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2004-2005-2006-2007
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
FINANCIAL SECTOR LEGISLATION AMENDMENT (SIMPLIFYING
REGULATION AND REVIEW) BILL 2007
REVISED EXPLANATORY MEMORANDUM
(Circulated by authority of the
Minister for Revenue and Assistant Treasurer, the Hon Peter Dutton MP)
THIS MEMORANDUM TAKES ACCOUNT OF AMENDMENTS MADE BY
THE HOUSE OF REPRESENTATIVES
TO THE BILL AS INTRODUCED
Table of contents
Glossary ...................................................................................... 1
General outline and financial impact....................................................... 5
Chapter 1 Streamlining prudential regulation ........................................ 9
Chapter 2 Financial assistance..............................................................77
Chapter 3 Accounts, reporting, obligations etc ......................................93
Chapter 4 Technical amendments relating to legislative instruments ...99
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
ABN Australian Business Number
ABN Act A New Tax System (Australian Business
Number) Act 1999
ABN Regulations A New Tax System (Australian Business
Number) Regulations 1999
ABR Australian Business Register
ADF Approved Deposit Fund
ADI Authorised Deposit-taking Institutions
AIA Acts Interpretation Act 1901
APRA Australian Prudential Regulation Authority
APRA Act Australian Prudential Regulation Authority
Act 1998
ASIC Australian Securities and Investments
Commission
ASIC Act Australian Securities and Investments
Commission Act 2001
ATO Australian Taxation Office
Banking Act Banking Act 1959
Banking Regulations Banking Regulations 1966
CALDB Companies Auditors and Liquidators
Disciplinary Board
Corporations Act Corporations Act 2001
Corporations Regulations Corporations Regulations 2001
1
Criminal Code Criminal Code Act 1995
DBF Defined Benefit Fund
FRLI Federal Register of Legislative Instruments
FSCODA Financial Sector (Collection of Data) Act
2001
ITAA 1936 Income Tax Assessment Act 1936
ITAA 1997 Income Tax Assessment Act 1997
Insurance Act Insurance Act 1973
Insurance Regulations Insurance Regulations 2002
ISC Insurance and Superannuation Commission
LIA Legislative Instruments Act 2003
LIASB Life Insurance Actuarial Standards Board
Life Act Life Insurance Act 1995
Life Regulations Life Insurance Regulations 1995
NOHC Non-Operating Holding Company
Prudential Acts Banking Act 1959, Insurance Act 1973, Life
Insurance Act 1995, Superannuation
Industry (Supervision) Act 1993
PST Pooled Superannuation Trust
RSE Registrable Superannuation Entity
SIS Act Superannuation Industry (Supervision) Act
1993
SIS Regulations Superannuation Industry (Supervision)
Regulations 1994
SMSF Self-managed superannuation fund
SMSF Taxation Act Superannuation (Self Managed
Superannuation Funds) Taxation Act 1987
3
General outline and financial impact
Streamlining prudential regulation
Schedule 1 to this Bill amends the Banking Act 1959, Insurance Act 1973,
Life Insurance Act 1995, Superannuation Industry (Supervision) Act 1993
(collectively, the prudential Acts) and other related legislation, including
the Corporations Act 2001 (Corporations Act) and Financial Sector
Collection of Data Act 2001 (FSCODA), to implement Government
commitments relating to prudential regulation in response to Rethinking
Regulation: The Report of the Taskforce on Reducing Regulatory Burdens
on Business (Regulation Taskforce) It also includes additional measures to
streamline and simplify the prudential Acts in a manner that is consistent
with the Regulation Taskforce's findings.
Date of effect: These amendments apply from the date of Royal Assent
unless specified otherwise.
Proposals announced: The 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'.
Financial impact: Nil
Compliance cost impact: These amendments are expected to result in a
reduction in compliance costs for the finance sector. The Office of Best
Practice Regulation granted an exemption from having to provide a
Regulation Impact Statement.
Financial assistance
Schedule 2 to this Bill amends the SIS Act and the Financial Institutions
Supervisory Levies Collection Act 1998 so that, where a superannuation
fund has suffered loss as a result of fraudulent conduct or theft, financial
assistance is available on a more equitable basis. The amendments also
abolish the Special Protection Account.
Date of effect: These amendments apply from the date of Royal Assent.
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
Proposals announced: The proposals were announced in the former
Minister for Revenue and Assistant Treasurer, Senator the Hon
Helen Coonan, Press Release No. C065/04 of 7 July 2004.
Financial impact: Nil
Compliance cost impact: Low. A Regulation Impact Statement has been
prepared.
Accounts, reporting, obligations etc
3.1 Schedule 3 to this Bill amends the SIS Act, the Superannuation
(Self Managed Superannuation Funds) Taxation Act 1987 (SMSF
Taxation Act) and the Income Tax Assessment Act 1936 (ITAA 1936) to:
· consolidate and rationalise the prudential reporting requirements
under the SIS Act;
· distinguish between reporting requirements relating to
registrable superannuation entities (RSEs) and self-managed
superannuation funds (SMSFs); and
· close the regulatory gap that exists in the SIS Act for the
reporting of contraventions of the market conduct and disclosure
provisions in the Corporations Act.
Date of effect: These amendments apply from the date of Royal Assent.
Proposals announced: The proposal was announced on 4 December 2006
in a paper released by the Minister for Revenue and Assistant Treasurer
entitled Streamlining Prudential Regulation: `Response to Rethinking
Regulation'.
Financial impact: Nil
Compliance cost impact: Nil
General outline and financial impact
Technical amendments relating to legislative instruments
Schedule 4 to this Bill makes amendments to various legislation that are
consequential on the enactment of the Legislative Instruments Act 2003.
Date of effect: These amendments apply from the date of Royal Assent.
Proposals announced: The amendments have not previously been
announced.
Financial impact: Nil.
Compliance cost impact: Nil.
7
1 Chapter 1
Streamlining Prudential Regulation
Outline of chapter
.1 Schedule 1 to this Bill amends the Banking Act 1959, Insurance Act
1973, Life Insurance Act 1995, Superannuation Industry (Supervision) Act
1993 (collectively, the prudential Acts) and other related legislation,
including the Corporations Act 2001 (Corporations Act) and Financial
Sector Collection of Data Act 2001 (FSCODA), to implement Government
commitments relating to prudential regulation in response to Rethinking
Regulation: The Report of the Taskforce on Reducing Regulatory Burdens
on Business (Regulation Taskforce) It also includes additional measures to
streamline and simplify the prudential Acts in a manner that is consistent
with the Regulation Taskforce's findings.
Context of amendments
.2 The prudential framework within Australia is widely acknowledged to
be meeting its broad objectives. Rethinking Regulation found that
`Australia's financial and corporate sectors, and the associated regulatory
structures, are highly regarded internationally' and that the `broad policy
framework has widespread support within business and the wider
community in Australia'.
.3 However, Rethinking Regulation also noted that there is scope to
improve the regulatory framework in some areas and made
recommendations to improve the flexibility of the framework, harmonise
aspects of the framework with the Corporations Act and improve
coordination between the key financial sector regulators, the Australian
Prudential Regulation Authority (APRA) and the Australian Securities and
Investments Commission (ASIC)). The Government accepted all the
recommendations in Rethinking Regulation relevant to prudential
regulation.
.4 Recommendation 5.4 of Rethinking Regulation stated that the
Government should ensure that APRA has sufficient flexibility to tailor
requirements to accommodate differing circumstances. It should also be
flexible to cater for the diverse range of entities operating within the
financial sector.
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
.5 The Government has already made considerable progress in this regard
through recent reforms to the prudential framework for both general
insurers and superannuation funds, implemented through the General
Insurance Reform Act 2001 and the Superannuation Safety Amendment
Act 2004. These amendments build on these initiatives through further
reforms to streamline and improve the flexibility of the prudential
framework.
.6 The prudential Acts administered by APRA and related legislation,
such as the Corporations Act, have often evolved separately and in
response to industry developments, and there is scope to refine and update
the four prudential Acts to make them more consistent. Rethinking
Regulation highlighted breach reporting under the prudential Acts and
Corporations Act as a particular area where there is scope to improve
consistency and reduce the compliance burden. These amendments address
concerns in this area.
.7 On 4 December 2006, the Minister for Revenue and Assistant
Treasurer released a paper entitled Streamlining Prudential Regulation:
`Response to Rethinking Regulation' to facilitate discussion on the
Government's proposed response to various Rethinking Regulation
recommendations, outstanding HIH Royal Commission recommendations
and additional reforms to streamline and simplify the prudential Acts in a
manner that is consistent with the Regulation Taskforce's findings. The
amendments give effect to most of the proposals in that paper.
Summary of new law
.8 The amendments will simplify and streamline the prudential Acts and
in doing so will improve the flexibility, consistency and transparency of
those Acts and reduce the compliance burden for the financial sector.
General outline and financial impact
Comparison of key features of new law and current law
New law Current law
Only significant breaches need to All breaches need to be reported
be reported under the prudential under the prudential Acts.
Acts. A written report on There are inconsistent and
significant breaches needs to be ambiguous timing requirements
made to APRA as soon as under the prudential Acts and the
practicable, and in any event, no Corporations Act for the reporting
later than 10 business days after of breaches.
the entity becomes aware of the
breach. Some breaches will need Overlapping reporting
to be notified in writing to APRA requirements between responsible
immediately. persons and officers, actuaries and
auditors may be creating the need
Where an actuary or auditor for multiple reporting of breaches.
identifies a breach and is required
to notify APRA and the regulated There may be unnecessary breach
entity of a breach, the ADI, reporting where a breach is
general or life insurer or required to be reported to both
superannuation trustee is not also APRA and ASIC.
required to report the breach to
APRA. The reverse also applies.
Where a breach was previously
reported to APRA and ASIC, the
breach is only required to be
reported to APRA.
Consistent protection is provided Inconsistent protection for
for whistleblowers and persons whistleblowers and persons who
who report information under the report information.
prudential Acts. These persons
enjoy `use immunity' in relation
to reported information.
APRA's exemption powers have There is lack of a flexibility in the
been expanded under the SIS and prudential regime which may
Life Acts while reduced under the impose unnecessary compliance
Banking and Insurance Acts. It is costs.
clarified that decisions relating to
classes of persons are legislative
in nature while those relating to a
particular person are
administrative in nature and are
reviewable decisions.
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
New law Current law
APRA will gain the power under APRA's ability to tailor prudential
the Banking and Life Acts to requirements to particular
make discretionary decisions circumstances under prudential
under its prudential standards. It is standards is limited, and these
clarified that decisions relating to requirements are not transparent.
classes of persons are legislative
in nature while those relating to a
particular person are
administrative in nature and are
reviewable decisions.
Section 33 of the Insurance Act APRA currently must comply
has been repealed, so APRA only with two sets of legislative
needs to comply with the requirements with respect to
consultation requirements under consultation on general insurance
Legislative Instruments Act 2003. prudential standards.
APRA has the power to accept APRA is unable to enforce
court enforceable undertakings cooperative agreements made with
under the Banking and Life Acts. entities to address prudential
concerns under the Banking and
Life Acts.
The Board will have responsibility Entities are required to seek
for the appointment of the actuary APRA approval for the
or auditor of the entity. There will appointment of its actuaries and
be no requirement for APRA auditors, which is inconsistent
approval. with a principles based legislative
Under the Insurance and SIS Acts, framework.
APRA can direct a regulated
entity to remove the auditor or
actuary who does not meet the fit
and proper requirements or has
been disqualified. Under Life Act,
APRA can declare the auditor or
actuary ineligible for appointment.
APRA has the power to refer APRA does not have the power to
matters relating to actuaries and share information regarding
auditors to their professional actuary and auditor conduct with
bodies under the Banking, appropriate professional bodies
Insurance and Life Acts. This will under the Banking and Life Acts
improve industry self-regulation and its power under the Insurance
and enhance co-operation between Act is limited.
APRA and industry professional
bodies.
Prudential rules will be phased out Prudential rules add prescription
by 30 June 2011. and unnecessary complexity to the
prudential framework
General outline and financial impact
New law Current law
The LIASB will be abolished. The The Life Act provides that APRA
requirements currently found may determine standards on
under actuarial standards in the prudential matters for life
Life Act will be prescribed under companies under section 230A but
prudential standards. grants actuarial standards-making
powers to the LIASB under
section 101.
The eligibility requirements for Requirements with respect to
appointed actuaries under the Life actuaries in the Life Act are
Act will be replaced by principles- prescriptive and inflexible.
based legislation, with further
requirements prescribed under
prudential standards.
Duplication in reporting Duplication in reporting
requirements has been removed requirements under the Life Act.
and replaced by a process of
information sharing between
APRA and ASIC.
Sections 123 and 125 of the Life Reinsurance reporting
Act, relating to reinsurance requirements are under the Life
contracts, have been repealed. Act rather than responsibility of
the Board of the life company.
Subsections 20(2), (3) and (4), The Life Act and Life Regulations
sections 25 and 28 of the Life Act contain prescriptive requirements
and Part 3 of the Life Regulations with respect to registration of life
have been repealed. Section 21 of insurers, and requirements to
the Life Act has been amended so notify changes to information
that APRA would no longer issue provided in a registration
a certificate but would provide application. These requirements
`authorisation in writing'. overlap with other information
gathering processes.
ABNs will become a uniform There is a requirement under the
business identifier. All RSE SIS Act to display RSE licence
licensees and superannuation and registration numbers on
entities are required to obtain and certain documents.
display an ABN.
The obsolete provisions have been Several transitional arrangements
repealed from the Life and SIS in the Life and SIS Acts are
Acts. obsolete and add to complexity.
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
Detailed explanation of new law
Streamlining breach reporting arrangements
.1 The breach reporting regimes under the prudential Acts (Banking Act
1959 (Banking Act), Insurance Act 1973 (Insurance Act), Life Insurance
Act 1995 (Life Act), Superannuation Industry (Supervision) Act 1993 (SIS
Act)), administered by the Australian Prudential Regulation Authority
(APRA), and the Corporations Act 2001 (Corporations Act), administered
by ASIC, are different, reflecting differences between the objectives of
prudential regulation and corporations and financial services regulation, as
well as the independent development of each Act.
.2 However, there are a number of areas in the breach reporting regimes
under the prudential Acts and Corporations Act which can be harmonised
and streamlined so that the regulatory burden on entities is reduced. These
areas relate to:
· harmonising the timeframe for reporting breaches;
· eliminating the requirement for breaches to be reported
twice; and
· introducing a significance test where appropriate so that
only significant breaches need to be reported.
.3 Whilst the approach taken to harmonising breach reporting is aimed at
streamlining the processes which entities, auditors and actuaries must
undertake to fulfil their breach reporting obligations, some differences
remain under the prudential Acts and the Corporations Act which reflect
the different objectives of prudential regulation and corporations and
financial services regulation.
.4 The amendments to the breach reporting obligations under the
prudential Acts will require the reporting of significant breaches that have
occurred or that will occur in the future. This approach differs from the
Corporations Act approach where there is an obligation to report likely
breaches. The requirement to report breaches that will occur in the future
takes into account that in some circumstances, entities, actuaries and
auditors will be able to identify where it is inevitable that a breach will
occur. In such circumstances, it is desirable that the breach be reported at
this time rather than waiting for the breach to actually occur.
.5 Under these amendments, significant breaches of the prudential Acts
will be divided into two groups. Breaches relating to minimum capital
requirements or where an entity may not be able to meet its obligations are
General outline and financial impact
always deemed to be significant and must be notified to APRA
immediately.
.6 The requirement to report such breaches to APRA immediately takes
into account that entities, auditors and actuaries will have to undertake
certain internal processes in establishing some details surrounding the
breach, but the obligation imposed on them is one which requires them to
escalate the notification of the breach to APRA as breaches of this kind are
often the most severe and which require APRA's immediate attention.
.7 All other breaches deemed to be significant must be reported by the
entity, auditor or actuary as soon as possible and in any event within 10
business days after becoming aware of the breach. The point when the
10 day reporting period begins is framed in such a way as to not be
prescriptive, so the obligation rests with the entity, auditor or actuary to
have processes in place which will allow them to meet their breach
reporting obligations. This approach acknowledges that entities structure
their breach reporting processes in a way which is appropriate for their
circumstances. It is envisaged that both APRA and ASIC will provide
guidance for entities in relation to how they meet their breach reporting
obligations and that entities will be able to engage with APRA and ASIC
in the development of this guidance material.
.8 A breach is determined to be significant by taking into account factors
including the frequency of similar previous breaches; the impact on the
entity's ability to meet its obligations; the extent to which the breach
indicates arrangements for ensuring compliance are inadequate; the actual
or potential loss arising from the breach; and any other matters prescribed
by regulations. A written report on a significant breach is expected to
contain more detailed information on the matter whereas notification,
which is still required to be in written form, would contain less detailed
information.
.9 Amendments are also made to ensure that breaches are not required to
be reported twice. If an auditor or actuary identifies a breach and submits a
breach report, an entity may also have to submit a report on the same
breach. Amendments to the prudential Acts will ensure that breaches will
only be reported once with auditors, actuaries or entities able to fulfil their
breach reporting obligations if they ensure that the breach has already been
reported. Offence provisions have been included to ensure that it is an
offence if an auditor, actuary or entity informs another party that a breach
has been reported when it has not. In such circumstances, the onus of proof
is reversed. For example, where auditors or actuaries are required to give
information, the effect of reversing the onus of proof is that the auditor or
actuary is required to establish, on the balance of probabilities, that they
had no reason to disbelieve that the entity has already informed APRA of
the breach in writing. The onus of proof is reversed because of the
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
substantial evidentiary difficulty the prosecution would face if they were
required to prove whether the auditor or actuary believed the entity's
statement.
.10 All the amendments for breach reporting under the prudential Acts
and the Corporations Act will begin from 1 January 2008.
Banking Act 1959 (Banking Act) (Items 158 -- 166)
Amendments relating to auditors
.11 Item 159 repeals subsections (2) to (4C) of section 16B and item 160
inserts a new section 16BA into the Banking Act which introduces a
significance test for the reporting of breaches by auditors. Under these
amendments, requirements to report breaches of legislation or prudential
standards to APRA will become subject to a significance test so that only
significant breaches will need to be reported. The significance test, which
is contained in new subsection 16BA(7), takes into consideration a number
of factors to be used when judging if a breach is significant or not.
Significant breaches must be written and must be reported as soon as
practicable and in any event within 10 business days (new subsection
16BA(6)).
.12 Item 158 provides a definition of business day into the Banking Act
as significant breaches must be reported within 10 business days.
.13 Item 160 introduces new subsection 16BA(2) so that where a person
has reasonable grounds for believing that the body corporate is insolvent
or an existing or proposed state of affairs may significantly prejudice the
interests of depositors, the person must immediately notify APRA in
writing. Failures of this kind are often the most severe breaches and
require APRA's immediate attention. These circumstances are always
deemed to be significant and must be reported immediately.
.14 Item 160 also streamlines the breach reporting process by ensuring
that information is not required to be given twice. Under current reporting
obligations, if an auditor and body corporate are both aware of a breach,
then both must submit a separate breach report to APRA on the same
breach, irrespective of whether the other party has reported the breach.
This doubling up of breach reports creates an unnecessary regulatory
burden. This item inserts new subsection 16BA(5) which provides that if
the auditor is informed by a director or senior manager that the breach has
been reported to APRA, then the auditor does not have to report the same
breach. A similar provision applies to directors and senior managers of a
regulated entity (see item 163).
General outline and financial impact
.15 Offence provisions are introduced in subsections 16BA(3), (4), (8),
(9) and (11). New subsections 16BA(3) and (4) make it an offence to
contravene subsection (2), relating to matters requiring immediate notice.
New subsections 16BA(8) and (9) make it an offence to contravene
subsection (6), relating to matters requiring notice as soon as practicable.
The offence created by these provisions mirror the offences found in old
section 16B.
.16 The offence under new subsections (4) and (9) are strict liability
offences punishable by 60 penalty units. 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. Consistent with section 6.1 of the Criminal Code Act 1995
(Criminal Code), the offence provisions under subsections (4) and (9) do
not require proof of a mental element.
.17 It is also an offence under subsection (11) to falsely state that matter
has been brought to the attention of APRA when it has not. This offence is
punishable by a maximum of 12 months imprisonment.
Amendments relating to bodies corporate
.18 Items 161 and 162 amend paragraphs 62A(1)(a) and (b) of the
Banking Act so that where a member of a relevant group of bodies
corporate becomes aware that it, or another member of the group, or the
group as a whole, may not be in a sound financial position, it must notify
APRA in writing immediately. Failures of this kind are often the most
severe breaches and require APRA's immediate attention. These
circumstances are always deemed to be significant and must be reported
immediately.
.19 Item 163 inserts new subsections 62A(1A) to 62A(1D) of the Banking
Act, to introduce a significance test for the reporting of breaches by a
member of a relevant group of bodies corporate. The significance test,
which is contained in new subsection 62A(1C), lists a number of factors
which must be considered to determine if a breach is significant or not.
Significant breaches must be reported as soon as practicable and in any
event within 10 business days.
.20 Item 163 also streamlines the breach reporting process by ensuring
that information is not required to be given twice. Under new subsections
62A(1A) and (1D), a member of a relevant group of bodies corporate will
not commit an offence if the auditor of the member of the group gives
APRA a written report about the matter and, in the case of significant
breaches, this report is given within 10 business days after the member
becomes aware of the breach. This amendment is designed to reduce the
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
regulatory burden on entities by eliminating the requirement for some
breaches to be reported twice, by bodies corporate and their actuaries.
Consequential Amendments
.21 Items 164 to 166 make consequential amendments to section 62A of
the Banking Act to reflect the new numbering of the subsections. Item 165
inserts reference to `report' under subsection 62A(3). This clarifies that a
report submitted under section 62A must comply with the confidentiality
requirements in subsection 62A(3).
Insurance Act 1973 (Insurance Act) (Items 177 -- 179, 185, 186, 187)
Amendments relating to general insurers
.22 Item 178 repeals section 35A. and item 179 inserts new section 38AA
into the Insurance Act which introduces a significance test for the
reporting of breaches by a general insurer. The significance test, which is
contained in new subsection 38AA(5), takes into consideration a number
of factors to be used when judging if a breach is significant or not.
Significant breaches must be reported as soon as practicable and in any
event within 10 business days.
.23 Item 177 provides a definition of business day in the Insurance Act as
significant breaches must be reported within 10 business days.
.24 Item 179 inserts an obligation on a general insurer to notify breaches
involving the insurers' financial obligations to its policy holders or its
minimum capital requirements in writing to APRA immediately. Breaches
of this kind are often the most severe breaches and require APRA's
immediate attention. These circumstances are always deemed to be
significant and must be notified to APRA immediately.
.25 Item 179 also streamlines the breach reporting process by removing
the need for dual reporting of the same breach by the general insurer and
the general insurer's auditor or actuary. Under new subsections 38AA(3)
and (7), a general insurer, an authorised Non-operating Holding Company
(NOHC) or a subsidiary of a general insurer or authorised NOHC, will not
commit an offence if the auditor or actuary of the general insurer gives
APRA a written report about the matter and, in the case of significant
breaches, this report is given within 10 business days after the member
becomes aware of the breach.
.26 Item 186 amends subsection 49A(2) to provide that breaches are
required to be notified immediately under this section. Breaches of this
kind are often the most severe breaches and require APRA's immediate
General outline and financial impact
attention. These circumstances are always deemed to be significant and
must be reported immediately.
.27 Item 187 inserts new subsections (5) to (11) into section 49A of the
Insurance Act, which introduces a significance test for the reporting of
breaches. The significance test, which is contained in new subsection
49A(7), takes into consideration a number of factors to be used when
judging if a breach is significant or not. Significant breaches must be
reported as soon as practicable and in any event within 10 business days.
.28 Item 187 also streamlines the breach reporting process by ensuring
that information is not required to be given twice. This item inserts new
subsection 49A(10) which provides that, if the auditor or actuary is
informed by a director or senior manager that the breach has been reported
to APRA, then the auditor or actuary does not have to report the same
breach.
.29 Offence provisions are introduced in subsections 49A(8), (9) and (11).
Subsections (8) and (9) make it an offence to contravene the new
subsection (6), and these provisions mirror the offences under subsections
49A(3) and (4). The offence under subsection (8) carries a maximum
penalty of 100 penalty units or 6 months imprisonment, or both.
Subsection (9) makes it a strict liability offence to contravene the new
subsection (6), which is punishable by 60 penalty units. This offence is
one of strict liability because it is a basic, objective requirement to the
performance of APRA's prudential supervision functions. Consistent with
section 6.1 of the Criminal Code, it does not require proof of a mental
element. Lastly, it is an offence under subsection (11) to state falsely that a
matter has been brought to the attention of APRA when it has not. This
offence carries a maximum penalty of 12 months imprisonment.
Consequential amendments
.30 Item 185 makes consequential amendments to subsection 49A(2) of
the Insurance Act. It repeals paragraphs 49A(2)(b) and (c), as these types
of breaches will now be included in the new subsections in item 187.
Life Act (Items 135, 208, 209, 215, 216, 220, 235)
.31 Item 208 amends subsection 88(2) and item 215 amends subsection
98(2) of the Life Act so that any breaches under these sections are reported
to APRA immediately. Breaches of this kind are often the most severe
breaches and require APRA's immediate attention. These circumstances
are always deemed to be significant and must be reported immediately.
.32 Item 209 amends section 88 and item 216 amends section 98 of the
Life Act to streamline the breach reporting process so that information is
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
not required to be reported twice. Under new subsection 88(2A) and
subsection 98(2A), if the auditor or actuary is informed by a director or
senior manager that the breach has been reported to APRA, then the
auditor or actuary does not have to report the same breach.
.33 Item 220 inserts new section 132A into the Life Act which creates an
obligation on life companies to report significant breaches. Under the other
prudential Acts, obligations to report breaches rest with the bodies
corporate of general insurers and Authorised Deposit-taking Institutions
(ADIs) as well as with Registrable Superannuation Entity (RSE) licensees
of superannuation funds. At present, there is a gap in the Life Act in that
there are no reporting obligations on life insurers. Item 220 addresses this
gap. The reference to `this Act' in paragraph 132A(1)(a) includes a
reference to the prudential standards.
.34 Under new section 132A of the Life Act, life companies will be
required to report any breaches under subsection 132A(1) to APRA
immediately. Breaches relating to minimum capital requirements or that
impact upon the life company's financial obligations or its policy holders
are often the most severe breaches and require APRA's immediate
attention. These circumstances are always deemed to be significant and
must be reported immediately.
.35 Item 220 also inserts new subsection 132A(3) into the Life Act to
streamline the breach reporting process by ensuring that information is not
reported twice. Under this new subsection, a life company will not commit
an offence if they do not to report the breach to APRA under 132A(1) if
before becoming aware of the breach, the auditor or appointed actuary of
the life company notifies APRA of the breach in writing.
.36 Item 220 introduces a significance test for the reporting of breaches
under new subsection 132A(5). The significance test takes into
consideration a number of factors to be used when judging if a breach is
significant or not. Significant breaches must be reported as soon as
practicable and in any event within 10 business days.
.37 Item 135 inserts a definition of senior manager in the Schedule, as
items 209 and 216 make reference to a senior manager of a life company.
This item commences on Royal Assent.
.38 Item 235 inserts a definition of business day into the Schedule to the
Life Act as significant breaches must be reported within 10 business days.
Business day means a day that is not a Saturday, a Sunday or a public
holiday or bank holiday in the place concerned.
General outline and financial impact
SIS Act (Items 240 -- 243)
.39 Item 240 amends subsection 29JA(1) so that the timeframe for
reporting of breaches is 10 business days. This will bring the timeframe for
reporting breaches under the SIS Act into line with the other prudential
Acts.
.40 Item 240 inserts a reference to `significant' in subsection 29JA(1) to
reflect the change in breach reporting requirements under the prudential
Acts so that only significant breaches need to be reported to APRA. This
item also inserts new subsection (1A) into section 29JA of the SIS Act
which introduces a significance test for the reporting of breaches. The
significance test takes into consideration a number of factors to be used
when judging if a breach is significant or not. Significance breaches must
be reported as soon as practicable and in any event within 10 business
days.
.41 Item 241 amends subsection 106(1) in line with the new harmonised
breach reporting framework introduced by this Bill, so that a trustee of a
superannuation entity must immediately notify APRA in writing of a
significant adverse event covered under section 106 of the SIS Act. Item
243 amends subsection 130(2) of the SIS Act so that a person to whom
section 130 applies must immediately inform APRA in writing about the
matter. Breaches of this kind are often the most severe breaches and
require APRA's immediate attention. These circumstances are always
deemed to be significant and must be reported immediately.
.42 Item 242 amends subsection 129(3) so that a person to whom section
129 applies must immediately tell APRA in writing about the matter.
Breaches of this kind are often the most severe breaches which require
APRA's immediate attention. These circumstances are always deemed to
be significant and must be reported immediately.
Corporations Act (Items 167 172)
.43 Item 171 makes a number of amendments to facilitate a streamlined
process for breach reporting under section 912D of the Corporations Act
and the prudential Acts.
.44 Item 171 increases the timeframe in which breach reports under
section 912D must be submitted from five to 10 business days. There is
currently a wide range of reporting timeframes under the prudential Acts
and the Corporations Act. The existence of a range of time periods creates
additional costs in complying with different regulatory requirements.
Provision of a consistent 10 day breach reporting timeframe across all the
prudential Acts and the Corporations Act is designed to reduce the
regulatory burden when reporting breaches.
21
Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
.45 Item 171 also establishes an optional mechanism for entities regulated
by both APRA and ASIC to report significant breaches through a single
breach report submitted to APRA. Under the current breach reporting
regime, if a dual-regulated entity identifies a breach which is a breach of
both a prudential Act provision and a Corporations Act provision, they
must submit separate reports to APRA and ASIC in respect of the same
breach. To facilitate the single breach reporting mechanism, item 31
provides for APRA to be appointed as an agent of ASIC for the purposes
of receiving notices under section 912D by a dual-regulated entity for
breaches of:
· APRA's legislation; and
· both APRA's and ASIC's legislation.
.46 This arrangement will not cover breaches of ASIC's legislation only.
Under the terms of the agreement, it will be optional for a dual regulated
entity to utilise the single breach report arrangement. Entities would
continue to have the option of lodging separate breach reports to APRA
and ASIC. It is envisaged that APRA and ASIC will provide guidance as
to how this agreement will operate and that entities will be able to engage
with APRA and ASIC in the development of this guidance material.
.47 Item 171 also amends section 912D in relation to the reporting
obligations of entities where a breach has already been reported by the
auditor or actuary of the entity. If the auditor or actuary gives a written
breach report to APRA and the report is given within 10 business days
after the licensee becomes aware of the breach, the entity will not be
required to submit a breach report on that incident.
.48 Items 167 to 170 and item 172 facilitate a restructuring of section
912D to accommodate the new streamlined breach reporting arrangements.
Protection for whistleblowers
.49 These amendments introduce a consistent framework of protection for
whistleblowers across the prudential Acts. These provisions commence on
Royal Assent.
.50 This framework is designed to encourage employees, officers and
subcontractors engaged by a company to report to APRA or prescribed
persons within the entity information relating to misconduct, or an
improper state of affairs or circumstances, if they believe the information
would assist APRA or the prescribed persons to carry out their functions in
relation to the entity. Under the Banking and Insurance Acts, these
disclosures can also be made to prescribed persons in a `related body
corporate'. The provisions will prohibit employers from victimising
General outline and financial impact
employees, officers or subcontractors when they make such disclosures in
good faith.
.51 Further, the provisions will provide whistleblowers, and individuals
who provide information to APRA under a requirement of the Acts or
FSCODA with `use immunity' in relation to the information provided.
Banking Act (Items 35, 44, 50)
Protection for whistleblowers
.52 Item 44 inserts a new Divisions 1 and 2 of Part IVA (Protections in
relation to information).
.53 New section 52A defines the disclosures that will qualify for
whistleblower protection under Division 1. Disclosures can be made to
APRA, or to prescribed persons within the body corporate or a related
body corporate. These persons include the auditor or audit team of the
body corporate or a related body corporate, a director or senior manager of
the body corporate or a related body corporate, or a person authorised by
the body corporate to receive such disclosures (new paragraph 52A(2)(a)).
.54 The definition of `related body corporate' differs from the definition
of `relevant group of bodies corporate' under the Banking Act. It includes
the ADI, the authorised NOHC of an ADI, and a subsidiary of the ADI or
the authorised NOHC (new paragraphs 52A(3)(i) to (iii)). This extends
whistleblower protection to reflect corporate structures in the banking
sector.
.55 A disclosure of information to APRA or the prescribed persons will be
protected if the conditions outlined in new section 52A are met. This
provision applies to an officer or employee of the regulated body
corporate, a contractor of the regulated body corporate or an employee of
the contractor (new subsection 52A(1)). The term `officer' has the same
meaning as in the Corporations Act (subsection 52A(4)). This ensures
consistency between the Corporations Act and the prudential Acts.
.56 The disclosure will be subject to the protections in sections 52B to
52F if the information relates to misconduct or an improper state of affairs
or circumstances, and person believes the information may assist APRA or
the persons referred to under paragraph 52A(2)(a) to perform their
functions or duties in relation to the body corporate (new paragraphs
52A(2)(c)), and discloses the information in good faith (paragraph
52A(2)(d)). The protection extends to disclosures regarding suspected
breaches of the Banking Act and FSCODA.
23
Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
.57 If a person makes a vexatious or malicious disclosure, it would not be
made in good faith and so would not be protected (see also paragraph
1.73). Moreover, a person who knowingly provides false or misleading
information to APRA may be guilty of an offence, pursuant to Division
137 of the Criminal Code.
.58 Before disclosing the information, the person must provide their name
and the disclosure therefore cannot be made anonymously (new paragraph
52A(2)(b)).
.59 Information disclosed under new section 52A attracts the application
of confidentiality requirements in proposed section 52E. It should also be
noted that any protected information provided to APRA will attract the
application of the secrecy requirements contained in existing section 56 of
the Australian Prudential Regulation Authority Act 1998 (APRA Act).
.60 A whistleblower who makes a disclosure in good faith will be
protected against civil and criminal liability for making the disclosure,
enforcement of contractual remedies, liability for defamation, and
termination of contract on the basis of the disclosure (new section 52B).
Where detriment has occurred, it would be open to a Court to order a
suitable remedy, including a remedy under new subsection 52B(3).
.61 New subsections 52C(1) and (2) prohibit any actual or threatened
detriment being levelled against a person because of their disclosure. The
types of detriment contemplated would include the termination of
employment, a reduction in a person's terms and conditions of
employment, demotion, or unfair or unequal treatment in the workplace. A
person commits an offence if they `engage in conduct', which is defined as
to do an act; or omit to do an act.
.62 The offences under new subsections 52C(1) and (2) carry a maximum
penalty of 25 penalty units or 6 months imprisonment, or both, which is
consistent with the penalty scale under equivalent provisions of the
Corporations Act.
.63 Where damage is suffered by a whistleblower as a result of a
contravention of subsections 52C(1) and (2), compensation may be
available under new section 52D. A person may be also liable to pay
compensation if they contravene subsections 52(1) or (2) because of the
application of Part 2.4 of the Criminal Code, which extends the offence to
attempt, incitement or conspiracy to victimise a whistleblower (new
paragraph 52D(a)(ii)).
.64 Importantly, the whistleblower could be protected from liability for
past wrongdoings, as new subsection 52B(4) provides that the information
disclosed cannot be used in evidence against the person in a criminal
General outline and financial impact
proceedings or proceedings for the imposition of a penalty. This
encourages whistleblowers to make full and frank disclosures, so the
company or APRA can obtain the relevant information to perform their
functions and avoid prudential risks.
.65 The protection provided under Division 1 of Part IVA relies on the
disclosure being made in good faith. As such the `good faith' requirement
also sets the threshold for obtaining `use immunity' under subsection
52B(4). This is considered appropriate given the need to discourage
malicious or unfounded disclosures being made and ensure the integrity of
these provisions. Where a person has a malicious or secondary purpose in
making a disclosure, or makes a vexatious disclosure, it is considered that
the good faith requirement would not be met.
.66 It should be noted that section 16C provides that auditors may provide
information , or produce books, accounts or documents to APRA if the
person believes that the information will assist APRA in performing its
functions.
Self incrimination and use immunity
.67 Item 44 inserts a new Division 2 of Part IVA, which provides a new
self incrimination and use immunity provision. Subsection 52F(1) provides
that the privilege against self incrimination is not available in relation to
providing information to APRA. This applies to provisions of the Banking
Act or FSCODA that require a person to provide information to APRA. It
is considered that APRA's interest in receiving information that would
assist to maintain the integrity of the prudential regulation framework
outweighs, in this context, the privilege against self incrimination.
However if an individual provides information to APRA in compliance
with a requirement of this Act or FSCODA, the individual would enjoy
`use immunity' in relation to the information provided (subsection 52F(2)).
.68 It should be noted that current subsection 14A(3) to (4A) provide that
individuals cannot claim the privilege against self incrimination when
required to give information to a statutory manager, but the individual
enjoys `use immunity' in relation to the information provided. These
subsections prevail over the general requirements and protections under
new section 52F.
Consequential Amendments
.69 Items 35 and 50 are consequential amendments to item 44. Item 35
omits subsections including subsections 16B(6) and (7). Item 50 omits
subsections 62(3) and (4). Information reported to APRA under sections
16 and 62 cannot be used in evidence against the person in criminal
proceedings or proceedings for the imposition of a penalty. As these
25
Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
protections are provided by item 44 under section 52F, these subsections
are no longer necessary.
Insurance Act (Item 62)
Protection for whistleblowers
.70 Item 62 inserts new Subdivisions A and B of Division 4 (Protections
in relation to information).
.71 New section 38A defines the disclosures that will qualify for
whistleblower protection under Subdivision A. Disclosures can be made to
APRA, or to prescribed persons within the body corporate or a related
body corporate. These persons include the body corporate or a related
body corporate's actuary, auditor or audit team, a director or senior
manager of the body corporate or a related body corporate, or a person
authorised by the body corporate to receive such disclosures (new
paragraph 38A(2)(a)).
.72 A `related body corporate' includes the general insurer, the authorised
NOHC of the general insurer, or a subsidiary of the general insurer or the
authorised NOHC (new paragraph 38A(3)). This definition extends
whistleblower protection to reflect corporate structures in the insurance
sector.
.73 A disclosure of information to APRA or the prescribed persons will be
protected if the conditions under new section 38A are met. This provision
applies to an officer or employee of a general insurer or a related body
corporate, a contractor of a general insurer, and the employee of the
contractor (new subsection 38A(1)). The term `officer' has the same
meaning as under Corporations Act (new subsection 38A(4)). This ensures
consistency between the Corporations Act and the prudential Acts.
.74 The disclosure will be subject to the protections under sections 38B to
38F if the information relates to misconduct or an improper state of affairs
and circumstances, and the whistleblower believes the information may
assist APRA or a prescribed person to perform their functions or duties in
relation to the body corporate or a related body corporate (new paragraph
38A(2)(c)), and discloses the information in good faith (new paragraph
38A(2)(d)). The protection extends to suspected breaches of the Insurance
Act and FSCODA.
.75 If a person makes a vexatious or malicious disclosure, it would not be
made in good faith and so would not be protected (see also paragraph
1.91). Furthermore, a person who knowingly provides false or misleading
information to APRA may be guilty of an offence, pursuant to Division
137 of the Criminal Code.
General outline and financial impact
.76 Before disclosing the information, the person must provide their name
and the disclosure cannot, therefore, be made anonymously (new
paragraph 38A(2)(b)).
.77 Information disclosed under new section 38A attracts the application
of confidentiality requirements in proposed section 38E. It should also be
noted that any protected information provided to APRA will attract the
application of the secrecy requirements contained in existing section 56 of
the APRA Act.
.78 A whistleblower who makes a disclosure in good faith will be
protected against civil and criminal liability for making the disclosure,
enforcement of contractual remedies, liability for defamation, and
termination of contract on the basis of the disclosure (new section 38B).
Where detriment has occurred, it would be open to a Court to order a
suitable remedy, including a remedy under new subsection 38B(3).
.79 New subsections 38C(1) and (2) prohibit any actual or threatened
detriment being levelled against a person because of their disclosure. The
types of detriment contemplated include the termination of employment, a
reduction in a person's terms and conditions of employment, demotion, or
unfair or unequal treatment in the workplace. A person commits an offence
if they `engage in conduct', which is defined as to do an act, or omit to do
an act
.80 The offences under new subsections 38C(1) and (2) carry a penalty of
up to 25 penalty units or 6 months imprisonment, or both, which is
consistent with the penalty scale under equivalent provisions of the
Corporations Act.
.81 Where damage is suffered by a whistleblower as a result of a
contravention of subsections 38C(1) or (2), compensation may be available
under new section 38D. A person may be also liable to pay compensation
if they contravene subsections 38C(1) or (2) because of the application of
Part 2.4 of the Criminal Code, which extends the offence to attempt,
incitement or conspiracy to victimise a whistleblower (new paragraph
38D(a)(ii)).
.82 Importantly, the whistleblower could be protected from liability for
past wrongdoings, as new subsection 38B(4) provides that the information
disclosed cannot be used in evidence against the person in a criminal
proceedings or proceedings for the imposition of a penalty (see paragraph
1.85). This encourages persons to make full and frank disclosures, so the
company or APRA can obtain the necessary information to perform their
functions and avoid prudential risks.
27
Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
.83 The application of Subdivision A of Division 4 relies on the disclosure
being made in good faith. As such the `good faith' requirement also sets
the threshold for obtaining `use immunity' under new subsection 38B(4).
This is considered appropriate given the need to discourage malicious or
unfounded disclosures being made and ensure the integrity of these
provisions. Where a person has a malicious or secondary purpose in
making a disclosure, or makes vexatious disclosures, it is considered that
the good faith requirement would not be met.
Self incrimination and use immunity
.84 Subdivision B of Division 4 provides a new self incrimination and use
immunity provision. Subsection 38F(1) provides that self incrimination is
not available in relation to providing information to APRA. This applies to
provisions of the Insurance Act or FSCODA that require a person to
provide information to APRA. It is considered that APRA's interest in
receiving information that would assist to maintain the integrity of the
prudential regulation framework outweighs, in this context, the privilege
against self incrimination. However if an individual provides information
to APRA in compliance with a requirement of this Act or FSCODA, the
individual will enjoy `use immunity' in relation to the information
provided (new subsection 38F(2)).
Life Insurance Act (Items 108, 109, 114, 115)
Protection for whistleblowers
.85 Item 115 inserts new Subdivisions A and B of Division 5
(Protections in relation to information).
.86 New section 156A defines the disclosures that will qualify for
whistleblower protection under Subdivision A. Disclosures can be made to
APRA or a prescribed person under new paragraph 156A(2)(a). These
persons include an actuary, auditor or audit team of the life company, a
director or senior manager of the life company, or a person authorised by
the life company to receive such disclosures.
.87 A disclosure of information to APRA or to prescribed persons will be
protected if the conditions outlined in new section 156A are met. This
provision applies to an officer or employee of a life company, a contractor
of the life company, and an employee of the contractor (subsection
156A(1)). The term `officer' has the same meaning as in the Corporations
Act (subsection 156A(4)). This ensures consistency between the
Corporations Act and the prudential Acts.
.88 The disclosure will be subject to the protections in sections 156B to
156F if the information relates to misconduct or an improper state of
General outline and financial impact
affairs and circumstances in the life company, and the person believes the
information may assist APRA or the prescribed persons perform their
functions or duties in relation to the life company (new paragraph
156A(2)(c)), and discloses the information in good faith. The protection
extends to disclosures regarding suspected breaches of the Life Act and
FSCODA.
.89 If a person makes a vexatious or malicious disclosure, it would not be
made in good faith and so would not be protected (see also paragraph
1.105) A person who knowingly provides false or misleading information
to APRA may be guilty of an offence, pursuant to Division 137 of the
Criminal Code.
.90 Before disclosing the information, the person must provide their name
and the disclosure therefore cannot be made anonymously (new paragraph
156A(2)(b)).
.91 Information disclosed under new section 156A attracts the application
of confidentiality requirements in new section 156E. It should be noted
that any protected information provided to APRA will attract the
application of the secrecy requirements contained in existing section 56 of
the APRA Act.
.92 A whistleblower who makes a disclosure in good faith is protected
against civil or criminal liability for making the disclosure, enforcement of
contractual remedies, liability for defamation, and termination of contract
on the basis of the disclosure (new section 156B). Where detriment has
occurred, it would be open for a Court to order a suitable remedy,
including a remedy under new subsection 156B(3).
.93 New subsections 156C(1) and (2) prohibit any actual or threatened
detriment being levelled against a person because of their disclosure. The
types of detriment contemplated include the termination of employment, a
reduction in a person's terms and conditions of employment, demotion, or
unfair or unequal treatment in the workplace. A person commits an offence
if they `engage in conduct', which is defined as to do an act, or omit to do
an act.
.94 The offences under new subsections 156C(1) and (2) carry a penalty
of up to 25 penalty units or 6 months imprisonment, or both, which is
consistent with the penalty scale under equivalent provisions of the
Corporations Act.
.95 Where damage is suffered by the whistleblower as a result of a
contravention of subsections 156C(1) or (2), compensation may be
available under new section 156D. A person may also be liable to pay
compensation if they contravene subsections 156C(1) or (2) because of the
29
Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
application of Part 2.4 of the Criminal Code, which extends the offence to
attempt, incitement or conspiracy to victimise the whistleblower (new
paragraph 156D(a)(ii)).
.96 Importantly, the whistleblower could be protected from liability for
past wrongdoings, as new subsection 156B(4) provides that the
information disclosed cannot be used in evidence against the person in a
criminal proceedings or proceedings for the imposition of a penalty. This
encourages persons to make full and frank disclosures, so the company or
APRA can obtain the necessary information to perform their functions and
respond to prudential risks.
.97 The application of Subdivision A relies on the disclosure being made
in good faith. As such, the `good faith' requirement also sets the threshold
for obtaining use immunity. This is considered appropriate given the need
to discourage malicious or unfounded disclosures being made and ensure
the integrity of these provisions . Where a person has a malicious or
secondary purpose in making a disclosure, it is considered that the good
faith requirement would not be met.
Self incrimination and use immunity
.98 Item 114 repeals section 148 of Life Insurance Act. The provision that
a person cannot refuse to provide information under the Life Act on the
basis of the privilege against self incrimination, and the subsequent `use
immunity' in relation to the information, is provided in new section 156F
(item 115).
.99 Item 115 inserts new Subdivision B of Division 5 (Self
incrimination). New subsection 156F(1) provides that self incrimination is
not available in relation to providing information to APRA under this Act.
This applies to all provisions under the Life Act and FSCODA that require
a person to provide information to APRA. It is considered that the APRA's
interest in receiving information that would assist to maintain the integrity
of the prudential regulation framework outweighs, in this context, the
privilege against self incrimination. However if an individual provides
information to APRA under a requirement of this Act or FSCODA, the
individual will enjoy `use immunity' in relation to the information
provided (new subsection 156F(2)).
.100 It should be noted that current section 247 also provides `use
immunity' for persons who are required to disclose information or produce
records under Life Act, which protects a broader range of disclosures than
the protection for `information' under new section 156F.
General outline and financial impact
Related Amendments
.101 Items 108 and 109 insert sections 88A and 99A, to provide a
consistent framework across the prudential Acts enabling auditors and
actuaries to provide relevant information to APRA, which would assist in
maintaining the integrity of the prudential regulation framework.
.102 Subsections 88A(1) and 98A(1) provide that auditors and actuaries
of a life company may provide information to APRA, if the auditor or
actuary considers that doing so would assist APRA to perform its
functions under the Life Act or FSCODA. Subsections 88A(2) and 98A(2)
provide that auditor and actuaries who provide information in good faith is
protected from civil liability for giving the information. It should be noted
that the auditor and actuary would also enjoy use immunity in relation to
the information, pursuant to the new section 156F.
SIS Act (Items 145, 146, 148, 154)
Protection for whistleblowers
.103 Item 154 inserts new Divisions 1 and 2 of Part 29A (Protection in
relation to information).
.104 New section 336A defines the disclosures that will qualify for
whistleblower protection under Division 1. Disclosures can be made to the
Regulator or to persons prescribed under paragraph 336A(2)(a). These
persons are the auditor or actuary of the superannuation entity, the trustee
or trustees of the superannuation entity, or a person authorised by the
trustees to receive such disclosures.
.105 A disclosure of information to the Regulator or the prescribed
persons will be protected if the conditions under new section 336A are
met. This provision applies to an individual trustee, an officer or employee
of a body corporate trustee, custodian or investment manager, a contractor
or an employee of the contractor (new subsection 336A(1)). The term
`officer' has the same meaning as under the Corporations Act (new
subsection 336A(3)). This ensures consistency between the Corporations
Act and the prudential Acts.
.106 The disclosure will be subject to the protections under sections 336B
to 336F if the information concerns misconduct or an improper state of
affairs or circumstances in relation to the entity or trustees, and the person
believes that the information may assist the Regulator or the prescribed
persons perform their functions in relation to the superannuation entity or
the trustee (new paragraph 336A(2)(c)), and makes the disclosure in good
faith (new paragraph 336A(2)(d)). The protection extends to disclosures
31
Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
about suspected breaches of the SIS Act, the Superannuation Industry
(Supervision) Regulations 1994 (SIS Regulations) or FSCODA.
.107 If a person makes a vexatious disclosure, it would not be made in
good faith and so would not be protected (see also paragraph 1.222).
Furthermore, a person who knowingly provides false or misleading
information to the Regulator may be guilty of an offence, pursuant to
Division 137 of the Criminal Code.
.108 Before disclosing the information, the person must provide their
name and the disclosure cannot therefore be made anonymously (proposed
paragraph 336A(2)(b)).
.109 Information disclosed under new section 336A attracts the
confidentiality requirements in new section 336E. It should also be noted
that any protected information provided to APRA will attract the
application of the secrecy requirements contained in existing section 56 of
the APRA Act.
.110 A whistleblower who makes a disclosure in good faith is protected
against civil and criminal liability for making the disclosure, enforcement
of contractual remedies, liability for defamation, and termination of
contract on the basis of the disclosure (new section 336B). Where
detriment has occurred, it would be open for a Court to order a suitable
remedy, including a remedy under the new subsection 336B(3).
.111 New subsections 336C(1) and (2) prohibit any actual or threatened
detriment being levelled against a person because of their disclosure. The
type of detriment contemplated include the termination of employment, a
reduction in a person's terms and conditions of employment, demotion, or
unfair or unequal treatment in the workplace. A person commits an offence
under this section if they `engage in conduct', which is defined as to do an
act, or omit to do an act.
.112 The offences under subsection 336C(1) and (2) carry a penalty of up
to 25 penalty units or 6 months imprisonment, or both. Also, where
damage is suffered by the whistleblower as a result of the contravention,
compensation may be available under proposed section 336D. A person
may also be liable to pay compensation if they contravene subsections
336C(1) or (2) because of the application of Part 2.4 of the Criminal Code,
which extends the offence to attempt, incitement or conspiracy to victimise
the whistleblower (new paragraph 336D(a)(ii)).
.113 Importantly, a whistleblower could be protected from liability for
past wrongdoings, as new subsection 336B(4) provides that the
information disclosed cannot be used in evidence against the individual in
a criminal proceedings or proceedings for the imposition of a penalty. This
General outline and financial impact
encourages whistleblowers to make full and frank disclosures, so the
trustees, the superannuation entity or the Regulator can obtain the
necessary information to perform its functions and avoid prudential risks.
.114 The application of Part 29A relies on the disclosure being made in
good faith. As such the `good faith' requirement also sets the threshold for
obtaining `use immunity' under subsection 336B(4). This is considered
appropriate given the need to discourage malicious or unfounded
disclosures being made and ensure the integrity of these provisions of the
Bill. Where a person has a malicious or secondary purpose in making a
disclosure, it is considered that the good faith requirement would not be
met.
.115 It should be noted that existing section 130A provides that an actuary
or auditor of a superannuation entity may provide information to the
Regulator, if the person believes that the information may assist the
Regulator in performing its functions.
Self incrimination and use immunity
.116 Item 154 inserts Division 2 of Part 29A, which provides a self
incrimination and use immunity provision. New subsection 336F(1)
provides that self incrimination is not available in relation to a requirement
to provide information to APRA under the SIS Act or FSCODA. It is
considered that APRA's interest in receiving information that would assist
to maintain the integrity of the prudential regulation framework outweighs,
in this context, the privilege against self incrimination. However if an
individual provides information to APRA in compliance with a
requirement under this Act or FSCODA, the individual will enjoy `use
immunity' in relation to the information provided (new subsection
336F(2)).
.117 New subsection 336F(3) provides that section 336F does not apply to
sections 129 or 130 of the SIS Act. This is because self-incrimination in
respect of sections 129 and 130 is dealt with by section 130B. A note is
included at the end of section 336F to refer to section 130B in relation to
requirements under sections 129 and 130.
.118 New subsection 336F(3) also provides that section 336F does not
apply to Part 25 of the SIS Act, as Part 25 contains a self contained regime
setting out APRA's monitoring and investigation powers. Current section
287 under Part 25 provides limited use immunity for information provided
under a requirement of Part 25. A note is included at the end of section
336F to refer to section 287 in relation to requirements under sections Part
25.
33
Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
.119 It should be noted that Part 16 requires auditors and actuaries to
provide information to the Regulator, rather than to APRA. New section
336F applies to information provided to the Regulator under Part 16.
Consequential Amendments
.120 Items 144, 145, 147 and 148 are consequential amendments to item
155, which inserts new section 336F providing `use immunity' for
information disclosed to APRA under the SIS Act or FSCODA. As a
result, existing sections providing use immunity for various information
disclosed under the SIS Act is no longer necessary.
.121 Item 144 repeals section 29JE, which provides `use immunity' for
information provided under sections 29CA, 29FA or 29HD.
.122 Item 145 repeals 29QB, which provides `use immunity' for
information provided under sections 29LA or 29PE.
.123 Item 148 repeals subsection 130A(2), which provides `use
immunity' for auditors or actuaries who provide information under
subsection 130A(1).
.124 Item 147 omits the heading (1) under section 130A. As item 148
repeals subsection 130A(2), it is no longer necessary to have the heading
(1).
Ensuring Flexibility through exemption powers and clarifying review and
scrutiny of those powers
.125 Under section 11 of the Banking Act and section 7 of the Insurance
Act, APRA has the ability to exempt a person or class of person from the
respective Acts, or from most sections of these Acts. APRA has more
limited powers to exempt persons or classes of persons from specific
sections of the Life Act (section 125A and 125B) and from the SIS Act
(Part 29).
.126 These amendments provide APRA with the power to exempt a life
insurer (or friendly society) from provisions of the Life Act. It also
expands APRA's exemption powers under the SIS Act. However, it is not
appropriate that APRA have the ability to make exemptions to every
particular section of the prudential Acts. There are provisions of the
Banking and Insurance Acts that are considered to be fundamental and
should be complied with by all entities. Hence, APRA's powers in respect
of exempting persons from particular sections will be reduced for the
Banking and Insurance Act.
General outline and financial impact
.127 Amendments are also made to clarify in the prudential Acts that
where APRA exempts a particular person, the decision would not be a
legislative instrument for the purposes of the Legislative Instruments Act
2003 (LIA).
.128 These amendments to the prudential Acts will commence from the
date of Royal Assent.
Banking Act (Items 10 -- 14)
.129 Item 11 repeals subsections 11(1) and (2) of the Banking Act and
replaces them with new subsections 11(1), 11(2) and 11(2A). In order to
harmonise the language across the prudential Acts, amendments are made
so that APRA makes determinations rather than orders.. New subsection
11(1) removes APRA's power to grant exemptions for provisions of the
Banking Act that are considered to be fundamental and should be complied
with by all entities. APRA's exemption powers will apply to:
· Part II Division 1, Authority to carry on banking business;
(other than 11A, 11B and 11C)
· Part II Division 1AA, Authority to be a NOHC of an ADI
(other than 11A, 11B and 11C);
· Part II Division 1A, Prudential supervision and monitoring
of ADIs and authorised NOHCs (other than 11A, 11B and
11C);
· Section 66, Restriction on use of certain words and
expressions;
· Section 66A, Restriction on use of expressions ADIs;
· Section 67, Restriction on establishment or maintenance of
representative offices of overseas banks; and
· Section 69, Unclaimed moneys.
.130 New subsection 11(2) ensures that a determination under this section
may apply to a particular person, or to the persons included in a class of
persons; specifies the period the determination is in force and may be
subject to specified conditions. Subsection 11(2A) requires that, where the
determination applies to a particular person, APRA give the person written
notice of the determination.
.131 Item 13 repeals subsection 11(4), which allows APRA to vary or
revoke an order by publishing it in the Gazette, and replaces it with new
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
subsections 11(4), 11(5) and 11(6). New subsection 11(4) allows APRA to
vary or revoke a determination made under Section 11 in writing.
Paragraphs 11(5)(a) and 11(5)(b) clarifies that, where APRA exempts a
particular person under Section 11 or the variation is varied or revoked, it
is not a legislative instrument for the purposes of section 5 LIA, because it
is an administrative decision that applies the law to an entity and not to a
class of entities. It does not create an exemption from the requirements of
the LIA.
.132 Items 12 and 14 make consequential amendments to paragraphs
11(3)(b) and 11AA(5)(c), by omitting references to `an order' and
replacing them with references to `a determination'.
.133 Item 10 makes consequential amendments. It replaces reference to
`an order in force under section 11' with reference to `a determination in
force under section 11' in paragraphs 7(1)(c), 8(1)(d), 9(6)(c) and 10(3)(c).
Insurance Act (Items 53 55, 65)
.134 Item 53 repeals subsection 7(1), which gives APRA the ability to
exempt a person or class of persons from the Act, or from most sections of
the Act, and replaces it with new subsections 7(1). This new subsection
removes APRA's power to grant exemptions for provisions of the
Insurance Act that are considered to be fundamental and should be
complied with by all entities. APRA's exemption powers will apply to:
· Part III Division 1, Need to be authorised;
· Part III Division 2, Authorisation to carry on insurance
business;
· Part III Division 3, Revocation of an authorisation;
· Part III Division 4, Authorisation to be a NOHC of a general
insurer;
· Part III Division 5, Directors, senior managers and other
representatives of general insurers and authorised NOHCs;
· Part III Division 6, Other matters;
· Section 35, Obligation to comply with the prudential
standard;
· Section 39, Requirement for general insurers to have an
auditor and actuary;
General outline and financial impact
· Section 41, Compliance with prudential standards;
· Part IV Division 3, Actuarial investigation required by
APRA;
· Part IV Division 4, Role of auditor and actuary of a general
insurer;
· Section 49Q, Keeping of accounting records;
· Section 117, Address for service in Australia;
· Section 118, Agent in Australia;
· Section 120, Saving if section 93 ceases to have effect; and
· Section 121, Service of documents and notices
.135 Items 54 and 55 repeal subsections 7(2), 7(3) and 7(4), and inserts
new subsections 7(2A), 7(3), 7(4) and 7(5). These two items set out
requirements for making, varying or revoking determinations that apply to
an individual or a class of persons. Item 55 also subjects certain
determinations to the requirements of section 12 of the LIA instead of
section 48 of the Acts Interpretation Act 1901 (AIA).
.136 Under the LIA, legislative instruments are required to be published
on the Federal Register of Legislative Instruments (FRLI), which is a
designated public register of information. Registration on FRLI replaces
the requirement under the AIA for instruments to be published in the
Gazette.
Determinations that apply to a class of persons are legislative instruments
subject to the requirements of LIA (new subsection 7(5)). Item 55
provides that APRA may make these determinations in writing (new
subsection 7(2A)). This removes the requirement for Gazettal, and
consistent with the requirements of the LIA these determinations must be
registered on FRLI. Item 55 also inserts new subsection 7(4), which
provides that determinations that apply to an individual are administrative
decisions, not legislative instruments, because they apply the law to a
person and not to a class of persons. It does not create an exemption from
the requirements of the LIA. These determinations do not need to be
registered on FRLI, however item 54 provides that APRA must give the
person a written notice of the determination (new subsection 7(2A)).
.137 Item 65 makes a consequential amendment to section 49A(2), by
omitting reference to APRA's power to make a determination concerning
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
auditors' and actuaries' duty to give further information. APRA no longer
has power to make determinations on this subject.
.138 Item 65A repeals section 49D of Insurance Act dealing with
self-incrimination. The general self-incrimination provisions, contained in
new section 38F of Insurance Act, inserted by item 62 already provide
protection from self incrimination. Therefore, section 49D is repealed to
ensure that the protection from self-incrimination is not duplicated.
Life Act (Items 67, 70, 110, 121, 122, 125)
.139 Item 110 repeals Division 8 which provides APRA's power to make
exemption orders. Item 67 inserts new section 7A so that APRA has the
ability to exempt a person or class of person specified provisions of the
Life Act. The specified provisions are limited to the following sections:
· Part 2, Explanation of key concepts;
· Part 2A, Special provisions relating to life companies that
are friendly societies;
· Part 2B, Special provisions relating to Australian branches
of foreign life insurance companies;
· Part 3, Registration of life companies;
· Part 4 Division 1, Statutory funds of life companies --
General requirements;
· Part 4 Division 3, Restructure and termination of statutory
funds;
· Part 4 Division 4, Additional requirements for transfer of
policies between statutory funds by endorsement;
· Part 4 Division 5, Allocation of profits and losses and
capital payments;
· Part 4 Division 6, Distribution of retained profits and
shareholders' capital;
· Section 75, Financial records -- Australian and
Australian/overseas funds;
· Section 76, Financial records -- overseas funds;
General outline and financial impact
· Section 78, Treatment of income and outgoings relating to
mixed business;
· Section 79, Treatment of income or outgoings relating to
2 or more categories of business etc;
· Section 80, Basis of apportionment; and
· Section 81, Treatment of appreciation and depreciation of
assets.
.140 Item 67 also inserts section 7B which makes it an offence for a
person to breach a condition of the determination. The penalty is
60 penalty units and the offence is a strict liability offence. Offences that
are strict liability are those that contain basic, objective requirements to the
operation of the life company and do not require proof of a mental element
(section 6.1, Criminal Code).
.141 Items 70, 121, 122 and 125 make consequential amendments as a
result of repealing sections 125A and 125B and replacing it with section
7A.
SIS Act (Items 138 -- 142, 150 -- 153)
.142 Item 150 repeals section 327 of the SIS Act which provides a
definition of modifiable provision and replaces it with a new definition
which expands the previous definition to make the following sections
modifiable provisions under section 327 of the SIS Act:
· Part 2A, Licensing trustees;
· Part 2B, Registration of entities;
· Part 3, Operating Standards;
· Section 35C, Audit of accounts and statements (except so far
as it applies in relation to SMSFs);
· Section 36, Trustee to give copy of audit report to APRA;
· Section 54, Prerequisites to variation of repayment period
· Subsections 63(7B), (7C) and 7(D), Certain regulated
superannuation funds not to accept employer contributions
in certain circumstances;
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
· A provision of Part 19 (public offer entities: provisions
relating to superannuation interests) or Part 24 (Facility to
pay benefits to eligible rollover funds); and
· A provision of any regulations made for the purposes of a
provision referred to above.
.143 Item 151 repeals section 328 which outlines APRA's powers of
exemption with respect to modifiable provisions and inserts a new section
328. New section 328(1) allows APRA to in writing, exempt from
compliance with any or all of the modifiable provisions a particular person
or class of persons or a particular group of individual trustees or a class of
groups of individual trustees. Subsections 328(2) and (3) clarify that when
the declaration applies to a particular person or group it is not a legislative
instrument for the purposes of section 5 LIA. This is because it is an
administrative decision that applies the law to an individual and not to a
class of persons. This provision does not create an exemption from the
requirements of the LIA.
.144 Item 152 repeals section 332 which outline's APRA's modification
powers with respect to modification provisions and replaces it with a new
section 332. New subsection 332(1) provides that APRA may declare in
writing that a modifiable provision is to have effect as if it was changed for
a particular person or class or persons or a particular group of trustees or a
class of groups of individual trustees. Subsections 332(2) and (3) clarify
that a declaration of a modification provision is not a legislative instrument
for the purposes of section 5 LIA where the declaration of a modification
provision in respect of a particular person or group, because it is an
administrative decision that applies the law to an individual and not to a
class of persons. It does not create an exemption from the requirements of
the LIA.
.145 Item 153 repeals sections 335 and 336 and replaces them with new
sections 335 and 336. New section 335 allows APRA to vary or revoke an
exemption or declaration made under Part 29 in writing. New section 336
requires APRA to notify a person or group of individual trustees of an
exemption or modification or variation or exemption of the modification
under Part 1 that affects them in writing.
.146 Items 138 to 142 make consequential amendments to the definition
of reviewable decision as a result of changes to sections 327, 328 and 332.
General outline and financial impact
Discretionary decisions under prudential standards and scrutiny of
variations to prudential standards
.147 Prudential standards assist to improve the clarity and certainty of
prudential regulation by providing additional detail on prudential matters
set out in the enabling legislation. Standards complement and reinforce the
prudential requirements set out in the Banking Act, Insurance Act and Life
Act by specifying how the regulatory framework is intended to operate in
practice and APRA's expectations in overseeing that framework.
Standards enable key minimum requirements to be articulated at a level of
detail that would not be appropriate within principles-based, enabling
legislation.
.148 Standards introduce greater flexibility into the prudential framework
as they can be more readily adjusted over time to respond to developments
in both domestic and international conditions, industry best practice and
broader structural changes in the market. This enhances the effectiveness
of prudential regulation by ensuring that regulation remains relevant over
time.
.149 The Banking Act and Life Act currently provide APRA with limited
flexibility to exercise discretion under prudential standards. The
amendments to the Banking and Life Acts enhance flexibility by providing
APRA with a specific discretionary power, including discretion to
approve, impose, adjust or exclude specific prudential requirements in
relation to a particular ADI or NOHC, or life company. These amendments
also improve flexibility by providing APRA with a power under the
Insurance Act to make prudential standards for an individual entity.
Addressing these gaps in the regulatory framework ensure that entities are
not unnecessarily burdened by requirements which are not appropriate to
their situations.
.150 Amendments are also made to clarify that all variations or
modifications to prudential standards which affect a class of persons are
legislative instruments and are subject to the requirements of the LIA.
These amendments promote transparency and accountability, while
ensuring APRA has the flexibility to ensure that prudential standards cater
for particular circumstances.
.151 The amendments to the Banking Act, Insurance Act and Life Act
commence from date of Royal Assent.
Banking Act (Items 15 -- 19, 31 -- 34, 38 -- 43, 45 -- 49, 51 )
.152 Item 15 repeals subsection 11AF(2), and inserts a new subsection
11AF(2) to provide APRA with the discretion to approve, impose, adjust
or exclude specific prudential requirements in relation to one or more
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
ADIs or authorised NOHCs. Section 11AF provides the power for APRA
to make prudential standards for ADIs and authorised NOHCs.
.153 Item 16 inserts new subsection 11AF(3A) into section 11AF so that
a standard to be complied by one or more specified ADIs or authorised
NOHCs or instrument varying or revoking such a standard has effect from
the day on which the standard, variation or revocation is made (despite
section 12 of the LIA) or if the standard, variation or revocation specifies a
later day, from the later day.
.154 Item 17 repeals subsections 11AF(4) to 11AF(6A). The old
subsections (4) and (5) require APRA to publish in the gazette and daily
newspaper, a standard or a variation to the standard or revocation of the
standard. The old subsection 11AF(6) requires APRA to have copies of the
current text of the standards available for inspection and purchase. The old
subsection 11AF(6A) allows APRA not to publish or include for
inspection commercially sensitive information in a standard or variation of
a standard. These requirements are obsolete, as they relate to legislative
instruments which are listed on the FRLI. Consequently it is no longer
necessary to publish the standards or have the text available for inspection
or purchase.
.155 Item 19 inserts new subsections 11AF(7A) and (7B) into section
11AF. Subsection (7A) provides that APRA's decisions in relation to a
standard, variation or revocation of the standard that applies to one or
more specified ADIs or authorised NOHCs, are not legislative instruments
within the meaning of section 5 of the LIA. This is because these are
administrative decisions that apply the law to a person not a class of
persons, and do not create an exemption from the requirements of the LIA.
These decisions are subject to merits review. Subsection (7B) provides that
all other decisions under section 11AF are legislative instruments, subject
to the requirements of the LIA.
.156 Item 18 makes consequential amendments to subsection 11AF(7) by
removing references to `subsections (4), (4A), (5), (5A) or (6)' and
replacing them with references to `subsections (4A) and (5A)' as
subsections (4), (5) and (6) have been repealed.
.157 Items 20 and 21 make consequential amendments. Item 21 repeals
paragraph 11CG(1)(c), because APRA does not have the power to make
orders, but has power to make determinations. Item 20 is a drafting
amendment. It places a full stop after paragraph 11CG(1)(b), because
paragraph (c) has been repealed.
.158 Items 22 and 23 make consequential amendments. Item 23 repeals
paragraph 11CG(2)(c), because APRA does not have the power to make
General outline and financial impact
orders, but has power to make determinations. Item 22 is a drafting
amendment. It places a full stop after paragraph 11CG(2)(b), because
paragraph (c) has been repealed.
.159 Items 24 and 25 make consequential amendments. Item 25 repeals
paragraph 11E(2)(c), because APRA does not have the power to make
orders, but has power to make determinations. Item 24 is a drafting
amendment. It places a full stop after paragraph 11E(2)(b), because
paragraph (c) has been repealed.
.160 Items 26 and 27 make consequential amendments. Item 27 repeals
paragraph 13(3)(c), because APRA does not have the power to make
orders, but has power to make determinations. Item 26 is a drafting
amendment. It places a full stop after paragraph 13(3)(b), because
paragraph (c) has been repealed.
.161 Items 28 and 29 make consequential amendments. Item 29 repeals
paragraph 13A(4)(c), because APRA does not have the power to make
orders, but has power to make determinations. Item 28 is a drafting
amendment. It places a full stop after paragraph 13A(4)(b), because
paragraph (c) has been repealed.
.162 Items 31 and 32 make consequential amendments. Item 32 repeals
paragraph 14A(2A)(d), because APRA does not have the power to make
orders, but has power to make determinations. Item 31 is a drafting
amendment. It places a full stop after paragraph 14A(2A)(c), because
paragraph (d) has been repealed.
.163 Items 33 and 34 make consequential amendments. Item 34 repeals
paragraph 16B(1A)(c), because APRA does not have the power to make
orders, but has power to make determinations. Item 33 is a drafting
amendment. It places a full stop after paragraph 16B(1A)(b), because
paragraph (c) has been repealed.
.164 Items 38 and 39 make consequential amendments. Item 39 repeals
paragraph 33(4)(c), because APRA does not have the power to make
orders, but has power to make determinations. Item 38 is a drafting
amendment. It places a full stop after subparagraph 33(4)(b)(ii), because
paragraph (c) has been repealed.
.165 Items 40 and 41 make consequential amendments. Item 41 repeals
paragraph 36(1A)(c), because APRA does not have the power to make
orders, but has power to make determinations. Item 40 is a drafting
amendment. It places a full stop after paragraph 36(1A)(b), because
paragraph (c) has been repealed.
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
.166 Items 42 and 43 make consequential amendments. Item 43 repeals
paragraph 36(2A)(c), because APRA does not have the power to make
orders, but has power to make determinations. Item 42 is a drafting
amendment. It places a full stop after paragraph 36(2A)(b), because
paragraph (c) has been repealed.
.167 Item 43 and 47 repeal paragraphs 41(2)(b), 42(1A)(b), 42(3)(b),
45(1A)(b), 45(4)(b) and 46(2)(b), and subsection 61(4), which contain
references to orders made under section 11.
.168 Items 45 and 46 make consequential amendments. Item 46 repeals
paragraph 61(3)(c), because APRA does not have the power to make
orders, but has power to make determinations. Item 45 is a drafting
amendment. It places a full stop after subparagraph 61(3)(b)(ii), because
paragraph (c) has been repealed.
.169 Items 48 and 49 make consequential amendments. Item 49 repeals
paragraph 62(1A)(c), because APRA does not have the power to make
orders, but has power to make determinations. Item 48 is a drafting
amendment. It places a full stop after paragraph 62(1A)(b), because
paragraph (c) has been repealed.
.170 Item 51 replaces references to an order under section 11 with
reference to a determination under section 11.
Insurance Act (Items 56 -- 60)
.171 Item 56 amends subsection 32(1), which establishes the categories of
entities for which APRA can make prudential standards, to add a new
category `one or more specified general insurers, authorised NOHCs or
subsidiaries of general insurers or authorised NOHCs'. This addresses a
gap in APRA's prudential standards-making powers. Item 57 corrects a
typographical error in paragraph 32(3D)(b).
.172 Item 58 repeals paragraph 32(3D)(c) which allows APRA to exercise
discretion to approve, impose, adjust or exclude specific prudential
requirements in relation to a class of general insurers, authorised NOHCs
or subsidiaries of general insurers or authorised NOHCs, because item 59
imposes additional scrutiny on the standards.
.173 Item 59 gives APRA a new power to make prudential standards that
apply to an individual entity which improves flexibility under the
Insurance Act. Item 59 also sets out different requirements applying to
prudential standards that apply to a single entity and prudential standards
that apply to a class of entities. This item repeals existing subsections
32(4), (4A) and (5) and replaces them with new subsections 32(4), (4A)
and (5). New subsection 32(4) allows APRA in writing to vary or revoke a
General outline and financial impact
standard, except if the standard relates to a prudential standard with an
in-house capital adequacy model as outlined in subsection 32(3A), as
capital adequacy requirements are fundamental to the prudential
framework and should be complied with by all entities. New subsection
32(4A) ensures that a standard, which relates to one or more specified
general insurers, authorised NOHCs or subsidiaries of general insurers, has
effect from the day on which the standard, variation or revocation is made
(despite section 12 of the LIA) or if the standard, variation or revocation
specifies a later day, from the later day.
.174 New subsection (5) ensures that APRAs decisions in relation to a
standard, variation or revocation of the standard where it applies to one or
more specified general insurers, authorised NOHCs or subsidiaries of
general insurers, are reviewable under Part VI.
.175 New subsection 32(5A) clarifies that a standard, variation or
revocation of the standard where it applies to one or more specified
general insurers, authorised NOHCs or subsidiaries of general insurers is
not a legislative instrument for the purposes of section 5 LIA. This is
because it is an administrative decision that applies the law to an entity and
not to a class of entities. This amendment does not create an exemption
from the requirements of the LIA.
.176 Item 60 makes a technical amendment to subsection 32(6). It omits
reference to section 48 of AIA and inserts a reference to section 5 of the
LIA. This subjects section 32 to the requirements of the LIA, such as
requiring determinations that are legislative instruments to be registered on
FRLI.
Life Act (Items 116 120, 126)
.177 Item 116 repeals the current subsection 230A(4) and inserts a new
subsection 230A(4) to allow APRA to make discretionary decisions under
its prudential standards, including discretions to approve, impose, adjust or
exclude specific prudential requirements in relation to one or more
specified life companies.
.178 Item 117 inserts new subsection 230A(5A) into section 230A so that
a standard, which applies to one or more specified companies has effect
from the day on which the standard, variation or revocation is made
(despite section 12 of the LIA) or if the standard, variation or revocation
specifies a later day, from the later day.
.179 Item 118 repeals subsections 230A(6), (8), (10) and (11). The old
subsections (6) and (8) require APRA to publish in the gazette and daily
newspaper, a standard or a variation to the standard or revocation of the
standard. The old subsection 230A(10) requires APRA to have copies of
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
the current text of the standards available for inspection and purchase. The
old subsection 230A(11) allows APRA not to publish or include for
inspection commercially sensitive information in a standard or variation of
a standard. As standards made under section 230A are legislative
instruments which are on the FRLI, which is a designated public register, it
is no longer necessary to publish the standards on the Gazette, or have the
text available for inspection or purchase.
.180 Item 120 inserts new subsections 230A(12A) and 230A(12B). These
two items set out requirements for making, varying or revoking
determinations that apply to an individual or a class of persons, and
subjects determinations that are legislative instruments to the requirements
of the LIA.
.181 Subsection 230A(12A) provides that a standard, variation or
revocation of the standard that applies to one or more specified life
companies is not a legislative instrument for the purposes of section 5 LIA.
These are administrative decisions that apply the law to an entity and not
to a class of entities. It does not create an exemption from the requirements
of the LIA. New subsection 230A(12B) provides that all other standards
are legislative instruments, and as such are required to be published on
FRLI, the public register of information.
.182 Item 119 makes consequential amendments to subsection 230A(12)
to remove references to subsections 230A(6), (8) and (10) which have
been repealed by item 118.
.183 Item 126 provides that a decision made under paragraph 230A(1)(c)
is subject to merits review under section 236.
Simplifying legislative requirements relating to consultation on
prudential standards in the Insurance Act (Items 61 and 66)
.184 Currently, APRA must comply with legislative requirements relating
to consultation under both section 33 of the Insurance Act (subsection
70(5) of the Insurance Act with respect to Lloyd's) and Part 3 of the LIA.
The requirements under each Act are essentially the same. Sections 33 and
70 were included in the Insurance Act prior to the enactment of the LIA.
However, these requirements are no longer necessary as the LIA provides
a universal regime for consultation on all Commonwealth legislative
instruments.
.185 Items 61 and 66 repeal section 33 and subsection 70(5) of the
Insurance Act. These amendments will not alter the obligation on APRA to
consult with industry in respect of prudential standards or Lloyd's in
respect of rules about its designated security trust funds.
General outline and financial impact
.186 These amendments commence on the date of Royal Assent.
Flexibility through court enforceable undertakings
.187 Court enforceable undertakings can provide a flexible enforcement
tool which allows entities to work cooperatively with APRA in developing
a mutually agreed solution to an enforcement issue. APRA can enforce
these undertakings through the courts in the event that such action
becomes necessary. This power allows the Board and senior management
of an entity to maintain full responsibility for decisions made by the entity
and to arrive at solutions which suit both the needs of the entity and
APRA.
.188 Currently, APRA only has the power to accept court enforceable
undertakings under the Insurance and SIS Acts. These amendments
provide the power for APRA to accept court enforceable undertakings
under the Banking and Life Acts. It is envisaged that entities will be able
to engage in discussion with APRA in relation to how these new powers
are used.
.189 To protect the integrity of the enforceable undertaking as an effective
enforcement tool, it is also important that APRA has the power to
investigate matters where it suspects that an enforceable undertaking is not
being honoured.
.190 These amendments commence from the date of Royal Assent.
Banking Act (Item 37)
.191 Item 37 inserts new section 18A, under Division 2C, into the
Banking Act to give APRA a power to accept court enforceable
undertakings. APRA may accept a written undertaking given by a person
(subsection 18A(1)) and the person may vary or withdraw that undertaking
with APRA's consent (subsection 18A(2)). Where APRA considers the
person has breached the undertaking, APRA may apply to the Federal
Court of Australia (subsection 18A(3)). If the Court is satisfied that the
person has breached any terms of the order it may make various orders it
considers appropriate including an order directing the person to comply
with the undertaking (subsection 18A(4)).
.192 Note that the current section 61 of the Banking Act allows APRA to
investigate prudential matters. This would include suspected breaches of
an enforceable undertaking.
Life Act (Items 111, 113)
.193 Item 111 inserts new section 133A into the Life Act to give APRA a
power to accept court enforceable undertakings. APRA may accept a
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
written undertaking given by a person (subsection 133A(1)) and the person
may vary or withdraw that undertaking with APRA's consent (subsection
133A(2)). Where APRA considers the person has breached the
undertaking, APRA may apply to the federal Court of Australia
(subsection 133A(3)). If the Court is satisfied that the person has breached
any terms of the order it may make various orders it considers appropriate
including an order directing the person to comply with the undertaking
(subsection 133A(4)).
.194 Item 113 insert a new paragraph 136(ca) to ensure that where a court
enforceable undertaking referred to in section 133A is breached by a
person that this may be one of the grounds on which a show cause notice
may be given to a life company.
Clarifying processes concerning the appointment of actuaries and
auditors
.195 These items clarify that the ultimate responsibility for the prudent
management of a regulated entity, including ensuring that auditors and
actuaries meet, on a continuing basis prescribed standards of fitness and
propriety, resides with the Board of the entity. Under these changes, the
Board is responsible for appointing actuaries and actuaries under the
prudential Acts. However, APRA can direct the entity to remove them if
APRA considers that the person does not meet the standards under
legislation. These items are modelled on provisions under the Banking
Act, and will introduce a consistent framework for appointments under the
prudential Acts.
.196 These amendments commence on 1 January 2008.
Insurance Act (items 63, 64, 180 -- 184, 188)
Amendments concerning auditors and actuaries
.197 Item 180 places responsibility on the Board to appoint the auditor or
actuary. This item repeals subsection 39(3) which requires APRA to
approve the auditor or actuary, and substitutes a new subsection 39(3)
which provides that the Board of the general insurer or authorised NOHC
is responsible for these appointments. The Board of the general insurer or
authorised NOHC can appoint a person as the auditor or actuary if it is
satisfied that the person meets the eligibility criteria set out in the
prudential standards, and the person is not disqualified under section 44
(new paragraph 39(3)).
.198 Where the Board of the general insurer or authorised NOHC appoints
a person who does not meet the criteria, the entity will breach its
obligations under the new subsection 39(3).
General outline and financial impact
.199 Item 184 provides that the Board of the regulated entity is required
to remove the auditor or actuary if the person does not meet the criteria set
out in new subsection 43(2). The grounds for removal are the failure to
perform its functions under the Insurance Act or FSCODA; or failure to
meet `fit and proper' standards or eligibility criteria under prudential
standards.
.200 It should be noted that under new section 39(3), the Board is taken
not to have appointed an auditor or actuary if there is a current
determination disqualifying the person from holding such an appointment.
In these cases, the obligation to remove the person under new subsection
43(2) does not arise but the Board will not have fulfilled its obligation to
appoint the auditor or actuary. Moreover, under item 188 APRA can direct
the Board to remove the auditor or actuary if the person is disqualified
under section 44.
.201 Item 188 provides that APRA will have power under new section
49R to direct the Board of the general insurer or authorised NOHC to
remove the auditor or actuary (new subsections 49R(1) and (2)). APRA
can give this direction if APRA is satisfied the person is disqualified under
section 44, or does not meet the `fit and proper' standards (new paragraph
49R(3)).
.202 Subsections 49R(3) to (12) set out the process to be followed when
APRA is giving a direction under this section. These subsections provide
certainty to the entities and to APRA as to the procedural requirements
relating to the issue of a direction (new subsections 49R(3) to (8)). In
particular, new subsection 49R(7) provides that APRA must allow the
individual and entity at least seven days to comply with such a direction.
Subsections 49R(9) and (10) also clarify that this section does not limit the
entity's powers to terminate the person's appointment.
.203 If APRA gives a direction on the grounds that the person does not
meet the `fit and proper' standards, this direction is subject to merits
review under new subsection 49R(11) because it is a direction affecting an
individual. A direction given on the grounds that the person is disqualified
under section 44 is not a merits reviewable decision. Since the original
decision to disqualify a person under section 44 is already subject to merits
review, it is not appropriate for a direction based on such a disqualification
to be also subject to merits review.
.204 New subsection 49R(12) clarifies that APRA's direction under this
section is not a legislative instrument for the purposes of section 5 of the
LIA, because it is a decision that applies the law to an individual and not to
a class of persons. This provision does not create an exemption from the
requirements of the LIA.
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
.205 If an entity does not comply with APRA's direction within seven
days, the entity commits an offence under the new subsection 49R(13),
which is punishable by 60 penalty units. This is a strict liability offence
(new subsection 49R(14)) because it is a basic, objective requirement of
the prudential framework and must be complied with by all entities. Under
section 6.1 of the Criminal Code, there is no need to prove a fault element.
The defence of mistake of fact is available under section 9.2 of the
Criminal Code.
Consequential Amendments
.206 Items 63 and 64 are consequential amendments. Item 64 repeals
section 47, which enables an insurance company to seek an exemption
from the requirement to have an actuary. This is more appropriately
addressed through the new principles-based regime. Item 63 repeals the
note to subsection 39(1), which notes insurance companies may seek an
exemption from the requirement to have an actuary.
.207 Item 181 is a consequential amendment to item 180. It repeals
sections 40 and 42, which provide that APRA can approve, and revoke the
approval, of the auditors and actuaries, as item 180 provides that the
general insurer has responsibility to ensure the auditors and actuaries are
eligible persons.
.208 Item 182 is a drafting amendment and is a consequential amendment
to item 184. This item inserts the numbering (1), because item 184 inserts
a new subsection 43(2).
.209 Item 183 is a consequential amendment to item 180, and repeals
paragraph 43(b) as APRA will no longer have the power to approve the
appointment of a general insurer's auditor or actuary.
Life Insurance Act (Items 189, 206, 207, 207A, 211, 212, 212A, 214,
226, 228, 233)
Amendments concerning auditors
.210 Item 206 repeals section 83 of the Life Act and substitutes a new
section 83. The new section 83 clarifies the obligation for the life company
to appoint an auditor (new subsection 83(1)), but removes the details
prescriptions concerning an auditor's duties in relation to audit reports.
New subsections 83(2) requires the auditor to perform its functions set out
under prudential standards as well as reporting standards made under
FSCODA. This allows APRA to set flexible standards concerning
auditors' functions, and APRA may grant exemptions from prudential
standards under new subsection 230A(4) (item 116). New subsection
General outline and financial impact
83(3) requires the life company to make arrangements necessary to enable
the auditor to perform those functions.
.211 Item 207 repeals sections 84, 85 and 86, and substitutes new sections
84, 85 and 86.
.212 Under the amendments, a life company is not required to nominate a
person as the company's auditor (current section 84), APRA does not
approve an auditor (current section 85) and does not have the power to
revoke an approval (current section 86). It should be noted that APRA
retains the power to direct a life company to remove its auditor under
paragraph 230B(2)(e).
.213 New section 84 provides the life company has the obligation to
ensure that the company's auditor meets the criteria under prudential
standards, and is not declared to be ineligible for appointment under the
new section 86 of the Life Act (new paragraphs 84(a) and (b)). This allows
APRA to set flexible standards concerning the auditors' functions, and
APRA may grant exemptions from prudential standards under new
subsection 230A(4) (item 116).
.214 Where the Board of a life company appoints a person as the auditor
who does not meet the criteria under subsections 84(1) or (2), the life
company will breach its obligations. This would trigger the company's
obligation to remove the person under new section 85. It should be noted
that life companies retain the obligation under section 87 to notify APRA
of a person's appointment as the company's auditor.
.215 New subsection 85(1) provides that the Board of the life company
must remove the auditor if the person does not meet the eligibility criteria
in prudential standards, fails to perform its functions and duties under Life
Act, or there is a declaration under the new section 86 that the person is
not eligible.
.216 This ensures that the Board, rather than APRA, has primary
responsibility for ensuring the company's auditor has fulfilled its duties
and functions. It should be noted that if a person does not meet the criteria
under subsection 85(1), it may trigger APRA's power to direct a company
to remove the person under section 230B.
.217 New subsection 85(2) provides a procedure for the life company to
remove the auditor, in addition to the company's internal procedures and
triggers for removing the auditor.
.218 New section 86 provides that APRA may declare a person ineligible
for appointment as the auditor of any life company. A declaration under
this section applies to all life companies registered under the Life Act.
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
New subsection 86(4) clarifies that such declarations are not legislative
instruments within the meaning of section 5 of the LIA, it does not create
an exemption from the requirements of the LIA. These declarations are
subject to merits review under section 236 of the Life Act (see item 228).
.219 Item 207A omits from paragraphs 87(1)(c) of the Life Act the
reference to regulations and inserts in its place the reference to prudential
standards.
.220 Section 87 of the Life Act requires a life company to notify APRA
when it appoints an auditor for the company. Currently, additional matters
to be included in the notice may be prescribed under the Life Regulations
1995. The amendments ensure that these matters can be dealt with in
prudential standards. This approach is consistent with the principles based
approach which provides that specific requirements relating to auditors be
set out in prudential standards.
Amendments concerning actuaries
.221 Item 211 omits subsections 93(4), (5) and (6), and substitutes new
subsection 93(4). This amendment removes APRA's power to approve a
person's appointment as the company's actuary. Instead, the life company
is required to be reasonably satisfied that the actuary meets the eligibility
criteria under prudential standards, and there is no declaration under new
section 94A that the person is not eligible. The new provision allows
APRA to set flexible standards concerning the eligibility criteria for the
actuary, and APRA may grant exemptions from prudential standards under
new subsection 230A(4) (item 116).
.222 The Board retains the obligation under section 95 to notify APRA in
writing when it has made an appointment under this section.
.223 Item 212 repeals section 94, and inserts a new section 94 which sets
out the circumstances under which a life company is required to remove
the actuary. A life company incurs an obligation to terminate the actuary's
appointment if the person does not meet the eligibility criteria, or has
failed to perform the actuary's functions under the Life Act, or is the
subject of an ineligibility declaration under new section 94A (new
subsection 94(1)). It should be noted that these circumstances may also
trigger APRA's power to direct the company to remove the person under
current paragraphs 230B(2)(f).
.224 New subsection 94(2) provides the procedure for a life company to
terminate the actuary's appointment under this section. This is in addition
to the company's internal procedures and triggers for terminating the
actuary's appointment.
General outline and financial impact
.225 Item 212 also inserts new section 94A, which allows APRA to
declare that a person is not eligible for appointment as the actuary of a life
company. A declaration under this section applies to all life companies
registered under the Life Act. New subsection 94A(4) clarifies that such
declarations are not legislative instruments within the meaning of section 5
of the LIA, it does not create an exemption from the requirements of the
LIA. These declarations are subject to merits review under section 236 of
the Life Act (see item 228).
.226 Item 214 repeals section 97 and inserts a new section 97, which
contains principles-based provisions on the actuary's functions. The new
subsection 97(1) requires the actuary to perform its functions as set out in
the prudential standards as well as the reporting standards made under
FSCODA. This allows APRA to set flexible standards concerning
auditors' functions, and APRA may grant exemptions from prudential
standards under new subsection 230A(4) (item 116).
.227 New subsection 97(2) requires the company to make arrangements
necessary to enable the actuary to perform its functions. It is envisaged
these arrangements may include giving access to company documents,
requiring company employees to answer questions, and allowing the
actuary to attend meetings and/or speak at these meetings.
.228 Item 212A omits from paragraph 95(1)(d) of the Life Act the
reference to regulations and inserts in its place the reference to prudential
standards.
.229 Section 95 of the Life Act requires a life company to notify APRA
when it appoints an actuary for the company. Currently, additional matters
to be included in the notice may be prescribed under the Life Regulations
1995. The amendments ensure that these matters can be dealt with in
prudential standards. This approach is consistent with the principles based
approach which provides that specific requirements relating to actuaries be
set out in prudential standards.
Consequential amendments
.230 Item 226 is a consequential amendment to items 206, 207, 211 and
212, and repeals the definition of `persons affected by a reviewable
decision' under section 236(1). The current definition ensures that the
individual can seek internal review and merits review of APRA's decisions
to revoke its approval of the auditor or actuary. As these items remove
APRA's power to approve or revoke the appointment of the auditors and
actuaries, this definition is no longer necessary.
.231 Item 228 is a consequential amendment to items 206, 207, 211 and
212. This item repeals current paragraphs 236(1)(v) to (z), under the
53
Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
definition of `reviewable decisions', and inserts new paragraphs 236(1)(v)
and (w) which provide that APRA's decision to declare a person ineligible
for appointment as the auditor or actuary is subject to merits review.
.232 Some of the repeals under item 228 remove APRA's approval or
revocation of approval for the appointment of auditors and actuaries from
the definition of `reviewable decisions'. As APRA can no longer make
these decisions, it is not necessary to provide that these decisions are
subject to merits review. These repeals are:
· paragraph 236(1)(v), concerning APRA's decision under
subsection 85(1);
· paragraph 236(1)(w), concerning APRA's decision under
subsection 86(1);
· paragraph 236(1)(y), concerning APRA's decision under
subsection 93(6); and
· paragraph 236(1)(z), concerning APRA's decision under
section 94(3).
.233 It should be noted that APRA's directions under current section
230B are not subject to merits review.
.234 Items 189 and 233 are consequential amendments to item 207,
which has removed APRA's power to approve an auditor's appointment.
.235 Item 189 repeals current subsection 16A(5) of the Life Act, which
refers to special provisions relating to the appointment of auditors for
friendly societies under Division 2 of Part 6, and substitutes a new
subsection that does not refer to these provisions.
.236 Item 233 repeals the definition of `approved auditor' in the
Schedule. This definition is no longer necessary because APRA no longer
approves the appointment of auditors.
SIS Act (Items 244, 239)
.237 Item 244 inserts new section 131AA, which provides that APRA
may direct the trustees of an entity to remove an auditor or actuary if
satisfied that the person is disqualified under section 131, does not meet
the fit and proper requirements, or has failed to perform its duties and
functions under the SIS Act, SIS Regulations and FSCODA.
.238 New subsections 131AA (3) to (7) set out the process to be followed
when APRA is giving a direction under this section. These subsections
General outline and financial impact
provide certainty to the entities and to APRA as to the procedural
requirements relating to the issue of a direction. In particular, new
subsection 131AA(6) provides that APRA must allow the individual and
entity at least seven days to comply with the direction. This section does
not specify how the trustees may terminate the person's appointment.
.239 If the trustee or trustees do not comply with APRA's direction within
seven days, the entity commits an offence (new subsection 131AA(9)).
This is a strict liability offence under the new subsection 131AA(10),
which is punishable by 60 penalty units. This is a strict liability offence
because it is a basic, objective requirement of the prudential framework
and should be complied with by all entities. Compliant with section 6.1 of
the Criminal Code, there is no need to prove a fault element. The defence
of mistake of fact is available under section 9.2 of the Criminal Code.
.240 New subsection 131AA(8) clarifies that APRA's direction under this
section is not a legislative instrument for the purposes of section 5 of the
LIA, because it is a decision that applies the law to an individual and not to
a class of persons. It does not create an exemption from the requirements
of the LIA.
.241 A direction given on the grounds that an auditor is a disqualified
person under section 131 is not subject to merits review. Since the original
decision to disqualify the auditor is already subject to merits review, it is
not appropriate for a direction based on such a disqualification to be also
subject to merits review. Directions given under section 131AA(2)(b) and
(c) are subject to merits review (see item 239).
.242 Items 239 provides that APRA's decisions to direct the trustee or
trustees to remove an auditor or actuary (new paragraphs 131AA(2)(b) and
(c)) are subject to merits review, under section 10(1) definition of
`reviewable decisions'.
.243 APRA's decision to issue a direction under paragraph 131AA(2)(a),
on the grounds that the auditor is a disqualified person under section 131,
is not subject to merits review because the disqualification decision is
already subject to merits review.
Supporting cooperation between APRA and relevant professional bodies
of actuaries and auditors
.244 These amendments provide APRA with greater powers to cooperate
with and refer matters relating to professional standards and performance
of the auditor or actuary's duties and functions to the relevant professional
bodies. As APRA does not have the power to enforce professional
standards for auditors and actuaries, these amendments ensure that APRA
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
has the power to share information with professional bodies of auditors
and actuaries to encourage and assist self-regulation in these professions.
These amendments commence on the date of Royal Assent.
Banking Act (Item 36)
.245 Item 36 repeals section 18 and inserts a new section 18, which
provides that APRA may provide information to professional associations
for auditors if APRA considers an auditor of a relevant body corporate is
not a fit and proper person (new paragraph 18(1)(b)), or has failed to
perform its duties or functions under the Banking Act, Banking
Regulations 1966 (Banking Regulations), prudential standards, or a law of
the Commonwealth, State or Territory including FSCODA (new paragraph
18(1)(a)).
.246 This gives APRA scope to refer matters arising out of the auditor's
conduct under the Act, Regulations and FSCODA, as well as matters that
may be relevant to APRA's prudential supervision but that arise under
other legislation. Matters may be referred to the Companies Auditors and
Liquidators Disciplinary Board (CALDB) as well as members of the
auditor's professional association that APRA believes will be involved in
considering the matter (new paragraph 18(1)(c) and (d)).
.247 APRA may only refer matters relating to an auditor of a `relevant
body corporate' (subsection 18(1)). It should be noted this definition
differs from the definition of a `relevant group of body corporate' under
subsection 5(3). A `relevant body corporate' includes:
· an ADI;
· an authorised NOHC;
· a subsidiary of an ADI or authorised NOHC; and
· for an ADI that is a subsidiary of a foreign corporation a subsidiary
of the foreign corporation that is incorporated, or carries on business in,
Australia.
.248 APRA must give written notice of the referral to the auditor (new
subsection 18(3)).
Insurance Act (item 64)
.249 Item 64 repeals section 48, and inserts a new section 48 which
provides that APRA may refer matters to professional associations for
auditors and actuaries if APRA considers an auditor or actuary of a general
insurer is not a fit and proper person (new paragraphs 48(1)(b) and
48(2)(b)), or has failed to perform its duties or functions under the
General outline and financial impact
Insurance Act, Insurance Regulations 2002 (Insurance Regulations),
prudential standards, or a law of the Commonwealth, State or Territory
including FSCODA (new paragraphs 48(1)(a) and 48(2)(a)).
.250 This gives APRA scope to refer matters arising out of the auditor's
or actuary's conduct under the Act, regulations and FSCODA, as well as
matters that may be relevant to APRA's prudential supervision but arise
under other legislation.
.251 For auditors, matters may be referred to the CALDB as well as
members of the auditor's professional association whom APRA believes
will be involved in considering the matter (new paragraph 48(1)(c) and
(d)). For actuaries, matters may be referred to members of the actuary's
professional association whom APRA believes will be involved in
considering the matter (new subsection 48(2)).
.252 APRA may make the referral whether or not it has disqualified a
person as an auditor or actuary under section 44 (new subsection 48(4)).
This provision differs from the current section 48, which provides that
APRA can refer matters only if it has revoked approval for an auditor or
actuary, or has disqualified a person.
.253 APRA must give written notice of the referral to the auditor or
actuary (new subsection 48(3)).
Life Act (item 110)
.254 Item 110 repeals sections including section 125, and inserts new
section 125, which provides that APRA may provide information to
professional associations for auditors and actuaries if APRA considers an
auditor or actuary of a life company is not a fit and proper person (new
paragraphs 125(1)(b) and 125(2)(b)), or has failed to perform its duties or
functions under the Life Act, or a law of the Commonwealth, State or
Territory including FSCODA (new paragraphs 125(1)(a) and 125(2)(a)).
.255 This gives APRA scope to refer matters arising out of the auditor's
or actuary's conduct under the Life Act, Life Regulations 1995 (Life
Regulations) and FSCODA, as well as matters that may be relevant to
APRA's prudential supervision but arise under other legislation.
.256 For auditors, matters may be referred to the CALDB as well as
members of the auditor's professional association whom APRA believes
will be involved in considering the matter (new paragraph 125(1)(c) and
(d)). For actuaries, matters may be referred to members of the actuary's
professional association whom APRA believes will be involved in
considering the matter (new subsection 125(2)).
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
.257 APRA must give written notice of the referral to the auditor or
actuary (new subsection 125(3)).
Phase out prudential rules from the Life Act
Transition period (items 130, 287, 288)
.258 Life company prudential requirements are currently provided for
under prudential rules, actuarial standards, prudential standards, the
Life Regulations and the Life Act. Prudential rules were the main tool used
by the Regulator to prescribe requirements of life insurers under the Life
Act, prior to APRA obtaining a prudential standards-making power. These
amendments will simplify the Life Act by removing prudential rules from
the Act and replace them with principles based prudential standards where
necessary. There will be a transition period from the date of Royal Assent
to 1 July 2011.
.259 Items 130 and 287 establish a transition period for replacing
prudential rules with prudential standards under the Life Act. Item 130
repeals subsection 252(2) and substitutes subsections providing that APRA
cannot make prudential rules after the `cut-off day'. The `cut-off day' is
the date on which Part 1 Schedule 1 of the Act commences, which is the
day of Royal Assent. Item 287 commences on 1 July 2011, and repeals
section 252. The repeal removes APRA's power to make prudential rules,
and as a result will repeal prudential rules on 1 July 2011.
.260 After the cut-off day, APRA will not able to make new prudential
rules, but existing rules will remain in force until repealed by item 287 on
1 July 2011. Between the cut-off day and 1 July 2011, APRA will have
power to vary or revoke existing prudential rules, which enables APRA to
phase out prudential rules as they become unnecessary or are replaced by
prudential standards.
.261 It should be noted that item 288 is a consequential amendment to
item 287. It repeals the definition of prudential rules in the Schedule, The
concept of prudential rules is repealed by item 287 from 1 July 2011.
.262 The following items give effect to the transition period described
above.
Amendments to Part 2, Key concepts (items 68, 69, 256 -- 258)
.263 Items 68, 256 and 257 give effect to the transition period during
which APRA may make prudential standards setting out requirements for
applications for an APRA declaration that an insurance business or
financial business is to be treated as a life business. .
General outline and financial impact
.264 Items 68 and 256 amend subsection 12A(2). Item 67 inserts
reference to `prudential standards', and commences on Royal Assent. Item
256 omits references to `Prudential Rules', and commences on 1 July
2011.
.265 Items 68 and 257 amends subsection 12B(3). Item 68 inserts
reference to `prudential standards', and commences on Royal Assent. Item
257 omits references to `Prudential Rules', and commences on 1 July
2011.
.266 Items 69 and 258 replace reference to prudential rules with reference
to prudential standard under subsection 15(3). It gives effect to the
transition period in relation to APRA's declaration concerning
participating or non-participating benefits through prudential rules.
Amendments concerning friendly societies (items 71 -- 76, 79 -- 81, 84
-- 87, 259 -- 272)
.267 These following items give effect to the transition period during
which APRA may make prudential standards relating to friendly societies
under the Life Act (see above).
.268 Items 71 and 259 replace prudential rules with prudential standards
in paragraph 16B(2)(a). Item 71 inserts reference to `prudential standards',
and commences on royal assent. Item 259 omits reference to `Prudential
Rules', and commences on 1 July 2011.
.269 Items 71A and 260 replace prudential rules with prudential standards
in paragraph 16C(4). Item 71A inserts a reference to `prudential
standards', and commences on Royal Assent. Item 260 omits reference to
`Prudential Rules', and commences on 1 July 2011.
.270 These amendments give effect to the transition period in relation to
APRA's power to make prudential rules and prudential standards setting
out requirements for a friendly society to adopt benefit fund rules or
amendment to benefit fund rules.
.271 Items 72 and 261 replace prudential rules with prudential standards
in subsection 16H(4). Item 77 inserts reference to `prudential standards',
and commences on Royal Assent. Item 261 omits reference to `Prudential
Rules', and commences on 1 July 2011.
.272 These amendments give effect to the transition period in relation to
APRA's power to make prudential rules and prudential standards setting
out requirements for friendly societies that maintain one account for
money that constitutes assets for 2 or more benefit funds.
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
.273 Items 73 and 262 replace prudential rules with prudential standards
in paragraph 16H(4A)(b). Item 73 inserts reference to `prudential
standards', and commences on Royal Assent. Item 262 omits reference to
`Prudential Rules', and commences on 1 July 2011.
.274 These amendments give effect to the transition period in relation to
APRA's power to make prudential rules and prudential standards setting
out requirements for friendly societies that invest assets of 2 or more
benefit funds in a single investment.
.275 Items 74 and 263 replace prudential rules with prudential standards
in section 16J. Section 16J modifies section 43 of the Life Act by adding
subsection 43(ba), providing additional requirements for investments of
assets of a friendly society's approved benefit fund. Item 74 inserts
reference to `prudential standards' in paragraph (ba)(ii), and commences
on Royal Assent. Item 263 omits reference to `Prudential Rules' in
paragraph (ba)(ii), and commences on 1 July 2011.
.276 These amendments give effect to the transition period in relation to
APRA's power to make prudential rules and prudential standards
concerning investment of such assets under modified subsection 43(ba).
.277 Items 75 and 264 replace prudential rules with prudential standards
in paragraph 16L(2). Item 75 inserts reference to `prudential standards',
and commences on Royal Assent. Item 265 omits reference to `Prudential
Rules', and commences on 1 July 2011.
.278 These amendments give effect to the transition period in relation to
APRA's power to make prudential rules and prudential standards setting
out requirements for applications seeking APRA approval of benefit fund
rules for a benefit fund operated by a company.
.279 Items 76 and 265 replace prudential rules with prudential standards
in paragraph 16L(4)(b). Item 76 inserts reference to `prudential standards',
and commences on Royal Assent. Item 265 omits reference to `Prudential
Rules', and commences on 1 July 2011.
.280 These amendments give effect to the transition period in relation to
APRA's power to make prudential rules and prudential standards requiring
a company to give notice to its members that APRA has approved its
benefit fund rules.
.281 Items 79 and 266 replace prudential rules with prudential standards
in paragraph 16Q(2). Item 79 inserts reference to `prudential standards',
and commences on Royal Assent. Item 266 omits reference to `Prudential
Rules', and commences on 1 July 2011.
General outline and financial impact
.282 These amendments give effect to the transition period in relation to
APRA's power to make prudential rules and prudential standards setting
out requirements for applications seeking APRA approval of amendments
to benefit fund rules.
.283 Items 80 and 267 replace prudential rules with prudential standards
in paragraph 16Q(4)(b). Item 80 inserts reference to `prudential
standards', and commences on Royal Assent. Item 267 omits reference to
`Prudential Rules', and commences on 1 July 2011.
.284 These amendments give effect to the transition period in relation to
APRA's power to make prudential rules and prudential standards requiring
friendly societies to give notice to its members that APRA has approved
amendments to its benefit fund rules.
.285 Items 81 and 268 replace prudential rules with prudential standards
in paragraph 16R(6)(b). Item 81 inserts reference to `prudential standards',
and commences on Royal Assent. Item 268 omits reference to `Prudential
Rules', and commences on 1 July 2011.
.286 These amendments give effect to the transition period in relation to
APRA's power to make prudential rules and prudential standards requiring
friendly societies to give notice to its members that APRA has determined
an amendment to its benefit fund rules.
.287 Items 84 and 269 replace prudential rules with prudential standards
in paragraph 16U(2). Item 84 inserts reference to `prudential standards',
and commences on Royal Assent. Item 269 omits reference to `Prudential
Rules', and commences on 1 July 2011.
.288 These amendments give effect to the transition period in relation to
APRA's power to make prudential rules and prudential standards setting
out requirements for applications seeking approval of consequential
amendments to company constitutions.
.289 Items 85 and 270 replace prudential rules with prudential standards
in paragraph 16U(4)(b). Item 85 inserts reference to `prudential
standards', and commences on Royal Assent. Item 270 omits reference to
`Prudential Rules', and commences on 1 July 2011.
.290 These amendments give effect to the transition period in relation to
APRA's power to make prudential rules and prudential standards requiring
friendly societies to give notice to its members that APRA has approved
consequential amendments to its company constitution.
.291 Items 86 and 271 replace prudential rules with prudential standards
in paragraph 16V(3). Item 86 inserts reference to `prudential standards',
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
and commences on Royal Assent. Item 271 omits reference to `Prudential
Rules', and commences on 1 July 2011.
.292 These amendments give effect to the transition period in relation to
APRA's power to make prudential rules and prudential standards setting
out requirements for applications seeking approval of consequential
amendments to company constitutions.
.293 Items 87 and 272 replace prudential rules with prudential standards
in paragraph 16V(7)(b). Item 87 inserts reference to `prudential
standards', and commences on Royal Assent. Item 272 omits reference to
`Prudential Rules', and commences on 1 July 2011.
.294 These amendments give effect to the transition period in relation to
APRA's power to make prudential rules and prudential standards requiring
friendly societies to give notice to its members that APRA has approved
consequential amendments to its company constitution under section
16V(3).
Amendments affecting life companies (items 94, 97, 106, 125, 273 --
279, 281 -- 286)
.295 These following items give effect to the transition period during
which APRA may make prudential standards or reporting standards made
under FSCODA relating to life companies.
.296 Items 94 and 273 replace prudential rules with prudential standards
in subsection 34(4). Item 94 inserts reference to `prudential standards',
and commences on Royal Assent. Item 273 omits reference to `Prudential
Rules', and commences on 1 July 2011.
.297 These amendments give effect to the transition period in relation to
APRA's power to make prudential rules and prudential standards setting
out requirements for life companies that maintain one account for money
that constitutes assets for 2 or more benefit funds.
.298 Items 97 and 274 replace prudential rules with reporting standards
made under FSCODA in subsection 44(6). Item 97 inserts reference to
`reporting standards made under FSCODA', and commences on Royal
Assent. Item 233 omits reference to `Prudential Standards', and
commences on 1 July 2011.
.299 These amendments give effect to the transition period in relation to
APRA's power to make prudential rules and reporting standards under
FSCODA setting out requirements for making restricted investment
returns.
General outline and financial impact
.300 Items 98 and 275 replace prudential rules with reporting standards
made under FSCODA in paragraphs 44(7)(a) and (b). Item 98 inserts
reference to `reporting standards made under FSCODA', and commences
on Royal Assent. Item 275 omits reference to `Prudential Standards', and
commences on 1 July 2011.
.301 These amendments give effect to the transition period in relation to
APRA's power to make prudential rules and reporting standards under
FSCODA concerning the form and time limits for restricted investment
returns.
.302 Items 99 and 276 replace prudential rules with prudential standards
in subsection 52(1). Item 99 inserts reference to `prudential standards',
and commences on Royal Assent. Item 276 omits reference to `Prudential
Standards', and commences on 1 July 2011.
.303 These amendments give effect to the transition period in relation to
APRA's power to make prudential rules and prudential standards
concerning applications to restructure statutory funds.
.304 Items 99 and 277 replace prudential rules with prudential standards
in subsection 52(3). Item 99 inserts reference to `prudential standards',
and commences on Royal Assent. Item 277 omits reference to `Prudential
Rules', and commences on 1 July 2011.
.305 These are consequential amendments to items 99 and 276, which
replace APRA's power to make prudential rules with power to make
prudential standards concerning applications to restructure statutory funds.
.306 Items 100 and 278 replace prudential rules with prudential standards
in subsection 53(1). Item 100 inserts reference to `prudential standards',
and commences on Royal Assent. Item 278 omits reference to `Prudential
Standards', and commences on 1 July 2011.
.307 These amendments give effect to the transition period in relation to
APRA's power to make prudential rules and prudential standards
concerning applications to terminate statutory funds.
.308 Items 101 and 279 replace prudential rules with prudential standards
in subsection 53(2). Item 101 inserts reference to `prudential standards',
and commences on Royal Assent. Item 279 omits reference to `Prudential
Rules', and commences on 1 July 2011.
.309 These are consequential amendments to items 101 and 278, which
replace APRA's power to make prudential rules with power to make
prudential standards concerning applications to terminate statutory funds.
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
.310 Items 102 and 281 replace prudential rules with prudential standards
in subsection 55(2). Item 102 inserts reference to `prudential standards',
and commences on Royal Assent. Item 287 omits reference to `Prudential
Rules', and commences on 1 July 2011.
.311 These amendments give effect to the transition period in relation to
APRA's power to make prudential rules and prudential standards in
relation to ascertaining the value of liabilities for the purpose of transfer of
policies by endorsement.
.312 Items 103 and 282 replace prudential rules with prudential standards
in subsection 55(3). Item 103 inserts reference to `prudential standards',
and commences on Royal Assent. Item 282 omits reference to `Prudential
Rules', and commences 1 July 2011.
.313 These are consequential amendments to items 103 and 281, which
replace APRA's power to make prudential rules with power to make
prudential standards in relation to ascertaining the value of liabilities under
section 55.
.314 Items 104 and 283 replace reference to prudential rules with
reference to prudential standards in the definition of `starting amount'
under subsection 61(1).
.315 These amendments give effect to the transition period in relation to
APRA's power to make prudential standards in relation to ascertaining the
starting amount for the purposes of Division 6, Part 4.
.316 Items 106 and 285 replace prudential rules with prudential standards
in subsection 62(5). Item 106 inserts reference to `prudential standards',
and commences on Royal Assent. Item 285 omits reference to `Prudential
Rules', and commences on 1 July 2011.
.317 These amendments give effect to the transition period in relation to
APRA's power to make prudential rules and prudential standards setting
out requirements relating to the distribution of Australian policy owners'
retained profits.
.318 Items 105 and 284 are consequential amendments to item 106 and
285. Item 105 inserts reference to `prudential standards' in paragraph
62(3)(c) from date of Royal Assent, as item 106 provides that APRA may
make prudential standards under subsection 62(5). Item 284 repeals
reference to prudential rules in paragraph 62(3)(c) from 1 July 2011.
.319 Items 125 and 286 replace prudential rules with prudential standards
in paragraphs 236(1)(k) and (l), under definition of `reviewable decision'.
General outline and financial impact
Item 125 inserts reference to `prudential standards', and commences on
Royal Assent. Item 286 omits reference to `prudential standards', and
commences on 1 July 2011.
.320 These amendments give effect to the transition period during which
APRA's decisions under prudential standards and prudential rules referred
to in sections 52 and 53 will be subject to merits review. On 1 July 2011,
prudential rules will be repealed. As such it will not be necessary to
subject APRA's decisions under prudential standards to merits review after
1 July 2011.
Related amendments (items 111, 129, 131, 195, 218, 219, 280, 287 --
289)
.321 Item 195 inserts reference to `annual' in section 57. It clarifies that
section 57 refers to reports that need to be given to APRA each year, rather
than quarterly or other reports.
.322 Item 219 commences on 1 July 2011. It makes a number of
amendments, including inserting a reference to `prudential standards' in
new section 114. This enables APRA to make prudential standards in
relation to valuation of policy liabilities referable to a statutory fund.
.323 This item inserts reference to `annual financial statement' in new
section 124. This is a consequential amendment to item 195, and clarifies
that the reference to financial statement is a statement under section 57.
.324 Items 111 and 218 makes various repeals, including repealing
sections 123, 125, 125A and 125B in Divisions 6, 7 and 8 of Part 6. As a
result references to prudential rules in these sections are also repealed.
Item 111 commences on date of Royal Assent, and item 218 commences
on 1 January 2008.
.325 Item 129 omits reference to `in writing' and substitutes reference to
`by legislative instrument' in subsection 252(1). This item provides that
APRA may make legislative instruments regarding all matters that may be
prescribed by prudential rules. It also clarifies that prudential standards are
legislative instruments for the purpose of section 5 LIA. Section 252 will
be repealed on 1 July 2011 by item 287.
.326 Item 131 omits reference to `prudential rules in paragraph 253(1)(a).
This removes limitation on matters that may be dealt with under the
regulations. As such matters necessary or convenient to give effect to the
Life Act can be dealt with under regulations or prudential standards.
.327 Item 280 commences on 1 July 2011. It repeals section 54, which
provides that APRA may make prudential rules concerning transitional
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
matters under Life Act. As a result, prudential rules made under section 54
will be repealed on 1 July 2011.
.328 Items 288 and 289 remove reference to prudential rules from the
Schedule, and commence 1 July 2011. Item 288 repeals the definition of
`Prudential Rules'. Item 289 removes reference to `Prudential Standards'
in the definition `this Act'. Item 287 repeals prudential rules on 1 July
2011, as a result references to Prudential Rules will no longer be necessary
after 1 July 2011.
Abolish the Life Insurance Actuarial Standards Board (LIASB) under the
Life Act (Items 156, 157, 172A, 173 -- 176, 190, 194, 196, 198 -- 203, 213,
218, 237 and 274)
.329 The Life Act provides that APRA may determine standards on
prudential matters for life companies under section 230A but grants
actuarial standards making powers to the LIASB under section 101. While
actuarial matters are a subset of prudential matters, the distinction between
the two under the legislation is not always clear.
.330 At the time the LIASB was created, it was considered that the
regulator did not have adequate actuarial capacity to develop actuarial
standards for life companies. Since that time, APRA has provided full
secretariat support to the LIASB and has developed its own capacity to
determine standards dealing with actuarial matters. Therefore, these
amendments abolish LIASB and remove the concept of actuarial standards
from the Life Act from 1 January 2008.
.331 Item 218 repeals Division 4 of Part 6 which deals with the LIASB.
.332 Item 274 removes from the Schedule of the Life Act the definition
of Board, which means the `Life Insurance Actuarial Standards Board'.
Removal of actuarial standards from the Life Act
.333 APRA has the power to make prudential standards under section
230A of the Life Act with respect to prudential matters currently addressed
through actuarial standards. Therefore, the concept of actuarial standards is
being removed and replaced with prudential standards. APRA will consult
with industry groups on the development of prudential standards relating
to actuarial issues. Item 204 repeals Part 5 of the Life Act which deals
with solvency and capital standards. Matters previously dealt with under
Part 5 will now be dealt with under APRA's prudential standards making
power in section 230A of the Life Act.
General outline and financial impact
.334 Items 190, 194, 196, 198-203, 213 and 237 make various
consequential amendments to the Life Act as a result of the removal of
actuarial standards.
.335 Items 156 and 157 make consequential amendments to the
Anti-Money Laundering and Counter-Terrorism Financing Act 2006.
.336 Item 172A make consequential amendments to paragraph
121AO(2)(a) of the Income Tax Assessment Act 1936 as a result of the
removal of actuarial standards and the abolition of the LIASB.
.337 Items 173 to 176 make consequential amendments to the Income
Tax Assessment Act 1997.
Auditor, audit committee and actuarial requirements under the Life Act
(Items 191, 192, 193, 205, 206, 210, 217, 218, 228, 229, 232, 236)
.338 The current requirements with respect to auditors and actuaries under
the Life Act will be replaced by principles based requirements that focus
on the functions and duties of auditors and actuaries. This aligns the Life
Act with the Banking and Insurances Acts to provide a consistent
framework. Where detailed requirements are necessary, they are more
appropriately addressed through prudential standards or practice guides.
.339 These amendments commence on 1 January 2008.
.340 Item 205 omits the requirement under section 80 for an `approved
auditor' to prepare a report relating to apportionment, and substitutes the
requirement for `an auditor of the life company for the purposes of the
FSCODA' to prepare the report. As APRA is no longer responsible for
approving the appointment of an auditor to the life company, this
definition is no longer necessary. This revised definition is consistent with
the new provisions relating to the appointment and removal of auditors,
and allows APRA to introduce more flexible audit requirements under
prudential standards and reporting standards under FSCODA.
.341 Item 206 repeals the requirements under section 83 for auditors to
prepare an annual financial statement, and substitutes a new section 83,
which provides that auditors must carry out their functions as prescribed
under the prudential standards and reporting standards made under
FSCODA. This reflects the intention that prescriptive requirements should
be removed from the Act, replaced by principles-based regulation. The
new subsection 83(1) enables APRA to introduce more detailed
requirements relating to auditors functions under the prudential standards
where necessary. The life company is required to make necessary
arrangements to enable the auditor to perform these functions.
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
.342 Item 210 repeals sections 90, 91 and 92, which requires a life
company to have an audit committee. As audit requirements under the
legislation are replaced by more flexible prudential standards and reporting
standards under FSCODA, it is no longer necessary to require life
companies to have an audit committee. Consequently, sections 91 and 92,
which require APRA to approve members of the audit committee, set the
quota for a committee meeting, and set out the powers and functions of the
committee, are also unnecessary.
.343 Item 217 repeals subsection 98(4), which removes the requirement
for an appointed actuary to report specific information to APRA. This item
is a consequential amendment to new sections 97 (actuary's duties) and
subsections 98(2A) and (2B). As the actuary's duties and functions will be
set out under prudential standards, reporting standards made under
FSCODA, and breach reporting requirements are clarified under proposed
subsections 98(2A) and (2B), this subsection is no longer necessary.
.344 Item 218 makes a number of amendments that introduce actuarial
requirements more consistent with principles-based regulation. This item
repeals Division 5 and 6 of Part 6 of the Life Act, and substitutes new
section 114 and 124. Under Division 5 of Part 6, this item removes
requirements relating to actuarial investigations (sections 113 and 115),
and the requirement to seek actuarial advice before issuing a new policy
(section 116)
.345 Item 218 also repeals old section 114 (requirements relating to
valuing policy liabilities), and substitutes a new section 114 that provides
valuation of policy liabilities must be made in accordance with prudential
standards. This makes this requirement consistent with principles-based
regulation, and allows APRA to set more flexible requirements under
prudential standards.
.346 Item 218 also removes requirements under Division 6 of Part 6 for a
life company to provide reports to APRA, including its financial condition
report (section 119), statement of the actuary's pecuniary interest (section
120), reports given to shareholders or policy owners (section 122) and
reinsurance arrangements reports (section 123).
.347 Item 218 retains section 124, and moves the section into Division 5
of Part 6, which ensures that policy owners can monitor the performance
of the life company.
.348 Items 191, 192 and 193 substitutes references to prudential
regulations with reference to prudential standards in subsections 47(1) and
47(2), and paragraphs 47(2)(a) and (b). This removes prescriptive
declarations made under prudential regulations, and enables APRA to set
more flexible requirements under prudential standards.
General outline and financial impact
.349 Items 228 and 229 remove decisions made under section 91,
subsection 94(3), subsection 115(3), and subsection 119(2) from the
definition of `reviewable decisions'. As these sections will be repealed, it
is no longer necessary to subject decisions under these sections to merits
review.
.350 Item 232 and item 236 repeal the definitions `annual actuarial
investigation' and `financial condition report' in the Schedule. As
requirements to conduct an annual actuarial investigation and prepare an
annual financial condition report is repealed by item 218, the definitions
are no longer necessary.
Overlaps in reporting requirements between APRA and ASIC
Life Act (Items 77, 78, 82, 83, 88, 89, 127)
.351 Various sections under the Life Act result in life companies and
friendly societies having to provide information to both APRA and ASIC.
These amendments ensure that this duplication in reporting requirements is
removed and replaced by a process of information sharing between APRA
and ASIC according to existing reporting requirements. These
amendments commence from the date of Royal Assent.
.352 Under the Life Act, various documents approved by APRA must also
be lodged with ASIC.
· Section 16M -- requires the lodging of benefit fund rules
with ASIC after approval by APRA. APRA approves benefit
fund rules under section 16L.
· Section 16S -- requires lodging of amendment of benefit
fund rules with ASIC after approval by APRA. APRA
approves amendments of benefit fund rules under section
16Q.
· Section 16W -- requires lodging of consequential
amendments of the friendly society's constitution with ASIC
after approval by APRA. APRA approves consequential
amendments under subsection 16U(3) or subsection 16V(4).
.353 Items 77, 82, and 88 repeal sections 16M, 16S, 16W of the Life Act
respectively, so that life insurers and friendly societies are no longer
required to lodge benefit fund rules, amendments to benefit fund rules and
consequential amendments of the friendly society's constitution with ASIC
after approval by APRA.
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
.354 Items 78, 83 and 89 amend paragraphs 16N(a), 16T(c) and 16X(c)
of the Life Act respectively. These are consequential amendments to items
77, 82 and 88. As life insurers and friendly societies are no longer
required to lodge benefit fund rules, amendments to benefit fund rules and
consequential amendments of the friendly society's constitution with
ASIC, references to lodgement with ASIC in these paragraphs are no
longer necessary. Instead, these items insert references to APRA approving
the rules or determining the amendments.
.355 Item 127 repeals section 238 and 239 so that the life company is no
longer required to give the documents to APRA. Section 238 of the Life
Act requires that if a life company lodges with ASIC, under Chapter 6D of
the Corporations Act, a disclosure document relating to securities of the
company, the company must give a copy of the prospectus to APRA.
Section 239 requires a life company or the holding company of a life
company to give APRA documents relating to off-market takeover bids
within seven days after lodging the documents with ASIC.
Corporations Act (Item 52)
.356 Item 52 inserts subsection (2D) into section 1274 of the
Corporations Act so that, when a copy of documents approved by APRA
under sections 16L, 16Q, and 16U or 16V is given to ASIC by APRA,
they are deemed to be `lodged with' ASIC. This amendment is necessary
because of the consequences which flow from documents being `lodged'.
For example, with certain specified exceptions, a person may inspect any
document lodged with ASIC and may require a copy of such a document.
.357 The obligation to lodge the documents with APRA will remain in the
prudential legislation. Arrangements are in place to ensure that APRA
provides a copy to ASIC. It is envisaged that both APRA and ASIC will
consult with the entities in relation to how these arrangements will work.
Reinsurance arrangements under the Life Act (Item 111, 218)
.358 Under section 123 of the Life Act, companies are required to provide
a reinsurance report to APRA every financial year, and under section 125
of the Life Act, APRA is required to approve certain limited types of
reinsurance contracts before a life company can enter into such a contract.
Decisions to enter into reinsurance contracts are fundamentally business
decisions and, as such, are more appropriately the responsibility of the
Board of the company rather than of APRA. APRA has various powers,
such as the ability to accept court enforceable undertakings or use of
directions powers, to address any prudential concerns it has regarding
reinsurance contracts.
General outline and financial impact
.359 Items 111 and 218 repeals sections 123 and 125 of the Life Act.
Similar requirements for APRA to approve certain reinsurance contracts
for general insurers were removed from the Insurance Act through the
General Insurance Reform Act . Where APRA considers such
requirements are necessary, it is more appropriate to deal with these issues
through prudential standards, as has been done for the general insurance
industry. Item 111 commences on date of Royal Assent, and item 218
commences on 1 January 2008.
Registration of life companies under the Life Act (Items 90 -- 93, 107,
128, 133)
.360 The Life Act and Life Regulations contain detailed and prescriptive
requirements in relation to the registration of life insurers. In many cases,
these requirements also duplicate requirements contained more
appropriately elsewhere within the legislative framework.
.361 Section 20 of the Life Act requires an application for registration to
be made in accordance with the Life Regulations. Life Regulation 3.01 sets
out a detailed list of requirements for a registration application. Rather
than setting out such requirements in the Life Regulations, and in order to
provide a more flexible approach, these requirements will be provided
under APRA's non-binding prudential practice guides or under binding
prescribed forms.
.362 Item 90 repeals existing section 20 of the Life Act and replaces it
with a new section 20 so that the application is no longer required to be
made in accordance with the Life Regulation. The new section 20 provides
the procedure to be followed when a company applies to APRA for
registration as a life company under the Life Act.
.363 New subsection 20(1) allows a company to apply in writing to
APRA for registration as a life insurer under the Life Act. New subsection
20(2) sets out the requirements for these applications.
.364 New subsection 20(3) allows APRA to require, by written notice, the
applicant to provide further information within a specified period. New
subsection 20(4) allows APRA to consider the application for registration
withdrawn if the applicant does not provide the information requested by
APRA within the specified time period or any longer period agreed to in
writing by APRA. Subsection 20(5) requires APRA to include a statement
in their written notice about withdrawal of the application for registration
under these circumstances.
.365 Items 107 and 128 replace references to subsection 20(4) in
subsections 77(2) and 246(1) with a reference to new section 20, as
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
existing subsection 20(4) has been repealed and replaced with a new
section 20.
.366 Item 91 repeals subsections 21(1) and (2) of the Life Act and
replaces them with a new subsection 21(1), which ensures that APRA
must, in writing, register a company that applies for registration unless
APRA is satisfied that a grounds for refusal exists (paragraph 21(1)(a)) and
the Treasurer approves of the refusal (paragraph 21(1)(b)).
.367 Item 93 repeals section 25 of the Life Act. Section 25 of the Life Act
requires authorised life insurers to notify APRA of any changes to the
information in its original licensing application (under Life Regulation
3.01) within 14 days. Most of this information is already gathered by
APRA through alternative processes.
.368 Item 132 repeals subsection 254(4), which outlines how section 25
of the Life Act should apply to an existing life company. As Section 25
has been repealed, this subsection is no longer necessary.
.369 Items 92, 93 and 133 repeal requirements relating to the life
company's `certificate of registration'. Life insurers are currently issued
with a `certificate of registration' which, under subsections 21(5), (6) and
(7), must be returned to APRA within seven days following a cancellation
of registration. Failure to return the certificate is a strict liability offence
punishable by 10 penalty units. This section creates an administrative
burden on life insurers which is not imposed on general insurers or ADIs.
.370 Item 92 repeals subsections 21(5), (6) and (7). Item 93 repeals
section 28, which removes the requirement for the company to return the
certificate of registration. Item 133 repeals subsection 254(6) which refers
to the status of the certificate of registration.
Replacing RSE license numbers with ABNs in the SIS Act
.371 Under the SIS Act, APRA is responsible for the allocation of RSE
licence numbers to bodies corporate and groups of individual trustees as
well as RSE registration numbers for superannuation entities. These
numbers are used to identify entities and licensees that have met APRA
requirements for obtaining a licence and there are provisions in the SIS
Act as to when these numbers must be displayed on documents.
.372 These amendments are aimed at achieving the long term objective of
making the Australian Business Number (ABN) the sole business identifier
number for all persons and entities in their dealings with the Government
and its agencies. Amendments to the SIS Act replace the requirement for
APRA to allocate, and entities to display, RSE licence and registration
numbers with the requirement to use the ABN.
General outline and financial impact
.373 Amendments are also made to the A New Tax System (Australian
Business Number) Act 1989 (ABN Act) to ensure that all RSE licensees
are able to obtain an ABN and that the information available on the
Australian Business Register is consistent with the information currently
available on the registers maintained by APRA relating to RSE licensees
and RSEs.
.374 There will be a 12 month transitional period from the date of Royal
Assent to allow existing RSE licensees to obtain ABNs for themselves and
their entities if they do not already have them. This transitional period also
recognises the need to allow time for entities to put in place arrangements
to ensure ABNs can be displayed on all the appropriate documents. In
order to facilitate the transition to displaying ABNs, a number of
amendments will commence on Royal Assent whilst others will commence
12 months after Royal Assent. These amendments are grouped by their
commencement dates below.
Amendments Commencing On Royal Assent
ABN Act changes (Items 1 -- 9)
.375 Item 3 amends section 5 of the ABN Act so that an RSE licensee
that is a group of individual trustees or a group of individual trustees
applying for an RSE licence are classified as an entity carrying on an
enterprise. This amendment is necessary so that groups of individuals are
able to obtain a single ABN which can be displayed on all the relevant
documentation under the requirements found under the SIS Act.
.376 Item 5 amends the ABN Act so that any obligation imposed on an
RSE licensee that is a group of individual trustees by section 14 or 15 of
the ABN Act is imposed on each individual but may be discharged by any
of the individuals. This amendment mirrors similar provisions relating to
partnerships and other unincorporated associations and bodies which also
allow for a duty imposed on the group to be discharged by one member of
that group.
.377 Items 8 and 9 introduce definitions into section 41 of the ABN Act
relating to RSE licence and RSE licensee. These amendments are required
as the concepts of an RSE licence and RSE licensee are being introduced
into the ABN Act.
.378 Item 2 is a consequential amendment to section 5 of the ABN Act
which is required as a new subsection to section 5 is being amended to
accommodate groups of individual trustees being able to apply for an
ABN.
.379 Item 7 is a consequential amendment to subsection 16(3) of the
ABN Act which is required as new subsection 2A is being added.
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
.380 Items 1, 4 and 6 amend headings of provisions, and are
consequential amendments to the above items.
SIS Act changes (Item 143)
.381 Item 143 inserts an offence into the SIS Act for a person to falsely
represent themselves as being an RSE licensee. This is a strict liability
offence of 60 penalty units. Offences that are strict liability are those that
contain basic, objective requirements to the operation of the
superannuation entity and do not require proof of a mental element
(section 6.1 Criminal Code).
Amendments Commencing 12 Months After Royal Assent
ABN Act changes (Item 245)
.382 Item 245 inserts new paragraphs after paragraph 26(3)(j) of the ABN
Act to require that certain information be available via the Australian
Business Register (ABR) if the entity is an RSE licensee or an RSE.
Currently, APRA maintains and updates registers which contain details of
RSE licensees and RSEs. The information currently displayed on the ABR
does not include all the details currently available on the APRA registers,
so in order to ensure that the information currently hosted on these
registers remains available, this amendment is required.
SIS Act changes (Items 248 -- 256)
.383 Items 248 and 249 make amendments to section 29DC of the SIS
Act which substitutes the current requirement for RSE licensees to display
an RSE licence number on certain documents with a requirement to
display an ABN.
.384 Item 250 inserts a condition into section 29E of the SIS Act so that
all RSE licensees must have an ABN or have made an application for an
ABN that has not been refused under the ABN Act. This is to ensure that
RSE licensees are able to apply for both an ABN and an RSE licence
concurrently.
.385 Item 251 inserts a condition into section 29E of the SIS Act so that
each RSE licensee must ensure that each RSE of which it is the RSE
licensee has an ABN.
.386 Item 252 inserts a requirement into section 29L of the SIS Act so
that when an RSE licensee applies to APRA for the registration of an RSE,
the application must include an ABN.
.387 Item 253 amends the requirements under section 29MA which
currently requires that APRA must allocate a unique registration number
for each superannuation entity it registers and notify the RSE licensee.
General outline and financial impact
This item amends section 29MA so that APRA will only be required to
notify the RSE licensee, in writing, of the registration.
.388 Items 254 and 255 amend section 29MB to substitute the
requirement to display a unique registration number for the entity with a
requirement to display an ABN for the superannuation entity.
.389 Item 246 inserts a definition of ABN into the SIS Act which is the
same meaning as given by section 41 of the ABN Act 1999.
Simplification of Acts through removal of obsolete legislation
.390 Several transitional arrangements in the Life and SIS Acts are
obsolete. Repealing the obsolete provisions will ensure the legislation
remains relevant to today's financial system. These amendments
commence on the date of Royal Assent.
Life Insurance Act 1995 (Items 95, 96, 112, 123, 124, 133, 134)
.391 The Life Act replaced the Life Insurance Act 1945. When the Life
Act was written, various transitional arrangements were inserted into it to
ensure smooth transition from the previous Act. These transitional
arrangements are located in Part 12 of the Act. Most of these transitional
arrangements are now obsolete.
.392 Item 133 repeals sections 256 to 263. Sections 256 and 257 are
obsolete because APRA no longer has the power to approve the
appointment of auditors and actuaries under the Life Act. Sections 258 to
263 are obsolete as a result of various amendments.
.393 Item 95 omits the reference to section 259 under subsection 39(2),
which concerns the prohibition of reinsurance between funds and refers to
section 259. As section 259 has been repealed, this reference is obsolete.
.394 References to the Commissioner (of the Insurance and
Superannuation Commission (ISC)) are redundant because the ISC was
abolished in 1998 and replaced with APRA. Therefore, item 96 omits the
reference in subsection 40(3) to `the Commissioner' and replaces it with
`APRA'. Item 112 repeals the heading of Division 3 of Part 7 and replaces
it with `Division 3 Investigation by APRA'. Item 134 repeals the
definition of Commissioner in the Schedule.
.395 Items 123 and 124 amend paragraphs 236(1)(e) and (f) so that these
paragraphs refer to `conditions' rather than `directions' made under section
22 of the Life Act. Subsection 236(1) of the Life Act sets out decisions
that are subject to merits review under the Life Act. Paragraphs 236(1)(e)
and (f) refer to decisions made under section 22 of the Act. Section 22
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
allows APRA to impose conditions on the registration of a company. The
drafting under paragraphs 236(1)(e) and (f) incorrectly refers to
`directions' made by APRA under section 22, rather than `conditions' on
the registration of a company.
Superannuation Industry (Supervision) Act 1993 (Items 136, 137, 146,
155)
.396 Item 155 repeals Part 31 of the SIS Act as it is obsolete. Part 31 of
the SIS Act relates to management companies of superannuation funds.
This section provided for a smooth transition to the SIS Act in 1993.
Following completion of the Government's new superannuation licensing
regime, there are no longer any management companies of superannuation
funds. Item 137 omits reference to Part 31 under subsection 6(2). Item
136 omits reference to Part 31 in the Table under section 4 of the SIS Act.
.397 Item 146 removes the reference to subparagraph (ba) from
subsection 71(2B) as paragraph 71(1)(ba) has been previously deleted.
Application and transitional provisions (items 290 -- 296)
.398 These amendments apply from the date of Royal Assent.
.399 Part 5 of Schedule 1 provides savings and transitional arrangements
relating to:
· Item 290, the registration of life companies (consequential
to amendments to section 20 of Life Act made by item 90);
· Item 291, APRA's exemption powers (consequential to
amendments to section 11 of Banking Act by items 9 and
11);
· Item 292, APRA's exemption powers (consequential to
amendments to section 7 of Insurance Act by items 51
53);
· Item 293, APRA's exemption powers (consequential to
repeals of sections 125A and 125B of Life Act by item 111)
· Items 294 and 295, APRA's exemption powers
(consequential to repeals of sections 328 and 332 of SIS Act
by items 152 and 153); and
· Item 296, the Governor may make regulations.
2 Chapter 2
Financial Assistance
Outline of chapter
.1 Schedule 2 to this Bill amends the SIS Act and the Financial
Institutions Supervisory Levies Collection Act 1998 so that where a
superannuation fund has suffered loss as a result of fraudulent conduct or
theft that financial assistance is available on a more equitable basis. The
amendments also abolish the Special Protection Account.
Context of amendments
.2 Part 23 of the SIS Act provides a grant of financial assistance for
certain superannuation entities that suffer loss as a result of fraudulent
conduct or theft, subject to certain conditions.
.3 In 2003, the Government announced a review of Part 23 and released a
consultation paper seeking written submissions on the operation of Part 23
and the associated levy process under the Superannuation (Financial
Assistance Funding) Levy Act 1993. The Government released the
outcomes of the review in 2004.
.4 Following the review, the Government agreed to expand eligibility for
financial assistance under Part 23 to ensure treatment is more equitable.
Summary of new law
.5 These amendments will:
· expand eligibility for financial assistance under Part 23
which will ensure that treatment is more equitable;
· streamline the Part 23 application process to ensure that
applications for financial assistance will be processed in a
more efficient way; and
· abolish the Special Protection Account as it is not used for
the payment of financial assistance under Part 23.
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
Comparison of key features of new law and current law
New law Current law
A superannuation fund that is In order to make an application
eligible for financial assistance for financial assistance under Part
under Part 23 at the time an 23, a superannuation entity must
eligible loss is suffered is not meet the definition of `fund' at
prevented from making a Part 23 three separate points in time.
application despite subsequently
restructuring to a SMSF.
A trustee of a superannuation Former beneficiaries of a fund,
fund may make an application for who were beneficiaries at the time
financial assistance on behalf of of the eligible loss, may not be
all beneficiaries of the fund at the entitled to financial assistance if
time the loss was suffered (that they have transferred their savings
is, both current and former to another fund or exited the
beneficiaries of the fund). superannuation system subsequent
to the loss being suffered but
before the application for
assistance is made.
There will be equitable access to The definition of eligible loss for
financial assistance under Part 23 a defined benefit fund and an
irrespective of whether the fund accumulation fund differs so that
is a defined benefit fund or an a defined benefit fund must meet
accumulation fund. stricter criteria in order to obtain
financial assistance.
Clarifies that any deficit in the The definition of eligible loss as it
fund arising from the failure to currently stands may include
pay contributions is not covered losses in the fund arising from the
under Part 23. failure the pay contributions into
the fund.
The Minister will be able to Currently, the Minister does not
delegate certain administrative have the ability to delegate
functions under sections 230 and administrative functions under
230A of the SIS Act to reduce sections 230 and 230A of the SIS
the length of time taken to Act.
consider an application.
The Special Protection Account There is Special Protection
will be abolished as it is not used Account for the payment of
for the payment of financial financial assistance under Part 23.
assistance under Part 23.
General outline and financial impact
Detailed explanation of new law
.1 Part 23 of the SIS Act enables the trustee of a superannuation fund to
apply to the Minister for a grant of financial assistance where the fund has
suffered loss as a result of fraudulent conduct or theft.
.2 These amendments commence from the date of Royal Assent.
.3 Following on from a review into the operations of Part 23 a number of
amendments are being made so that financial assistance is available under
Part 23 on a more equitable basis. The amendments include:
· removing the differences between the treatment of
accumulation funds and Defined Benefit Funds (DBFs);
· allowing former beneficiaries to obtain financial assistance
under Part 23;
· allowing funds which were eligible for Part 23 assistance at
the time the loss was suffered but which subsequently
restructured into SMSFs to obtain financial assistance; and
· streamlining the Part 23 application process.
Abolishing the Special Protection Account (Items 1, 2 and 20)
.4 The Superannuation Protection Account is a special account for the
purposes of the Financial Management and Accountability Act 1997. It
was established to pay grants of financial assistance to superannuation
funds which suffer losses due to theft or fraud, and to hold funds collected
from the superannuation industry through the Financial Assistance Levy
(FAL). In practice, the account has never been used as all grant payments
and recoveries to date have been channelled through consolidated revenue.
As there is no intention to change the current approach for the foreseeable
future, the Superannuation Protection Account serves no practical purpose.
.5 Item 1 removes a definition of Account in section 16 of the Financial
Institutions Supervisory Levies Collection Act which refers to the Special
Protection Account established by section 234 of the SIS Act. The Special
Protection Account is being abolished with all payments of financial
assistance under Part 23 of the SIS Act coming out of the Consolidated
Revenue Fund, so the definition of Account is no longer required.
.6 Item 2 repeals section 24 of the Financial Institutions Supervisory
Levies Collection Act as it refers to the Special Protection Account in
relation to how payments of levy, any late payment penalty and
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
repayments of financial assistance are to be applied. The Special
Protection Account is being abolished.
.7 Item 2 substitutes the current requirements with one that states that if a
levy is imposed as a result of a determination by the Minister to make a
grant of financial assistance then amounts of the levy and late payment
penalty in respect of the levy received by the Minister and repayments of
the financial assistance must be paid to the Commonwealth.
.8 Item 20 repeals sections 234, 235, 236 and 237 of the SIS Act as they
make reference to the Superannuation Protection Account which is being
abolished so that any future payments of financial assistance under Part 23
will come out of the Consolidated Revenue Fund.
Differences between defined benefit and accumulation funds (Items 3 5)
.9 Items 3, 4 and 5 remove definitions relating to aspects of DBFs so that
there will be greater equity in how accumulation funds and DBFs are
treated for the purposes of claiming financial assistance under Part 23.
These amendments are required to reduce the inequity currently present in
the operation of Part 23. Under current arrangements, an accumulation
fund must have suffered loss as a result of fraudulent conduct or theft in
order to be eligible for financial assistance under Part 23. However, DBFs
must meet a higher threshold in order to successfully claim financial
assistance under Part 23.
.10 For a DBF, an eligible loss is a loss resulting from fraudulent conduct
or theft that an employer sponsor is required to pay to the fund, but would
be unable to pay without becoming insolvent. This distinction in treatment
between accumulation funds and DBFs creates inequity. The inequity
between accumulation funds and DBFs is pronounced when considered in
light of the funding arrangements in place for Part 23. All monies granted
under Part 23 are recouped through a levy on industry. This levy does not
remove, reduce or adjust the liability of DBFs in recognition of the limited
availability of financial assistance for this type of fund.
Definition of eligible loss (Item 6)
.11 Item 6 repeals the current definition of eligible loss in section 228 of
the SIS Act and substitutes a new definition which clarifies that any deficit
in the fund arising from the failure to pay contributions is not covered
under Part 23.
.12 It is appropriate that the SIS Act only provide financial assistance in
circumstances where the fund trustee has assumed responsibility for the
money. Therefore, the proposed amendment clarifies the intended scope of
the framework under Part 23 by explicitly preventing losses being claimed
General outline and financial impact
that arise as a result of the failure to pay contributions. This ensures that,
for both DBFs and accumulation funds, financial assistance should not be
available to recompense loss arising from a failure of the
employer-sponsor to meet its existing obligations to pay contributions to
the fund.
Self managed superannuation funds (Items 7 9)
.13 Item 7 repeals the definition of fund from section 228 of the SIS Act
as it currently defines fund as not including SMSFs. Under these
amendments, a fund which was a regulated superannuation fund at the
time the loss was suffered but subsequently restructured to an SMSF will
be eligible for financial assistance under Part 23. Therefore, the current
definition of fund in section 228 is no longer required as a definition
reflecting this change is inserted in section 229 of the SIS Act.
.14 Item 8 inserts a new paragraph in section 229 of the SIS Act so that a
fund that is a regulated superannuation fund (other than a SMSF) or an
approved deposit fund (ADF) at the time of the loss is eligible for financial
assistance under Part 23. This item clarifies that the superannuation entity
must only meet the definition of fund at the time the loss is suffered.
.15 Item 9 adds a subsection to section 229 of the SIS Act to clarify that
as long as a SMSF met the requirements in subsection (1) at the time the
loss was suffered, they will be eligible for financial assistance under Part
23.
Streamlining the Part 23 application process (Items 11 and 12)
.16 Items 11 and 12 amend sections 230 and 230A of the SIS Act to
enable the Minister to appoint a delegate and for that delegate to exercise
certain administrative functions such as requesting additional information
from the trustee submitting an application for financial assistance and
requesting written advice from APRA in relation to an application for
financial assistance.
.17 In order to streamline the processing of applications, it will be
beneficial if the Minister has the power to delegate certain administrative
functions contained in Part 23, to address these concerns.
.18 Specifically, the Minister or a delegate of the Minister will be
permitted to make a written request for advice to APRA under section
230A(1) and make any requests for further information from the trustee
under section 230.
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
Former beneficiaries (items 13, 16, 17, 18)
.19 Item 13 amends section 231 of the SIS Act to ensure that the Minister
may take into account the interests of former beneficiaries when
determining the amount of financial assistance to be granted.
.20 Under current section 231, if the Minister is satisfied that a fund has
suffered an eligible loss, he or she must then determine whether the public
interest requires that a grant of financial assistance should be made to the
trustee for the purposes of the fund, and if so, the amount of the assistance.
A risk exists that section 231, as it is currently formulated, may be
construed as not allowing a grant which extends to former beneficiaries as
`the fund' is no longer maintained for their benefit.
.21 Item 13 clarifies that the interests of former beneficiaries are relevant
as the grant for financial assistance should be made to the trustee for the
purposes of restoring the loss.
.22 Items 16 and 17 amend section 233 to ensure that the trustee is able to
make payments to former beneficiaries who were beneficiaries of the fund
when the eligible loss was suffered.
.23 Former beneficiaries, who were beneficiaries at the time of the eligible
loss, may not receive entitlement to Part 23 assistance due to the time
delay from when an eligible loss is suffered, the making of a Part 23
application and the grant of financial assistance. This may occur because
the beneficiary has transferred their savings to another superannuation
entity or they may have been forced to exit the system for reasons such as
retirement, before a Part 23 application is made or subsequently granted.
.24 It is inequitable to prevent former beneficiaries from receiving Part 23
financial assistance because they are no longer beneficiaries of the fund at
the time the application or grant is made. `Beneficiary' is defined in
section 10(1) as `a person ... who has a beneficial interest in the fund,
scheme or trust'. Once a person has left a fund, in most circumstances,
they will no longer have a beneficial interest in the fund and will therefore
not be a `beneficiary' for the purposes of the SIS Act. This amendment
will ensure that former beneficiaries are included when payments of
financial assistance are made under Part 23.
.25 Item 18 adds a new subsection to section 233 so that trustees are able
to determine and distribute payments to former beneficiaries without
breaching their legal duties to current beneficiaries.
.26 The conditions on Part 23 grants do not require the trustee to pay
certain amounts to each beneficiary. Rather the trustee must pay the money
into the corpus of the fund and it is then a matter for the trustee to
General outline and financial impact
determine how to distribute those funds between beneficiaries. But if
trustees are required to make payments to former beneficiaries (subject to
any condition the Minister may impose under paragraph (d) of section
233), this gives rise to potential conflicts with requirements imposed on
trustees by the SIS Act, the general law and the governing rules to act for
the benefit of beneficiaries.
Consequential amendments (items 10, 14, 15, 19, 21)
.27 Item 10 makes an amendment to section 230 to accommodate the
changes being made to the structure of the section by the introduction of
new subsections.
.28 Item 14 adds a new subsection to section 231 to state that the Minister
may grant financial assistance to a SMSF if they satisfy the requirements
in section 229. This item also includes a standing appropriation which is
appropriate as the amount paid out for claims under Part 23 are wholly
dependent on the number of applications. As this figure cannot be
determined in advance, a standing appropriation is suitable.
.29 This item also adds a subsection to clarify that the Consolidated
Revenue Fund is to be used when making payments under Part 23 rather
than the Special Account as it is being abolished.
.30 Item 15 makes an amendment to section 233 to accommodate the
changes being made to the structure of the section by the introduction of
new subsections.
.31 Item 19 repeals the current heading of Division 3 of Part 23 of the SIS
Act and substitutes it with a new heading `Repayment of financial
assistance'.
.32 Item 21 relates to the how claims made before and after the
commencement of this Schedule are to be treated. If a loss is suffered by
the fund before the commencement of this Schedule, but an application for
financial assistance is made on or after the commencement of this
Schedule, then the amendments will apply.
.33 If an application for financial assistance in relation to an eligible loss
was made before the commencement of this Schedule, the amendments
being made by this Schedule do not apply.
.34 This delineation between claims made before and after the
commencement of this Schedule is required to create certainty for trustees
submitting applications for financial assistance.
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
REGULATION IMPACT STATEMENT
Background
.35 Superannuation is a key element of the Government's retirement
incomes policy and its strategy to address the long-term consequences of
an ageing population. The prudential regulatory framework for
heasuperannuation is set out in the Superannuation Industry (Supervision)
Act 1993 (the SIS Act). This framework is designed to provide a high level
of safety for the superannuation savings of all Australians and promote
public confidence in the superannuation system.
.36 The Government does not guarantee superannuation savings.
However, in recognition of the compulsory nature of superannuation and
its role in retirement income policy, the Government provides protection
for superannuation fund beneficiaries that have suffered loss as a result of
fraudulent conduct or theft. Part 23 of the SIS Act provides a clear
framework for providing financial assistance to superannuation funds that
suffer a loss as a result of fraudulent conduct subject to certain conditions
being met.
.37 Under Part 23, if a fund suffers an `eligible loss' and the loss has
caused a substantial diminution of the fund leading to difficulties in the
payment of benefits, the trustee may apply to the Minister for Revenue and
Assistant Treasurer for a grant of financial assistance. Eligible loss means
losses resulting from fraudulent conduct or theft in superannuation funds
regulated by the Australian Prudential Regulation Authority (APRA). Note
that pooled superannuation trusts (PSTs) and self managed superannuation
funds (SMSFs) are not eligible for Part 23 financial assistance.
.38 All grants of financial assistance made under the Part 23 framework
are firstly paid by the Government from consolidated revenue. The amount
paid is then recovered from the superannuation industry through the
imposition of the Financial Assistance Levy (FAL), which is applied to all
APRA-regulated superannuation funds, including both DBFs and
accumulation funds. SMSFs and PSTs are not levied.
.39 The Government examined the issue of compensating fund members
affected by fraudulent conduct or theft in superannuation funds in its
October 2001 Issues Paper, `Options for Improving the Safety of
Superannuation'. The Superannuation Working Group that was appointed
by the Government to examine and consult on the Issues Paper
recommended in its final report that the Government review the operation
of Part 23 of the SIS Act after the first decision to pay financial assistance
General outline and financial impact
had been made. The first decision to grant financial assistance under the
provisions of Part 23 was made in June 2002.
Review of Part 23
.40 The Government subsequently released the initial Consultation Paper
`Review into Part 23 of the Superannuation Industry (Supervision) Act
1993' on 4 June 2003. The Review sought comments from industry on:
· the entities covered by Part 23;
· what should constitute an eligible loss;
· what should constitute a substantial diminution of a fund's
assets;
· the level of compensation;
· whether post-retirement products should be eligible for
compensation;
· the process for determining applications; and
· the funding of compensation arrangements.
Consultations
.41 The paper sought submissions from the public by 1 August 2003 and
eight written submissions were received from industry associations
representing the superannuation industry, superannuation trustees,
accountants, members of the public and APRA.
.42 The Department of Finance and Administration and the Australian
Taxation Office (ATO) were also consulted as part of the Review.
.43 Comments from both industry stakeholders and Government agencies
were generally supportive of proposals for change arising from the
Review. Representatives from industry were particularly supportive of
proposals for legislative amendment to promote equitable access to
financial assistance under Part 23 for DBFs.
.44 In relation to the definition of eligible loss, two submissions raised the
possibility of including dishonesty in the definition. Adding an element of
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
dishonesty was deemed unnecessary as it is central to the concept of
fraudulent conduct. In addition, this would make the test for Part 23 more
subjective and would require a much wider class of evidence to be
considered.
.45 In relation to the issue of what should constitute a substantial
diminution of a fund's assets, some submissions suggest that a threshold
should be used. These suggestions were not taken up to ensure flexibility
and allow individual applications can be considered on a case by case
basis.
.46 In addition, the Government conducted an industry roundtable
consultation with key stakeholders.
.47 On July 7 2004, the then Minister for Revenue and Assistant
Treasurer, Senator Helen Coonan, announced that the Government
accepted all the recommendations from the Review. The key findings of
the Review included that:
· a fund must be a regulated superannuation fund or an
approved deposit fund, but not a SMSF, at the time a loss is
suffered in order to be eligible for financial assistance under
Part 23;
· however, if individual members transfer into a SMSF,
another regulated superannuation fund or an approved
deposit fund after the loss is suffered, they are not precluded
from applying for assistance;
· the existing distinction between DBFs and accumulation
funds for the purposes of Part 23 should be removed;
· Part 23 should only cover losses suffered as a result of
fraudulent conduct or theft; however, the legislation should
be amended to clarify that any deficit in the fund arising
from the failure of an employer-sponsor to pay
contributions, is not covered under Part 23; and
· a number of specific policy aspects of the current
arrangements under Part 23 be retained.
.48 A more detailed examination setting out the particulars of some of the
outcomes can be found in the next section.
General outline and financial impact
Outcomes of the Review
1. Ensure all beneficiaries of the fund at the time of the eligible loss are
entitled to Part 23 financial assistance
.49 Due to the time delay from when an eligible loss is suffered, to the
time when a grant of financial assistance is made, former beneficiaries,
who were beneficiaries at the time of the eligible loss, may not receive
entitlement to Part 23 assistance. This occurs where beneficiaries have
transferred their superannuation savings to another fund before a Part 23
application, and subsequently a grant of financial assistance, is made.
Alternatively, they may have been forced to exit the system for reasons
such as retirement.
.50 The Government considered it inequitable to prevent former
beneficiaries from receiving Part 23 financial assistance because they are
no longer beneficiaries of the fund at the time the grant is made. As a
result, the Government has committed to amend the SIS Act to ensure that
a fund may make an application on behalf of all the members at the time
the loss was suffered (that is, both current and former beneficiaries of the
fund).
2. `Eligible loss' fund restructures to an SMSF before making a Part 23
application
.51 Difficulties in the operation of Part 23 have also occurred in the case
of small APRA-regulated funds (SAFs) that have suffered an eligible loss
(`eligible loss' funds) and subsequently restructured to become an SMSF
before making a Part 23 application. As a result of this restructure, they are
ineligible for Part 23 financial assistance because the current legislative
provisions specifically exclude an SMSF from making an application for
financial assistance.
.52 The policy of Part 23 is that financial assistance is not available to
SMSFs because all members are trustees and therefore responsible for the
prudent operation of the fund and investment strategy. However, the
Government considered it inequitable to preclude a superannuation fund
that was eligible for Part 23 financial assistance at the time the loss was
suffered, and that restructured to an SMSF arrangement before making an
application, from applying for Part 23 assistance. The Government is
committed to ensuring that a fund eligible for financial assistance under
Part 23 is not precluded from making an application despite subsequently
transferring to an SMSF.
.53 In the case of Commercial Nominees of Australia Limited (CNAL),
approximately 19 funds that were SAFs under the trusteeship of CNAL at
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
the time of the eligible loss subsequently restructured to become SMSFs.
As a result, these funds were ineligible to apply. The Government has
provided financial assistance to some funds in this situation through an Act
of Grace payment made under the Financial Management and
Accountability Act 1997 (FMA Act). However, this is not considered an
optimal solution, as the costs are subsidised by Government since it is not
possible to recoup these costs through the FAL.
3. Distinction between accumulation funds and DBFs
.54 The differential treatment of DBFs under the legislative criteria was
raised by industry representatives during the consultation process. An
accumulation fund must have suffered loss as a result of fraudulent
conduct or theft in order to be eligible for financial assistance under
Part 23. However, DBFs must meet a higher threshold in order to
successfully claim financial assistance under Part 23. For a DBF, an
eligible loss is a loss resulting from fraudulent conduct or theft that an
employer-sponsor is required to pay to the fund, but would be unable to
pay without becoming insolvent.
.55 During the review consultation, stakeholders expressed concern that
the existing legislation creates inequity by not recognising that a
superannuation entity and its employer-sponsor are separate legal entities.
It was submitted that the impact of losses arising from fraudulent conduct
or theft should not be borne by the employer-sponsor, who has already
paid contributions to the fund. The Government agreed that the SIS Act
should be amended to remove the distinction between accumulation funds
and DBFs. This would ensure a level playing field for DBFs and
accumulation funds in relation to access to financial assistance.
Proposed Legislative Amendments
.56 Part 23 of the SIS Act is being amended to ensure that the trustee of a
fund may make an application for financial assistance on behalf of all
beneficiaries of the fund at the time the loss was suffered (that is, both
current and former beneficiaries). In addition, the SIS Act is being
amended to ensure that a superannuation fund that is eligible for financial
assistance under Part 23 at the time a loss is suffered is not prevented from
making a Part 23 application despite subsequently restructuring to an
SMSF.
.57 Amendments to Part 23 of the SIS Act are also being made to remove
the distinction between DBFs and accumulation funds for the purpose of
defining what constitutes an eligible loss. This will ensure that both types
of fund must meet the same threshold requirements in order to be eligible
for financial assistance and will give clearer recognition to the
employer-sponsor as a separate legal entity to the fund.
General outline and financial impact
.58 These amendments would ensure that the Part 23 framework operates
in a more equitable manner.
Assessment of impacts (costs and benefits)
.59 The main groups likely to be affected by the proposed amendments
are superannuation funds and their respective trustees, members of
APRA-regulated superannuation funds, employer-sponsors of
APRA-regulated DBFs, the Government and the community.
Costs
Costs to superannuation funds and trustees
.60 These amendments would require trustees of an APRA-regulated fund
eligible for Part 23 financial assistance to ensure that all eligible
beneficiaries (both current and former fund members), that were
beneficiaries at the time of the eligible loss, receive their entitlement to
financial assistance. It is expected that there will be some administrative
costs involved in identifying and locating former beneficiaries as current
arrangements under Part 23 do not allow financial assistance to be paid to
these persons. These administrative costs are generally included in the
grant of financial assistance, which is subsequently recouped from all
members of APRA-regulated superannuation funds through a levy.
.61 These amendments may potentially increase the number of
determinations made under Part 23 (because the legislation will expand the
eligibility criteria for DBFs and `eligible loss' funds that subsequently
restructure to an SMSF). This is not expected to increase the compliance
costs associated with the administration of the levy because there is only
one levy to recoup the aggregate of financial assistance granted in a
financial year.
Costs to employer-sponsors of APRA-regulated DBFs
.62 These amendments would not impose any direct costs on
employer-sponsors of APRA-regulated DBFs.
Costs to members of APRA-regulated superannuation funds
.63 These amendments would potentially increase the amount of the FAL
levied on industry. Consequently the administrative costs payable on
individual member accounts will also increase as trustees seek to recover
the cost of the levy from members. However, given that any increase in
levies would be spread over a larger number of members, the additional
cost per member would be very small.
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
.64 In addition, these amendments would potentially result in an increase
in the number of applications. The increase in applications from DBFs is
not expected to be significant. DBFs comprise a small proportion of the
total superannuation market. As at 30 June 2006, there were 327,214
superannuation funds in total with 57 of these funds being DBFs. As a
proportion of total assets, only 8.6 per cent (or $56.4 billion) of total
superannuation assets were held by DBFs.
Costs to Government
.65 The Government would incur costs in developing legislation.
However, those time and resource costs are not expected to be significant.
.66 These amendments may increase the administrative costs associated
with processing Part 23 applications. There may be an increase in the
number of applications from `eligible loss' funds that have restructured to
an SMSF before making an application or from DBFs.
.67 However, the increase in applications is not expected to be significant.
To date, there have been approximately 19 `eligible loss' funds that have
been denied access to financial assistance under Part 23 because they
restructured to an SMSF arrangement before making an application. These
funds were compensated for lack of access to Part 23 financial assistance
through Act of Grace payments made under the FMA Act. The total
amount paid to the SMSFs was $155,931.69
Benefits
Benefits to community
.68 Given the role of superannuation in the Government's retirement
income policy, the compulsory nature of some superannuation savings and
information asymmetries, it is essential that the community retain
confidence in the safety of their superannuation savings. The proposal
would also enhance public confidence by providing greater certainty and
equity in the operation of Part 23.
Benefits to superannuation funds and trustees
.69 APRA-regulated funds that suffer an eligible loss and restructure to an
SMSF before making an application under Part 23 would benefit directly
from the proposed legislative amendments. These amendments will result
in a more equitable outcome for these funds that have inadvertently been
denied access to financial assistance because they have restructured.
.70 DBFs would benefit directly from legislative amendments that remove
the additional eligibility requirements for DBFs seeking financial
General outline and financial impact
assistance under Part 23. Such amendments would improve the availability
of financial assistance for DBFs, and would improve certainty by
simplifying the process for seeking redress. These amendments are also
expected to improve equitable treatment between DBFs and accumulation
funds.
Benefits to employer-sponsors of APRA-regulated DBFs
.71 These amendments directly reduce the employer-sponsor's exposure
to costs, as the employer-sponsor would no longer be solely responsible
for making up contributions lost due to fraudulent conduct or theft. The
legislative amendments recognise that the employer-sponsor and the fund
are separate legal entities and remove the potential liability for the
employer-sponsor to make good losses suffered due to fraudulent conduct
or theft.
.72 In removing the employer-sponsor's potential liability to the fund,
these amendments also increase certainty for the employer-sponsor
regarding their obligations to make contributions to the fund.
Benefits to members of APRA-regulated superannuation funds
.73 These amendments facilitate more equitable access to financial
assistance in cases of fraudulent conduct or theft. By improving the
certainty and security of the Part 23 framework, these amendments are also
likely to increase confidence in the superannuation system. These
amendments further reinforce that there is an effective safety net available
when funds suffer losses as a result of fraudulent conduct or theft.
.74 These amendments remove the legal impediments to the operation of
Part 23 that prevent an equitable outcome for former beneficiaries and
APRA-regulated funds that suffer an eligible loss and subsequently
restructure to become an SMSF.
.75 These amendments also ensure that members from both DBFs and
accumulation funds have equitable access to financial assistance in
instances of fraudulent conduct or theft. Currently the cost of financial
assistance is recovered through the imposition of levies on both DBFs and
accumulation funds. However, members of DBFs do not have the same
access to financial assistance.
.76 Improving access to the financial assistance provisions for DBFs may
also impact on the financial viability of such funds, making it less likely
that a DBF would be wound up in favour of an accumulation fund.
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
Benefits to Government
.77 Improved confidence in the superannuation system is likely to result
in more willingness to save for retirement. This would assist the
Government in achieving its retirement income goals.
Implementation and Review Strategy
.78 The amendments will take effect for all applications lodged under
Part 23 of the SIS Act after the date of Royal Assent. As drafted, the
proposed amendments will implement this.
Review strategy
.79 The Government will continue to monitor the operation of Part 23 in
respect of any new applications for financial assistance after the
amendments have been implemented and will liaise with APRA and
industry on issues relating to:
· the number of applications received;
· the type of funds submitting applications; and
· the processing of applications.
2 Chapter 3
Accounts, reporting obligations etc
Outline of chapter
.1 Schedule 3 to this Bill amends the SIS Act, SMSF Taxation Act and
the ITAA 1936 to:
· consolidate and rationalise the prudential reporting
requirements under the SIS Act;
· distinguish between reporting requirements relating to RSEs
and SMSFs; and
· remove the regulatory gap that exists in the SIS Act for the
reporting of contraventions of the market conduct and
disclosure provisions in the Corporations Act.
Context of amendments
.2 The prudential reporting requirements for superannuation entities are
located in four Parts of the SIS Act and Superannuation Industry
(Supervision) Regulations 1994 (SIS Regulations). This has the effect of
creating unnecessary complexity and potential confusion as to reporting
obligations. In addition, the terminology used in the SIS legislation can
make it difficult to determine which reporting obligations relate to SMSFs
and which relate to APRA-regulated superannuation entities, as both are
`superannuation entities'. The reporting obligations for SMSFs (regulated
by the ATO differ slightly from those requirements imposed on
APRA-regulated entities.
Summary of new law
.3 New Part 4 of the SIS Act will contain the reporting obligations for
RSEs and SMSFs. These amendments apply from the date of Royal
Assent.
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
Comparison of key features of new law and current law
New law Current law
The reporting obligations under The reporting obligations under
the SIS Act will be found under SIS are found in Parts 4 and 13 of
new Part 4. the SIS Act.
Detailed explanation of new law (items 8, 10, 12, 14)
.1 The SIS Act is the principal legislation establishing the prudential
framework for the regulation of the superannuation industry, including the
prudential reporting requirements of superannuation entities. The purpose
of the reporting requirements is to assist the regulator in the prudential
supervision of the superannuation industry.
.2 The prudential reporting requirements in the SIS Act are currently
located in Parts 4 and 13. The consolidation and rationalisation of the
prudential reporting requirements in the SIS Act aims to ensure ease of
compliance by superannuation entities. This assists the regulator in its
prudential supervision activities and promotes confidence that the entities
providing superannuation services are prudently managed.
.3 In accordance with the Superannuation Safety Amendment Act 2004,
an amendment was made that from 1 July 2006, the definition of
`approved deposit fund' would delete a reference to the fund being
maintained by an approved trustee. Accordingly, a fund which was
formerly an Approved Deposit Fund, prior to 1 July 2006, because it had
an approved trustee is no longer an ADF if the trustee has not become an
RSE licensee. The fund will also not meet the definition of an RSE in
subsection 10(1) of the SIS Act because it is not an ADF. This situation
leads to the unintended result that the trustee of the fund will not be in
breach of the offence provision in section 29J of the SIS Act because that
provision only applies to a trustee of an RSE.
.4 By removing the reference to an RSE licensee in the definition of an
ADF this will ensure that section 29J applies as intended. That is, ADFs
that operate with an unlicensed trustee will be subject to the offence
provisions in section 29J. This provision will provide a strong incentive
for those funds to adhere to the licensing provisions under the SIS Act.
.5 Item 8 repeals the current Part 4 of the SIS Act and replaces it with a
new Part 4 which consolidates the reporting obligations for RSEs and
SMSFs that were previously found in Parts 4 and 13 of the SIS Act. The
consolidation and rationalisation of the prudential reporting requirements
General outline and financial impact
in the SIS Act aims to ensure ease of compliance by superannuation
entities. This assists the regulator in its prudential supervision activities
and promotes confidence that the entities providing superannuation
services are prudently managed.
.6 The new Part 4 is titled accounts, audit and reporting obligations for
superannuation entities and includes requirements:
· under new section 35A to keep accounting records (existing section
111 of the SIS Act);
· under new section 35B to prepare reporting documents/accounts and
statements (existing section 112 of the SIS Act);
· under new section 35C relating to the audit of accounts and statements
(existing section 113 of the SIS Act);
· under new section 35D to lodge annual returns (existing section 36A
of the SIS Act); and
· under new section 36 to lodge audit reports (existing section 36 of the
SIS Act).
.7 Item 8 also clarifies which reporting requirements apply to RSEs and
which reporting requirements apply to SMSFs. SMSFs and RSEs are both
`superannuation entities', but as SMSFs are regulated by the ATO, the
reporting requirements differ slightly from those requirements imposed on
RSEs. These amendments to the SIS Act aim to clearly distinguish
between the reporting requirements that apply to RSEs and SMSFs.
.8 More specifically, item 8 also makes technical amendments to current
section 36 clarify the intent and improve the operation of the SIS Act. The
purpose of section 36 of the SIS Act is to impose the requirement for RSEs
to lodge an audit report with APRA.
.9 Current subsection 36(4) is repealed under this item. Pursuant to
current subsection 36(4) if the return given under FSCODA (the APRA
annual return) is not given on a data processing device, or by way of
electronic transmission, that is, it is provided in hard copy format, the copy
of the audit report may be endorsed as being a true copy on the return.
Therefore, the trustee may sign the annual return stating that a copy of the
audit report provided to APRA is a true copy.
.10 However, this does not occur in practice. If a copy of the audit report
is provided in hard copy, the trustee will endorse that it is a true copy on
the audit report and not the annual return. Therefore, this provision does
not operate as intended.
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
.11 Current subsection 36(5) is also being repealed. Pursuant to
subsection 36(5) SMSFs were explicitly exempted from this requirement.
However, in 2001, subsection 36(5) was amended to include a reference to
FSCODA. In its current form subsection 36(5) is no longer effective in
exempting SMSFs from this requirement and therefore, technically,
SMSFs are currently required to lodge an audit report under subsection
36(1) with APRA. However, in practice SMSFs are not meeting this
requirement because it is not the intent of the provision.
.12 Item 8 also amends the requirements currently found under paragraph
113(3)(b) (new paragraph 35C(5)(c)) so that it includes a reference to the
Corporations Act and Corporations Regulations 2001 (Corporations
Regulations). Pursuant to new subsection 35C(1) of the SIS Act, each
trustee of a superannuation entity must appoint an approved auditor to
provide the trustee with an audit report in the approved form. New
subsection 35C(5) expands on what is an approved form.
.13 New paragraph 35C(5)(c)) provides that the approved form must
include a statement by the auditor relating to compliance with the
provisions in the SIS Act, SIS Regulations and FSCODA, as identified in
the form. Previously there was no reference to the Corporations Act and
Regulations in this provision. However, the approved form requires the
approved auditor to provide a statement that the entity has complied with
the provisions of the Corporations Act and Regulations, identified in the
form. This amendment ensures that the provisions in the Corporations Act
and Regulations are also captured in new paragraph 35C(5)(c).
.14 Item 10 amends paragraph 129(1)(a) of the SIS Act to include a
reference to paragraph (b) of the definition of `regulatory provision' in
section 38A of the SIS Act. Pursuant to current section 129 of the SIS Act,
an auditor or actuary who in the performance of their functions, forms an
opinion that it is likely that a contravention of the SIS Act, SIS
Regulations or FSCODA may have occurred, may be occurring, or may
occur, must tell the trustee of the superannuation entity about the matter in
writing. If the contravention or potential contravention may affect the
interests of members or beneficiaries, the auditor or actuary is also
required to notify the Regulator in writing.
.15 Under section 129 there is currently no obligation on the auditor or
actuary to report contraventions of the market conduct and disclosure
provisions of the Corporations Act to the trustee or the regulator. This is
contrary to the situation that existed before amendments were made by the
FSR legislation which transferred the market conduct and disclosure
provisions from the SIS Act to the Corporations Act. These amendments
will ensure that contraventions of the relevant Corporations Act provisions
General outline and financial impact
are reported. The reporting of contraventions of the relevant Corporations
Act provisions is to apply to RSEs and not SMSFs.
.16 Items 11 and 12 amends subsection 130A(1) to include the giving of
information to APRA if the auditor or actuary considers that the
information will assist ASIC in performing its functions under the
Corporations Act.
.17 Pursuant to current section 130A of the SIS Act, an auditor or actuary
may give the Regulator information about the superannuation entity or
trustee in the performance of their functions if they consider that the
information will assist the regulator in performing its functions under the
SIS Act, SIS regulations or FSCODA. For the purposes of this section, the
regulator is APRA in relation to RSEs and the ATO in relation to SMSFs.
.18 However, this provision does not provide for the giving of information
to the regulator to assist the ASIC in the performance of its functions under
the Corporations Act. Therefore, this amendment will ensure that auditors
and actuaries may provide information to the Regulator (APRA) where
they consider the information will assist ASIC in performing its functions
under the Corporations Act.
.19 Item 14 introduces a number of savings and applications provisions
into the SMSF Taxation Act so that if immediately before the
commencement of this Schedule subsection 111(2) or 112(4) of the SIS
Act applied to a trustee, then that subsection continues to apply. Also, if
before the commencement of this Schedule an auditor requested that a
trustee of a superannuation entity give the auditor a document under
subsection 113(1A) of the SIS Act and the request had not been complied
with, the trustee's obligation continues to apply.
.20 In addition, sections 35B, 35C and 35D of the SIS Act apply in
relation to a superannuation entity in respect of the year of income in
which those sections commence and each later year of income.
Consequential amendments (items 1, 2, 4 -- 7, 9, 13)
.21 Items 1 and 2 are amendments to correct a misdescribed amendment.
.22 Item 1 inserts reference to a report submitted under section 13 of
FSCODA. Item 2 repeals item 152 of Schedule 2 under the Financial
Sector (Collection of Data Consequential and Transition Provisions) Act
2001. This removes the reference to section 36 SIS Act under paragraph
9(2)(a) of Financial Institutions Supervisory Levies Collection Act 1998.
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
.23 The proposed amendment was misdescribed as a result of two
amendments in separate Bills attempting to amend paragraph 9(2)(a) at the
same time.
.24 Item 3 makes consequential amendments to the ITAA 1936 to reflect
the change in numbering of section 36A of the SIS Act to section 35D of
the SIS Act.
.25 Item 4 is a consequential amendment as a result of consolidating the
reporting obligations for RSEs and SMSFs. It updates a table in section 4
of the SIS Act to reflect the consolidated reporting requirements in Part 4
of the SIS Act.
.26 Item 5 repeals part of a table in section 4 of the SIS Act which refers
to Part 13 of the SIS Act which is being repealed under the proposal to
consolidate the reporting obligations under the SIS Act.
.27 Item 6 is a consequential amendment as a result of consolidating the
reporting obligations for RSEs and SMSFs. It amends a reference under
subparagraph 6(1)(a)(vii) to Part 13 which is being consolidated into the
new Part 4 of the SIS Act.
.28 Item 7 inserts new subsection 29(1A), to provide APRA with the
power to cancel the registration of a RSE, where the entity moves from
APRA-regulation to ATO-regulation after converting to an SMSF. Current
section 29N provides that APRA must cancel the registration of an RSE
where the trustee lodges a reporting document stating that the entity has
been wound up. However, this provision does not give regard to the
instance where an RSE switches to become a fund regulated by the ATO.
The fund will no longer be an RSE, but there are currently no grounds for
APRA to cancel the registration of the fund.
.29 Item 9 repeals Part 13 of the SIS Act as the reporting requirements
previously found in Part 13 will be moved to the new Part 4 of the SIS
Act.
.30 Item 13 is a consequential amendment that amends a reference to
current section 36A in section 15DA of the SMSF Taxation Act so that it
refers to the new numbering in the SIS Act.
2 Chapter 4
Technical amendments relating to
legislative instruments
Outline of chapter
.1 Schedule 4 to this Bill makes amendments to legislation that are
consequential on the enactment of the LIA. Items in this Schedule replace
references to `Acts Interpretations Act 1901' (AIA) with references to
`Legislative Instruments Act 2003'.
Detailed explanation of new law
.2 Schedule 4 makes technical amendments to various legislation that are
consequential on the enactment of the LIA. These amendments do not in
any way affect the operation of the various legislation.
.3 The amendments replace references to `disallowable instrument for the
purposes of section 46A of the Acts Interpretation Act 1901', `must be in
writing' and `determination in writing' with `legislative instrument', the
latter being subject to the requirements of the LIA, rather than AIA. These
replace references to AIA with references to LIA.
.4 These also specify that a legislative instrument may take effect before
it is registered on the FRLI, notwithstanding section 12(2) of the LIA.
.5 These amendments apply from the date of Royal Assent.
.6 These technical amendments are made to the:
· ASIC Act (Item 1);
· Authorised Deposit taking Institutions Supervisory Levy
Imposition Act (Items 2 and 3);
· Authorised Non operating Holding Companies Supervisory
Levy Imposition Act 1998 (Items 4 and 5);
· Banking Act (Items 6 to 9);
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Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007
· Cheques Act 1986 (Items 10 and 11);
· Commonwealth Bank Sale Act 1995 (Item 12);
· Commonwealth Borrowing Levy Collection Act 1987 (Items
13 to 15);
· Corporations Act (Items 16 to 30);
· Currency Act 1965 (Items 31 to 34);
· Financial Sector (Transfers of Business) Act 1999 (Items 35
and 36);
· Financial Sector (Collection of Data) Act 2001 (items 37 to
40);
· Insurance Acquisitions and Takeovers Act 1991 (Items 41
and 42);
· Insurance Act (Items 43 to 50);
· Life Insurance Supervisory Levy Imposition Act 1998 (Items
51 and 52);
· Payment Systems and Netting Act 1998 (Items 53 and 54);
· Retirement Savings Account Providers Supervisory Levy
Imposition Act 1998 (Item 55 and 56);
· SIS Act (Items 57 to 73);
· Superannuation Supervisory Levy Determination Validation
Act 2000 (Item 74); and
· Superannuation Supervisory Levy Imposition Act 1998
(Items 75 and 76).
101
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