Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2008-2009
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
Financial Sector legislation amendment (enhancing supervision and
enforcement) bill 2009
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Assistant Treasurer, the Hon Chris Bowen MP)
Table of contents
Glossary 1
General outline and financial impact 3
Chapter 1 Non-operating holding companies 7
Chapter 2 Injunctions 25
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
|Abbreviation |Definition |
|ADI |Authorised deposit-taking |
| |institution |
|APRA |Australian Prudential |
| |Regulation Authority |
|APRA Act |Australian Prudential |
| |Regulation Authority Act 1998|
|Banking Act |Banking Act 1959 |
|Corporations Act |Corporations act 2001 |
|Federal Court |Federal Court of Australia |
|Government |The Australian Government |
|Insurance Act |Insurance Act 1973 |
|Life Insurance Act |Life Insurance Act 1995 |
|SIS Act |Superannuation Industry |
| |(Supervision) Act 1993 |
General outline and financial impact
1. Non-operating holding companies
Schedule 1 of the Financial Sector Legislation Amendment (Enhancing
Supervision and Enforcement) Bill 2009 (the Bill) introduces
measures to regulate the non-operating holding companies (NOHCs) of
life insurance companies.
This schedule amends the Life Insurance Act 1995 and other Acts to
establish a prudential regulation regime for such NOHCs, modelled
on the existing prudential regulation regime for authorised deposit-
taking institutions (ADIs) and general insurers.
The regulatory regime will be administered by the Australian
Prudential Regulation Authority (APRA).
Life insurance NOHCs will be required to be registered under the
Life Insurance Act and be subject to APRA's supervision. They will
be required to comply with prudential standards, reporting
obligations, directions issued by APRA and investigations. APRA
will be able to seek the disqualification of persons in specified
positions in the body corporate. Registered NOHCs may also be
liable to pay a financial institutions levy.
Date of effect: Items in Schedule 1 will apply from the day of
proclamation. If any items do not commence within 6 months of the
Bill receiving Royal Assent, these items will commence on the first
day on or after the 6 month period.
Proposal announced: The measures were announced in the Treasurer's
Press Release No. 061 of 2 June 2008 and in the Minister for
Superannuation and Corporate Law's Press Release No. 018 of
2 March 2009.
Financial impact: Low. APRA's supervision of life insurance NOHCs
is expected to be funded by industry on a user-pays basis. APRA is
also expected to incur time and resource costs in developing new
standards for life insurance NOHCs, however, these costs are not
expected to be significant.
Compliance cost impact: Life insurance NOHCs will be required to
become authorised under the Life Insurance Act and comply with
Australia's prudential regime if they wish to continue to be NOHCs
of registered life insurers in Australia. Such bodies corporate
may also be liable to pay a financial institutions levy.
Summary of Regulation Impact Statement
Impact: Life insurance NOHCs will be required to become authorised
under the Life Insurance Act and comply with Australia's prudential
regime if they wish to continue to be NOHCs of registered life
insurers in Australia.
Main points:
. Registration of NOHCs will enable APRA to develop capital
requirements for the group on a consolidated basis. For
well-run groups, the total capital requirement is expected
to be similar to that currently held by the life insurance
company. Capital requirements will be higher if the risks
of the corporate group are higher.
. APRA may extend its current standard on governance for
life companies to apply to NOHCs of life companies. The
standard will be similar to that applying to NOHCs of ADIs
and general insurers. NOHCs of life companies which are
also NOHCs of ADIs and NOHCs of general insurers already
meet the requirements for good governance.
. APRA may extend its current standard on fitness and
propriety for life companies to apply to NOHCs of life
companies. Many directors on the Board of the life
company are also likely to be appointed to the Board of
the NOHC and therefore already meet fit and proper
criteria. Thus, the extra costs involved in meeting the
criteria are likely to be low.
2. Injunctions
Schedule 2 of the Bill introduces measures to harmonise court
injunction powers across prudential legislation (Banking Act 1959,
Insurance Act 1973, Life Insurance Act and Superannuation Industry
(Supervision) Act 1993 (SIS Act)) so that APRA can seek injunctions
for conduct relating to the financial health of an entity.
APRA will be able to seek an injunction where a person engages, or
proposes to engage, in contravention of the prudential Acts or
breaches a condition on the authorisation or registration of a
prudentially regulated entity.
The consistent range of injunctions that APRA will be able to seek
are restraining, performance, consent and interim injunctions for
conduct relating to breaches of the prudential Acts.
Date of effect: Amendments in Schedule 2 will apply from the day
of Royal Assent.
Proposal announced: The measures were announced in the Treasurer's
Press Release No. 061 of 2 June 2008 and in the Minister for
Superannuation and Corporate Law's Press Release No. 018 of
2 March 2009.
Financial impact: Nil. APRA's supervision of prudentially
regulated entities are expected to be funded by industry on a user-
pays basis.
Compliance cost impact: Nil. These measures are not expected to
increase the volume of injunctions sought by APRA.
Chapter 1
Non-operating holding companies
Outline of chapter
1. Schedule 1 of the Bill amends the Life Insurance Act and related
legislation to establish a regulatory regime for NOHCs of
registered life insurance companies.
Context of amendments
2. Currently, APRA has the power to regulate a NOHC of an authorised
deposit taking institution (ADI) under the Banking Act and of a
general insurer under the Insurance Act.
3. This involves the power to authorise, determine standards and
request information from ADIs or general insurers, the authorised
NOHCs of those entities and subsidiaries thereof - that is, the ADI
or general insurer and the group that it operates within.
4. However, APRA does not have the power to regulate NOHCs of life
insurance companies under the Life Insurance Act.
5. Most life companies operate as part of a financial conglomerate or
corporate group, with decisions affecting a life company often made
at the group level. Many businesses are structured with an
unregulated holding company owning and controlling the life
company. NOHCs' decisions about the conglomerate can have
significant impact on the policyholders of the life company in the
conglomerate. However, under the Life Insurance Act, APRA may only
regulate the life company and its subsidiaries.
6. International experience has demonstrated the interconnection
between companies in the conglomerate, including between
prudentially regulated entities and unregulated entities.
7. These amendments will allow APRA to regulate NOHCs of prudentially
regulated life insurers, recognising that NOHCs can have a
significant impact on the safety and stability of life companies.
Doing so will strengthen the regulatory framework, in line with the
regulation of ADIs and general insurers.
8. In line with the regulatory framework that applies to conglomerates
containing an ADI or general insurer, subsidiaries of life
insurance NOHCs and life insurers will be brought within APRA's
regulatory scope. These changes ensure that APRA has access to
relevant information about the conglomerate's financial health and
conduct, where its conduct or activities can impact on the life
insurers and their policyholders.
9. This will bring the regulation of life insurance NOHCs into line
with the regulation of ADI and general insurance NOHCs.
Summary of new law
10. NOHCs of life companies will be subject to prudential regulation
under the Life Insurance Act.
11. NOHCs that own one or more life companies will be required to
register with APRA. APRA will have the power to register a NOHC,
impose conditions on the registration, revoke the registration and
apply prudential standards in relation to authorised NOHCs and
conglomerate groups under that Act. For example, the responsible
persons of a NOHC will need to meet 'fit and proper' requirements,
and the NOHC will be required to meet governance requirements.
12. A registered NOHC will have to comply with applicable reporting
requirements under the Life Insurance Act and the Financial Sector
(Collection of Data) Act 2001. Specified persons within the NOHC
will have reporting obligations. APRA will also be able to monitor
a registered NOHC and investigate its affairs where the NOHC has
breached a provision of the Life Insurance Act or other applicable
law, or where another specified circumstance exists.
13. These requirements and obligations for registered NOHCs are
consistent with the requirements and obligations that currently
apply to life companies.
14. The conduct of subsidiaries that are relevant to prudential
supervision are also brought within the enhanced regulatory
framework. Subsidiaries of a registered NOHC or of the life
company will have to comply with applicable prudential and
reporting requirements. These requirements are consistent with the
prudential requirements that apply to subsidiaries of ADI and
general insurers and their NOHCs.
Detailed explanation of new law
Definition
15. A NOHC is defined in the Schedule of the Life Insurance Act. A
registered NOHC is a body corporate that is registered under
section 28A of the Life Insurance Act. [Items 182 to 184, and 186
of Schedule 1 of the Bill, Schedule of the Life Insurance Act]
16. A 'senior manager' of a NOHC is also defined in the Schedule, and
is consistent with the definition of a 'senior manager' of a life
company. [Item 187 of Schedule 1 of the Bill, Schedule of the Life
Insurance Act]
17. A registered NOHC, within the meaning of the Life Insurance Act, is
a prudentially regulated entity subject to APRA's supervision.
[Item 188 of Schedule 1 of the Bill, section 3 of the Australian
Prudential Regulation Authority Act 1998]
Registration
18. A NOHC will be required to be registered with APRA under section
28A of the Life Insurance Act. APRA may register an applicant if
APRA considers that it is appropriate to do so. If APRA requires
registration then it must be notify the applicant in writing.
[Item 21 of Schedule 1 of the Bill, section 28A of the Life
Insurance Act]
19. APRA may impose conditions on the NOHC's registration and APRA may
vary or revoke a condition on a NOHC's registration. [Item 21 of
Schedule 1 of the Bill, section 28B of the Life Insurance Act]
20. APRA may revoke a NOHC's registration if one of the circumstances
in subsection 28D(1) exist. These are broadly consistent with the
existing grounds for revoking a life insurer's registration under
the Life Insurance Act.
21. Before revoking a registration, APRA is required to provide written
notice to the NOHC and give the NOHC 90 days to make a submission,
unless APRA believes that a delay to the revocation would be
contrary to the public interest or the interests of policyholders
of the subsidiary life company. In addition, APRA must revoke a
NOHC's registration if the NOHC seeks deregistration, and APRA is
satisfied it is in the public interest or the interests of
policyholders of the subsidiary life company to do so. [Items 21
of Schedule 1 of the Bill, sections 28D and 28E of the Life
Insurance Act]
22. APRA may refuse to register a new life company if its NOHC is not
registered. APRA may also make it a condition of a life company's
registration that its NOHC is a registered. [Items 12 to 16 of
Schedule 1 of the Bill, sections 21 and 22 of the Life Insurance
Act]
23. The changes to sections 21 and 22 of the Life Insurance Act apply
to applications for registration made before, on or after the
commencement of the provision. [Items 14 and 16 of Schedule 1 of
the Bill]
24. The following decisions relating to registration of NOHCs are
subject to merits review:
. refusal to register a body corporate as a NOHC;
. a decision to impose conditions or vary conditions on a
NOHC's registration; and
. a decision to revoke a condition on a NOHC's registration.
[Item 157 of Schedule 1 of the Bill, section 236 of the
Life Insurance Act]
Auditor of registered NOHCs
25. Auditors of the NOHC, subsidiaries of the life company and
subsidiaries of the NOHC will have reporting obligations consistent
with the existing reporting obligations of auditors of a registered
life insurer. The heading of section 88 of the Life Insurance Act
is amended accordingly. [Item 23 of Schedule 1 of the Bill,
section 88(1A) of the Life Insurance Act]
26. The obligations that apply to auditors of these bodies corporate
are in line with the reporting obligations of auditors of life
companies, as well as auditors of NOHCs and subsidiaries under the
Banking Act and Insurance Act.
27. This amendment ensures that the relevant financial information
relating to the life company or NOHC's prudential compliance are
reported to the company, and where appropriate, to APRA.
Information relating to the prudential compliance and financial
health of the companies headed by the NOHC may affect the interests
of the life company and policyholders of the life companies. As
such, relevant matters and breaches will be brought within the
reporting obligations of auditors.
28. The auditor of a registered NOHC or subsidiary of a NOHC or life
insurer will be required to draw to the attention of the body
corporate, or a director or officer of the body corporate, certain
matters that may prejudice the interests of policyholders or be
contrary to the public interest. Where the body corporate does not
take action within a reasonable time, the auditor is required to
inform APRA of the matter. [Items 24 to 26 and 36 to 39 of
Schedule 1 of the Bill, subsections 88(1) and (3) of the Life
Insurance Act]
29. The auditor also has duties to report to APRA on contraventions of
the Life Insurance Act by the body corporate or its directors that
may significantly affect the policyholders' interests. The auditor
is not required to report the breach if the auditor believes the
NOHC has already reported the matter. [Items 27 to 31 of Schedule
1 of the Bill, subsections 88(2) and (2A) of the Life Insurance
Act]
30. The obligations to inform APRA remain even if the person ceases to
be the auditor of the registered NOHC. [Items 40 and 41 of
Schedule 1 of the Bill, subsection 88(4) of the Life Insurance Act]
31. A director or senior manager of the registered NOHC or subsidiary
commits an offence if the person misleads the auditor by stating
that the company has reported a relevant breach to APRA when it has
not done so. [Items 32 to 35 of Schedule 1 of the Bill, subsection
88(2B)]
32. The auditor of a registered NOHC or relevant subsidiary may also
provide information to APRA if the auditor believes that the
information would assist APRA to perform its functions under the
Life Insurance Act or the Financial Sector (Collection of Data) Act
2001. [Items 42 and 43 of Schedule 1 of the Bill, section 88A of
the Life Insurance Act]
33. The auditor of a registered NOHC or relevant subsidiary enjoys
qualified privilege in respect of information provided to APRA, in
line with the qualified privilege enjoyed by auditors of life
companies. [Items 40 to 41 of Schedule 1 of the Bill, section 89
of the Life Insurance Act]
34. APRA may issue a direction to a registered NOHC to remove the
auditor of the NOHC where one of the specified circumstance exist.
These are consistent with the circumstances under which APRA may
direct a life company to remove the auditor, namely the person is a
disqualified person, is not 'fit and proper', or has failed to
adequately and properly perform the duties of an auditor under the
applicable legislation.
35. APRA must give the NOHC and the affected person notice, and allow
at least 7 days for the NOHC or the person to make submissions.
[Items 46 to 50 of Schedule 1 of the Bill, section 125A of the Life
Insurance Act]
36. A NOHC commits an offence if it fails to comply with a direction to
remove the auditor. This is a strict liability offence carrying a
maximum penalty of 60 penalty units. A strict liability offence
does not require proof of the mental element. The same penalty
already applies to a life company that fails to comply with a
direction under this section.
37. This strict liability offence has the following features that
comply with the Guide to Framing Commonwealth Offences, Civil
Penalties and Enforcement Powers:
38. The penalty for the offence is a fine not exceeding 60 penalty
units and does not include imprisonment.
39. The persons that are liable to a penalty under this provision are
regulated NOHCs or life insurers, rather than individuals. These
entities are required to have risk management and other internal
systems to ensure compliance with legislative obligations. As
such, they are on notice about the requirement to remove an auditor
when so directed by APRA and the attached offence provision.
40. Compliance with each corresponding legislative obligation is
expected to be greatly enhanced as a result of removing the fault
element of the offence. The fitness and propriety of the auditor
of a prudentially regulated entity is one of the basic, essential
elements of the prudential regulation framework. Auditors have
responsibility for ensuring the accuracy and integrity of financial
and other data provided to APRA. Where APRA does not have
confidence in the auditor's fitness or propriety, or where the
auditor has breached an applicable law, it is important for APRA to
have the ability to remove the auditor from the entity so that
another auditor may be appointed. Delay in doing so would impair
the effectiveness of APRA's supervision of the entity.
41. Evidence of whether the NOHC intended to comply with APRA's
direction may be peculiarly within the knowledge of the body
corporate. It could be difficult for the prosecuting authority to
establish the mental element, which would lead to delay that could
compromise APRA's ability to deal with an emerging situation in a
timely manner.
Monitoring and investigation of registered NOHCs
42. APRA will have powers to monitor and investigate the affairs of a
registered NOHC, consistent with its current powers to monitor and
investigate the affairs of a registered life company. The
monitoring and investigation powers are central to APRA's
supervisory activities, as it enables APRA to supervise the
entity's compliance with the prudential requirements, and where
necessary, deal with any breaches of the prudential requirements in
a timely and appropriate way.
43. The heading of Part 7 of the Life Insurance Act is amended to
reflect the broadened application of the Part. [Item 51 of
Schedule 1 of the Bill, heading, Part 7 of the Life Insurance Act]
Definitions
44. The definitions of 'officer', 'relevant business' and 'relevant
person' will refer to the officers, businesses and persons in a
registered NOHC as well as in a life company. Likewise, the
definitions of 'associated company' and 'related company' will
include the associated companies and related companies of a
registered NOHC. [Items 52 to 67 of Schedule 1 of the Bill,
sections 126, 128 and 129 of the Life Insurance Act]
Monitoring
45. APRA's monitoring powers under Division 2 of Part 7 will apply to
registered NOHCs. The heading of Division 2, Part 7 of the Life
Insurance Act is amended to reflect the broadened application of
the Division. [Item 68 of Schedule 1 of the Bill, heading of
Division 2 of Part 7 of the Life Insurance Act]
46. APRA will be able to seek information and records from a registered
NOHC as part of its monitoring activities in the same way it may
currently seek information and records from a registered life
company. [Items 69 to 80 of Schedule 1 of the Bill, sections 130
to 132 of the Life Insurance Act]
47. These amendments apply to 'show cause' notices issued on or after
their commencement. [Item 81 of Schedule 1 of the Bill]
48. A registered NOHC will have breach reporting requirements. All
breaches and likely breaches of the Life Insurance Act relating to
the entity's financial obligations or minimum capital standards,
which are or will be significant, must be reported to APRA. The
report must be submitted as soon as practicable and within 10
business days. A registered NOHC that fails to comply with its
breach reporting requirements will commit an offence.
49. However, the NOHC is not required to report a relevant breach if
the auditor of the NOHC has already reported the breach to APRA.
The reporting obligation and the exemption from double reporting is
consistent with existing breach reporting obligations of life
companies. [Items 82 to 87, section 132A of the Life Insurance
Act]
50. A registered NOHC that fails to report relevant matters or breaches
is guilty of an offence that carries a maximum penalty of
200 penalty units.
51. These amendments apply to matters or breaches that a registered
NOHC becomes aware of on or after their commencement. [Item 88 of
Schedule 1 of the Bill]
52. APRA may access the premises of a registered NOHC for monitoring
purposes, with the body corporate's consent. [Items 89 and 90 of
Schedule 1 of the Bill, section 133 of the Life Insurance Act]
53. APRA will also be able to accept enforceable undertakings from a
registered NOHC under section 133A of the Life Insurance Act,
though no amendments are required for this provision.
Investigation
54. APRA's investigation powers under Divisions 3 to 5 of Part 7 will
apply to registered NOHCs.
55. Before commencing an investigation of the businesses of a
registered NOHC, APRA must be satisfied that a specified trigger to
investigate exists. APRA must issue a show cause notice to the
registered NOHC and allow up to 14 days for the NOHC to respond.
At the end of the notice period, APRA may make a decision to
investigate if it is satisfied that it is in the public interest to
do so. [Items 91 to 108 of Schedule 1 of the Bill, sections 135 to
137 of the Life Insurance Act]
56. If APRA has decided to investigate the affairs of a registered
NOHC, APRA may also investigate the affairs of an associated
company to the NOHC. [Items 109 to 112 of Schedule 1 of the Bill,
section 138 of the Life Insurance Act]
57. APRA must follow the investigation procedure that applies during an
investigation of a life company. That is, APRA must give written
notice to the company and issue an identity card to an authorised
person. [Items 113 of Schedule 1 of the Bill, section 139 of the
Life Insurance Act]
58. During an investigation, APRA or the authorised person may access
the premises of the registered NOHC or associated company and take
copies of records. APRA or the authorised person may request the
production of records, and may require the assistance of relevant
persons in the body corporate. [Items 113 of Schedule 1 of the
Bill, sections 140 to 142 of the Life Insurance Act]
59. This amendment expands the existing entry and search powers under
section 140 of the Life Insurance Act. Section 140 currently
empowers APRA or the authorised person to enter the premises of the
life insurer during an investigation without a warrant. Where the
authorised person or APRA believe there are documents that have not
been produced, the person or APRA may apply to a magistrate for a
warrant. This provision will now extend to the premises of the
registered NOHC and associated companies.
60. The entry provision applies to complex financial entities that are
registered by the prudential regulator, APRA, to conduct regulated
financial business that can have significant impact for a large
number of consumer policyholders. As part of the prudential
regulation framework, this provision is intended to focus on
business, rather than residential, premises. APRA is expected to
use the entry and search power in order to respond in a timely way
to potential prudential concerns, particularly concerns that may
adversely affect the interests of policyholders or the financial
system more broadly.
61. Where APRA or the authorised person wishes to obtain documents that
have not been produced by the entity or persons in the entity, they
would be required to apply for a warrant from a magistrate.
62. APRA or the authorised person may apply for a warrant from a
magistrate during an investigation of a registered NOHC or
associated company if APRA or the authorised person believes that
information or documents have not been produced. If granted, APRA
or the authorised person has additional powers to execute warrants
and deal with electronic equipment. [Items 113 to 116 of Schedule
1 of the Bill, sections 143 and 144 and Division 4, Part 7 of the
Life Insurance Act]
63. A person commits an offence if the person intentionally or
recklessly fails to comply with a request by APRA or an authorised
person during an investigation. This offence carries a maximum
penalty of 30 penalty units. [Items 113 of Schedule 1 of the Bill,
section 147 of the Life Insurance Act]
64. The term 'company concerned' is amended to 'body concerned' to
reflect the broader application of the term to registered NOHCs as
well as life insurers. [Items 114 and 115 of Schedule 1 of the
Bill, section 152 of the Life Insurance Act]
65. APRA must give the registered NOHC a summary of conclusions after
an investigation. [Items 113, section 149 of the Life Insurance
Act]
66. These amendments apply to 'show cause' notices issued on or after
their commencement. [Item 117 of Schedule 1 of the Bill]
Whistleblowers
67. The whistleblower protection provision will apply to registered
NOHCs, consistent with the whistleblower protection provision that
applies to life companies. [Items 118 to 125 of Schedule 1 of the
Bill, Division 5 of Part 7 of the Life Insurance Act]
68. Specified persons in relation to a registered NOHC may make a
protected disclosure as a whistleblower. A person who makes a
qualifying disclosure enjoys protection against victimisation,
civil and contractual penalties, as well as use immunity, in
respect of the disclosure.
69. A person may not victimise, or threaten to victimise, the
whistleblower. A person that does so is guilty of an offence that
carries a maximum penalty of 25 penalty units or 6 months
imprisonment, or both.
70. Officers, employees, contractors, auditors and any appointed
actuaries of the NOHC are required to maintain confidentiality of
the whistleblower's identity and the information in the
whistleblower report. There is an exception where these persons
communicate such information to APRA, the Australian Federal Police
or with the whistleblower's consent. A person or NOHC that fails
to comply with the confidentiality requirements is guilty of an
offence that carries a maximum penalty of 25 penalty units.
71. The appointed actuary of the life company will also be required to
comply with the confidentiality requirements under section 156E of
the Life Insurance Act, and will also be committing an offence if
the appointed actuary breaches these requirements. This amendment
brings the treatment of appointed actuaries into line with the
treatment of other persons who are able to receive whistleblower
reports under section 156A of the Life Insurance Act. [Item 124 of
Schedule 1 of the Bill, paragraph 156E(1)(c) of the Life Insurance
Act]
72. These amendments apply to disclosures made on or after their
commencement. [Item 126 of Schedule 1 of the Bill]
Prudential standards and Directions
73. APRA will be able to issue prudential standards in respect of
registered NOHCs and their subsidiaries to protect the interests of
the policyholders and prospective policyholders within the
conglomerate. The scope of this power is consistent with the scope
of APRA's power to issue prudential standards in respect of life
companies. New or amended prudential standards will be made in
accordance with existing procedures and with consultation.
74. In addition, APRA will be able to require a group of companies to
collectively satisfy a prudential requirement. This recognises
that it may be more appropriate for some prudential requirements,
such as risk management, to apply at a group level. [Items 129 to
132 of Schedule 1 of the Bill, section 230A of the Life Insurance
Act]
75. APRA must give notice to the NOHCs or the subsidiaries concerned if
it varies or revokes a prudential standard that applies to the body
corporate. This is consistent with the current notice requirement
for varying or revoking prudential standards for life insurers.
However, if the standard applies to a NOHC or life insurer as well
as its subsidiaries, APRA need only give a notice to the NOHC or
the life insurer. [Item 133 of Schedule 1 of the Bill, subsections
230A(7) and (9) of the Life Insurance Act]
76. These amendments apply to standards determined on or after their
commencement. [Item 135 of Schedule 1 of the Bill]
77. APRA will be able to issue one of the directions listed under
subsection 230B(2) to a registered NOHC if one of the circumstances
listed under subsection 230B(1) exists. The scope of this power is
consistent with the scope of APRA's power to issue directions to
life companies. As for directions that may be issued to life
insurers, directions issued to registered NOHCs on the triggers
under paragraphs 230B(1)(a) to (d) are subject to merits review.
78. Consistent with directions that may be issued to life companies, if
a direction requires a registered NOHC to cause its subsidiary to
do something or refrain from doing something, the NOHC is taken to
have the power to require such conduct from the subsidiary. [Items
136 to 142 of Schedule 1 of the Bill, section 230B of the Life
Insurance Act]
79. The definition of 'senior manager' is removed from section 230B of
the Life Insurance Act because the definition already exists in the
Schedule of the Life Insurance Act. [Item 143 of Schedule 1 of the
Bill, subsection 230B(10) of the Life Insurance Act]
80. A direction issued by APRA to a registered NOHC is not grounds for
denying any obligation under a contract, accelerating any debt
under that contract or closing out any transaction relating to that
contract. Again, this is consistent with the treatment of
directions that may be issued to life insurers. [Items 144 of
Schedule 1 of the Bill, section 230C of the Life Insurance Act]
81. APRA may publish information in the Australian Government Gazette
in relation to a direction issued to a registered NOHC or supply
information to the Treasurer about such a direction. If
information relating to a direction is not published in the
Gazette, it is protected information for the purposes of Part 6 of
the Australian Prudential Regulation Authority Act 1998. [Items
146 to 149 of Schedule 1 of the Bill, sections 230D and 230E of the
Life Insurance Act]
82. These amendments apply in relation to giving directions on or after
their commencement. [Item 145 of Schedule 1 of the Bill]
83. If a registered NOHC fails to comply with a direction, it commits
an offence. As for directions that may be issued to life
companies, this is a strict liability offence that carries a
maximum penalty of 50 penalty units. An officer of the NOHC who
has the function of ensuring the NOHC's compliance with such a
direction, but fails to take reasonable steps to ensure its
compliance, is also guilty of a strict liability offence carrying a
maximum penalty of 50 penalty units. Both are continuing offences.
[Items 150 to 156 of Schedule 1 of the Bill, section 230F of the
Life Insurance Act]
84. A strict liability offence does not require proof of the mental
element. These strict liability offences have the following
features that comply with the Guide to Framing Commonwealth
Offences, Civil Penalties and Enforcement Powers:
85. They are not punishable by imprisonment. The strict liability
offences under subsections 230F(1) and (3) are punishable by a fine
not exceeding 60 penalty units.
86. The company officers that are liable to a penalty under this
provision have the function of ensuring the NOHC's compliance with
its legislative obligations. The NOHC is also required to have
risk management and other internal systems to ensure its compliance
with the same legislative obligations. As such, they are on notice
about the requirement to ensure compliance with a direction issued
under section 230B of the Life Insurance Act, and the offence
provision that applies to non-compliance.
87. Lastly, compliance with each corresponding legislative obligation
is expected to be greatly enhanced as a result of removing the
fault element of the offence. Directions issued under section 230B
of the Life Insurance Act are key regulatory tools for enforcing
compliance with prudential and financial requirements. Directions
are used to stop conduct that may cause deterioration of the
entity's financial health or adversely affect the policyholders of
the life company within the conglomerate. It is, as such, a basic
and essential element of the regulatory framework for entities to
comply with directions issued by APRA in a timely way.
88. Evidence as to the mental element of these two offences may be
peculiarly within the knowledge of the NOHC or of the officer
concerned. It may be difficult for the prosecuting authority to
prove the mental element of the offences and therein undermine the
effectiveness of directions as an enforcement tool, such that
APRA's ability to respond to emerging situations quickly and
decisively may be compromised.
Disqualification
89. APRA will be able to seek the disqualification of specified persons
in relation to registered NOHCs. This is consistent with its
ability to seek the disqualification of specified persons in
relation to life companies.
90. The specified persons in relation to a registered NOHC are the
director, principal executive officer, appointed actuary or auditor
of the body corporate. The Court may disqualify the person if it
is satisfied that the person is not a fit and proper person and the
disqualification is justified. [Items 176 to 179 of Schedule 1 of
the Bill, section 245A of the Life Insurance Act]
91. As a result of these amendments, a person commits an offence if the
person acts as a director, principal executive officer, appointed
actuary or auditor of a registered NOHC, and the person is
disqualified from acting in one of the above positions, has been
convicted of a dishonesty or fraud offence, become bankrupt,
applied to take the benefit of a law for the relief of bankrupt or
insolvent debtors or compounded with his or her creditors.
92. A NOHC also commits an offence if the NOHC allows a person to act
as a director, principal executive officer, appointed actuary or
auditor of the NOHC in one of the above circumstances.
93. These are two-tiered offences. The fault-based offence carries a
maximum penalty of two years' imprisonment for the person and
250 penalty units for a registered NOHC. The strict liability
offence carries a maximum penalty of 60 penalty units. [Items 162
to 175 of Schedule 1 of the Bill, section 245 of the Life Insurance
Act]
94. These penalties are consistent with the existing penalties on such
persons acting in these positions in a life company.
95. The strict liability offence does not require proof of the mental
element. This strict liability offence has the following features
that comply with the Guide to Framing Commonwealth Offences, Civil
Penalties and Enforcement Powers:
96. The penalty for the offence is a fine not exceeding 60 penalty
units and does not include imprisonment.
97. The persons that are liable to a penalty under this provision are
themselves required to ensure the entity's compliance with
legislative obligations. The NOHC is also required to have risk
management and other internal systems to ensure its compliance with
the same legislative obligations. As such, they are on notice
about the offences that attach to non-compliance with sections 245
of the Life Insurance Act.
98. Persons in these positions are responsible for the management and
operation of the financial entity and ensure the entity's
compliance with prudential obligations and managing the entity's
human, technical and financial risks. Where a person is
disqualified by the Federal Court under section 245A of the Life
Insurance Act from acting in that position, or a circumstance under
section 245 has occurred (such as a fraud or dishonesty offence),
it is important that the person ceases to hold a responsible person
position in the NOHC.
99. Moreover, compliance with this legislative obligation to remove
specified persons is expected to be greatly enhanced as a result of
removing the fault element of the offence. Evidence of the mental
element of such an offence is likely to be peculiarly within the
possession of the individual or the entity. Compliance with this
basic, essential element of the prudential regulation framework is
likely to be greatly undermined if the prosecution has difficulty
enforcing breaches of this provision.
100. These amendments apply to applications for disqualification made on
or after their commencement. [Item 180 of Schedule 1 of the Bill]
Review of decisions
101. This amendment affects the constitution of the Administrative
Appeals Tribunal (AAT). A person who is a director or employee of
a registered NOHC cannot sit as a member of the AAT in relation to
a matter that concerns the NOHC. This is consistent with the
limits on directors and employees with a life company sitting as
members of the AAT. [Item 158 of Schedule 1 of the Bill, section
237 of the Life Insurance Act]
Other amendments
Register of NOHCs
102. APRA must keep a register of registered NOHCs, consistent with its
register of registered life companies. [items 159 and 161 and
item 185 of Schedule 1 of the Bill, section 240 of the Life
Insurance Act]
Constitutional validity
103. Items 1 to 3 of Schedule 1 of the Bill insert provisions into
section 4 of the Life Insurance Act to ensure the constitutional
validity of the amendments in this Schedule.
Supervisory Levies for registered NOHCs
104. In line with current funding arrangements for financial sector
institutions, APRA's supervision of registered life insurance NOHCs
will be funded on a user-pays basis.
105. Accordingly, the financial institutions levy framework is amended
such that the Minister will be able to determine a levy to be paid
by registered life insurance NOHCs. This is in line with the
Minister's current ability to determine a levy to be paid by the
registered NOHCs of ADIs and general insurers.
106. The actual rate of levy is not set by legislation, as it will be
determined in the annual levy determination process. [Items 190 to
193, 200 and 201 of Schedule 1 of the Bill, sections 5 and 7 of the
Authorised Non-Operating Holding Companies Supervisory Levy
Imposition Act 1998 and section 7 of the Financial Institutions
Supervisory Levies Collection Act 1998]
107. These amendments apply in a financial year if the amendments
commence after 1 July of the financial year. Regulations made
under the Authorised Non-Operating Holding Companies Supervisory
Levy Imposition Act may amend the application of the amendments.
This provides a degree of flexibility so that regulations may be
made to avoid any unintended consequences of these amendments
relating to financial institutions levies. The regulations will
not be able to change the application of any penalties under the
prudential legislation. [Item 194 of Schedule 1 of the Bill]
Repeal of inoperative provision
108. Item 134 of Schedule 1 of the Bill repeals an inoperative
provision, namely subsection 230A(13). This subsection creates a
definition of 'Territory', which is not used in the Life Insurance
Act.
Consequential amendments in the Life Insurance Act
109. The following items clarify that references to a life insurer
registered under the Life Insurance Act are references to a life
insurer registered under section 21 of the Act, rather than a NOHC
registered under section 28A of the Act:
. Item 4 of Schedule 1 of the Bill, amending paragraphs
12A(4)(e) and 12B(5)(e);
. Item 127 of Schedule 1 of the Bill, amending subsection
190(2);
. Item 128 of Schedule 1 of the Bill, amending subparagraphs
203B(a)(i) and (b)(i);
. Item 161 of Schedule 1 of the Bill, amending subsection
242(2); and
. Item 181 of Schedule 1 of the Bill, amending section 254.
110. Item 5 of Schedule 1 of the Bill amends references to 'companies'
in section 16 of the Life Insurance Act, so that they refer to
'body corporate'. These changes are consequential upon the new
definition of NOHC in the Schedule of the Life Insurance Act.
Consequential amendments in other legislation
111. The following items clarify that references to a life insurer
registered under the Life Insurance Act are references to a life
insurer registered under section 21 of the Act, rather than a NOHC
registered under section 28A of the Act:
. Item 188 of Schedule 1 of the Bill, amending the
Australian Prudential Regulation Authority Act 1998;
. Item 195 to 199 of Schedule 1 of the Bill, amending the
Corporations Act 2001;
. Item 202 of Schedule 1 of the Bill, amending the Financial
Sector (Business Transfer and Group Restructure) Act 1999;
. Item 203 of Schedule 1 of the Bill, amending the Financial
Sector (Collection of Data) Act 2001;
. Item 204 of Schedule 1 of the Bill, amending the Financial
Sector (Shareholdings) Act 1998;
. Item 205 of Schedule 1 of the Bill, amending the First
Home Saver Accounts Act 2008;
. Item 206 and 207 of Schedule 1 of the Bill, amending the
Income Tax Assessment Act 1936;
. Item 208 of Schedule 1 of the Bill, amending the Income
Tax Assessment Act 1997;
. Items 209 to 214 of Schedule 1 of the Bill, amending the
Insurance Acquisitions and Takeovers Act 1991;
. Item 215 of Schedule 1 of the Bill, amending the Insurance
Act 1973;
. Items 216 and 217 of Schedule 1 of the Bill, amending the
Life Insurance Supervisory Levy Imposition Act 1998;
. Item 218 of Schedule 1 of the Bill, amending the Pooled
Development Funds Act 1992;
. Item 219 of Schedule 1 of the Bill, amending the
Retirement Savings Accounts Act 1997;
. Item 220 of Schedule 1 of the Bill, amending the Social
Security Act 1991;
. Item 221 of Schedule 1 of the Bill, amending the
Superannuation Industry (Supervision) Act 1993;
. Item 222 of Schedule 1 of the Bill, amending the
Superannuation (Unclaimed Money and Lost Members) Act
1999; and
. Item 223 of Schedule 1 of the Bill, amending the Veterans'
Entitlements Act 1986.
Chapter 2
Injunctions
Outline of chapter
112. Schedule 2 of the Bill amends the Banking Act, Insurance Act, Life
Insurance Act and SIS Act (collectively, the prudential Acts) to
provide harmonised powers for APRA to seek court injunctions
against breaches or contraventions of a provision of these Acts or
breaches of conditions or directions issued under these Acts.
Context of amendments
113. The power to seek a court injunction is a strong enforcement power
that enables APRA, with the sanction of the courts, to act
immediately to protect relevant interests. It is expected that
this power will only be used in very serious cases and where other
enforcement powers are insufficient.
114. An injunctive power is particularly useful as an interim measure,
until a final injunction order is made by the Court, to protect
relevant interests while an investigation or other formal
enforcement action is being undertaken or considered by APRA.
115. The power to take rapid and decisive action to deal with emerging
prudential concerns and protect beneficiaries promotes confidence
in the effectiveness of prudential supervision and the safety of
the regulated sectors.
116. The Banking Act, Insurance Act, Life Insurance Act and SIS Act each
contain a power for APRA to seek a court injunction. However, the
circumstances under which an injunction may be sought vary
significantly across the prudential Acts. Harmonising the
injunction provisions under the prudential Acts would ensure APRA
can respond in a timely and decisive way, where appropriate, to
emerging prudential concerns.
Summary of new law
117. The amendments will harmonise the power to seek a consistent range
of court injunctions under each of the prudential Acts, based on
the range of injunctions available under the SIS Act. APRA would
be able to seek an injunction where a person has engaged, or
proposes to engage, in conduct that constitutes a contravention of
the Act, or attempts, assists, induces or is knowingly concerned
with a contravention of the relevant Act.
118. In addition, the harmonised provisions will enable APRA to seek an
injunction where an entity has, or proposes to, engage in conduct
that breaches the conditions imposed on the licence of an entity or
directions given by APRA.
119. The harmonised injunctions provisions under the Banking Act,
Insurance Act, Life Insurance Act and SIS Act would enable APRA to
seek restraining, performance, consent and interim injunctions for
conduct relating to breaches of the relevant Act.
120. Affected persons may currently seek these injunctions under the SIS
Act, and these amendments do not affect their ability to continue
to seek such injunctions under this Act.
121. The amendments to the SIS Act will also apply to superannuation
trustees that offer First Home Saver Accounts under the First Home
Saver Accounts Act 2008.
Comparison of key features of new law and current law
|New law |Current law |
|Banking Act, Insurance |Banking Act |
|Act and Life Insurance |APRA may seek an |
|Act |injunction in relation to |
|APRA may seek an |non-regulated entities who|
|injunction where: |have engaged, or propose |
|a person has engaged, or|to engage, in conduct that|
|proposes to, engage, in |constitutes a |
|conduct that constitutes|contravention of certain |
|a contravention of the |provisions of the Act, or |
|Act, or attempts, |attempts, assists, induces|
|assists, induces or is |or is knowingly concerned |
|knowingly concerned with|with such a contravention |
|a contravention of the |of those provisions. |
|Act; or |APRA may also seek an |
|an entity has, or |injunction in relation to |
|proposes to engage in |compliance with conditions|
|conduct that breaches |on demutualisation. |
|the conditions imposed |Insurance Act |
|on the licence of an |APRA may seek an |
|entity or directions |injunction where an |
|given by APRA. |insurer proposes to, or |
| |has, contravened a |
| |determination made by the |
| |Superannuation Complaints |
| |Tribunal. |
| |Life Insurance Act |
| |APRA may seek a range of |
| |injunctions in relation to|
| |a regulated life company, |
| |but is not empowered to |
| |seek an injunction in |
| |relation to other persons,|
| |such as NOHCs. |
|SIS Act, First Home |SIS Act, First Home Saver |
|Saver Accounts Act |Accounts Act |
|APRA or an affected |APRA or an affected person|
|person may seek an |may seek an injunction |
|injunction where: |where a person has |
|a person has engaged, or|engaged, or proposes to |
|proposes to engage, in |engage, in conduct that |
|conduct that constitutes|constitutes a |
|a contravention of the |contravention of the Act, |
|Act, or attempts, |or attempts, assists, |
|assists, induces or is |induces or is knowingly |
|knowingly concerned with|concerned with a |
|a contravention of the |contravention of the Act. |
|Act; and | |
|a person has, or | |
|proposes to engage in | |
|conduct that breaches | |
|the conditions imposed | |
|on a licence or an | |
|authorisation, or | |
|directions given by | |
|APRA. | |
Detailed explanation of new law
Banking Act
122. The Bill amends the Banking Act by repealing the existing paragraph
65A(1)(a) of the Act and inserting a new paragraph in its place,
enabling restraining injunctions (preventing the doing of an act,
or engaging in conduct) to be sought in circumstances where there
has been a contravention of a provision of the Act, the regulations
or the prudential standards, a condition imposed under the Act or a
direction by APRA issued pursuant to the Act. [Item 1, Part 1 of
Schedule 2 of the Bill, paragraph 65A(1)(a) of the Banking Act]
123. Amendments to paragraphs 65A(1)(b) to (f) of the Act reflect APRA's
ability to apply for an injunction in respect of a breach of a
direction. [Item 2, Part 1 of Schedule 2 of the Bill, subsection
65A(1) of the Banking Act]
124. The Bill makes amendments to paragraph 65A(4)(a) of the Banking Act
that have the effect of allowing performance injunctions
(compelling the performance of an act or thing that a person is
required to do) to be sought in a similar set of circumstances as
the Bill provides for restraining injunctions. That is, for
circumstances where a person has refused or failed to do an act or
thing that is required to be done under the Act, the regulations or
the prudential standards. [Item 3, Part 1 of Schedule 2 of the
Bill, paragraph 65A(4)(a) of the Banking Act]
125. The amendments to paragraph 65A(4)(b) and subsection 65A(9) reflect
the broadened injunctions power, following the above amendments.
[Items 4 to 6, Part 1 of Schedule 2 of the Bill, section 65A of the
Banking Act]
Insurance Act
126. The changes to the injunctions provisions in the Insurance Act are
made by repealing the existing provision in its entirety and
substituting a new section 129D. The new section enables
restraining and performance injunctions to be sought by APRA where
there has been a contravention of the Act, the regulations or the
prudential standards, a condition imposed under the Act, or a
direction by APRA under the Act. In addition, injunctions can be
sought to prevent attempts, acts such as aiding, inducing, or being
knowingly concerned in a contravention. The new section also
empowers the Federal Court to award damages in addition to ordering
an injunction. [Item 7, Part 2 of Schedule 2 of the Bill, section
129D of the Insurance Act]
Life Insurance Act
127. The Bill amends the Life Insurance Act by repealing the existing
injunctions provision and inserting the new, harmonised provision.
The new section 235 provided for by the Bill will enable the
Federal Court to grant injunctions on terms and in circumstances
similar to the new regimes introduced for the Banking and Insurance
Acts. APRA or ASIC may apply to the Court for an injunction under
the new section. [Item 8, Part 3 of Schedule 2 of the Bill,
section 235 of the Life Insurance Act]
SIS Act
128. Minimal changes are made to the SIS Act, reflecting the fact that
the existing injunctions provisions in that Act are taken by the
Bill as the model for harmonisation of these provisions throughout
the prudential regime. The Bill does however, extend the
circumstances in which an injunction can be sought to include
contraventions or failure to fulfil requirements in respect of a
condition imposed on a Registrable Superannuation Entity (RSE)
licence or a direction given under the Act by APRA or the
Regulator. The Bill also clarifies that the Federal Court's powers
under this provision are in addition to and do not limit its other
powers. [Items 9, 10 and 12, Part 4 of Schedule 2 of the Bill,
section 315 of the SIS Act]
129. An amendment to subsection 315(6) enables the Court to discharge or
vary an injunction granted under section 315. [Item 11, Part 4 of
Schedule 2 of the Bill, section 315 of the SIS Act]
First Home Saver Accounts Act
130. The injunctions provisions of the SIS Act are expressly applied to
authorised First Home Saver Account providers under the First Home
Saver Accounts Act. The Bill makes an adjustment to that Act that
has the effect of ensuring that injunctions can be applied for in
respect of breaches of or failures to comply with conditions
imposed on authorised FHSA providers that are trustees under the
First Home Saver Accounts Act. [Item 13, Part 5 of Schedule 2 of
the Bill, section 120A of the First Home Saver Accounts Act]
Application
131. The amendments made by Schedule 2 of the Bill apply to applications
in relation to an injunction made on or after the commencement of
this Schedule. The conduct giving rise to the application for an
injunction may have occurred before the commencement of this
Schedule. [Item 14 of Schedule 2 of the Bill]