House of Representatives

Financial Sector Legislation Amendment (Prudential Refinements and Other Measures) Bill 2010

Explanatory Memorandum

Circulated By the Authority of the Minister for Financial Services, Superannuation and Corporate Law, the Hon Chris Bowen MP

9.6 The term NOHC is defined in section 5 of the Banking Act and section 3 of the Insurance Act, respectively. Those sections define NOHC, in relation to a body corporate, to mean a body:

·
of which the first body corporate is a subsidiary; and
·
that does not carry on a business (other than a business consisting of the ownership or control of other bodies corporate); and
·
that is incorporated in Australia.

9.7 The amendment promotes the effective operation of the authorisation regime by ensuring that APRA may refuse an application to carry on banking or insurance business in Australia if the body corporate is a subsidiary of any body corporate (whether or not a NOHC as defined) that does not hold a NOHC authority.

Winding up of an ADI on application by APRA

9.8 Subsection 14F(2) of the Banking Act currently provides that if an ADI is wound up on application by APRA, the winding up is to be conducted in accordance with the Corporations Act under which the ADI is incorporated or is taken to be incorporated.

9.9 The Bill amends subsection 14F(2) to omit the words 'under which the ADI is incorporated or is taken to be incorporated' . [Schedule 1, item 28, subsection 14F(2) of the Banking Act 1959]

9.10 The amendment reflects that ADIs are now all incorporated under the Corporations Act. In the past some ADIs had been incorporated under other laws.

References to delegates

9.11 The Bill removes references to delegates from subsections 16AK(2) and 16AO(1) of the Banking Act and subsection 62ZZU(1) of the Insurance Act . [Schedule 1, items 34 and 35, and schedule 2, item 82, paragraphs 16AK(2)(d) and 16AK(2)(e) and subsection 16AO(1) of the Banking Act 1959, and subsection 62ZZU(1) of the Insurance Act 1973]

9.12 The references are not necessary given the operation of section 34AB of the Acts Interpretation Act 1901. That section provides that where an Act confers power on an authority to delegate a function or power, the function or power when performed or excised by a delegate is deemed to have been performed or exercised by the authority.

Foreign reinsurers

9.13 The Bill amends the Insurance Act to ensure that foreign insurers will only be exempt from the requirement to apply for authorisation to carry on insurance business in Australia if they solely conduct reinsurance business. If the foreign insurer conducts any other insurance business in Australia they must be authorised . [Schedule 2, items 2, 3, 7 and 8, subsections 3(1), 3(5) to 3(6A) of the Insurance Act 1973]

9.14 The amendments clarify the existing law.

Incorrect reference in subsection 38AA(6) of the Insurance Act

9.15 Subsection 38AA(6) of the Insurance Act currently provides that a body corporate commits an offence if the body corporate contravenes subsection 38AA(5).

9.16 The current reference to subsection 38AA(5) in subsection 38AA(6) is incorrect. The reference should be to subsection 38AA(4).

9.17 The Bill corrects this drafting error, by replacing the reference to subsection 38AA(5) in subsection 38AA(6) with a reference to subsection 38AA(4) . [Schedule 2, item 20, subsection 38AA(6) of the Insurance Act 1973]

Reference to prudential standards in section 38 of the Life Insurance Act

9.18 Subsection 38(4) of the Life Insurance Act currently provides that a life insurer must not borrow money, for the purposes of the business of a statutory fund, by means of an unsecured borrowing if the result would be that the total amount of principal outstanding under unsecured borrowings for the purposes of the business of the fund would exceed an amount ascertained in accordance with the regulations.

9.19 The Bill replaces the current reference to 'regulations' in subsection 38(4) of the Insurance Act with a reference to 'prudential standards' . [Schedule 3, item 6, subsection 38(4) of the Life Insurance Act 1995]

9.20 The amendment ensures that APRA can provide for the relevant matters in the prudential standards.

Repeal of section 44 of the Life Insurance Act

9.21 The Bill repeals section 44 of the Life Insurance Act . [Schedule 3, item 7, section 44 of the Life Insurance Act 1995]

9.22 Section 44 of the Life Insurance Act requires life insurance companies to submit a half yearly 'restricted investments return' to APRA. However, this requirement is redundant as APRA collects the data under the Financial Sector (Collection of Data) Act 2001. Therefore, the section is repealed.

9.23 As a result of the repeal of section 44, the Bill also repeals items 274 and 275 of schedule 1 of the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act. Those items make amendments to section 44 of the Life Insurance Act that commence on 1 July 2011. The items are redundant as a result of the repeal of section 44 . [Schedule 4, item 26, items 274 and 275 of schedule 1 of the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007]

Reference to 'policyholders' in the Life Insurance Act

9.24 The Bill replaces the reference to 'policyholders' in section 3 (Objectives of the Act) of the Life Insurance Act with a reference to 'policy owners' . [Schedule 3, item 1, paragraph 3(2)(d) of the Life Insurance Act 1995]. The Bill also replaces the references to 'policy-owner' in subsection 209(5) of the Life Insurance Act with references to 'policy owner' . [Schedule 3, item 48, paragraphs 209(5)(a) and 209(5)(b) of the Life Insurance Act 1995]

9.25 The amendments make the relevant provisions consistent with the remainder of the Act which uses the terms 'policy owners' and 'policy owner' rather than 'policyholders' and 'policy-owner'.

Incorrect reference in section 36C of the Business Transfer and Group Restructure Act

9.26 The definition of 'prudential requirements' in subsection 36C(4) of the Business Transfer and Group Restructure Act presently makes reference to prudential standards in force under section 360A of the Life Insurance Act.

9.27 The reference to section 360A of the Life Insurance Act is incorrect. Under the Life Insurance Act, prudential standards are in fact made under section 230A.

9.28 As a result, the Bill amends subsection 36C(4) of the Business Transfer and Group Restructure Act to replace the reference to subsection 360A of the Life Insurance Act with a reference to section 230A of that Act . [Schedule 4, item 6, subsection 36C(4) of the Financial Sector (Business Transfer and Group Restructure Act) 1999]

References to maximum penalties

9.29 The Bill amends the Banking, Insurance, Life Insurance, and Superannuation Industry (Supervision) Acts to replace all references to 'Maximum penalty' with references to 'Penalty'.

9.30 The change reflects current drafting practice and does not affect the operation of the relevant provisions . [Schedule 6, items 1 to 78, subsections 7(1), 8(1), 9(6), 10(3), 11(3), 11AA(5), 11CG(1) and (2), 11E(2), 13(3), 13A(4), 13B(1A), 14A(2A), 16B(1A), 33(4), 36(1A) and (2A), 41(2), 42(1A) and (3), 45(1A) and (4), 46(2), 51B(7), 51D(3), 61(3), 62(1A), 63(1) and (4), 66(1) and (3), 66A(1), 67(1) and (3), and 69(3AA), (5A) and (7A) of the Banking Act 1959, subsections 7A(1), 9(1), 10(1) and (2),14(1), 17(8), 20(1), 27(7), section 28, and subsections 49(3) and (4), 49A(3) and (4), 49F(1) and (2), 49L(1), and 49Q(2) of the Insurance Act 1973, subsections 16E(1) and (7), 16L(4), 16Q(4), 16R(6), 16U(4), 16V(7), 180(4), and 230F(1) and (3) of the Life Insurance Act 1995, and subsections 11B(3) and (4), 11C(2), (3) and (4), 64(3) and (3A), 103(3), 104(2), 104A(3), 105(2), 107(3) and (4), 108(3) and (4), 122(2), 124(2), 131B(1) and (2), 141A(3) and (6), 154(2) and (2A), 252C(2) and (10), 254(4) and (5), 260(2) and (3), 262(1) and (2), 299C(3), 299F(4) and (4A), 299G(4) and (4A), 299H(6) and (7), 299J(6) and (7), 299K(6) and (7), 299L(6) and (7), 299M(4) and (5), 299Y(2) and (3), and 347A(6) of the Superannuation Industry (Supervision) Act 1993]


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