Explanatory Memorandum(Circulated by authority of the Minister for Financial Services and Regulation, the Honourable J.B. Hockey, MP)
1.1 This Bill forms a part of the second stage of legislation to implement the Government's response to the recommendations of the Financial System Inquiry as announced by the Treasurer, the Hon. Peter Costello, M.P., in the House of Representatives on 2 September 1997.
1.2 The Final Report of the Inquiry and the Government's response to it are directed to the fundamental goals of the Government, to increase competition and improve efficiency, while preserving the integrity, security and fairness of the financial system.
1.3 The performance of the financial system, and the cost effectiveness of its regulation, are critical to the efficient functioning of the Australian economy.
1.4 The first stage of the reforms introduced a new organisational framework for the regulation of the financial system from 1 July 1998, and a variety of measures to improve efficiency and contestability in financial markets and the payments system.
1.5 This second stage of reforms aims to:
- transfer regulatory responsibility for building societies, credit unions and friendly societies from the States and Territories to the Commonwealth; and
- bring the regulation of building societies and credit unions into line with the regulation of other authorised deposit-taking institutions (including banks) and establish a single regulatory framework for life insurance companies and friendly societies while recognising the special features of friendly societies.
1.6 The second stage is designed to:
- provide a new regulatory system that is less cumbersome and duplicative than the State and Territory financial institutions system;
- enable the non-bank deposit-taking sector to provide a more effective source of competition for the banks in the retail market by operating under the same regulatory structure as banks; and
- maintain commercial flexibility by retaining different corporate structures, including mutuality, and the terms 'building society', 'credit union' and 'friendly society'.
1.7 To effect the transfer, the Commonwealth is introducing a package of three bills, including this Bill. The other two bills are the Financial Sector (Transfers of Business) Bill 1999 and the Income Tax Rates Amendment (RSAs Provided by Registered Organizations) Bill 1999.
- In addition, the Commonwealth will sign with the States and Territories a Financial Sector Regulation Transfer Agreement. In turn, the States and Territories will introduce legislation to facilitate the transfer.
1.8 The broad objectives of the Financial Sector Reform (Amendments and Transitional Provisions) Bill (No. 1) 1999 are to:
- amend the Corporations Law, and the Corporations Agreement, to provide for the registration of building societies, credit unions and friendly societies as companies and the regulation of those entities under the Corporations Law by the Australian Securities and Investments Commission;
- amend the Life Insurance Act 1995 to provide for a single prudential regime for companies undertaking life insurance business and to permit friendly societies to be regulated under such a regime;
- amend the Banking Act 1959 to provide for coverage across all authorised deposit-taking institutions (including building societies and credit unions) of the unclaimed moneys and bank holiday provisions;
- allow for transitional and consequential provisions to ensure that the new regulatory regime operates effectively from the transfer day and to provide for appropriate continuity of subordinate instruments made under the State / Territory regime; and
- set up a facility for the Australian Prudential Regulation Authority to provide, under State and Territory laws and on a cost recovery basis, prudential regulation and advisory services for cooperative housing societies and trustee companies.
1.9 It is not envisaged that the Bill will have a financial impact on the operations of Government. The Bill extends the coverage of the financial sector levy arrangements to institutions transferring from State supervision. Levy receipts are fully appropriated for expenditure on regulatory purposes.
1.10 Under the financial sector levy arrangements, institutional categories pay a levy broadly in line with the cost of supervising that category. This includes the cost of APRA's prudential supervision and one-off establishment costs, and the cost of consumer regulation undertaken by ASIC.
1.11 The Bill also establishes a mechanism for APRA to contract its prudential services on a fee for services basis.
1.12 The Office of Regulation Review has advised that a Regulation Impact Statement is not required for this Bill as it is of a minor or government machinery nature and does not substantially alter existing arrangements.