Second Reading SpeechDr Emerson (Minister for Small Business, Independent Contractors and the Service Economy and Minister Assisting the Finance Minister on Deregulation)
That this bill be now read a second time.
The Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2008 introduces measures to improve the accountability, transparency and consistency of decisions made by the Australian Prudential Regulation Authority (APRA). The measures respond to recommendations of the HIH Royal Commission, the Taskforce on Reducing Regulatory Burdens on Business and the IMF's 2006 Financial Sector Assessment of Australia.
This government is committed to ensuring that the financial system in Australia has a prudential regulator that has the appropriate regulatory tools to manage the entities under its supervision whilst balancing the need for entities to seek a review of the regulator's decisions where appropriate.
By ensuring that this package of measures is passed by parliament, the government acknowledges the importance of a strong, robust and independent APRA operating within a prudential framework that allows it to take proper and timely action to ensure the stability of the financial system. This bill contains measures which will further align aspects of prudential legislation with the Corporations Act 2001 so that the regulatory burden on entities is reduced and a more consistent approach adopted.
Court power of disqualification
The amendments in schedule 1 of the bill repeal the existing process by which APRA disqualifies individuals from roles of responsibility within an entity under the Banking Act 1959, Insurance Act 1973, Life Insurance Act 1995, Retirement Savings Account Act 1997 and Superannuation Industry (Supervision) Act 1993 and puts in place a court based disqualification process which is broadly consistent with the court disqualification regime under the Corporations Act 2001.
Currently, under the prudential acts, the power to disqualify an individual from being or acting as a responsible person, such as a director, senior manager, auditor or actuary, for an APRA regulated entity on 'fit and proper' grounds rests with APRA. While APRA has the power to disqualify an individual under most prudential acts, this power is not consistent across the prudentially regulated industries and across responsible positions.
This measure will ensure that the Federal Court will be able to disqualify an individual from being or acting as a responsible person for an APRA regulated entity on 'fit and proper' grounds on application by APRA. The disqualification regime will apply to all responsible persons across APRA regulated industries. The new disqualification regime will not apply to responsible persons relating to self managed superannuation funds (SMSFs), regulated by the Australian Taxation Office (ATO), due to the different regulatory environment for SMSFs.
This measure will introduce a more consistent and flexible court based disqualification regime into the prudential acts by enabling the court to disqualify an individual from a position or positions in a specific entity, a class of entities or all entities for a period that the court considers appropriate across APRA regulated industries. This measure responds to recommendation 5.4 of Rethinking regulation and will enhance the flexibility in the application of the enforcement tools to accommodate differing circumstances.
The amendments in schedule 2 of the bill will replace APRA's specific powers for issuing directions concerning entity-level activities under the Banking Act, Insurance Act and Life Insurance Act with harmonised general directions powers.
While APRA currently has a wide range of direction powers under the Banking Act, Insurance Act and Life Insurance Act, these powers are spread throughout each act and, in some cases, are fragmented and inconsistent, making the directions powers under these acts unnecessarily complex and creating uncertainty as to their scope and application.
Effective directions powers ensure that rapid and decisive action can be taken to deal with emerging prudential concerns, protect beneficiaries, promote confidence in the effectiveness of prudential supervision and increase the safety of financial sector entities.
However, directions powers are strong intervention tools, which could have a significant impact on affected entities or individuals. Accordingly, directions should be subject to appropriate review. Currently, the majority of APRA's directions powers are not subject to merits review.
The measure will harmonise APRA's directions powers under each of the acts, reduce complexity and provide greater certainty in respect of APRA's powers. The amendments will also make it clear which of APRA's directions are subject to review while ensuring that APRA is able to take proper and timely action to address risks in the financial system.
Removal of ministerial consent
Schedule 3 to this bill removes from the prudential acts the requirement for the Treasurer's prior agreement for administrative decisions made by APRA or the ATO that do not involve broader policy considerations. These include decisions in relation to licensing and authorisation, exemption, compliance with minimum standards and certain directions. Certain ministerial powers are to be retained, including those that relate to national interest matters and where broader policy considerations are involved.
These measures respond to recommendation 22 of the HIH Royal Commission report.
The removal of the Treasurer's agreement from operational decisions will enhance the regulators' operational independence and improve the timeliness and effectiveness of the supervisory process. It ensures accountabilities are clearly allocated to the responsible decision maker, allowing the regulators to perform their duties and functions without giving rise to the perception that they are subject to external interference.
Schedule 4 to this bill amends the prudential acts to expand the availability of merits review by the Administrative Appeals Tribunal for appropriate administrative decisions made by APRA or the ATO, consistent with the guidelines regarding merits review developed by the Administrative Review Council (ARC).
These measures respond to recommendation 5.7 of Rethinking regulation and recommendation 23 of the HIH Royal Commission report with regard to ensuring that APRA administrative decisions are subject to merits review. The measures also ensure that merits review does not unintentionally constrain the regulator from taking prompt and decisive action to deal with prudential concerns. This is consistent with a recommendation by the IMF in its 2006 Financial system stability assessment of Australia.
Merits review by the Administrative Appeals Tribunal (AAT) is currently available for most decisions made by APRA or the ATO under the prudential acts which affect individuals. However, there is inconsistent application of merits review for decisions which may impact substantially on entities. Such inconsistency may reduce the regulators' accountability for administrative decisions.
These measures will ensure that merits review is available for all decisions which affect natural persons and for administrative decisions which affect a particular person. The effect of these measures is to improve the consistency, transparency and accountability of APRA and the ATO in respect of their decision making.
The government is bringing these measures forward because they improve APRA's decision making processes and remove unnecessary complexity in the prudential acts.
The measures respond to recommendations of the HIH Royal Commission, the Taskforce on Reducing Regulatory Burdens on Business and the IMF's 2006 Financial Sector Assessment Program. They are strongly supported by industry stakeholders, APRA and the ARC.
The effect of the amendments would be to ensure that APRA is able to take proper and timely action to address risks in the financial system, while ensuring that individuals and entities are able to have those decisions reviewed.
Full details of the amendments are contained in the explanatory memorandum. I commend the bill to the House.