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2004-2005-2006-2007
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
FINANCIAL SECTOR LEGISLATION AMENDMENT (REVIEW OF
PRUDENTIAL DECISIONS) BILL 2007
EXPLANATORY MEMORANDUM
(Circulated by authority of the
Minister for Revenue and Assistant Treasurer, the Hon Peter Dutton MP)
Table of contents
Glossary ....................................................................................... 1
General outline and financial impact ....................................................... 3
Chapter 1 Court power of disqualification...................................... 5
Chapter 2 Direction powers ......................................................... 31
Chapter 3 Removal of ministerial consent ................................... 41
Chapter 4 Review of decisions .................................................... 51
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
ADI authorised deposit-taking institution
APRA Australian Prudential Regulation Authority
ASIC Australian Securities and Investments
Commission
ATO Australian Taxation Office
Banking Act Banking Act 1959
Corporations Act Corporations Act 2001
DMF and DOFI Bill Financial Sector Legislation Amendment
(Discretionary Mutual Funds and Direct
Offshore Foreign Insurers) Bill 2007
FSCODA Financial Sector (Collection of Data) Act
2001
Insurance Act Insurance Act 1973
Life Act Life Insurance Act 1995
NOHC non-operating holding company
Prudential Acts Banking Act 1959, Insurance Act 1973,
Life Insurance Act 1995, Superannuation
Industry (Supervision) Act 1993
Rethinking Regulation: Report Rethinking Regulation
of the Taskforce on Reducing
Regulatory Burdens on Business
RPD Bill Financial Sector Legislation Amendment
(Review of Prudential Decisions) Bill 2007
RSA Act Retirement Savings Accounts Act 1997
SIS Act Superannuation Industry (Supervision) Act
1993
SMSF self managed superannuation fund
SPR Bill Financial Sector Legislation Amendment
(Simplifying Regulation and Review) Bill
2007
1
General outline and financial impact
Overview
The Financial Sector Legislation Amendment (Review of Prudential
Decisions) Bill 2007 (the Bill) amends the Banking Act 1959 (Banking
Act), Insurance Act 1973 (Insurance Act), Life Insurance Act 1995 (Life
Act) and Superannuation Industry (Supervision) Act 1993 (SIS Act)
(collectively, the Prudential Acts), the Retirement Savings Accounts Act
1997 (RSA Act) and the Financial Sector Collection of Data Act 2001
(FSCODA), to improve the efficiency, transparency and consistency of
the process for disqualifying individuals from operating financial sector
entities and enhance the accountability of the regulator for administrative
decision-making under the Prudential Acts, RSA Act and FSCODA.
The amendments introduce a court-based process for disqualifying an
individual from operating an entity regulated by the Australian Prudential
Regulation Authority (APRA), streamline APRA's directions powers
where appropriate, and remove ministerial consent from, and expand the
availability of merits review for appropriate administrative decisions
made by the regulator under the Prudential Acts and FSCODA.
Court power of disqualification
Schedule 1 of the Bill amends each of the Prudential Acts and the RSA
Act to introduce a court-based process for disqualifying an individual
from operating an APRA-regulated entity. The new regime is broadly
consistent with the Court disqualification regime under the Corporations
Act 2001 (Corporations Act).
Date of effect: These amendments apply from the date of Royal Assent
unless specified otherwise.
Proposals announced: The reform intention was first announced by the
Treasurer on 16 April 2007, with detailed proposals released for public
comment on 31 May 2007 in a paper entitled Review of Prudential
Decisions.
Financial impact: The measures have no significant financial impact.
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Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
Compliance cost impact: Low. The measures simplify existing processes
and affect a very small proportion of the financial community.
Directions powers, removal of ministerial consent and review
of decisions
Schedule 2 of the Bill streamlines APRA's direction powers, currently
scattered throughout the Banking Act, Insurance Act and Life Act, into a
general directions provision under each of these Acts. Such directions, if
triggered by certain conditions specified under the general directions
provisions, are subject to merits review by the Administrative Appeal
Tribunal (the AAT).
Schedule 3 of the Bill amends the Insurance Act, Life Act and SIS Act to
remove ministerial consent from certain administrative decisions made by
APRA or the Australian Taxation Office (the ATO) (in the case of self
managed superannuation funds (SMSFs)) where wider policy interests are
not involved.
Schedule 4 of the Bill amends each of the Prudential Acts to expand the
availability of merits review for appropriate administrative decisions made
by APRA or the ATO (in the case of SMSFs) consistent with the
guidelines developed by the Administrative Review Council. Under the
amendments, merits review will be available for licensing and
authorisation-related decisions, decisions to ensure compliance with
minimum prudential standards and certain directions decisions.
Date of effect: These amendments apply from the date of Royal Assent
unless specified otherwise.
Proposals announced: The initial proposals were announced in a paper
released on 4 December 2006 by the Minister for Revenue and Assistant
Treasurer entitled Streamlining Prudential Regulation: `Response to
Rethinking Regulation'. The proposals were subsequently revised in light
of industry comments and released for further public comment on
31 May 2007 in a paper entitled Review of Prudential Decisions.
Financial impact: The measures have no significant financial impact.
Compliance cost impact: Low. The measures will simplify existing
regulatory powers and processes, and broaden access to the review of
decisions. The measures will affect a small proportion of the financial
community in practice.
4
Chapter 1
Court power of disqualification
Outline of Chapter
1.1 Schedule 1 of the Bill amends the Banking Act 1959 (Banking
Act), Insurance Act 1973 (Insurance Act), Life Insurance Act 1995 (Life
Act), Superannuation Industry (Supervision) Act 1993 (SIS Act)
(collectively, the Prudential Acts) and the Retirement Savings Accounts
Act 1997 (RSA Act). The amendments replace the existing
APRA-determined disqualification regime under each of the Prudential
Acts and the RSA Act with a court-based disqualification regime, similar
to the disqualification regime available to the Australian Securities and
Investments Commission (ASIC) under the Corporations Act 2001
(Corporations Act).
1.2 The new disqualification regime will apply to responsible
persons of APRA-regulated entities, including directors, senior managers,
principle executive officers, auditors, actuaries, individual trustees where
relevant to a Prudential Act, directors, secretaries and executive officers of
a body corporate that is a trustee, investment manager or custodian of a
regulated superannuation entity under the SIS Act, senior managers or
agents in Australia for a foreign general insurer under the Insurance Act
and approved auditors under the RSA Act.
1.3 The new disqualification regime will not apply to responsible
persons relating to self managed superannuation funds (SMSFs), regulated
by the Australian Taxation Office (ATO).
Context of amendments
1.4 Consistent with its response to recommendation 5.4 of
Rethinking Regulation: Report of the Taskforce on Reducing Regulatory
Burdens on Business (Rethinking Regulation), the Government sought
public comment on its proposal to enhance the consistency and flexibility
in the disqualification regime applying to individuals under the Prudential
Acts, in a proposals paper Streamlining Prudential Regulation: `Response
to Rethinking Regulation' released on 4 December 2006.
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Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
1.5 While industry submissions were generally supportive of the
Government's goal to enhance the robustness and flexibility of the
disqualification regime, concerns were also raised about inconsistencies
between the APRA-determined disqualification regime under the
Prudential Acts and the court-based disqualification regime under the
Corporations Act.
1.6 In light of industry comments, the Treasurer announced on
16 April 2007 that the Government would move to introduce a
court-based process for disqualifying individuals under
APRA-administered legislation, similar to the disqualification framework
used by ASIC. Detailed proposals were canvassed in a paper Review of
Prudential Decisions, which was released for public comment on 31 May
2007. Schedule 1 of the Bill gives effect to these proposals.
Summary of new law
1.7 Schedule 1 of the Bill amends each of the Prudential Acts and
the RSA Act to introduce a court-based disqualification regime that is
similar to the regime available to ASIC under the Corporations Act.
1.8 There are also miscellaneous amendments to the Prudential Acts
to ensure APRA's powers to remove a responsible person on `fit and
proper' grounds are consistent with the new disqualification regime.
Comparison of key features of new law and current law
New law Current law
Under the Prudential Acts, the Under the Prudential Acts, the
Federal Court may disqualify an power to disqualify an individual
individual from being or acting as from being or acting as a
a responsible person for an responsible person for an
APRA-regulated entity on `fit and APRA-regulated entity on `fit and
proper' grounds on application by proper' grounds rests with APRA.
APRA.
The new disqualification regime While APRA has the power to
applies to all responsible persons disqualify an individual on `fit and
across APRA-regulated industries. proper' grounds under most
Specifically, the Court may Prudential Acts, such power is not
disqualify an individual on fit and consistent across industries. In
proper grounds from being or particular, APRA does not have
acting as: the power to disqualify on `fit and
· a director, senior manager or proper' grounds:
auditor for an authorised · a director, principle executive
officer, auditor or actuary
6
Court power of disqualification
New law Current law
deposit-taking institution under the Life Act; or
(ADI) or an authorised · an auditor under the Banking
none-operating holding Act; or
company (NOHC) under the · an actuary under the SIS Act.
Banking Act; or
· a director, senior manager,
auditor and actuary for a
general insurer, a senior
manager or agent in Australia
for a foreign general insurer,
or a director or senior manager
of an authorised NOHC under
the Insurance Act; or
· a director, principle executive
officer, auditor or actuary for a
registered life company under
the Life Act; or
· an individual trustee, auditor
or actuary for a regulated
superannuation entity (other
than a SMSF) under the SIS
Act; or
· a director, secretary or
executive officer for a body
corporate that is a trustee,
investment manager or
custodian of a regulated
superannuation entity (other
than a SMSF) under the SIS
Act.
The Court may, on application by Under the RSA Act, APRA is able
APRA, disqualify a person from to disqualify a person from being
being or acting as an approved or acting as an approved auditor of
auditor of an RSA provider under an RSA provider if APRA is
the RSA Act if it is satisfied that satisfied that the person has failed
the person has failed to perform to perform the required duties or
the required duties or functions or functions or is otherwise not a fit
is otherwise not a fit and proper and proper person.
person.
The Court may disqualify an An APRA-determined
individual from a position or disqualification is permanent and
positions in a specific entity, a prohibits a disqualified person
class of entities or all entities for a from holding any responsible
period that the Court considers person position from that industry.
appropriate.
A disqualification order by the A disqualification decision is
Court is subject to the normal subject to internal review by
court-based appeals process. It is APRA and merits review by the
not subject to internal review by AAT.
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Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
New law Current law
APRA or merits review by the
AAT.
8
Court power of disqualification
New law Current law
Offence provisions for Offence provisions for
contravening a disqualification contravening an APRA
order by the Court are harmonised disqualification order are
across the Prudential Acts and the inconsistent among the Prudential
RSA Act, largely based on the Acts and the RSA Act. In
current arrangements under the particular:
Banking Act and Insurance Act. · the penalty level for a
Offences of strict liablity are contravention is inconsistent
introduced into the Life Act, RSA across legislation; and
Act and SIS Act. Specific defence · there is no strict liability
provisions are removed from the offence in the Life Act, the
Banking Act and Insurance Act. RSA Act or offence provisions
concerning a disqualified
person acting as an investment
manager or custodian of a
superannuation entity under
the SIS Act.
Specific defence provisions under
the Banking Act and Insurance
Act are redundant given the
availability of a general defence
(of mistake of fact) under the
Criminal Code.
Detailed explanation of new law
Part 1 Amendments commencing on Royal Assent
1.9 The fit and proper criteria set out in APRA's prudential
standards and operating standards under the SIS Act seek to ensure
individuals holding important positions in APRA-regulated entities have
the appropriate expertise and experience and are of good fame and
character. The disqualification regime in turn plays a critical role in
ensuring that individuals who fail to meet these standards are prevented
from operating a financial sector entity. Hence, it is important that the
disqualification regime is robust and consistent across industries where
appropriate.
1.10 On the other hand, disqualification could have a significant
reputational impact on an affected individual or entity. It is important that
the disqualification process is transparent and efficient.
1.11 In addition, as most APRA-regulated entities are also subject to
regulation under the Corporations Act, it is preferable that the
disqualification processes under the two regulatory frameworks are
9
Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
suitably aligned to ensure that the disqualification decisions are subject to
a consistent level of scrutiny.
1.12 Schedule 1 of the Bill introduces into each of the Prudential Acts
and the RSA Act a court-based disqualification regime for responsible
persons in relation to APRA-regulated entities and approved auditors for
RSA providers, similar to the regime available to ASIC under the
Corporations Act.
1.13 Under the new regime, the Federal Court may, on application by
APRA, disqualify an individual from being or acting as:
· a director, senior manager or auditor for an ADI or an
authorised NOHC under the Banking Act (item 7 section
21); or
· a director, senior manager, auditor or actuary for a general
insurer or a senior manager or agent in Australia for a
foreign general insurer or a director or senior manager of an
authorised NOHC under the Insurance Act (item 13 section
25A and item 15 section 44); or
· a director, principal executive officer, appointed actuary or
auditor for a registered life insurance company under the
Life Act (item 20 section 245A); or
· an approved auditor of an RSA provider under the RSA Act
(item 25 section 67); or
· an individual trustee of a superannuation entity (other than a
SMSF), a director, secretary or executive officer of a body
corporate that is a trustee, investment manager or custodian
of a superannuation entity (other than a SMSF), or an
auditor or actuary of a superannuation entity (other than
SMSF) under the SIS Act (item 43 section 126H and
item 47 section 130D).
1.14 The new regime allows a greater level of flexibility with regard
to the nature of a disqualification. In particular, the Court has discretion to
disqualify a person from holding a position or positions within an entity, a
class of entities or all entities for a period that it considers appropriate in
the circumstances under all Prudential Acts and the RSA Act.
1.15 The Court may also subsequently revoke or vary a
disqualification order if it sees fit to do so (item 7 section 22 of the
Banking Act, item 13 section 26 of the Insurance Act, item 15 section 45
of the Insurance Act, item 20 section 245B of the Life Act, item 25
10
Court power of disqualification
section 67A of the RSA Act, item 43 section 126J and item 47 section
130E of the SIS Act).
1.16 Items 2-3, 10, 15 (section 43A of the Insurance Act), 19, 25
(section 67B of the RSA Act), 43 (section 126K of the SIS Act) and 52
(section 131C of the SIS Act) harmonise the offence provisions for
contravening a disqualification order under the Prudential Acts and the
RSA Act, based on the current arrangements in the Banking Act and
Insurance Act. These amendments also seek to ensure that the offence
provisions are compatible with the new disqualification regime, where it
has been expanded to include auditors of ADIs, actuaries of
superannuation entities and responsible persons of life companies, and to
reflect that a person may be disqualified from any position or positions of
a specific entity, a class of entities or all entities.
1.17 Under the harmonised offence provisions, a person commits an
offence if the person acts in a role from which the person has been
disqualified. A person who contravenes this provision is subject to a
fault-based offence that carries a penalty of imprisonment for two years or
a strict liability offence of 60 penalty units.
1.18 In addition, under the Prudential Acts, a body corporate commits
an offence if the body corporate allows a disqualified person to act in a
role from which the person has been disqualified. The penalty is 250
penalty units or 60 penalty units for a strict liability offence.
1.19 Offences of strict liability do not require proof of a mental
element. They are offences for non-compliance with basic regulatory
requirements that should be complied with by all persons. The use of
offences of strict liability is designed to enhance the effectiveness of the
enforcement regime in deterring contraventions of key prudential
requirements.
1.20 Items 4, 10 and 19 repeal from the Banking Act, Insurance Act
and Life Act the subsections that provide a specific defence in a
prosecution where the body corporate contacted APRA before allowing
the person to act as a responsible officer and was incorrectly advised by
APRA that the person was not disqualified. These specific provisions are
redundant as a more general defence (of mistake of fact) can be claimed
under the Criminal Code.
1.21 The court-based disqualification regime will not apply to
responsible persons in relation to SMSFs which are regulated by the ATO.
Items 40 (section 126A), 48 and 49 retain the current power of the
Commissioner of Taxation to disqualify an individual from being or
acting as a responsible person relating to a SMSF. In addition, the
11
Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
amendments also extend the disqualification power of the Commissioner
of Taxation to include actuaries of a SMSF.
Application and transitional provisions
1.22 The amendments made under Part 1 of Schedule 1 (items 1-55)
apply from the date of Royal Assent. [Clause 2]
1.23 Item 21 clarifies that the disqualification power introduced into
the Life Act under item 20 applies in relation to conduct that has occurred
before or after the commencement of section 245B. This is to ensure all
conduct that may warrant a disqualification is captured under the new law,
consistent with arrangements under the other Prudential Acts.
1.24 Transitional measures are introduced into the Banking Act
(item 9), Insurance Act (item 16), RSA Act (item 27) and SIS Act
(item 55) to allow existing disqualifications by APRA and subsequent
determinations to vary or revoke such disqualifications by APRA or the
AAT to continue in force after the date of Royal Assent. The transitional
measures also allow the AAT to continue hearing cases that are still
before it at the day of Royal Assent.
1.25 These measures ensure a smooth and equitable transition from
the current APRA-determined disqualification regime to the new
court-based disqualification regime.
Consequential Amendments
Part 1 Amendments commencing on Royal Assent
1.26 Item 1 allows APRA to direct an ADI to remove a disqualified
auditor under the Banking Act. This is a consequential amendment to
item 7 which expands the disqualification regime to auditors of ADIs.
APRA currently has power to direct an ADI to remove an auditor on fit
and proper grounds which are similar to grounds for the Court to
disqualify an auditor under the new court-based regime.
1.27 Items 8, 14 and 53 amend the Banking Act, Insurance Act and
SIS Act to ensure that APRA is only able to remove a person from a
position or positions that the person is disqualified from holding under
these Acts. They are consequential amendments to items 7, 13 and 43
which introduce a more flexible court-based disqualification process into
the relevant Acts where an individual may be disqualified from holding a
12
Court power of disqualification
position or positions of a regulated entity, a class of regulated entities or
all regulated entities.
1.28 Items 5, 6, 11, and 12 replace references to `APRA' with
references to `the Federal Court of Australia' under the Banking Act and
Insurance Act as a result of the change from an APRA-determined
disqualification regime to a court-based disqualification regime effected
through items 7 and 13.
1.29 Item 17 replaces the reference to `this section' in subsection
245(1) of the Life Act with a reference of `this Act' to account for the
introduction of a new section concerning the Court power to disqualify a
person on fit and proper grounds through item 20.
1.30 Item 18 adds a reference to a court-ordered disqualification to
the definition of a disqualified person under subsection 245(1) of the Life
Act, also consequential to item 20.
1.31 Item 28 updates the definition of approved auditor in subsection
10(1) of the SIS Act by inserting an exclusion for auditors who have been
disqualified by the court under the new section 130D. This amendment is
consequential to the introduction of a Court power to disqualify an auditor
of an APRA-regulated superannuation entity under item 47. Item 29
ensures updating the definition of approved auditor under item 28 does
not unduly affect the continuity of any regulations made for the purposes
of that definition.
1.32 In addition, items 28 and 33 together ensure the definition of an
approved auditor under the SIS Act reflects the more flexible court-based
disqualification regime introduced under item 47 where an individual may
be disqualified from being or acting as an auditor for a regulated
superannuation entity, a class of regulated superannuation entities or all
regulated superannuation entities.
1.33 Similarly, items 22 and 24 respectively amend section 16 and
subsection 65(1) of the RSA Act in relation to the definition of approved
auditor to reflect the enhanced level of flexibility in the new court-based
disqualification regime where the Court may disqualify a person from
being or acting as an auditor for a particular RSA provider, a class of RSA
providers or any RSA provider.
1.34 Item 23 removes references to current disqualification
provisions from the list of reviewable decisions set out in section 16 of the
RSA Act, as a disqualification order by the Court under the new regime is
not subject to merits review. These amendments are consequential
amendments to item 25 which introduces the court-based disqualification
regime into the RSA Act.
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Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
1.35 Item 26 amends subsection 68(3) of the RSA Act to replace the
reference to an APRA disqualification with a reference to the new
court-ordered disqualification made under a new section 67, introduced
through item 25.
1.36 Items 30, 31, 32 and 54 update the definition of reviewable
decision under subsections 10(1) and 344(12) of the SIS Act to make clear
that a disqualification order made by the Court is not a reviewable
decision, whilst a disqualification decision made by the Commissioner of
Taxation continues to be a reviewable decision. These amendments are
consequential to item 40, which preserves the power of the Commissioner
of Taxation to disqualify a responsible person in relation to a SMSF, and
item 43 to introduce a court power to disqualify a responsible person in
relation to an APRA-regulated superannuation entity.
1.37 Item 35 amends paragraph 120(1)(c) to ensure the definition of a
disqualified person includes individuals disqualified by both the
Commissioner of Taxation and the Court. This amendment is
consequential to amendments under item 40 (section 126A), preserving
the power of the Commissioner of Taxation to disqualify a responsible
person in relation to a SMSF and items 43 (section 126H) and 47 (section
130D) to introduce a court power to disqualify a responsible person in
relation to an APRA-regulated superannuation entity.
1.38 Items 36 and 37 amend section 120 of the SIS Act to ensure the
arrangements for automatically disqualifying a body corporate are
compatible with the court-based disqualification regime which provides
flexibility for an individual to be disqualified from holding a position or
positions within a regulated entity, a class of regulated entities or all
regulated entities. These amendments are consequential amendments to
item 43 which introduces a more flexible court-based disqualification
regime.
1.39 Item 38 repeals section 120A of the SIS Act which has been
replaced by an ATO disqualification power and a court disqualification
power through amendments under items 40 and 43.
1.40 Item 38 also repeals section 121 of the SIS Act as these offence
arrangements are now set out in section 126K, introduced under item 43.
1.41 Item 40 repeals sections 126 and 126A of the SIS Act which
prohibit a disqualified person from acting as an investment manager or
custodian. These prohibitions are now set out in the new section 126H of
the SIS Act, introduced through item 43.
1.42 Items 34, 39, 44, 45, 46 and 50 insert titles for relevant divisions
and subdivisions applicable to the new disqualification framework under
14
Court power of disqualification
the SIS Act. These are consequential amendments to items 40 and 43
which establish the new disqualification framework.
1.43 Item 41 repeals subsection 126D(1) of the SIS Act which sets
out APRA's power to waiver a person's disqualification status. Under the
new regime introduced under items 43 (section 126H) and 47 (section
130D), such power rests with the Court.
1.44 Item 42 is a consequential amendment to item 40 (section 126A)
which introduces a separate division to retain the ATO's disqualification
power with respect to SMSFs under the SIS Act. Item 42 retains the
ATO's power to waiver a person's disqualification status under subsection
126D(1A), while replacing the reference to `the Commissioner of
Taxation' with a reference to `the Regulator' so that references to the
Regulator are consistent through out that division.
1.45 Item 51 replaces the reference to the current subsection 131(1)
of the SIS Act which sets out the Regulator's power to disqualify an
auditor with a reference to the new section 130D, which allows the Court
to disqualify an auditor or actuary in relation to an APRA-regulated
superannuation entity, and section 131, which allows the Commissioner of
Taxation to disqualify an auditor or actuary in relation to a SMSF. This is
a consequential amendment to items 40, 43, 48 and 49, which set out the
Court disqualification regime (item 43) and the Regulator disqualification
regime (items 40, 48 and 49) respectively.
Part 2 Amendments contingent on the Financial Sector Legislation
Amendment (Simplifying Regulation and Review) Act 2007
Introduction
1.46 The amendments contained in Part 2 of Schedules 1 to 4 ensure
that the amendments effected in this Bill (RPD Bill) do not conflict with
amendments effected in the Financial Sector Legislation Amendment
(Simplifying Regulation and Review) Bill 2007 (SPR Bill). As some
sections of the Prudential Acts would be amended by both Bills, it is
necessary to ensure that the amendments occur in the right order, and that
any amending items do not remove or override the changes made by
amending items that have already come into effect.
1.47 Some provisions in Part 2 of each Schedule set out the changes
that would be made by the RPD Bill, as well as set out the interaction
between changes effected by the RPD Bill and the SPR Bill, whichever
takes effect first. Other provisions in Part 2 of each Schedule set out what
amendments should take effect if the SPR Bill does not commence and the
15
Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
proposed amendments in the SPR Bill (SPR amendments) do not take
effect.
1.48 There are four types of commencement provisions in Part 2 of
the Schedules.
Type 1 commencement provisions
1.49 These relate to the circumstance where the change(s) in the RPD
Bill take effect before the changes in the SPR Bill. Here the RPD Bill
would make two changes to the legislation at different times. The first
amendment provision (the RPD amendment) would effect changes made
by this Bill. The second commencement provision would come into effect
immediately after the SPR Bill changes have commenced (the second
amendments), and it would usually replace the SPR amendments with an
item that captures the RPD amendments as well as the SPR amendments.
1.50 This ensures that changes made by both Bills would be
accurately reflected in the final version of the legislation (see Chart 1,
Type 1 commencement provisions relating to SPR Bill, below).
Chart 1: Type 1 amendments relating to SPR Bill
The RPD Bill The SPR Bill commences, and the `SPR The `second amendments' in the RPD Bill are
commences. The amendments' changes the Prudential Acts triggered by some SPR items. These take
`RPD these may override or replace the RPD effect immediately after the SPR Bill, and
amendments' amendments. replace the relevant SPR items.
makes changes to
the Prudential This event may trigger `second amendments' The `second amendments' would capture both
and `type 3 provisions' in the RPD Bill. SPR and RPD amendments.
Acts.
Some SPR items may trigger `type 3 provisions',
which commence just before the SPR items come
into effect. These provisions remove any SPR items
that have become `misdescribed amendments' as a
result of the RPD amendments.
See `type 3 provisions' below for details.
Type 2 commencement provisions
1.51 These relate to the circumstance where the change(s) in the RPD
Bill take effect after the changes in the SPR Bill. Here, usually only the
`second amendments' would come into effect. As above, the second
amendments would replace the SPR Bill changes with a provision that
captures both the RPD amendments as well as the SPR amendments.
1.52 This ensures that changes made by both Bills would be
accurately reflected in the final version of the legislation (see Chart 2,
Type 2 commencement provisions, below).
16
Court power of disqualification
Chart 2: Type 2 amendments relating to SPR Bill
The first `RPD The SPR Bill commences, The RPD Bill commences, and `second amendments'
amendments' do and the `SPR amendments' in the Bill come into effect because both Bills have now
not come into changes the Prudential Acts. commenced. The second amendments change the
effect, because (the RPD Bill has not yet Prudential Acts, and may override changes already
the SPR Bill has commenced). made by the SPR Bill. The changes made by `second
already amendments' would capture both SPR and RPD
commenced. amendments.
The `type 3 provisions' do not come into
effect, because they are only triggered if
the RPD Bill commences before the SPR
Bill. Here, the SPR Bill has commenced
before the RPD Bill.
Type 3 commencement provisions
1.53 These deal with `misdescribed amendments' or an amending
item that cannot take effect because the relevant legislative provision no
longer exists.
1.54 In drafting these provisions, it is assumed that once an item has
effected changes to a legislative provision, it is `spent', and as such a later
item that would make changes to the same legislative provision does not
need to deal with this item.
1.55 For example, if item 64 of Schedule 1 of the SPR Bill has
already amended subsection 48(1) of the Insurance Act relating to
APRA's power to refer matters to professional associations, and the RPD
Bill would remove subsection 48(1) or change its contents, then, the RPD
Bill can simply repeal or amend subsection 48(1) without referring to, or
dealing with, item 64 of Schedule 1 of the SPR Bill.
1.56 In comparison, if item 64 of Schedule 1 of the SPR Bill has not
come into effect when the relevant item of the RPD Bill commences, then,
the RPD Bill would need to repeal or amend item 64, as well as amend
section 48 of the Insurance Act otherwise, item 64 of Schedule 1 of the
SPR Bill would become a `misdescribed amendment' (see Chart 3, Type 3
commencement provisions relating to SPR Bill, below).
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Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
Chart 3: Type 3 amendments relating to SPR Bill
The RPD Bill The SPR Bill commences, and the `SPR The `second amendments' in the RPD Bill are
commences. The amendments' changes the prudential Acts triggered. These come into effect immediately
first `RPD these may override or replace the RPD after the SPR Bill, and replace these SPR items.
amendments' amendments. Changes made by `second amendments' would
makes changes to This event triggers the `second amendments' capture both SPR and RPD amendments.
the Prudential and `type 3 provisions' in the RPD Bill.
Acts.
The relevant SPR items trigger `type 3 provisions', which
commence just before the SPR items come into effect.
These provisions remove any SPR items that have
become `misdescribed amendments' as a result of the
RPD amendments.
Type 4 commencement provision
1.57 This type of commencement provision is very similar to `second
amendments'. These relate to the circumstance where the SPR Bill inserts
new sections in the Prudential Acts, and these new sections either contain
reference to other sections of the Prudential Acts affected by the RPD
amendments or would be affected by the RPD amendments.
1.58 The references in the SPR items would need to be updated if this
Bill commences and the RPD amendments take effect; alternatively, some
SPR Bill amendments may need to be repealed if this Bill commences and
the RPD amendments take effect.
1.59 These commencement provisions would either replace the
references in the SPR Bill with the correct references, or repeal the
relevant SPR Bill items and replace them with new items. These would
commence if both this Bill and the SPR Bill commences, whichever
occurs later (see Charts 4A and 4B below).
Chart 4A: RPD Bill commences before the SPR Bill
The RPD Bill commences, but the The SPR Bill commences and inserts new provisions
`type 4 provisions' do not come into into the Prudential Acts. These new SPR provisions
effect, because the SPR Bill has not contain incorrect references to old or repealed
yet commenced. sections of the Prudential Acts. This event triggers
`type 4 provisions'.
The `type 4 provisions' commence immediately before, or
after the SPR Bill takes effect. These override the new
SPR provisions or insert new references in new SPR
provisions, so that they refer to new or amended sections
of the prudential Acts as amended by the RPD Bill.
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Court power of disqualification
Chart 4B: RPD Bill commences after the SPR Bill
The SPR Bill commences, and The RPD Bill commences. At the same time, `type 4 provisions'
inserts new provisions into the come into effect because both Bills have now commenced.
Prudential Acts. These override, or insert new references in, new SPR provisions,
so that the new SPR provisions now refer to new or amended
sections of the Prudential Acts as amended by the RPD Bill.
SPR Bill does not commence
1.60 If the SPR Bill amendments do not commence at all, most items
in Part 3 of the Schedules would not come into effect. Only a small
number of items in Part 2 of the Schedules would still take effect. This
means only the RPD amendments made by Part 1 of the Schedules would
come into effect, and SPR amendments dealt with in Part 3 will not be
incorporated into the legislation inadvertently.
Part 2 of Schedule 1
Insurance Act
1.61 The following items ensure that references to disqualification
are updated to reflect the introduction of the court-based disqualification
process under items 13 and 15. In simple terms, references to APRA's
determination that a person is disqualified will be replaced by references
to a court-based disqualification order.
Item 57 (type 4 provision)
1.62 Item 57 is a type 4 provision, and it covers both type 4A and 4B
circumstances. In practice, it would be triggered when both the RPD Bill
and SPR Bill have commenced, whichever occurs later.
1.63 If the SPR Bill commences before the RPD Bill, item 57 would
take effect at the same time as Part 1 of Schedule 1. It would remove the
reference to an APRA determination under section 44 and insert a
reference to a court order under section 44, to reflect the new court-based
disqualification system.
1.64 If the SPR Bill commences after the RPD Bill, item 57 would
take effect immediately after the SPR Bill have commenced. It would still
remove the reference to an APRA determination and insert a reference to
court order under section 44.
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Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
Item 58 (type 1 provision)
1.65 Item 58 amends the current paragraph 40(2)(b) of the Insurance
Act, and is a type 1 provision as it only takes effect if the RPD Bill
commences before the SPR Bill.
1.66 The current paragraph 40(2)(b) of the Insurance Act refers to an
APRA determination under section 44, item 58 would replace this
reference with a reference to a court order under section 44, to reflect the
new court-based disqualification system.
1.67 If the SPR Bill has commenced before the RPD Bill, item 181 of
Schedule 1 of the SPR Bill would have repealed section 40 of the
Insurance Act. In this circumstance, it would not be necessary to amend
paragraph 40(2)(b), in other words, no `second amendments' would be
necessary.
Items 59 and 60 (type 1 and 2 provisions, and if SPR Bill does not
commence)
1.68 Items 59 and 60 are related. These two items amend section 43
of the Insurance Act. They would take effect in different ways in the
following three circumstances: firstly, the RPD Bill commences before the
SPR Bill; secondly, the RPD Bill commences after the SPR Bill; or
thirdly, the RPD Bill commences but the SPR Bill does not commence.
The following paragraphs explain what would happen in each of the three
circumstances.
Type 1 provision
1.69 If the RPD Bill commences before the SPR Bill, item 59 (the
RPD amendments) would come into effect at the same time as Part 1 of
Schedule 1; after the SPR Bill commences, item 60 would come into
effect as a `second amendment'.
1.70 Paragraph 43(c) of the Insurance Act currently refers to an
APRA determination under section 44 of the Insurance Act, and item 59
would replace this reference with a reference to a court order under
section 44, to reflect the new court-based disqualification system.
1.71 Once the SPR Bill commences, items 182 to 184 of Schedule 1
of the SPR Bill would amend section 43 of the Insurance Act by adding
new numberings of subsection (1), and adding a new subsection (2). As a
result of these changes, the reference to `paragraph 43(c)' would be no
longer correct, instead the correct reference would be `paragraph
43(1)(c)'. After this point, item 59 (referring to paragraph 43(c)) would
need to be replaced by item 60 (referring to paragraph 43(1)(c)), so that
the correct amendment will be made to section 43 of the Insurance Act.
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Type 2 provision
1.72 Only item 60 would come into effect if the RPD Bill commences
after the SPR Bill. The SPR Bill would have already added new
numbering (subsection 43(1)) and added a new subsection 43(2). Item 60
would amend the new subsection 43(1)(c) by replacing the reference to an
APRA determination with a reference to a court order, to reflect the new
court-based disqualification system.
No SPR Bill
1.73 If the SPR Bill does not commence at all, item 59 would still
take effect at the same time as Part 1 of Schedule 1, to amend the existing
paragraph 43(c) of the Insurance Act.
Items 61, 62 and 63 (type 1 and 2 provisions)
1.74 These items amend section 48 of the Insurance Act. These items
would take effect in three different ways, where the RPD Bill commences
before or after the SPR Bill, and where the SPR Bill does not commence
at all. The following paragraphs explain what would happen in the three
circumstances.
Type 1 provision
1.75 If the RPD Bill commences before the SPR Bill, item 61 (the
RPD amendments) would come into effect at the same time as Part 1 of
Schedule 1 of the RPD Bill; after the SPR Bill commences, item 62 and
63 would come into effect as `second amendments'.
1.76 Subsection 48(1) of the Insurance Act currently refers to an
APRA determination under section 44, as a ground on which APRA can
direct a general insurer to remove the auditor or actuary. Item 61 replaces
this reference with a reference to a court-ordered disqualification under
section 44, to reflect the new court-based disqualification system.
1.77 Once the SPR Bill commences, item 64 of Schedule 1 of the
SPR Bill would amend subsection 48(1) and insert a new subsection
48(2), but neither of the new subsections refer to a court-based
disqualification order as a ground for APRA to direct the removal of the
auditor or actuary. It is appropriate that a court-ordered disqualification
remain a ground for APRA to issue this direction, but the reference in
item 61 (amending subsection 48(1)(b)) would have become incorrect. As
a result, item 61 would be replaced by items 62 and 63 (inserting new
paragraphs 48(1)(aa) and 48(2)(aa)), so that APRA may direct the
removal of the auditor or actuary if the person has been disqualified by a
court under section 44.
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Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
Type 2 provision
1.78 Only items 62 and 63 would come into effect if the RPD Bill
commences after the SPR Bill. The SPR Bill would have already amended
subsections 48(1) and inserted a new subsection 48(2). Items 62 and 63
would amend these subsections so that APRA may issue a direction to
remove the auditor or actuary if the person has been disqualified by a
court under section 44.
No SPR Bill
1.79 If the SPR Bill does not commence at all, item 61 would still
take effect at the same time as Part 1 of Schedule 1 of the RPD Bill, to
amend the existing subsection 48(1) of the Insurance Act.
Item 64 (type 4 provision)
1.80 This item only has effect if item 64 of Schedule 1 of the SPR
Bill and Part 1 of Schedule 1 of the RPD Bill have both commenced,
whichever occurs later. In other words, this item covers both type 4A and
4B circumstances. Item 64 of Schedule 1 of the SPR Bill inserts a new
subsection 48(4) which provides that APRA may direct the removal of the
auditor or actuary whether or not APRA has disqualified the person. This
provision would be incorrect as well as unnecessary if the court-based
disqualification regime is introduced. Item 64 would remove the new
subsection 48(4).
Life Insurance Act 1995
1.81 The transitional amendments relate to the regulatory framework
for the auditor and actuary of a life company. Both the SPR Bill and the
RPD Bill make changes to this framework.
1.82 The SPR Bill would remove the requirement for APRA to
approve the appointment of the auditor and actuary of a life company, and
remove APRA's power to revoke its approval of the auditor and actuary.
Instead, a life company would be required to notify APRA when it
appoints the auditor or actuary, and instead of revoking its approval of a
person, the SPR Bill would give APRA the powers to declare an
individual `ineligible' to be appointed as the auditor or actuary of a life
company.
1.83 Under the RPD Bill, APRA's power to apply to the court to
disqualify the auditor or actuary of a life company would replace APRA's
power to make `ineligibility' declarations. As such, if the relevant items in
the RPD Bill and the SPR Bill have both commenced, it would be
necessary to remove APRA's power to make these declarations, by
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Court power of disqualification
repealing the new sections 86 (`ineligibility' declarations relating to
auditors) and 94A (`ineligibility' declarations relating to actuaries). It
would also be necessary to replace references to APRA's `ineligibility'
declarations with reference to disqualification orders made by the court
under the new section 245A.
1.84 Under the RPD Bill, APRA would also have the power to direct
the company to remove the auditor or actuary if certain triggers are met.
This power makes the Life Insurance Act regime applying to auditors and
actuaries consistent with the regime under the other three Prudential Acts.
1.85 The following items are type 4 provisions.
1.86 Items 65 to 70 of Part 2, Schedule 1, give effect to the
transitional arrangements relating to the new court-based disqualification
regime. Items 71 and 72 of Part 2, Schedule 1, give effect to the
transitional arrangements relating to APRA's power to direct the removal
of the auditor or actuary.
Items 67 and 70
1.87 These two items would repeal the new sections 86 and 94A
inserted by the SPR Bill. These repeals would remove APRA's power to
make `ineligibility' declarations under sections 86 and 94A of the Life
Act.
Items 65, 66, 68 and 69
1.88 These items replace references to APRA's `ineligibility'
declarations with reference to the new disqualification orders made by the
court in paragraphs 84(b) and 85(1)(c), in relation to auditors, and
paragraphs 93(3)(b) and 94(1)(c), in relation to actuaries, respectively.
1.89 These items take effect when both the SPR Bill and RPD Bill
have commenced, whichever occurs later.
1.90 If the RPD Bill commences first, then, as soon as the SPR Bill
has also come into effect and amended paragraphs 84(b), 85(1)(c),
93(3)(b) and 94(1)(c), items 65, 66, 68 and 69 would be triggered. These
items would replace reference to APRA declarations with reference to
court-based disqualification orders under sections 84, 85, 83 and 94 of the
Life Act.
1.91 If the SPR Bill commences first, then, as soon as the RPD Bill
commences, items 65, 66, 68 and 69 would also commence. The
references to APRA's `ineligibility' declarations would be replaced by
references to court-based disqualification orders at the same time as Part 1
of Schedule 1 implements the new court-based disqualification regime.
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Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
1.92 The SPR Bill amends these paragraphs so that a person who is
the subject of an APRA `ineligibility' declaration cannot be appointed the
auditor or actuary of a life company. As such, it is only necessary to
amend these references if the SPR Bill and the RPD Bill have both
commenced. If the SPR Bill does not commence, there would be no
references to `ineligibility' orders under these sections, and so no
amendments would be necessary.
Items 71 and 72
1.93 These items will commence when both the SPR Bill and RPD
Bill have commenced, whichever occurs later.
1.94 Item 71 inserts a new power for APRA to direct the removal of
the auditor or actuary of a life company. This is modelled on similar
directions powers currently found in the Banking Act and SIS Act. The
SPR Bill will also insert this directions power under the Insurance Act.
The SPR Bill was the main vehicle to make such directions powers
consistent across the four Prudential Acts, as such it is only appropriate to
give APRA this directions power if the SPR Bill has commenced as well.
The SPR Bill will repeal sections 125A, and so this section number can be
re-used here.
1.95 Item 72 makes directions issued under the new section 125A
subject to merits review, by adding a new paragraph (zgb) in the list of
merits reviewable provisions under subsection 236(1) of the Life Act.
SIS Act
Item 73 (type 4 provision)
1.96 Item 73 is consequential to item 43.
1.97 This item ensures that persons disqualified under the new
section 130D cannot act as the approved auditor of a superannuation
entity, for the purposes of the annual audit of the entity's operations. This
change will take effect when both schedule 1 of the RPD Bill and item 8,
Schedule 3 of the SPR Bill have commenced, whichever is later.
1.98 Item 8 of Schedule 3 of the SPR Bill inserts a new section 35C
of SIS Act to require that, each year, the trustee must appoint an approved
auditor to provide a report of the operations of the entity and the RSE
licensee of the entity (if any). Item 73 inserts a new subsection 35C(1A) to
ensure that a person who has been disqualified from acting as the entity's
auditor under new section 130D cannot be the approved auditor.
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Items 56 and 75 (type 4 provisions)
1.99 Item 56 relates to item 75 of Part 2, Schedule 1. These items are
type 4 provisions that are triggered when both the RPD Bill and SPR Bill
have commenced, whichever occurs later. In practise, either item 54 or 73
will take effect if the SPR Bill commences, but not both.
1.100 These items amend new item 131AA, inserted by the SPR Bill.
1.101 Item 56 is a type 4A provision, as it only takes effect if the RPD
Bill has commenced before the SPR Bill, and has implemented the
court-based disqualification system. When the SPR Bill commences, item
244 in the SPR Bill would insert a new section 131AA which still refers to
the administrative system of disqualification under section 131 of the SIS
Act, and this would be a `misdescribed amendment'. Instead, item 56
removes item 244 in the SPR Bill just before it comes into effect, and
replaces it with a new section 131AA that refers to the new court-based
disqualification system under new sections 130D and 131.
1.102 Item 75 is a type 4B provision, as it only takes effect if the RPD
Bill commences after the SPR Bill, and in practise, it would commence at
the same time as Part 1 of Schedule 1. As the SPR Bill would have
already inserted a new section 131AA in the SIS Act, item 75 would
simply replace the reference to section 131 in paragraph 131AA(2)(a)
with a reference to new sections 130D and 131.
Item 74 (type 2 provision)
1.103 Item 74 is related to item 45 of Schedule 1 of the RPD Bill.
1.104 This item amends the heading of Division 3 of Part 16, to reflect
the new disqualification regime under the RPD Bill as well as APRA's
new power to direct the removal of auditors and actuaries under the SPR
Bill. This change to the heading would take effect when both Part 1 of
Schedule 1 of the RPD Bill and Part 2 of Schedule 1 of the SPR Bill have
commenced, whichever is later.
1.105 Item 45 (the RPD amendment) inserts a new Division 3 of
Part 16, with the heading `disqualification of auditors'. However, if item
244 of the SPR Bill comes into effect, APRA will have a new power
under Division 3 of Part 16 to direct the removal of auditors and actuaries,
in addition to disqualifying these persons. As such it would be necessary
to amend the heading of the Division, through item 72, to `disqualification
and removal of auditors'.
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Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
Part 3 Amendments contingent on the Financial Sector Legislation
Amendment (Discretionary Mutual Funds and Direct Offshore Foreign
Insurers) Act 2007
Introduction
1.106 There are three types of commencement provisions in Part 3 of
Schedules 1 and 3.
1.107 These commencement provisions are similar to Part 2 of each of
the Schedules. Type 3 amendments relate to the circumstances where the
RPD Bill and the Financial Sector Legislation Amendment (Discretionary
Mutual Funds and Direct Offshore Foreign Insurers) Bill 2007 (DMF and
DOFI Bill) would make amendments to the same sections of the Insurance
Act. In particular, it relates to the concepts of `corporate agents' and the
`decision maker' under the Insurance Act.
1.108 These provisions set out the changes that would be made by the
RPD Bill, as well as set out the interaction between changes effected by
this Bill and the DMF and DOFI Bill, whichever commences first.
Type 1 commencement provisions
1.109 These relate to the circumstance where change(s) in the RPD
Bill take effect before changes in the DMF and DOFI Bill. Here the RPD
Bill would make two changes to the legislation at different times. The first
amendments (RPD amendment) would effect changes made by this Bill.
The second amendment would come into effect immediately after the
DMF and DOFI Bill changes have commenced (second amendments), and
it would usually replace the amendments made by the DMF and DOFI
Bill (DMF and DOFI amendments) with an item that captures the RPD
amendments as well as the DMF and DOFI amendments.
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Court power of disqualification
This ensures that changes made by both Bills would be accurately reflected
in the final version of the legislation (see Chart 5, Type 1 commencement
provisions relating to DMF and DOFI Bill, below).
Chart 5: Type 1 amendments relating to DMF and DOFI Bill
The RPD Bill The DMF and DOFI Bill commences, and The `second amendments' in the RPD Bill are
commences. the `DMF and DOFI amendments' changes triggered by some DMF and DOFI items.
The `RPD the Insurance Act these may override or These come into effect immediately after the
amendments' replace the RPD amendments. DMF and DOFI Bill, and replace these items.
makes This event triggers the `second amendments' The `second amendments' would capture both
changes to the and `type 3 provisions' in the RPD Bill. RPD and DMF and DOFI amendments.
Insurance Act.
Some DMF and DOFI items may trigger `type 3
provisions', which commence just before DMF and
DOFI items come into effect. These remove any
DMF and DOFI items that have become `misdescribed
amendments' as a result of the RPD amendments.
See `type 3 provisions' below for details.
Type 2 commencement provisions
1.110 These relate to the circumstance where the change(s) in the RPD
Bill take effect after the changes in the DMF and DOFI Bill. Here, usually
only the `second amendments' would come into effect. As above, the
second amendments would replace the DMF and DOFI amendments with
a provision that captures both the RPD amendments as well as the DMF
and DOFI amendments.
1.111 This ensures that changes made by both Bills would be
accurately reflected in the final version of the legislation (see Chart 6,
Type 2 commencement provisions relating to DMF and DOFI Bill,
below).
Chart 6: Type 2 amendments relating to DMF and DOFI Bill
The first `RPD The DMF and DOFI Bill The RPD Bill commences, and `second
amendments' do not commences, the DMF and amendments' come into effect because both Bills
come into effect, DOFI amendments change have now commenced. The second amendments
because the DMF and the Insurance Act. change the Insurance Act, and may override
DOFI Bill has already (the RPD Bill has not yet DMF and DOFI Bill. The changes made by
commenced. commenced). `second amendments' would capture both RPD
and DMF and DOFI amendments.
The `type 3 provisions' do not come into
effect, because they are only triggered if
the RPD Bill commences before the DOFI
Bill. Here, the DOFI Bill has commenced
before the RPD Bill.
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Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
Type 3 commencement provisions
1.112 These provisions deal with `misdescribed amendments' or an
amendment that cannot take effect because the relevant legislative
provision no longer exists.
1.113 In drafting these transitionals, it is assumed that once an item
has effected changes to a legislative provision, it is `spent', and a later
item can make changes to the same legislative provision without dealing
with this item.
1.114 For example, if item 41 of Schedule 2 of the DMF and DOFI
Bill has already amended subsection 63(1) of the Insurance Act by
repealing a definition under that subsection, then, the RPD Bill can simply
further amend subsection 63(1) without referring to, or dealing with, item
41 of Schedule 2 of the DMF and DOFI Bill.
1.115 In comparison, if item 41 of Schedule 2 of the DMF and DOFI
Bill has not come into effect when the RPD Bill commences, then, the
RPD Bill would need to repeal or amend item 122, as well as make
substantive changes to section 63 of the Insurance Act otherwise, item
41 of Schedule 2 of the DMF and DOFI Bill would become a
`misdescribed amendment' (see chart 7, Type 3 commencement provisions
relating to DMF and DOFI Bill, below).
Chart 7: type 3 amendments relating to DMF and DOFI Bill
The RPD Bill The DOFI Bill commences, and the `DOFI The `second amendments' in the RPD Bill are
commences. amendments' changes the Insurance Act triggered. These come into effect immediately
The first `RPD these may override or replace the RPD after the DOFI Bill, and replace these DOFI
amendments' amendments. items.
makes changes This event triggers the `second amendments' Changes made by `second amendments' would
to the Insurance and `type 3 provisions' in the RPD Bill. capture both DOFI and RPD amendments.
Act.
The relevant DOFI items trigger `type 3
provisions', which commence just before the
DOFI items come into effect.
These provisions remove any DOFI items that
have become `misdescribed amendments' as a
result of the RPD amendments.
DMF and DOFI Bill does not commence
1.116 If the DMF and DOFI Bill amendments do not commence at all,
Part 3 of the Schedules would not come into effect at all. This means only
the RPD amendments made by Part 1 of the Schedules would comes into
effect, and DMF and DOFI amendments dealt with in Part 3 will not be
incorporated into the legislation inadvertently.
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Insurance Act
Items 76 to 87
1.117 In the DMF and DOFI Bill, items 9A to 9G of Schedule 2
amend sections 24 to 26 of the Insurance Act, to add the concept of a
`corporate agent' of a direct foreign insurer. The RPD Bill also amends
sections 24 to 26, therefore it is necessary to ensure that changes made by
both Bills are captured in the final version of the Insurance Act.
1.118 Items 76 to 87 implements these changes based on two
contingencies. The first is that the DMF and DOFI Bill commences before
the RPD Bill, the second is that the RPD Bill commences before the DMF
and DOFI Bill. As discussed above, if the DMF and DOFI Bill does not
commence, items 76 to 87 would not take effect.
Type 1 provision
1.119 In the circumstance where the DMF and DOFI Bill commences
after the RPD Bill, item 76 would be triggered as well as items 77 to 87.
These changes affect subsections 24(1), 24(4), 25(1), 25A(1), 25A(5),
26(6) and 26(8) of the Insurance Act.
1.120 If the RPD Bill commences first, then, item 10 of Part 1 of the
RPD Bill would repeal subsections 24(1) to 24(7) of the Insurance Act
and insert new subsections 24(1) to 24(6) that do not contain references to
`corporate agents'; items 11 and 12 would amend subsection 25(1)
without inserting references to corporate agents; item 13 would repeal
sections 25A and 26 and insert new sections 25A and 26 that do not refer
to corporate agents.
1.121 When the DMF and DOFI Bill commences, items 9A to 9G in
the DMF and DOFI Bill would attempt to amend sections 24, 25, 25A and
26 of the Insurance Act by adding the concept of `corporate agents'. But
because of the RPD amendments above, these items would have become
`misdescribed amendments' and would not be able to insert references to
`corporate agents' in these sections as intended. In this circumstance, item
76 would remove these `misdescribed amendments', and, items 77 to 87
would insert references to `corporate agents' in the new sections 24, 25
and 25A (there is no need to refer to corporate agents in section 26). This
mechanism ensures that the policy intention of the DMF and DOFI Bill is
still given effect.
Type 2 provision
1.122 The circumstance where the RPD Bill commences after the
DMF and DOFI Bill is dealt with by items 77 to 87 in Part 3 of
Schedule 1.
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Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
1.123 As described above, after the DOFI Bill commences, items 10 to
13 of the RPD Bill would repeal or amend sections 24, 25, 25A and 26
and insert new sections that do not refer to corporate agents. To ensure
that the DMF and DOFI Bill changes are still captured in the Insurance
Act, it would be necessary to add references to `corporate agents' into the
new sections 24, 25 and 25A (the new section 26 does not need to refer to
corporate agents). This would be done by items 77 to 87.
1.124 As can be seen, items 77 to 87 would commence when both the
RPD Bill and DMF and DOFI Bill have commenced, whichever is later.
In practise, this means the changes made by these items to add
references to `corporate agents' would come into effect in both type 1
and type 2 circumstances.
30
Chapter 2
Direction powers
Outline of Chapter
2.1 Schedule 2 of the Bill amends the Banking Act 1959 (Banking
Act), Insurance Act 1973 (Insurance Act) and Life Insurance Act 1995
(Life Act) to streamline APRA's specific direction powers, currently
spread through these Acts, into a general directions provision under each
of these Acts. Where appropriate, directions issued under the general
directions provision are subject to merits review by the Administrative
Appeals Tribunal (the AAT).
2.2 Schedule 2 of the Bill also amends the Superannuation Industry
(Supervision) Act 1993 (SIS Act) to incorporate a materiality test into the
trigger for APRA to issue a direction to freeze assets of a superannuation
entity.
Context of amendments
2.3 The Banking Act, Insurance Act and Life Act have evolved
separately and in response to specific industry developments at different
times. As a result, APRA's current direction powers are set out in
different parts of these Acts. The triggers, thresholds and requirements for
the exercise of these powers also vary considerably across legislation.
2.4 The Government released in December 2006 a proposals paper
Streamlining Prudential Regulation: `Response to Rethinking Regulation',
in which it proposed to streamline APRA's specific direction powers into
a general directions provision where appropriate, thereby removing
unnecessary complexity and promoting consistency in APRA's directions
regime.
2.5 The proposal was further refined in light of industry comments
and was released on 31 May 2007 for further public comment through a
consultation paper Review of Prudential Decisions. The revised proposal
specifies clearly the circumstances where an APRA direction is subject to
merits review. The amendments in Schedule 2 of the Bill give effect to
this proposal.
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Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
Summary of new law
2.6 The amendments in Schedule 2 streamline APRA's specific
direction powers currently spread through the Banking Act, Insurance Act
and Life Act into a general directions provision under each of these Acts.
2.7 An APRA direction issued under the general directions
provisions is subject to merits review if it is issued as a result of certain
triggers specified in that provision being invoked.
Comparison of key features of new law and current law
New law Current law
A harmonised general directions APRA's direction powers are set
provision will replace the various out in different parts of the
specific powers for APRA to issue Banking Act, Insurance Act and
directions concerning entity-level Life Act. The triggers, thresholds
activities under the Banking Act, and requirements for the exercise
Insurance Act and Life Act. of these powers vary considerably
The general directions provisions across legislation.
set out the triggers for APRA to Most of APRA's current direction
issue a direction and specify what decisions, particularly those
triggers, if invoked, will subject triggered by entity-level factors,
the resultant directions to merits are not subject to merits review.
review.
APRA or the ATO can only issue APRA or the ATO (in the case of
a direction to freeze a SMSFs) can issue a direction to
superannuation entity's assets if it freeze a superannuation entity's
appears to APRA or the ATO (as assets if it appears to APRA or the
the case requires) that the entity's ATO (as the case requires) that the
conduct is likely to adversely entity's conduct is likely to affect
affect the values of the interests of adversely the values of the
beneficiaries to a significant interests of beneficiaries.
extent.
Detailed explanation of new law
Part 1 Amendments commencing on Royal Assent
2.8 Effective direction powers, allowing rapid and decisive action to
deal with emerging prudential concerns and protect beneficiaries, promote
confidence in the effectiveness of prudential supervision and the safety of
financial sector entities.
32
Direction powers
2.9 While APRA currently has a wide range of direction powers
under the Banking Act, Insurance Act and Life Act, these powers are
spread through out each Act and, in some cases, are fragmented and
inconsistent. The triggers, thresholds and requirements for the exercise of
these powers vary considerably across the legislation. These make the
directions regimes under these Acts unnecessarily complex and promote
uncertainty as to their scope and application.
2.10 Furthermore, direction 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 direction powers, particularly those
triggered by entity-level factors are not subject to merits review.
2.11 In considering the review mechanism and scope for reviewing
APRA's direction decisions, it is important to balance fair treatment for a
person or entity affected by an APRA direction with ensuring that APRA
can act decisively where it is necessary in the public interest. Broadly
speaking, merits review should be made available for APRA directions
that affect a specific individual or entity, except where failure by APRA to
act immediately would materially prejudice the national interest, the
interests of beneficiaries or the stability of the Australian financial system.
2.12 Schedule 2 of the Bill streamlines and harmonises APRA's
specific powers to issue directions triggered by entity-level activities into
a general directions provision under the Banking Act, Insurance Act and
Life Act.
Amendments to establish the general directions framework
2.13 Items 1, 12 and 19 set out a harmonised set of triggers for APRA
to issue a direction under the general directions provisions under the
Banking Act, Insurance Act and Life Act respectively. These triggers are
similar to the triggers currently set out in section 11CA of the Banking
Act and section 230B of the Life Act and are summarised in Table 1
below.
33
Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
Table 1: Triggers for APRA to issue a direction under the Banking
Act, Insurance Act and Life Act
Part A: Under the new general directions provisions, APRA is able to issue
a direction, which is subject to merits review by the AAT, if it has reason to
believe that:
· the entity has contravened the relevant Prudential Act, FSCODA, a
prudential regulation or prudential standard; or
· the entity is likely to contravene the relevant Prudential Act,
FSCODA, a prudential regulation or prudential standard, and such a
contravention is likely to give rise to a prudential risk; or
· the entity has contravened a condition or direction under the relevant
Prudential Act or FSCODA; or
· the direction is necessary in the interests of depositors, policyholders
or beneficiaries.
Part B: Under the new general directions provision, APRA is able to issue a
direction, which is not subject to merits review by the AAT, if it has reason
to believe that:
· the entity is, or is about to become, unable to meet its liabilities; or
· there is, or there might be, a material risk to the security of the
entity's assets; or
· there has been, or there might be, a sudden material deterioration in
the entity's financial condition; or
· the entity is conducting its affairs in an improper or financially
unsound way; or
· the failure to issue a direction would materially prejudice the
interests of the depositors, policyholders or beneficiaries; or
· the entity is conducting its affairs in a way that may cause or
promote instability in the Australian financial system.
2.14 As set out in Part A of Table 1 above, the amendments expand
the availability of merits review for appropriate APRA directions.
Application of merits review is set out in Schedule 2 item 12 subsection
104 (10) of the Insurance Act and Schedule 4 items 7 and 34 in relation to
the Banking Act and Life Act.
2.15 An APRA direction is not subject to merits review if it is issued
because one of the triggers in Part B of Table 1 is invoked. Triggers in
Part B contain appropriate materiality tests and are serious situations
where failure by APRA to act immediately would materially prejudice the
interests of depositors, policyholders or beneficiaries, or the stability of
the Australian financial system.
2.16 Item 1 subsection 11CA(1A), item 12 subsection 104 (2) and
item 19 subsection 230B(1A) introduce a requirement into the Banking
34
Direction powers
Act, Insurance Act and Life Act for APRA to specify the ground on which
a direction is given in its written notice to the entity it directs. This
requirement is designed to ensure the availability of merits review for that
direction is made clear to the target of the direction, given that the
availability of merits review for an APRA direction is dependent upon the
trigger for the direction.
2.17 Items 2, 20 and 22 address gaps in the general directions powers
in the Banking Act and Life Act so that APRA is able to issue directions
to comply with the whole or a part of the Banking Act or FSCODA, a
condition or direction issued under the respective Act or FSCODA, and
relating to the amount of capital to be held by a life insurer. Item 12
subsection 104(3) sets out the types of directions that may be given under
the general directions provision under the Insurance Act. Collectively,
these amendments harmonise the range of directions that APRA may give
under the Banking Act, Insurance Act and Life Act and address some
specific gaps. The range of directions that may be given by APRA as a
result of the amendments are summarised in Table 2 below:
Table 2: The types of directions that APRA is able to issue under
the Banking Act, Insurance Act and Life Act
Under the new general directions provisions, when any of the triggers set
out in Table 1 is satisfied, APRA is able to direct an entity:
· to comply with the whole or a part of the relevant Prudential Act,
FSCODA, a prudential regulation or prudential standard; or
· to comply with a condition or direction made under the relevant
Prudential Act or the FSCODA; or
· to order an audit of the affairs of the entity, at the expense of the
entity, by an auditor chosen by APRA; or
· if the entity is an insurer--to order an actuarial investigation of the
affairs of the entity, at the expense of the entity, by an actuary chosen by
APRA or
· to remove a director, senior manager, auditor or actuary (where
relevant to the Act) from office; or
· to ensure a director or senior manager does not take part in the
management or conduct of the business of the entity except as permitted by
APRA; or
· to appoint a person or persons as a director, senior manager, auditor
or actuary of the entity for such term as APRA directs; or
· to remove any auditor of the entity from office and appoint another
auditor to hold office for such term as APRA directs; or
· if the entity is an insurer--to terminate the appointment of the
actuary appointed by the entity and to appoint another actuary to hold office
for such term as APRA directs; or
35
Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
· not to give financial accommodation to any person; or
· if the entity is an insurer--not to issue any policy, undertake
liability under any contract of insurance or accept any premium; or
· if the entity is an ADI--not to accept the deposit of any amount; or
· if the entity is a general insurer--not to renew any policy; or
· not to borrow any amount; or
· not to accept any payment on account of share capital, except
payments in respect of calls that fell due before the direction was given; or
· not to repay any amount paid on shares; or
· not to pay a dividend on any shares; or
· if the entity is an insurer--not to discharge any policy or other
liability; or
· if the entity is an ADI--not to repay any money on deposit or
advance; or
· not to pay or transfer any amount to any person, or create an
obligation (contingent or otherwise) to do so; or
· not to undertake any financial obligation (contingent or otherwise)
on behalf of any other person;1 or
· if the entity is a general insurer--to provide, or further provide, in
its accounts for the purposes of the relevant Prudential Act and prudential
standards, a specified amount or an amount determined in a specified way in
respect of its liabilities or the value of a specified asset of the entity; or
· if the entity is a life insurer--not to transfer any asset of a statutory
fund; or
· if the entity is a life insurer--to do a specific act concerning the
amount of capital held; or
· to do anything else as to the way in which the affairs of the entity
are to be conducted or not conducted.
Amendments to the Insurance Act to harmonise general aspects of
APRA's direction powers
2.18 As there is no comprehensive directions provision in the
Insurance Act at present, amendments are also made to set out various
general aspects of the operation of the general directions power under the
Insurance Act, consistent with current arrangements under the Banking
Act and Life Act. These amendments are contained in item 12, including:
1
A direction not to pay or transfer any amount does not apply to the payment or
transfer of money under an order of a court or a process of execution.
36
Direction powers
· subsection 104(4) which allows the direction to be flexibly
applied to part of the matters, a class or classes of the
matters, or different matters referred to in the types of
directions set out in Table 2;
· subsection 104(5) which allows a direction to specify a time
period for it to be complied with;
· subsections 104(6) and (7) which require a body corporate
or subsidiary to comply with a direction despite anything in
its constitution or other contractual obligations;
· section 105 which sets out that a direction is not grounds for
a denial of contractual obligations and that a party to a
contract may apply to the Federal Court for an order relating
to the effect on the contract of a direction;
· subsection 106(1) which allows APRA to publish notice of
directions in Gazette and inform the Treasurer of a direction;
· subsection 106(2) which requires APRA to publish notice of
revocation of a direction as soon as practicable;
· subsection 106(3) which requires APRA to provide
information about a direction if the Treasurer so requires;
· subsection 106(4) which allows APRA to provide any
information that it considers appropriate to the Treasurer
about a direction or revocation of such a direction;
· subsection 106(5) which requires APRA to inform the
Treasurer of the revocation of a direction if it previously
informs the Treasurer about the making of the direction; and
· section 107 which sets out that information relating to
directions and revocations of directions (other than
Gazzetted information) is subject to secrecy requirements
under the APRA Act.
2.19 Item 12 section 108 sets out penalties for non-compliance with a
direction under the Insurance Act, consistent with current arrangements
under the Banking Act and Life Act. Under section 108, it is an offence of
strict liability if the entity contravenes a direction given to it by APRA,
with the penalty being 50 penalty units. Furthermore, an officer of a
regulated entity would commit an offence of strict liability if the officer
37
Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
fails to take reasonable steps to ensure that the entity complies with a
direction given to it, with the penalty being 50 penalty units.
2.20 These offences are ones of strict liability because they are basic,
objective requirements of APRA's prudential supervision functions, and
should be complied with by all persons. Strict liability offences are
necessary to ensure the integrity of the regulatory regime and do not
require proof of a mental element. They are designed to enhance the
effectiveness of the enforcement regime in deterring contraventions of key
prudential requirements.
Other amendments to the Banking Act, Insurance Act and Life Act
implementing the new general direction powers
2.21 Amendments are made to the Banking Act (item 4) and
Insurance Act (item 12 subsections 104 (8) and (9)) to ensure APRA's
power to vary or revoke a direction is explicit, consistent with current
arrangements under the Life Act.
2.22 Items 3, 5 and 21 remove references to `secretary' and
`employee' in the Banking Act and Life Act direction powers. These
items also replace references to `executive officer' with references to
`senior manager'. This ensures the direction powers are targeted at
individuals who, under the Prudential Acts, are ascribed prudential
functions, namely directors, senior managers and other relevant
responsible persons.
2.23 Items 5, 12 subsection 104(11) of the Insurance Act and 23 also
define the terms `senior manager', `director' and `affair of a body
corporate' under the relevant general directions provisions to remove
doubt about the scope and application of these powers.
Amendments to the SIS Act
2.24 Item 26 introduces a materiality test into the trigger for APRA or
the ATO to issue a direction to freeze a superannuation entity's assets
under section 264 of the SIS Act. The amendment ensures that APRA or
the ATO may issue such a direction only if the superannuation entity's
conduct is likely to adversely affect the values of the interests of
beneficiaries to a significant extent. This more properly reflects the
circumstances in which such a direction should be given.
38
Direction powers
Application and transitional provisions
2.25 The amendments made under Part 1 of Schedule 2 (items 1-27)
apply from the date of Royal Assent. [Clause 2]
2.26 In addition, item 6 clarifies that APRA's power to vary a
direction under the Banking Act which is introduced through item 4
applies to any directions, whether given before or after item 4
commences. This is consistent with existing arrangements under the Life
Act.
2.27 Items 16 and 25 clarify that directions made before the date of
Royal Assent under the specific directions provisions (sections 36, 49M,
49N, 51, 62 of the Insurance Act and sections 134 and 150 of the Life
Act) continue in force as if they were given under section 104 of the
Insurance Act and section 230B of the Life Act after the date of Royal
Assent.
2.28 Item 27 makes explicit that the materiality test introduced into
section 264 of the SIS Act through item 26 applies to any direction after
item 26 commences.
Consequential Amendments
Part 1 Amendments commencing on Royal Assent
2.29 Items 7, 8, 9, 11, 17 and 18 repeal various specific direction
provisions under the Insurance Act and Life Act. These specific direction
powers become redundant as similar powers are contained in the general
directions provision introduced through items 12 and 19.
2.30 Items 10 and 13 replace references to previous specific direction
provisions (sections 62 and 49M) with reference to the new general
directions provision (section 104 of the Insurance Act). This is because
the specific direction provisions are repealed and equivalent powers are
incorporated into the general directions provision (section 104) through
item 12.
2.31 Item 14 removes references to sections 37 and 49P from the
Insurance Act as they are repealed through items 7 and 8.
2.32 Item 15 replaces the references to `49M or subsection 62(9)'
with a reference to `section 108' as sections 49M and 62 are repealed
39
Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
through items 8 and 11 and the equivalent offence provisions are set out in
section 108 introduced through item 12.
2.33 Item 24 removes the references to directions made under
sections 134 and 150 from the definition of reviewable decision set out in
subsection 236(1) of the Life Act. This is a consequential amendment to
items 17 and 18 which repeals the specific directions provisions
sections 134 and 150.
Part 2 Amendments contingent on the Financial Sector Legislation
Amendment (Simplifying Regulation and Review) Act 2007
2.34 A general outline of the different types of commencement
provisions contained in Schedule 2 of the Bill is provided in paragraphs
1.46 to 1.60 of Chapter 1 of this explanatory memorandum.
Item 28 (type 3 provision)
2.35 Item 28 only take effect if the SPR Bill commences after the
RPD has commenced.
2.36 The SPR Bill removes references to `paragraph 125A(4)(a) or
125B(4)(a)' of the Life Act, and replaces references to these paragraphs
with references to paragraph 7A(2)(c) of the Life Act. If the RPD Bill
commences first, item 19 of the RPD Bill would have amended subsection
230B(1). As a result, the new paragraph 230B(1)(a) would no longer
contain a reference to `paragraph 125A(4)(a) or 125B(4)(a)', and item 121
of Schedule 1 of the SPR Bill removing these obsolete references would
be a `misdescribed amendment'. In this circumstance, item 28 would be
triggered to remove item 121 of the SPR Bill just before it takes effect.
2.37 If the SPR Bill commences before the RPD Bill, item 121 of
Schedule 1 of the SPR Bill would have already amended the current
paragraph 230B(1)(a), and the RPD Bill can simply amend subsection
230B(1) without dealing with item 121.
40
Chapter 3
Removal of ministerial consent
Outline of Chapter
3.1 The amendments in Schedule 3 of the Bill remove ministerial
consent from administrative decisions made by the Australian Prudential
Regulation Authority (APRA) or the Australian Taxation Office (ATO)
under the Insurance Act 1973 (Insurance Act), Life Insurance Act 1995
(Life Act) and Superannuation Industry (Supervision) Act 1993 (SIS Act)
where wider policy interests are not involved.
Context of amendments
3.2 On 12 September 2003, the Government released its final
response to the HIH Royal Commission Report, in which it accepted all of
the recommendations made by the HIH Royal Commission. This included
a recommendation that the Government consider removing the
requirement for the Treasurer's agreement to operational decisions
involving APRA's prudential oversight of general insurers
(Recommendation 22).
3.3 This recommendation is consistent with a later recommendation
by the International Monetary Fund in its 2006 Financial System Stability
Assessment of Australia to establish clearly the independence of APRA.
3.4 On 4 December 2006, the Government released a proposals
paper Rethinking Regulation: Report of the Taskforce on Reducing
Regulatory Burdens on Business, containing proposals to remove the
requirement for the Treasurer's consent from operational decisions made
by APRA or the ATO (in the case of SMSFs) where wider policy
considerations are not involved. The paper also contained related
proposals resulting from the proposed removal of the requirement for the
Treasurer's consent, including proposals relating to the regulation of
Lloyd's insurers and the triggers for APRA to initiate an investigation
under the Insurance Act.
3.5 The proposals were further refined in light of industry comments
and consulted on again through a subsequent consultation paper Review
41
Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
of Prudential Decisions, released on 31 May 2007. The amendments in
Schedule 3 of the Bill give effect to these proposals.
Summary of new law
3.6 The amendments in Schedule 3 of the Bill remove the
requirement for the Treasurer's prior agreement for certain decisions
made by APRA or the ATO (in the case of SMSFs) under the Insurance
Act, Life Act and SIS Act where these decisions do not involve wider
policy considerations.
3.7 There are also miscellaneous amendments to the Insurance Act
to remove regulatory gaps resulting from the removal of the Treasurer's
agreement from certain administrative decisions. These include
introducing new triggers for APRA's investigation power and its direction
power in relation to security trust funds concerning Lloyd's, and
transferring the administration of Lloyd's $2 million security deposit from
the Treasurer to APRA.
Comparison of key features of new law and current law
New law Current law
Treasurer's agreement is no longer Treasurer's agreement is required
required for administrative for a range of administrative
decisions under the Insurance Act, decisions made by APRA or the
Life Act and SIS Act that do not ATO under the Insurance Act,
involve wider policy issues. Life Act and SIS Act.
Where a decision concerns
licensing and authorisation,
removal of a responsible person or
handling of a regulated entity's
assets, merits review is made
available (also see chapter 4 of
this explanatory memorandum for
details concerning the expansion
of merits review).
The Treasurer's agreement as a Under the Insurance Act, with the
trigger to issue a `show cause' Treasurer's agreement, APRA
notice under the Insurance Act is may issue a notice to a general
replaced by a new trigger which insurer or authorised NOHC,
allows APRA to issue a `show requiring it to `show cause' within
cause' notice if it appears to a prescribed time why APRA
APRA that information in its should not investigate the whole
possession calls for an or part of the business of the
investigation. entity.
42
Removal of ministerial consent
New law Current law
Lloyd's, or a company nominated Under the Insurance Act, Lloyd's
by Lloyd's is required to lodge or a company nominated by
with APRA a security deposit Lloyd's is required to lodge with
valued at $2 million. the Treasurer a security deposit
valued at $2 million.
The Treasurer's agreement to Pursuant to section 76 of the
directions in relation to Lloyd's Insurance Act, with the
insurers is replaced by a new Treasurer's agreement, APRA is
trigger which allows APRA to able to direct the trustee of a
issue a direction if it has reason to designated security trust fund
believe that the provisioning for (concerning Lloyd's) with respect
liabilities in the accounts of a to its liabilities provisioning.
designated security trust fund is
insufficient. In addition, merits
review is made available for such
a direction.
Detailed explanation of the new law
Part 1 Amendments commencing on Royal Assent
3.8 The involvement of the Treasurer in operational prudential
decisions made by APRA or the ATO runs the risk of blurring the lines of
accountability for those decisions. It is important to balance the need for
clear accountability of the regulators for the performance of their
functions against ensuring the clear independence of the regulators in their
execution of administrative powers.
3.9 While APRA and the ATO currently have independence for
most of their operational decisions in the administration of the Insurance
Act, Life Act and SIS Act, there are several administrative decisions for
which they require the Treasurer's agreement.
3.10 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 that accountabilities are clearly allocated to the responsible
decision-maker, allowing the regulators to undertake and enforce their
prudential powers without giving rise to the perception that they are
influenced by external interference.
3.11 The amendments in Schedule 3 of the Bill aim to achieve these
goals by removing from the Insurance Act, Life Act and SIS Act the
requirement for the Treasurer's prior agreement for administrative
43
Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
decisions made by APRA or the ATO that do not involve broader policy
considerations. A summary of these amendments is set out in Table 3
below:
Table 3: Amendments to remove ministerial consent under the
Prudential Acts
Insurance Act 1973
Items 1 to 4 remove from sections 15 and 21 requirements for the
Treasurer's prior agreement to an APRA decision to revoke an
authorisation of a general insurer or an authorised NOHC under the
Insurance Act.
Item 5 repeals subsection 32(3E) of the Insurance Act which requires
APRA to seek the Treasurer's prior agreement for a decision to modify a
prudential standard to cater for an in-house capital adequacy model
proposed by an insurer, an authorised NOHC or a subsidiary of either, or
vary or revoke such a modification.
Item 6 removes from section 52 of the Insurance Act the requirement for
the Treasurer's agreement prior to APRA issuing an investigation `show
cause' notice to a general insurer or an authorised NOHC.
This amendment, however, limits APRA's ability to use its investigation
powers in some situations to ensure financial system stability as the
remaining triggers are specific and have proven to be insufficient in the
past.
To address this issue, item 6 also introduces a new trigger into paragraph
52(1)(b) of the Insurance Act which allows APRA to issue an
investigation `show cause' notice if it appears to APRA that information in
its possession calls for an investigation. A similar trigger is currently
available to APRA under the Banking Act and Life Act.
Item 7 removes from section 52 of the Insurance Act the requirement for
the Treasurer's agreement before APRA can specify in an investigation
notice a period of notice that is less than 14 days. This is to ensure APRA
has the flexibility to specify a notice period of less than 14 days where
timeliness is of critical importance to protect the interests of policy
holders.
To ensure APRA's decision to give a shorter notice is subject to
appropriate threshold tests, item 7 inserts a new requirement into
subsection 52(1AB) such that APRA is permitted to specify a period of
less than 14 days in a `show cause' notice if APRA considers specifying a
shorter period is necessary and the period specified is reasonable in the
circumstances.
Item 8 and items 15 to 21 amend the Insurance Act to transfer the
administration of Lloyd's $2 million security deposit from the Treasurer to
APRA as a result of the removal of the Treasurer's agreement from the
Insurance Act. Item 17 further clarifies that under the new arrangements,
the legal and beneficial interest in these securities remains with the
Commonwealth and APRA is taken to have custody of the securities for
and on behalf of the Commonwealth.
44
Removal of ministerial consent
Items 9 and 10 remove the requirement for APRA to seek the Treasurer's
agreement prior to directing a Lloyd's underwriter to not issue or renew
policies under section 74.
Item 12 removes the requirement for APRA to seek the Treasurer's
agreement prior to directing Lloyd's in relation to the provision for
liabilities in the accounts of designated security trust funds under section
76 of the Insurance Act.
However, the amendment would result in such an APRA direction being
subject to no trigger mechanism. Item 11 clarifies that APRA may issue
such a direction if it has reason to believe that the provisioning for
liabilities in the accounts of the designated security trust fund is
insufficient.
Items 13 and 14 remove the requirement for APRA to seek the Treasurer's
agreement prior to directing Lloyd's not to deal with certain assets under
section 78.
Items 22 to 26 remove from section 93 of the Insurance Act the
Treasurer's involvement in determining that the authorisation of a Lloyd's
underwriter ceases to have effect.
Life Insurance Act 1995
Item 28 repeals subsection 40(3) of the Life Act so that the Treasurer's
agreement is no longer required for the regulator to approve a life
company mortgaging or issuing a charge over an asset of a statutory fund.
Item 29 removes from section 49 of the Life Act the requirement for
APRA to seek the Treasurer's agreement prior to giving notice to a life
company requiring it to take action to remedy a contravention of the duties
of directors in relation to statutory funds.
Item 30 repeals subsections 62(4A) and 63(2A) of the Life Act which
require APRA to seek the Treasurer's agreement prior to refusing to
permit distributions of retained profits or shareholders' capital in a
statutory fund.
Superannuation Industry (Supervision) Act 1993
Items 31 to 33 remove from section 29G the requirement for APRA to
seek the Minister's consent prior to cancelling an RSE licence.
Item 34 removes from section 133 the requirement for APRA or the ATO
to seek the Minister's consent prior to suspending or removing a trustee of
a superannuation entity.
Items 35 and 36 remove from section 146 the requirement for APRA to
seek the Minister's consent prior to approving the transfer of all benefits of
members and beneficiaries in a transferor fund to a transferee fund.
Item 37 removes from section 264 the requirement for APRA or the ATO
to seek the Minister's consent prior to issuing a direction to freeze assets
of a superannuation entity.
45
Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
Application and transitional provisions
3.12 The amendments made under Part 1 of Schedule 3 (items 1-37)
apply from the date of Royal Assent. [Clause 2]
3.13 Item 27 further clarifies that, for securities that are lodged with
the Treasurer under section 92Q of the Insurance Act immediately before
the date of Royal Assent, the legal and beneficial interest in the securities
remain with the Commonwealth, and APRA is taken to have custody of
the securities for and on behalf of the Commonwealth immediately after
the date of Royal Assent.
Part 2 Amendments contingent on the Financial Sector Legislation
Amendment (Simplifying Regulation and Review) Act 2007
3.14 A general outline of the different types of commencement
provisions contained in Schedule 3 of the Bill is provided in paragraphs
1.46 to 1.60 of Chapter 1 of this explanatory memorandum.
Item 38 (type 3 provision)
3.15 Item 38 only takes effect if the SPR Bill commences after the
RPD Bill has commenced.
3.16 Item 96 of Schedule 1 of the SPR Bill replaces the reference to
Commissioner with a reference to APRA in subsection 40(3). If the RPD
Bill commences first, item 28 of Part 1, Schedule 3 of the RPD Bill would
repeal section 40(3), and it would be no longer necessary to correct the
reference in the subsection. In this circumstance, item 96 would become a
`misdescribed amendment', and item 38 would remove item 96 of
Schedule 1 of the SPR Bill just before it commences.
3.17 If the SPR Bill commences before the RPD Bill, item 96 would
have already amended the current subsection 40(3), and the RPD Bill can
simply further amend subsection 40(3) without dealing with item 96.
Items 39 and 40 (type 1 and 2 provisions)
3.18 These items amend section 21 of the Life Act, and these items
could take effect in one of three different ways: firstly, where the RPD
Bill commences before the SPR Bill; secondly, where the RPD Bill
commences after the SPR Bill; and thirdly, where the RPD Bill
commences but the SPR Bill does not commence. The following
paragraphs explain what would happen in the three circumstances.
46
Removal of ministerial consent
Type 1 provision
3.19 If the RPD Bill commences before the SPR Bill, item 40 (the
RPD amendments) would come into effect at the same time as Part 1 of
Schedule 3; after the SPR Bill commences, item 39 would come into
effect as `second amendments'.
3.20 Subsection 21(2) currently refers to the requirement for APRA
to obtain the Treasurer's consent before it can refuse to register a life
company. Item 40 would remove this reference to ministerial consent so
that APRA may refuse to register a company if it is satisfied that a ground
listed under subsection 21(3) exists.
3.21 Once the SPR Bill commences, item 91 of Schedule 1 of the
SPR Bill would remove subsection 21(2) and insert a new subsection
21(1) which still refers to ministerial consent. In this circumstance, item
39 would be triggered, and it would amend the new subsection 21(1) to
remove the requirement for APRA to obtain ministerial consent.
Type 2 provision
3.22 Only item 39 would come into effect if the RPD Bill commences
after the SPR Bill. The SPR Bill would have already amended subsections
21(1) and repealed subsection 21(2). Item 39 would amend subsection
21(1) to remove the requirement for APRA to obtain ministerial consent.
No SPR Bill
3.23 If the SPR Bill does not commence at all, item 40 would still
take effect at the same time as Part 1 of Schedule 3, to amend the existing
subsection 21(2) of the Life Insurance Act by removing the requirement
for APRA to obtain ministerial consent.
Part 3 Amendments contingent on the Financial Sector Legislation
Amendment (Discretionary Mutual Funds and Direct Offshore Foreign
Insurers) Act 2007
3.24 A general outline of the different types of commencement
provisions contained in Schedule 2 of the Bill is provided in paragraphs
1.106 to 1.116 of Chapter 1 of this explanatory memorandum.
Items 41 to 67
3.25 In the DMF and DOFI Bill, items 13 to 28 of Schedule 2 amend
section 63 of the Insurance Act, to remove the definitions `decision of the
47
Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
Treasurer or APRA' and `person affected by a reviewable decision of the
Treasurer and APRA' (the old definitions), and insert the definitions of
`decision of the decision maker' and `person affected by a reviewable
decision' (the new definitions) instead. Items 29 to 33 of Schedule 2 of the
DMF and DOFI Bill replace references to the old definitions with
references to the new definitions in section 64.
3.26 The DMF and DOFI Bill changes affect subsections 63(1) and
(2), 63(4) to (7), 63(9), and 63(12) to (14), and subsections 64(1),
paragraphs 64(1)(a) and (b), subsection 64(2), and adds a new subsection
64(4).
3.27 The RPD Bill also amends sections 63 and 64 to remove the
requirement to seek ministerial consent. When the RPD Bill commences,
it is intended that all references to the Treasurer, and thus ministerial
consent, would be removed from the Insurance Act. To ensure that
references to the Treasurer are removed from sections 63 and 64,
irrespective of whether the DMF and DOFI Bill come into effect, it would
be necessary to remove references to the Treasurer from both the old
definitions and the new definitions in section 63, and from the relevant
subsections or paragraphs in sections 63 and 64.
3.28 This ensures that changes made by both Bills are captured in the
final version of the Insurance Act.
3.29 Items 41 to 67 in Part 3, Schedule 3 of the RPD Bill implements
these changes based on two circumstances. The first is that the DMF and
DOFI Bill will commence before the RPD Bill, the second is that the
DMF and DOFI Bill has not yet commenced so that the RPD Bill will
commence before the DMF and DOFI Bill. If the DMF and DOFI Bill
does not commence, Part 3 of Schedule 1 would not be necessary and
would not come into effect at all.
Type 2 provision
3.30 The second circumstance is dealt with by Division 1 of Part 3,
Schedule 3 of the RPD Bill.
3.31 If the DMF and DOFI Bill commences before the RPD Bill, it
would be only necessary to remove references to the Treasurer from the
new definitions. Division 1 in Part 3 of Schedule 3, consisting of item 41
and 42, removes these references. These items would commence when the
RPD receives Royal Assent, so that these references to the Treasurer are
removed at the same time as Part 1 of Schedule 3. The DMF and DOFI
Bill would have already removed all other references to the Treasurer (and
APRA) in sections 63 and 64 and replaced them with references to the
`decision maker'.
48
Removal of ministerial consent
Type 1 provision
3.32 The first circumstance is dealt with by Divisions 2 and 3 of Part
3, Schedule 3 of the RPD Bill.
3.33 If the DMF and DOFI Bill commences after the RPD Bill, it
would be necessary to, firstly, remove references to the Treasurer from the
old definitions, and once the DMF and DOFI Bill has come into effect,
remove references to the Treasurer from the new definitions. This is
effected by Division 2 and 3 in Part 3.
3.34 Division 2, consisting of items 43 to 63, remove references to
the Treasurer from the old definitions as well as subsections 63(1) and (2),
63(4) to (7), 63(9), 63(12) to (14), subsections 64(1), paragraphs 64(1)(a)
and (b) and subsection 64(2). This Division would come into effect when
the RPD Bill receives Royal Assent, so that these references to the
Treasurer are removed at the same time as Part 1 of Schedule 3.
3.35 Items 65 to 67 of Division 3, Part 3 remove references to the
Treasurer from the new definitions in 63, inserted by the DMF and DOFI
Bill. These items would commence when both the RPD Bill and DMF and
DOFI Bill have commenced, whichever is later. In practise, this means the
changes made by these items to remove references to the Treasurer from
the new definitions would only come into effect if the DMF and DOFI
Bill is passed by Parliament and receives Royal Assent. The staggered
commencement of Divisions 2 and 3 ensures that there are references to
the Treasurer are removed from both old and new definitions, and both the
current and amended versions of sections 63 and 64.
Type 3 provision
3.36 In addition, item 64 of Part 3, Schedule 3 of the RPD Bill
removes `misdescribed amendments' in the DMF and DOFI Bill.
3.37 If the RPD Bill commences before the DMF and DOFI Bill,
items 41 to 45 would have already inserted the new definitions in
subsection 63(1); items 48 to 62 would have already removed references
to the Treasurer in subsections 63(2), 63(4) to (7), 63(9), 63(12) to (14),
subsections 64(1), paragraphs 64(1)(a) and (b) and subsection 64(2); and
item 63 would have already inserted a new subsection 64(4). As a result of
these changes, items 13 to 33 in Schedule 2 of the DMF and DOFI Bill
would have become `misdescribed provisions', in that these items cannot
take effect because the relevant legislative provisions in sections 63 and
64 no longer exist.
3.38 Item 64 commences just before the DMF and DOFI Bill
commences. In practise, it means the `misdescribed provisions' will be
49
Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
removed before they come into effect and attempt to make any changes to
the sections 63 and 64 of the Insurance Act.
50
Chapter 4
Review of decisions
Outline of Chapter
4.1 Schedule 4 of the Bill amends the Banking Act 1959 (Banking
Act), Insurance Act 1973 (Insurance Act), Life Insurance Act 1995 (Life
Act), Superannuation Industry (Supervision) Act 1993 (SIS Act)
(collectively, the Prudential Acts) and the Financial Sector (Collection of
Data) Act 2001 (FSCODA) to expand the availability of merits review for
appropriate administrative decisions made by the Australian Prudential
Regulation Authority (APRA) or the Australian Taxation Office (the
ATO) (in the case of self managed superannuation funds (SMSFs)),
consistent with the guidelines regarding merits review developed by the
Administrative Review Council (the ARC).
Context of amendments
4.2 In its response to the HIH Royal Commission Report, the
Government accepted all of the HIH Royal Commission
recommendations, including a recommendation that the Government
review the inconsistencies between the legislative provisions for merits
review under the Insurance Act 1973 and the Banking Act 1959
(Recommendation 23).
4.3 This is also consistent with Recommendation 5.7 of Rethinking
Regulation: Report of the Taskforce on Reducing Regulatory Burdens on
Business (Rethinking Regulation), that APRA's administrative decisions
be subject to merits review consistent with the guidelines developed by
the ARC. The Government accepted this recommendation in its final
response to Rethinking Regulation, released on 15 August 2006.
4.4 On 4 December 2006, the Government released a proposals
paper Streamlining Prudential Regulation: Response to `Rethinking
Regulation', canvassing proposals to apply merits review to appropriate
administrative decisions made by APRA or the ATO in the case of
SMSFs.
4.5 The proposals were further revised in light of industry comments
and consulted on again through a subsequent consultation paper Review of
51
Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
Prudential Decisions, released on 31 May 2007. The amendments in
Schedule 4 of the Bill give effect to these proposals.
Summary of new law
4.6 Schedule 4 of the Bill amends the Prudential Acts and FSCODA
to apply merits review to appropriate decisions made by APRA or the
ATO (in the case of SMSFs), consistent with the ARC guidelines.
4.7 In broad terms, merits review will be made available for
decisions to refuse to grant or revoke a licence, decisions to refuse to
determine certain provisions of a relevant Prudential Act do not apply,
various decisions to ensure compliance with minimum standards and
certain direction decisions.
4.8 In addition, the automatic confidentiality provisions in relation
to the Administrative Appeals Tribunal (AAT) hearings are removed from
each of the Prudential Acts to enhance the transparency of the AAT
process in respect of financial sector entities. Under the new regime, the
AAT has discretion on a case by case basis to determine whether
confidentiality should be provided through a private hearing under
subsection 35(2) of the Administrative Appeals Tribunal Act 1975 (the
AAT Act).
Comparison of key features of new law and current law
New law Current law
Merits review will be available for Merits review is not available for
appropriate APRA/ATO decisions all appropriate administrative
consistent with the ARC decisions made by APRA or the
guidelines. ATO under the Prudential Acts
These include decisions in relation and FSCODA.
to licensing and authorisation,
exemption, compliance with
minimum standards and certain
directions (also see chapter 2).
The general confidentiality All AAT hearings of
provisions under the Prudential administrative decisions are
Acts are removed. However, confidential under each of the
relevant persons may apply to the Prudential Acts.
AAT for a private hearing under
subsection 35(2) of the AAT Act.
52
Review of decisions
Detailed explanation of new law
Part 1 Amendments commencing on Royal Assent
4.9 Merits review aims to ensure that all persons affected by a
decision receive fair treatment. It also improves the transparency of
administrative decisions and, where the regulators are seen to make
consistent, well-formulated decisions, should engender greater public
confidence in the regulatory framework.
4.10 Merits review 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 regulator's accountability for administrative decisions.
4.11 In determining which decisions are appropriate for merits
review, the ARC guidelines have been taken into account. Consistent with
these guidelines, Schedule 4 of the Bill amends the Prudential Acts and
FSCODA to make merits review available for appropriate administrative
decisions made under these Acts.
Banking Act 1959
4.12 Items 1 and 2 amend sections 9 and 9A of the Banking Act to
apply merits review to an APRA refusal to grant or refusal to revoke an
authority to carry on banking business in Australia. Similarly, items 4 and
5 amend sections 11AA and 11AB of the Banking Act to apply merits
review to an APRA decision to refuse to grant or refuse to revoke a
NOHC authority.
4.13 Items 1 and 4 also expand the availability of merits review to
APRA decisions to impose conditions on an authority of an ADI or an
authorised NOHC or a subsequent decision to vary such conditions.
4.14 Item 3 amends section 11 of the Banking Act to apply merits
review to an APRA refusal to determine that one or more provisions of
the Banking Act do not apply to a particular person or a subsequent
variation or revocation of an exemption order made under this section.
4.15 Item 6 amends section 11AF of the Banking Act to apply merits
review to an APRA decision to determine a prudential standard for a
specific ADI or authorised NOHC or a subsequent decision to vary such a
standard.
53
Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
4.16 Item 7 applies merits review to directions given under section
11CA of the Banking Act that are triggered by certain prescribed
circumstances. See Chapter 2 of this explanatory memorandum for further
description of amendments to direction powers in the Banking Act as a
result of this Bill.
4.17 Item 9 applies merits review to an APRA refusal to certify an
industry support contract under section 11CB of the Banking Act.
4.18 Item 10 makes explicit that APRA may vary a direction in
relation to compliance with an industry support contract under section
11CC of the Banking Act. Item 11 applies merits review to APRA's
decisions under this section to give, vary or revoke such a direction.
4.19 Item 13 applies merits review to an APRA decision under
section 66 of the Banking Act to refuse to consent to a person assuming or
using certain restricted words or expressions in relation to the person's
financial business. Item 13 also applies merits review to an APRA
decision to impose conditions on a consent, to vary or revoke such a
consent, or to revoke such a consent.
4.20 Item 14 applies merits review to an APRA decision under
section 67 of the Banking Act to refuse to consent to the establishment or
maintenance of representative offices of overseas banks, to impose
conditions or additional conditions on a consent, to vary or revoke
conditions imposed on a consent, or to revoke a consent.
Financial Sector (Collection of Data) Act 2001
4.21 Items 15 and 16 introduce into the FSCODA general
arrangements regarding review of decisions, consistent with arrangements
under the Prudential Acts.
4.22 Item 17 applies merits review to APRA decisions:
· not to exempt a corporation from the obligation to register
under FSCODA (section 7);
· not to allow a longer period for the submission of required
documents to APRA (section 9);
· to include a registered entity in a particular category of
registered entities (section 11); and
· to determine or vary a reporting standard for an entity
(section 13).
54
Review of decisions
Insurance Act 1973
4.23 Item 18 applies merits review to APRA decisions under section
7 of the Insurance Act to refuse to determine that certain provisions of the
Insurance Act do not apply to a particular person, to impose conditions on
or specify a period in such a determination, or to vary or revoke such a
determination.
4.24 Items 19 and 22 apply merits review to APRA decisions under
sections 13 and 19 of the Insurance Act to impose conditions on an
authorisation of a general insurer or an authorised NOHC or to vary such
conditions.
4.25 Items 20 and 23 apply merits review to APRA decisions under
sections 15 and 21 of the Insurance Act to revoke an authorisation of a
general insurer or an authorised NOHC.
4.26 Item 21 applies merits review to APRA decisions under
section 17 of the Insurance Act to direct the insurer to arrange, subject to
APRA's approval, to assign certain liabilities to one or more other general
insurers, to refuse to approve a proposed assignment or to impose
conditions on an approval.
4.27 Item 24 applies merits review to APRA decisions under section
49H of the Insurance Act to confirm or vary a delegation's decision to
extend time for providing actuary's report.
4.28 Item 26 applies merits review to APRA decisions under
section 116A of the Insurance Act to determine an amount in relation to
an insurer's assets liabilities in Australia or to vary such a determination.
Life Insurance Act 1995
4.29 Currently, some decisions are included in both subsection 236(1)
of the Life Insurance Act, which sets out a definition of reviewable
decisions subject to subsection 236(1A) and subsection 236(1A) which
sets out a definition of non-reviewable decisions. This makes defining
reviewable decisions under the Life Act unnecessarily complex.
4.30 Items 27 and 35 remove subsection 236(1A) so that reviewable
decisions are only listed in subsection 236(1) under the definition of
reviewable decisions. In addition, item 31 removes various decisions from
the list of reviewable decision under subsection 236(1). These decisions
are not subject to merits review as they are currently included in both
subsections 236(1) and 236(1A). These amendments seek to improve the
clarity in defining reviewable decisions in the Life Act.
55
Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
4.31 Items 28 to 30 and 32 to 34 apply merits review to APRA
decisions under the Life Act:
· to determine that a body corporate is a `friendly society' or
to vary or revoke such a determination (section 16C);
· to restrict the use of the expression `friendly society'
(section 16E);
· to refuse to approve benefit fund rules (section 16L) or to
refuse to approve amendments of approved benefit fund
rules (section 16Q);
· to give notice to require an amendment of approved benefit
fund rules to rectify deficiency or to refuse to approve such
amendments (section 16R);
· to refuse to give an approval to consequential amendments
of company's constitution (sections 16U and 16V);
· to refuse to register a company (section 21) or cancel the
registration of a company (section 27);
· to refuse to give approval or impose conditions on an
approval concerning mortgages of assets (section 40);
· to refuse to give an approval concerning investment of
statutory funds (section 43);
· to refuse to give an approval concerning directors' duties in
relation to statutory funds (section 48);
· to refuse to allow the overseas policy owners' retained
profits to be distributed to owners of Australian policies or
to be transferred to shareholders' funds (section 62);
· to refuse to suspend or vary a life company's obligation to
make payments (section 208);
· to direct a life company to do certain acts on certain grounds
specified in section 230B. See Chapter 2 of this explanatory
memorandum for further description of amendments to
directions powers in the Life Act as a result of this Bill.
56
Review of decisions
Superannuation Industry (Supervision) Act 1993
4.32 Item 37 applies merits review to APRA directions to registrable
superannuation entity licensees to modify their risk management strategies
as set out in the directions (section 29HB).
4.33 Item 38 applies merits review to APRA directions to registrable
superannuation entity licensees to modify their risk management plans as
set out in the directions (section 29PB).
4.34 Item 39 applies merits review to the Regulator's refusal to
approve the provision of other benefits under the sole purpose test
provision (section 62).
4.35 Item 40 applies merits review to the Regulator's decision to
suspend or remove a trustee of a superannuation entity (section 133).
All Prudential Acts
4.36 Currently, all AAT hearings of reviewable decisions are
confidential under each of the Prudential Acts. This reduces the publicly
available information on the rationale for, and the transparency of, the
decisions being reviewed.
4.37 Items 12, 25, 36 and 41 remove the automatic confidentiality
provisions from each of the Prudential Acts to enhance the availability of
public information concerning the decisions being reviewed. Following
the amendments, where a private hearing is necessary, the relevant person
may apply to the AAT for a private hearing under subsection 35(2) of the
AAT Act.
Application and transitional provisions
4.38 The amendments made under Part 1 of Schedule 4 (items 1-42)
apply from the date of Royal Assent. [Clause 2]
4.39 Item 42 further clarifies that these amendments apply to
decisions made on or after the day on which these amendments
commence.
57
Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
Consequential Amendments
Part 1 Amendments commencing on Royal Assent
4.40 Item 8 is a consequential amendment to item 9. It inserts the
numbering (1) to allow for a new subsection (2) to be inserted under
item 9.
Part 2 Amendments contingent on the Financial Sector Legislation
Amendment (Simplifying Regulation and Review) Bill 2007
4.41 A general outline of the different types of commencement
provisions contained in Schedule 2 of the Bill is provided in paragraphs
1.46 to 1.60 of Chapter 1 of this explanatory memorandum.
Item 43 (type 3 provision)
4.42 Item 43 only takes effect if the RPD Bill commences before the
SPR Bill. If the RPD Bill commences first, it would add extra paragraphs
including paragraph (zq) to the list of reviewable decisions under
subsection 236(1). Then, when the SPR Bill commences, item 126 of
Schedule 1 of the SPR Bill would attempt to add a new paragraph (r) `at
the end of the definition of reviewable decision' and this instruction
would now be incorrect. As such, item 43 would replace that instruction
with the correct instruction to add a new paragraph (zp) `after paragraph
(zo) of the definition of reviewable decision'.
4.43 If the SPR Bill has commenced first, the RPD Bill can simply
add further paragraphs under subsection 236(1) without dealing with item
126 of the SPR Bill.
Item 44 (type 3 provision)
4.44 Item 44 repeals item 230 of Schedule 1 of the SPR Bill, and only
commences if the RPD Bill commences before the SPR Bill. The RPD
Bill repeals subsection 236(1A) of the Life Act, and item 230 of Schedule
1 of the SPR Bill repeals certain paragraphs under subsection 236(1A). As
such, if the RPD Bill commences first, item 230 of Schedule 1 of the SPR
Bill would become a `misdescribed amendment'. In this circumstance it is
necessary for item 44 to remove item 230 of the SPR Bill just before it
takes effect.
Items 44, 46 and 47 (type 1, 2, and 3 provisions)
4.45 These items ensure that paragraphs 236(1)(m) to (t), in the list of
reviewable decisions, are repealed, whether the RPD Bill or SPR Bill
58
Review of decisions
commences first. Item 227 of Schedule 1 of the SPR Bill would repeal
paragraphs 236(1)(o) to (t), and it is necessary to ensure that the RPD Bill
repeals all the paragraphs 236(1)(m) to (t) without creating `misdescribed
amendments'.
Type 1 provision
4.46 If the RPD Bill commences before the SPR Bill, item 46 (the
RPD amendments) would come into effect at the same time as Part 1 of
Schedule 3; after the SPR Bill commences, item 37 would come into
effect as `type 3 provision'.
4.47 Item 46 would repeal all of the relevant paragraphs under
subsection 236(1), from paragraph 236(1)(m) to (t). This means that, if the
SPR Bill commences later, item 227 of Schedule 1 of the SPR Bill would
become a `misdescribed amendment' because the relevant paragraphs
would have been already repealed.
4.48 In this circumstance, it is necessary to remove item 227 of
Schedule 1 of the SPR Bill before it commences. Item 44 does so, as it
would be triggered by the commencement of the SPR Bill and would
remove item 227 just before it takes effect.
Type 2 provision
4.49 Only item 47 would come into effect if the RPD Bill commences
after the SPR Bill. The SPR Bill would have already repealed paragraphs
236(1)(o) to (t). Item 47 would simply repeal the remaining two
paragraphs paragraphs 236(1)(m) and (n) without dealing with item
227 of Schedule 1 of the SPR Bill.
No SPR Bill
4.50 If the SPR Bill does not commence at all, item 46 would still
take effect at the same time as Part 1 of Schedule 3, to remove paragraphs
236(1)(m) to (t) inclusive.
Item 45 (type 4 provision)
4.51 This item ensures that, where item 56 of Schedule 1 of the SPR
Bill gives APRA a new power under section 32 of the Insurance Act to
determine prudential standards for one or more specified general insurers,
authorised NOHCS or subsidiaries, these decisions will be subject to
merits review. This is consistent with the policy intention in Schedule 4 of
the RPD Bill.
4.52 Item 45 adds a new subsection 32(7) to specify that APRA's
decisions under the new paragraph 32(1)(e), relating to one or more
59
Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007
specified general insurers, NOHCS and subsidiaries, are subject to review
under Part VI of the Insurance Act.
4.53 This item commences when both the RPD Bill and SPR Bill
have commenced, whichever occurs later.
60
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