Combined Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
Outline, abbreviations and financial impact statement
1.1 This Bill amends seven financial sector Acts.
1.2 Most of the amendments are minor and technical in nature. A number of amendments are aimed at improving APRA's ability to monitor the financial industry through improving administration. Other amendments are aimed at ensuring that Australia is in compliance with international best practice standards in supervision.
1.3 The most significant amendments are to the Banking Act, largely reflecting that it has not been updated for some time. Amendments to the Banking Act include provision for the application of a 'fit and proper' test to directors and senior managers of ADIs and authorised NOHCs. This amendment will make Australia compliant with the requirement for a 'fit and proper' test as specified in the Basel Core Principles of Effective Banking Supervision which is the international benchmark for banking regulation. There will be a transitional period of three months during which time the operation of the new section 19, dealing with disqualified persons, will be suspended.
1.4 Further amendments to the Banking Act will make the provisions in the Banking Act which deal with auditors, consistent with the auditor provisions in the Insurance Act. The amendments will provide APRA with the means to remove auditors who fail to perform adequately and properly. This is essential for APRA to receive accurate information in carrying out its prudential regulation.
1.5 Amendments to the Banking Act also include the requirement for an ADI, authorised NOHC of an ADI and their subsidiaries, to notify APRA immediately of any breaches of prudential requirements and any material adverse developments. This will enable APRA to more effectively monitor the position of potentially troubled organisations in order to seek earlier remedial action and will assist in protecting depositor interests. It will also improve compliance with the Basel Core Principles dealing with regular banking supervision.
1.6 Another amendment to the Banking Act will allow APRA to apply prudential standards on a consolidated group basis. This is consistent with APRA's own conglomerate policy and also with the Basel Core Principles which require that supervision of a banking group be on a consolidated basis. Consultation with industry was undertaken by APRA.
1.7 The Banking Act will also be amended to provide additional grounds for APRA to revoke the authority granted to an ADI or NOHC where the application for the authority contained false or misleading information. This is also a requirement of the Basel Core Principles.
1.8 Another amendment to the Banking Act will correct a discrepancy between the indemnity provisions of the Banking Act and the APRA Act, which relates to the extent of protection available to APRA officers under these Acts. This amendment will also ensure that Australia is in compliance with the Basel Core Principles in legally protecting staff of the supervisory agency when acting in good faith.
1.9 Another amendment to the Banking Act, to new sections 17 and 23, will make it explicit that regulated institutions must comply with directions from APRA, and that penalties for non-compliance will apply (consistent with other breaches of direction powers in the Banking Act), in accordance with section 11CG of the Banking Act.
1.10 Amendments to both the Banking Act and the Insurance Act provide for the removal of a director by either the chair of the board of directors acting alone or by a majority of directors acting together, upon signing a written notice. This will provide an additional mechanism by which a director can be removed upon a direction from APRA to do so.
1.11 The definition of 'information' in both the Banking Act and the Insurance Act is being clarified to include books, accounts or documents. Amendments relating to information are also included to ensure that the provisions of the Financial Sector (Collection of Data) Act are captured by the Banking Act. This enhances APRA's ability to make prudential assessments of regulated institutions.
1.12 Amendments to the Insurance Act are required to allow APRA to discuss submissions, from a director or senior manager who is being removed, with third parties. This would mean that APRA could test the veracity of any material notwithstanding privacy or confidentiality concerns. This is a vital part of APRA's ability to apply the 'fit and proper' test to management.
1.13 A further amendment under the Insurance Act is the requirement that an insurance company must notify APRA of any breach of prudential standards, including any material developments which are detrimental to its financial position. This will allow APRA to deal at an earlier stage with potentially troubled institutions.
1.14 Another amendment to the Insurance Act deals with the incorrect specification of penalties. The penalty provisions need to be increased so that the penalty units applying to a body corporate are appropriate and consistent with penalty provisions specified in the Crimes Act 1914 applying to bodies corporate.
1.15 The penalty provisions in the Insurance Act relating to the reporting of breaches of prudential standards are being clarified and made consistent with other provisions in the Insurance Act.
1.16 Amendments to the SRC Act introduce flexibility in the time limits relating to complaints about disability benefits which acknowledge the difficulty in assessing medical conditions over time and which give the SCT discretion in dealing with time limits.
1.17 Another amendment to the SRC Act will act to strengthen, modernise and improve the conciliation powers of the SCT by enabling the SCT to require attendance at conciliation instead of the current voluntary system.
1.18 Further amendments to the SRC Act are the removal of redundant powers dealing with arbitration and minor technical amendments which will have the effect of streamlining the application of the Act.
1.19 Amendments to the SIS Act will allow the recognition of awards, which are still in force, given under arbitration agreements, even though the arbitration power has been removed.
1.20 Amendments to the ASIC Act, the Corporations Act and the CRCT Act correct minor errors, grammatical mistakes and erroneous cross references and remove obsolete provisions. The Ministerial Council for Corporations has been consulted about the amendments and has approved them.
2.1 The following abbreviations are used in this explanatory memorandum.
|ADI||Authorised Deposit-Taking Institution|
|APRA||Australian Prudential Regulation Authority|
|APRA Act||Australian Prudential Regulation Authority Act 1998|
|ASIC||Australian Securities and Investments Commission|
|ASIC Act||Australian Securities and Investments Commission Act 2001|
|Banking Act||Banking Act 1959|
|the Bill||Financial Sector Legislation Amendment Bill (No. 2) 2002|
|Corporations Act||Corporations Act 2001|
|CRCT Act||Corporations (Repeals, Consequentials and Transitionals) Act 2001|
|Financial Sector (Collection of Data) Act||Financial Sector (Collection of Data) Act 2001|
|Insurance Act||Insurance Act 1973|
|NOHC||Non-Operating Holding Company|
|SCT||Superannuation Complaints Tribunal|
|SIS Act||Superannuation Industry (Supervision) Act 1993|
|SRC Act||Superannuation (Resolution of Complaints) Act 1993|
3.1 The proposed amendments have no financial impact.