20, subsection 10D(1)]

1.139 The Governance Board has the power to do all things necessary or convenient to be done for or in connection with the performance of its functions.

[Schedule 1, item 20, subsection 10D(2)]

1.140 However, the Governor is responsible for the day-to-day management of the RBA and must fulfil that responsibility consistent with the policies set by the RBA's boards.

[Schedule 1, item 23, subsection 12(2)]

Accountable authority

1.141 The Governance Board is the accountable authority of the RBA. The accountable authority of a corporate Commonwealth entity must comply with the following duties under Division 2 of Part 2-2 of the PGPA Act:

•

duty to govern the Commonwealth entity;

•

duty to establish and maintain systems relating to risk and control;

•

duty to encourage cooperation with others;

•

duty in relation to requirements imposed on others;

•

duty to keep the responsible Minister and Finance Minister informed.

1.142 Among the PGPA Act responsibilities taken on by the Governance Board as accountable authority are those in sections 38 and 39 of that Act, which cover performance assessment and reporting obligations.

1.143 As the accountable authority, the Governance Board has specific duties under Division 2 of Part 2-2 of the PGPA Act. This includes the duty to govern the RBA in a way that promotes the proper use and management of public resources, promotes the achievement of the purposes of the RBA, and promotes the financial sustainability of the RBA.

1.144 However, the following sections of the PGPA Act do not apply in relation to the RBA:

•

section 36 - budget estimates;

•

section 54 - banking by corporate Commonwealth entities;

•

section 55 - banking of relevant money by Ministers and officials;

•

section 59 - investment by corporate Commonwealth entities.

[Schedule 1, item 15, section 7B]

1.145 The Governance Board is also responsible for keeping the Treasurer informed of its decisions and the RBA's activities.

[Schedule 1, item 1, note to section 11A]

1.146 As part of the changeover in accountable authority from the Governor to the Governance Board, the Bill repeals the requirement for the Reserve Bank Board to have passed a resolution approving the financial statements. This reflects that section 42 of the PGPA Act refers to the accountable authority and so will require the Governance Board to sign off on the financial statements in any event.

[Schedule 1, item 15, section 7A]

1.147 Similarly, the Bill repeals the requirement for the Reserve Bank Board to approve the charter setting out audit committee functions. That provision is now redundant because the Governance Board (as accountable authority) will be the entity making the charter, under section 45 of the PGPA Act and subsection 17(1) of the PGPA Rule.

[Schedule 1, item 15, section 7A]

Management of the RBA's capital

1.148 From time to time, the Governance Board may make a transfer from the Reserve Bank Reserve Fund to the capital of the RBA, of such a sum that the Governance Board determines for the purposes of Part IV of the RB Act.

[Schedule 1, item 48, subsection 29(2)]

1.149 After consultation with the Governance Board, the Treasurer is to determine the amount of net profits of the RBA to be set aside for contingencies and any amount that is to be placed to the credit of the Reserve Bank Reserve Fund.

[Schedule 1, item 49, paragraphs 30(1)(aa) and (a)]

Role in determining terms and conditions of employment

1.150 The terms and conditions of employment on which the Governor and Deputy Governor are employed are to be determined by the Governance Board, where not otherwise provided for by the RB Act.

[Schedule 1, item 26, section 24A]

Other

1.151 The Governance Board is to direct the custody of the RBA's seal and approve all uses.

[Schedule 1, item 54, subsection 85(2)]

Board members

Composition

1.152 The Governance Board comprises of the Governor, Deputy Governor, six external members, and the staff member of the Reserve Bank Service who is primarily responsible for assisting the Governor to manage the RBA (referred to as the 'senior RBS member').

[Schedule 1, item 58, section 25NA]

1.153 The inclusion of six external members, representing a majority of the members on the Governance Board, provides a counterbalance to the influence of internal members, given the Governance Board's responsibility for executive and strategic oversight. It also ensures decisions of the Board are contestable and made with the benefit of a range of perspectives.

Chief Operating Officer

1.154 The reference to a senior RBS member is intended to refer to the Chief Operating Officer of the RBA. The RBA Review recommended that the RBA appoint a Chief Operating Officer at the same level as the Deputy Governor to strengthen the RBA's dynamism and management, culture and operations (Recommendation 11.1). According to the RBA Review, the Chief Operating Officer should:

•

be responsible for all corporate and enabling functions;

•

sit on the RBA's Executive Committee and Governance Board;

•

have the seniority to take enterprise-wide decisions, direct resources and raise the focus on strategic operational issues;

•

be tasked with improving delegation, strategic workforce planning, succession planning, the allocation of resources, risk management and driving cultural change.

1.155 The RBA Review also explained the creation of this role would free up more time for the Governor and Deputy Governor to focus on policy issues.

1.156 The senior RBS member is identified by using a descriptive form of words, rather than by reference to an exact title such as Chief Operating Officer. This kind of definition has been chosen because the Chief Operating Officer is not a statutory officeholder like the Governor or Deputy Governor. By not using an exact title in the RB Act, the RBA has flexibilty to determine the title of the position.

1.157 The Governor cannot terminate the Chief Operating Officer from their position in the RBA under section 30 of the PGPA Act for contravening general duties of officials. This does not prevent the RBA terminating the Chief Operating Officer on equivalent grounds, or any other legitimate grounds, under their conditions of employment.

[Schedule 1, item 15, subparagraph 7F(b)(iii)]

Deputy Governor

1.158 The Deputy Governor's membership of the Governance Board is intended to enable them to remain informed of Governance Board discussions for contingency purposes, and participate in strategic planning. Including the Deputy Governor also allows all of the RBA's most senior executives to contribute to decisions about matters relating to RBA operations.

1.159 The Treasurer cannot terminate the Deputy Governor under section 30 of the PGPA Act for contravening general duties of officials. This reflects a stringent approach to the Deputy Governor's independence and there remain other specified grounds in the RB Act under which the Treasurer could terminate the Deputy Governor if necessary.

[Schedule 1, item 15, subparagraph 7F(b)(ii)]

Conduct of members

1.160 Subject to the RB Act and other laws of the Commonwealth, members of the Governance Board must act in an independent and impartial manner when exercising their powers and performing their functions and duties. They cannot be directed by anyone including the Government. This aligns with equivalent provisions for the Monetary Policy Board (see paragraph 1.59) and Payments System Board (see paragraph 1.129).

[Schedule 1, item 58, section 25NK]

1.161 All members of the Governance Board must make an oath or affirmation of allegiance and make a declaration of secrecy prior to commencing their role. However, this requirements does not apply to a member of the Governance Board who is also a member of the Monetary Policy Board or the Payments System Board and has already made the relevant declarations prior to joining that board. [Schedule 1, item 58, subsection 25NJ(1) and (4)]

1.162 The oath or affirmation of allegiance, and declaration of secrecy, must be made before a justice of the peace or a commissioner for taking affidavits. The oath or affirmation of allegiance must be made in accordance with the form set out in the Schedule to the Constitution and the declaration of secrecy must be made in the prescribed form.

[Schedule 1, item 58, subsection 25NJ(2) and (3)]

1.163 The Government will seek to amend the Reserve Bank Regulation 2016 to update the prescribed forms for RBA board members' declaration of secrecy, to correspond with the new boards, in time for commencement of the Bill's reforms.

Chair and Deputy Chair

1.164 The Treasurer can appoint any of the nine members of the Governance Board as Chair or Deputy Chair. However, at least one of the Chair or Deputy Chair must be an external member of the Governance Board.

[Schedule 1, item 58, subsections 25NC(1) and (2)]

1.165 While the RBA Review recommended on balance that an external member chair the Governance Board (Recommendation 12.3), it also acknowledged the argument for the Governor to be the chair - that the same person chairing all three ensures coherence between the boards. In view of the finely balanced considerations on this subject, the Bill provides flexibility for the Treasurer to make an appropriate appointment in the circumstances.

1.166 If the Treasurer appoints the Governor as Chair, the Treasurer would be required to appoint an external member as Deputy Chair. This external member would be well placed to provide an influential alternative point of view on issues before the Board, and lead the Board on occasions where the Governor is required to be excluded.

1.167 The Deputy Chair acts as the Chair when the office of the Chair is vacant, or if the Chair is absent from duty or unable to perform the duties of the office. Section 33A of the AIA confirms the validity of actions performed by a person who is acting as the Chair.

[Schedule 1, item 58, subsection 25NC(3)]

1.168 The Treasurer, by written instrument, may appoint any Governance Board member to act as the Chair if both the office of the Chair and Deputy Chair are vacant, or both the Chair and Deputy Chair are absent from duty or unable to perform the duties of the office. Section 33A of the AIA confirms the validity of actions performed by a person who is acting as the Chair. [Schedule 1, item 58, subsection 25NC(4)]

External Board members

1.169 External Governance Board members are appointed by the Treasurer on a part-time basis by written instrument.

[Schedule 1, item 58, subsection 25NB(1)]

1.170 The RBA Review recommended that appointments should be supported by a skills matrix, which would set out the skills, experience and capabilities considered essential for the effectiveness of the Governance Board (Recommendation 12.4). The RBA Review recommends that in the first instance, the skills matrix would be created through an agreement between the Treasurer and Governor (see page 216 of the Review Report).

1.171 A person cannot be appointed as an external member of the Governance Board if they are employed by the Reserve Bank Service, a person appointed or engaged under the Public Service Act 1999, or a director, officer or employee of an authorised deposit-taking institution.

[Schedule 1, item 58, subsection 25NB(2)]

1.172 External Governance Board members are appointed for the period specified in the instrument of appointment, which cannot exceed a maximum term of five years.

[Schedule 1, item 58, subsection 25ND(1)]

1.173 An external Governance Board member may be reappointed consistent with section 33AA of the AIA. However, an external Governance Board member can only serve on the Board for a total of seven years. That is, the period of reappointment can only be up to two years in addition to the five-year original term.

[Schedule 1, item 58, subsection 25ND(2)]

1.174 The option of reappointment for an additional two years affords flexibility to ensure appointments are appropriately staggered and promotes the independence of the Board. While the RBA Review recommended reappointments of up to one year (Recommendation 12.5), the Bill strikes a more flexible balance between renewal of the Governance Board and retaining talent.

1.175 A reappointment can be longer than two years if the original term was shorter than five years, as long as the seven-year maximum is not exceeded.

1.176 It is intended that an individual could serve on more than one of the RBA's boards concurrently or sequentially, without the time served on one board counting towards the limit for another board. However, given the distinct roles of the boards, it is not expected that concurrent or sequential service would occur outside exceptional circumstances.

1.177 The Treasurer may, by written instrument, appoint a person to act as an external member of the Governance Board during a vacancy in the office of an external Governance Board member, during the absence of an external member, or where an external member is unable to perform the duties of the office. These acting appointments are subject to the rules in sections 33AB and 33A of the AIA.

[Schedule 1, item 58, section 25NE]

1.178 An external Governance Board member holds office subject to the terms and conditions (if any) in relation to matters not covered by the RB Act, as determined by the Treasurer.

[Schedule 1, item 58, section 25NF]

Remuneration and leave

1.179 The Remuneration Tribunal determines the remuneration of an external Governance Board member in accordance with the Remuneration Tribunal Act 1973. If no determination is in operation, the member is to be paid the remuneration as may be prescribed in regulations. Regulations may also prescribe allowances, subject to that Act.

[Schedule 1, item 58, section 25NG]

1.180 This is the standard provision for remuneration according to current legislative drafting practice, including the ability for regulations to prescribe remuneration and allowances.^[2]

1.181 The Governance Board can grant an external member leave of absence subject to terms and conditions determined by the Board.

[Schedule 1, item 58, section 25NH]

Resignation and termination

1.182 An external member of the Governance Board can resign their appointment by giving the Treasurer a written resignation. The resignation takes effect from the day the Treasurer receives it unless specified otherwise in the resignation.

[Schedule 1, item 58, section 25NL]

1.183 The Treasurer must terminate the appointment of a member if the member:

•

becomes bankrupt;

•

applies to take the benefit of any law for the relief of bankrupt or insolvent debtors;

•

compounds with the member's creditors;

•

makes an assignment of the member's remuneration for the benefit of the member's creditors;

•

does not attend two consecutive meetings, or three meetings in any period of 12 months, unless they are on leave of absence;

•

is or becomes a staff member of the Reserve Bank Service;

•

is or becomes a person appointed or engaged under the Public Service Act 1999; or

•

is or becomes a director, officer or employee of an authorised deposit-taking institution.

[Schedule 1, item 58, subsection 25NM(2)]

1.184 The appointment of an external Governance Board member can also be terminated by the Treasurer due to a contravention of general duties of officials under section 30 of the PGPA Act.

[Schedule 1, items 15 and 58, note to section 7F and note to section 25NM]

1.185 The Treasurer may also terminate the appointment of an external Governance Board member due to misbehaviour, or if the member does not have the mental or physical capacity to perform the duties of the member's office. [Schedule 1, item 58, subsection 25NM(1)]

Meetings

Frequency

1.186 The meeting provisions for the Governance Board are modelled on the existing provisions for the Reserve Bank Board and Payments System Board.

1.187 The RBA Review recommended that the Governance Board meet at least four times each calendar year to discuss issues that relate to the performance of its functions, including financial reporting and oversight of the RBA (see page 213 of the Review Report).

1.188 The Bill requires the Chair to convene at least four meetings of the Governance Board each calendar year but does not otherwise stipulate a precise pattern. Instead, the Bill requires the Governance Board to hold such meetings as the Board determines are necessary for the efficient performance of its functions.

[Schedule 1, item 58, subsection 25NN(1) and paragraph 25NN(2)(b)]

1.189 The Chair of the Governance Board can convene a meeting at any time and must preside at all meetings. If the Chair is not present at a meeting of the Governance Board, the acting Chair presides. If neither the Chair nor the acting Chair are present, the other members of the Governance Board present must appoint one of themselves to preside.

[Schedule 1, item 58, paragraph 25NN(2)(a) and section 25NQ]

Conduct of meetings

1.190 The Governance Board can regulate aspects of its proceedings not covered by the RB Act in any way it considers appropriate. This includes regulating the way Board members can participate in meetings (see also section 33B of the AIA).

[Schedule 1, item 58, section 25NT]

1.191 A quorum is constituted by seven members of the Governance Board.

[Schedule 1, item 58, subsection 25NR(1)]

1.192 The Governor, Deputy Governor and Chief Operating Officer must not take part in the Governance Board's decisions, or be present during deliberations, about the terms or conditions on which the Governor or Deputy Governor holds office. This restriction does not prevent the Governor or Deputy Governor participating or being present when terms or conditions relating to the Chief Operating Officer are being considered.

[Schedule 1, item 58, section 25NP]

1.193 Members may also need to be excluded for conflicts of interest where the provisions of the PGPA Act are applicable.

1.194 If one or more members of the Governance Board are excluded from being present during deliberations on a matter, or taking part in a decision, the remaining members of the Board at the meeting constitute a quorum for the purpose of any deliberation or decision on that matter. This allowance to reduce the quorum ensures that the Board can make decisions when three or more members are excluded, which will at least occur whenever the Governor or Deputy Governor's terms or conditions are being considered.

[Schedule 1, item 58, subsection 25NR(2)]

1.195 Leaving aside any instances where members are excluded, the quorum number of seven ensures that a quorum only occurs when at least one of the internal members is present, while also ensuring that external members remain in the majority. This balance is intended to ensure the Governance Board can properly exercise its functions of overseeing and scrutinising the RBA's executive.

1.196 Voting at Governance Board meetings is by majority of the members present and voting. The presiding member has a deliberative vote and, in the case of a tie, a casting vote.

[Schedule 1, item 58, section 25NS]

Decisions out of session

1.197 The Governance Board can make a decision out of session if the Board has determined beforehand that it may make decisions of that kind without meeting. The Board may only do so if the following conditions are met:

•

a majority of the members entitled to vote on the proposed decision must indicate their agreement;

•

the majority would have constituted a quorum if they were meeting;

•

the members must indicate their agreement in accordance with a method agreed by the Board beforehand;

•

all members must have been informed of the proposed decision (or reasonable efforts must have been made to inform them).

[Schedule 1, item 58, subsections 25NU(1) and (2)]

1.198 A member is entitled to vote out of session if they would have been entitled to vote on the proposal at a meeting, and conversely a member cannot vote out of session if they would not have been entitled to vote on the proposal at a meeting.

[Schedule 1, item 58, subsection 25NU(3)]

1.199 The Governance Board must also keep a record of decisions made out of session.

[Schedule 1, item 58, subsection 25NU(4)]

Application of PGPA Act

Status of members

1.200 All members of the Governance Board, as part of the accountable authority, are taken to be 'officials' of the RBA and are subject to the general duties of officials contained under the PGPA Act.

[Schedule 1, item 15, subsection 7C(1)]

Disclosures

1.201 As Governance Board members are each members of the accountable authority of the RBA, the ordinary settings in section 29 of the PGPA Act and sections 12, 14, 15 and 16D of the PGPA Rule apply in relation to disclosures of material personal interests. They must disclose material personal interests that relate to the affairs of the RBA and must not be present or vote while the relevant matter is being considered at a meeting, subject to certain exceptions.

Relationship between the boards

1.202 The RBA Review recognised that a three-board structure might give rise to instances where the responsibilities of the boards would overlap, or even conflict. The Bill minimises the potential for confusion or conflict by clearly delineating the responsibilities of each board, and establishing a mechanism to facilitate consultation in the event of an overlap.

1.203 The Bill establishes a governance model that:

•

ensures the Monetary Policy Board and the Payments System Board have freedom of action to achieve their legislated functions;

•

ensures all three boards are subject to the Commonwealth's governance, accountability and performance framework under the PGPA Act, except where it is inconsistent with their legislated functions;

•

establishes a mechanism for consultation between the boards, to ensure that they effectively communicate with each other and can act together when required.

Freedom of action for the policy boards

Independence of the policy boards

1.204 The Monetary Policy Board makes decisions that can have a significant effect on financial and asset markets, and the broader economy. Similarly, the Payments System Board's decisions can have a significant effect on Australia's financial market infrastructure. In a crisis, either of these policy boards may need to act quickly and decisively.

1.205 The ability of the policy boards to reach judgements about matters in their remit, and give effect to their decisions through the RBA, should not be constrained by decisions or policies of the Governance Board. Accordingly, the Governance Board is not authorised under any Commonwealth law, including the PGPA Act, to do anything that would intrude on the statutory functions of the Monetary Policy Board or Payments System Board. The Governance Board is not authorised to determine or implement the RBA's monetary policy, financial system stability policy or payments policy, which are the responsibility of the other boards.

[Schedule 1, item 20, subsection 10D(3)]

1.206 These prohibitions do not affect the performance of the Governance Board's functions as the PGPA Act accountable authority, insofar as they do not intrude on the statutory functions of the Monetary Policy Board or Payments System Board.

Responsibility for the balance sheet

1.207 As Australia's central bank, the RBA gives effect to monetary policy decisions by carrying assets and liabilities on its balance sheet. The RBA Review recognised that these decisions would be the purview of the Monetary Policy Board, but they may have implications for the RBA's financial position, which would be the general responsibility of the Governance Board (see page 219 of the Review Report).

1.208 To deal with this scenario, the Bill makes clear that the Governance Board's responsibilities under the PGPA Act for the financial health of the RBA do not affect the ability of the RBA, through the Monetary Policy Board, to use the RBA's balance sheet as a monetary policy tool or as a tool to support financial stability, particularly during a crisis. Conversely, the Governance Board should not be accountable for decisions by the Monetary Policy Board that affect the balance sheet.

[Schedule 1, item 20, paragraphs 10D(1)(a) and 10D(3)(a)]

The Governance Board's role as accountable authority

Role with respect to the policy boards

1.209 As set out above, the Governance Board's duties as the PGPA Act accountable authority exist alongside the statutory duties of the other boards. The Governance Board's ability to establish policies and frameworks that bind the Monetary Policy Board or Payments System Board under the PGPA Act is limited, due to the operational independence of those boards under the RB Act.

1.210 Although the Bill specifies limits on the Governance Board's functions and powers, it leaves the residual functions and powers derived from the PGPA Act intact.

1.211 For example, the Governance Board may require the Monetary Policy Board or Payments System Board to provide information for the purposes of reporting against the corporate plan, the annual report or the annual performance statement. Preparing these documents is a core obligation for Commonwealth entities and they are designed to enhance the entity's financial and strategic planning. The Governance Board's ability to fulfil this role on behalf of the whole bank is an important accountability mechanism.

Role with respect to the rest of the RBA

1.212 The Bill would not prevent the Governance Board from issuing accountable authority instructions to RBA staff. However, any such instructions would need to align with the limitations on the Governance Board. For example:

•

In the event of an inconsistency between a monetary policy decision and an accountable authority instruction relating to the RBA's balance sheet, the monetary policy decision would prevail.

•

An accountable authority instruction that might materially affect the Monetary Policy Board or Payments System Board's performance of their functions or exercise of their powers must be the subject of consultation with the relevant board(s) before it is made.

Consultation between the boards

Obligations on the Governance Board

1.213 The Governance Board must consult with the Monetary Policy Board or Payments System Board (as applicable) before doing anything that would materially affect the relevant board's performance of its functions or exercise of its powers.

[Schedule 1, item 20, subsection 10D(4)]

1.214 This provision is intended to operate in any instance where the statutory responsibilities of the boards may overlap. It ensures that, in such an eventuality, the policy boards have an appropriate opportunity to inform the Governance Board of any relevant considerations, and the Governance Board would act with the benefit of this information.

1.215 A failure to consult does not affect the validity of anything done by the Governance Board, or give rise to an action or other proceeding for damages.

[Schedule 1, item 20, subsection 10D(5)]

1.216 The provision expressly preserves the validity of anything done despite the board's failure to undertake the required consultation. This provision is necessary to give legal certainty to decisions of the Governance Board, which should not be invalidated on the ground of a technical failure. It is important for there to be legal certainty about board decisions given the potential for these decisions to be market-sensitive, and/or to have consequences across the economy.

Obligations on the policy boards

1.217 When the Monetary Policy Board or Payments System Board performs its functions or exercises its powers, the relevant board must have regard to the duties of the Governance Board as the accountable authority of the RBA for the purposes of the PGPA Act.

[Schedule 1, items 17 and 19, subsections 9B(3) and 10B(3)]

1.218 These provisions support the RBA's corporate governance arrangements. They ensure that the Monetary Policy Board and Payments System Board consider the policies made by the Governance Board that may not be binding on them, and the consequences that their policy decisions may have for the RBA as an institution. It would usually be the responsibility of the Governance Board to manage these consequences. This is the only legal mechanism that requires the Monetary Policy Board and Payments System Board to consider the duties of the RBA's accountable authority.

1.219 If either board fails to have regard to the duties of the Governance Board when performing its functions or exercising its powers, this does not affect the validity of the Board's performance of its functions or exercise of its powers, or give rise to an action or other proceeding for damages.

[Schedule 1, items 17 and 19, subsections 9B(4) and 10B(4)]

1.220 As explained above, these provisions are necessary to give legal certainty to decisions of the policy boards, which should not be invalidated on the ground of a technical failure. It is important for there to be legal certainty about board decisions given the market-sensitive nature of those decisions and their far-reaching consequences across the economy.

Disagreement between the boards

1.221 The Governor is to resolve any disagreements between the boards. The Governor is a member of all three boards, and is therefore the most suitable person to resolve any disagreements.

[Subsection 1, item 17, subsection 9(2)]

Consequential and minor amendments

1.222 The Bill relocates existing subsection 25(2) of the RB Act, which provides that the Treasurer cannot terminate the Governor under section 30 of the PGPA Act for contravening general duties of officials. This reflects a stringent approach to the Governor's independence and there was no suggestion in the Review Report to change the status quo. There remain other specified grounds in the RB Act under which the Treasurer could terminate the Governor if necessary.

[Schedule 1, items 15 and 28, subparagraph 7F(b)(i) and subsection 25(2)]

1.223 The Bill introduces several defined terms:

•

Bank's PSB member refers to the member of the Payments System Board appointed by the Governor of the RBA (see paragraphs 1.118 to 1.122).

•

Chair and Deputy Chair are introduced as defined terms for each of the boards.

•

External Payments System Board member, external Monetary Policy Board member and external Governance Board member are introduced as defined terms to identify those members.

•

Governance Board, Monetary Policy Board , and Payments System Board are introduced as defined terms to refer to each of the RBA's boards.

•

Secretary means the Secretary of the Treasury.

•

Senior RBS member means the staff member of the Reserve Bank Service who is primarily responsible for assisting the Governor to manage the RBA, which is intended to identify the Chief Operating Officer (see paragraphs 1.154 to 1.157).

•

Treasurer means the Minister administering the RB Act.

[Schedule 1, items 11, 55 and 57, subsection 5(1)]

1.224 The sections about the Chair and Deputy Chair of the Payments System Board are adjusted to indicate that 'Chair' and 'Deputy Chair' are defined terms.

[Schedule 1, items 55, 69 and 70, subsection 5(1), section 25C and subsection 25D(1)]

1.225 The Bill repeals the definition of 'monetary and banking policy'. This implements the RBA Review's recommendation to separate responsibility for monetary policy and banking policy and allocate these functions to the Monetary Policy Board and Governance Board, respectively. The term 'monetary and banking policy' is no longer used in the RB Act.

[Schedule 1, item 61, subsection 5(1)]

1.226 The Bill also relocates the definition of 'Australian note' so that it applies across the RB Act, and repeals the definition of 'payment system' as it is not used elsewhere in the RB Act.

[Schedule 1, items 60, 61 and 76, subsection 5(1) and section 32]

1.227 The Bill removes a series of redundant references to 'Treasury', 'Department' and 'the Department of the Treasury'. These are redundant because of subsection 19A(1) of the AIA and because 'Secretary' is now defined at the beginning of the RB Act.

[Schedule 1, items 55, 62 to 64, 77, 78 and 83, subsection 5(1), section 13, subsection 37(1) and paragraph 79A(6B)(d)]

1.228 The Bill amends the definition of 'officer' in section 79A and updates the references to the boards that protected information may be disclosed to. This ensures the secrecy provisions are applied to the newly established boards under the RB Act.

[Schedule 1, items 50 to 53, section 79A]

1.229 The note in section 7 of the RB Act is revised to reflect that the Bill introduces new provisions about the application of the PGPA Act.

[Schedule 1, item 14, note to section 7]

1.230 The Bill removes the gender-specific language in a number of RB Act provisions.

[Schedule 1, items 65 to 68, 71 to 75, 79 to 82 and 84, sections 24B and 25, subsection 25F(2), section 25K, paragraphs 25L(2)(b) and (4)(b), sections 76 and 77, paragraph (e) of the definition of 'officer' in subsection 79A(1), paragraph 79A(2)(a) and subsection 84(5)]

1.231 The Bill also makes minor amendments to ensure readability of the Bill, including adding in headings to reflect the new boards and removing numbering where it is not required.

[Schedule 1, items 12, 13, 16, 18, 21, 22, 24 and 27, Subdivision A of Division 1 of Part II (heading), paragraph 7(a), Division 2 of Part II (heading), Section 10A (heading), Division 4 of Part II (heading), section 12 (heading), Part III (heading) and subsection 25(1)]

Commencement, application, and transitional provisions

Commencement provision

1.232 The Bill commences on the later of:

•

the first day of the next calendar month following the end of the period of three months starting on the day after Royal Assent; and

•

1 July 2024.

1.233 The RBA Review recommended a commencement date of 1 July 2024 to allow time to plan and prepare for the changes. Consistent with the RBA Review's commentary, the alternative commencement date provides for lead time to finalise appointments to the new boards and deal with other transitional matters, in the event that Royal Assent occurs later than March 2024.

Transitional provisions

Governor and Deputy Governor's terms and conditions of employment

1.234 The Bill includes a transitional provision to preserve prior determinations of the Governor and Deputy Governor's terms and conditions of employment. It treats such determinations of the old Reserve Bank Board as though the new Governance Board made them.

[Schedule 1, items 85 and 86]

Reserve Bank Board's members

1.235 As explained above, the Treasurer cannot appoint an external member to the Monetary Policy Board or Governance Board for a cumulative period of more than seven years. A transitional provision counts the service of the old Reserve Bank Board's members (excluding the Governor, Deputy Governor and Secretary of the Treasury) towards those seven years.

[Schedule 1, items 85 and 87]

1.236 However, only their service during their current term at the time of the Bill's commencement counts towards the seven-year maximum. That is, for members who are serving a second or subsequent term on the old Reserve Bank Board at the time of the Bill's commencement, only the period since their most recent re-appointment counts towards the seven-year maximum.

Reserve Bank Board policies and actions

1.237 The Bill includes a transitional provision clarifying that policies decided by the old Reserve Bank Board continue in force as though they had been determined by the appropriate successor board. The same applies for actions that the old Reserve Bank Board has taken to ensure the RBA gives effect to those policies.

[Schedule 1, items 85, 88 and 89]

Power to deal with unforeseen transitional matters

1.238 The Bill confers a rulemaking power on the Treasurer to deal with any unforeseen transitional matters that may arise (by legislative instrument).

1.239 This power is strictly constrained to rules prescribing matters of a transitional nature (including prescribing any saving or application provisions) relating to the amendments or repeals made by the Bill. These rules cannot create offences, impose taxes or directly amend the text of the Bill.

1.240 The nature of the RBA's essential economy-wide functions and powers means there is elevated risk to the economy and individuals if such unforeseen matters cannot be remedied swiftly.

1.241 The use of this power is subject to parliamentary scrutiny because any such legislative instrument would be subject to disallowance.

[Schedule 1, item 90]

Chapter 2: Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Treasury Laws Amendment (Reserve Bank Reforms) Bill 2023

Overview

2.1 This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

2.2 The Bill implements the Government's response to the RBA Review.

2.3 The amendments reinforce the independence of the RBA in the operation of monetary policy, renew the statutory objectives of the RBA, and strengthen decision making, accountability and transparency in monetary policy decisions and the RBA's corporate governance.

2.4 The amendments replace the existing Reserve Bank Board with a new Monetary Policy Board and Governance Board and modify the legislative objectives for monetary policy, to clarify the accountabilities of the RBA.

Human rights implications

2.5 This Bill does not engage any of the applicable rights or freedoms.

Conclusion

2.6 This Bill is compatible with human rights as it does not raise any human rights issues.