House of Representatives

Revised Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer, the Hon Stuart Robert MP)

Chapter 6 APRA directions power

Outline of chapter

6.1 Schedule 5 to this Bill amends the SIS Act to strengthen APRA's supervision and enforcement powers to include the power to issue a direction to an RSE licensee where APRA has prudential concerns.

6.2 These changes align the directions powers in the SIS Act with similar reforms being made across the banking and insurance laws.

6.3 These amendments enable APRA to intervene at an early stage to address prudential concerns in a manner that ensures the required actions are in the best interests of members. Early intervention may be necessary due to the serious consequences for fund beneficiaries which can flow from actions and matters that give rise to prudential risk.

6.4 Flexible directions powers allow APRA to respond appropriately in a variety of circumstances, not all of which can be foreseen.

6.5 All legislative references in this chapter are to the SIS Act unless otherwise stated.

Context of amendments

APRA's existing directions powers

6.6 APRA currently has broad general powers of direction under the Acts it administers in the banking and insurance industries. However, the directions powers available to APRA in respect of the superannuation industry are much narrower in scope. In this regard, APRA can only issue directions to an RSE licensee for it to:

•

comply with a condition of an RSE licence;

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including a direction to comply with a particular provision of the SIS Act, Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) or prudential standards;

•

not accept contributions from employer sponsors where there has been a contravention of the equal representation rules;

•

remove an auditor or approved actuary; or

•

not acquire or dispose assets.

6.7 APRA also has power to remove an RSE licensee and appoint an acting RSE licensee in certain circumstances and can give a direction to the acting RSE licensee.

6.8 Given the limited scope of APRA's capacity to direct RSE licensees, APRA may not have power to resolve or address a prudential concern before it results in significant detriment to a fund's beneficiaries.

6.9 The Final Report of the FSI contained a recommendation that existing processes for strengthening crisis management powers be completed. The existing processes included strengthening APRA's directions powers across the industries that it regulates, including superannuation.

6.10 The amendments in Schedule 5 align APRA's directions powers in relation to the superannuation industry with its broader directions powers in the banking and insurance industries.

6.11 Providing APRA with powers similar to other financial service industries strengthens APRA's ability to quickly intervene in prudential matters to ensure that actions are taken which protect the interests of beneficiaries in circumstances of prudential concern.

Summary of new law

6.12 The amendments provide APRA the power to give a direction to:

•

an RSE licensee where it has concerns about one of the RSE licensee's connected entities which raise prudential concerns; and/or

•

a connected entity of the RSE licensee directly.

6.13 APRA may also issue a direction to an acting RSE licensee in circumstances in which that direction can be made.

6.14 An RSE licensee will commit an offence if it contravenes a direction from APRA. The offence is a strict liability offence subject to a penalty of 100 units, consistent with the current penalty for breach of a direction by an acting trustee.

Comparison of key features of new law and current law

Detailed explanation of new law

6.15 Schedule 5 to this Bill inserts Part 16A into the SIS Act to provide APRA with further powers to issue directions.

6.16 APRA may give a direction to an RSE licensee where:

•

APRA has a reason to believe that the RSE licensee either has, or is reasonably likely to, contravene its prudential obligations; or

•

certain financial risks are present, or there are risks to the interests of the beneficiaries of a superannuation entity or the financial system more generally.

[Schedule 5, item 11, subsection 131D(1)]

6.17 Issuing directions in these circumstances allows APRA to require that actions be taken to address or avoid a contravention, or to mitigate risks.

6.18 Directions may also be issued to an RSE licensee where the conduct of a connected entity of the RSE licensee is of the kind that is described in paragraph 6.16. Where APRA is able to give a direction to an RSE licensee because of the conduct of one of its connected entities, as it relates to a prudential matter, APRA may also give a direction to the connected entity of the licensee. [Schedule 5, item 11, subsections 131DA(1) and (2)]

6.19 Extending the directions powers to these circumstances recognises that in some situations, it is the conduct of an entity that undertakes particular functions of an RSE licensee that can result in particular contraventions or risks.

6.20 Where APRA has concerns about the actions of a third party (related or otherwise) that the RSE licensee has contracted with, APRA can direct the RSE licensee to do or not do something (including requiring the RSE licensee to cease dealing with a related body corporate where it has grounds under its direction powers).

6.21 The circumstances in which directions can be issued and the types of directions that can be issued are explained from paragraph 6.24.

6.22 A decision of APRA to give or vary a direction under Division 1 of Part 16A is a reviewable decision for the purposes of SIS Act. [Schedule 5, item 3, subsection 10(1), paragraphs (taaa) and (taab) in the definition of 'reviewable decision']

6.23 As such, the standard processes for internal and external review in the AAT that are prescribed under section 344 apply in respect of a decision by APRA to issue a direction.

Directions to RSE licensee about the conduct of the licensee

Directions for contraventions of regulatory or prudential obligations

6.24 RSE licensees have obligations to comply with a number of provisions contained in the SIS Act, the SIS Regulations, the prudential standards (which are a standard determined by APRA under subsection 34C(1)), and the FSCODA. RSE licensees are also obliged to comply with certain conditions and directions under the SIS Act and the FSCODA.

6.25 APRA may issue a direction to an RSE licensee if it has reason to believe that the licensee has contravened one of these provisions, conditions or directions. [Schedule 5, item 11, paragraphs 131D(1(a) and (c)]

6.26 Whether or not an RSE licensee has contravened a provision, condition or direction is a matter of fact. However, the requirement that APRA has 'reason to believe' (in this, and other conditions for giving directions) means that all of the formal proceedings that must be undertaken to establish that a contravention has actually occurred do not necessarily need to be resolved. This approach ensures that APRA is able to take early action to remedy or mitigate the impact of a contravention.

6.27 APRA may also issue a direction to an RSE licensee if it has reason to believe that the licensee is likely to contravene a provision of the SIS Act, the SIS Regulations, the prudential standards or the FSCODA. However, directions can only be issued in these circumstances where the direction is reasonably necessary to deal with one or more prudential matters in relation to the RSE licensee. [Schedule 5, item 11, paragraph 131D(1)(b)]

6.28 The additional condition in respect of likely contraventions strengthens APRA's ability to intervene to prevent a contravention from occurring. The additional requirement around prudential matters limits the scope of the ground for giving directions. Prudential matters are defined by subsection 34C(4) and relate to matters such as the conduct of an RSE licensee or a connected entity required to protect the interests of beneficiaries, or ensure the financial stability of the superannuation entity.

Directions to protect the interests of beneficiaries

6.29 APRA may issue directions to an RSE licensee if it has reason to believe that the direction is necessary in the interests of beneficiaries of an RSE of the licensee, or where the failure to issue a direction would materially prejudice the interests or reasonable expectations of those beneficiaries. [Schedule 5, item 11, paragraphs 131D(1)(d) and (i)]

6.30 Giving directions in these circumstances requires APRA to form a view about the interests and expectations of beneficiaries, and why the relevant direction is necessary to protect those interests or expectations.

Directions to address certain financial risks

6.31 APRA may issue directions to an RSE licensee if it has reason to believe that one of the following applies, or is likely to apply:

•

the licensee is unable to meet its liabilities;

•

there is a material risk to the security of the assets of the licensee; or

•

there has been a material deterioration in the financial condition of the licensee or the registerable superannuation entity of which it is a trustee.

[Schedule 5, item 11, paragraphs 131L(1)(e) to (g)]

6.32 APRA may also issue directions if it has reason to believe that an RSE licensee is conducting its affairs, or the affairs of the RSE of which it is a trustee, in an improper or financially unsound way, or in a way that may cause or promote instability in the Australian financial system. [Schedule 5, item 11, paragraphs 131D(1)(h) and (j)]

6.33 Directions in the above circumstances ensure that APRA can require action to prevent a further deterioration in the financial position of the trustee (or the RSE), or to minimise the impact on the beneficiaries of the RSE.

6.34 In addition, the direction about conduct that may adversely affect the stability of the Australian financial system allows APRA to take into account the broader implications of the conduct of an RSE licensee, and require that appropriate action be taken to prevent or reduce the adverse consequences of such actions.

6.35 In assessing whether an RSE licensee is unable to meet its liabilities, or whether there is a material risk to the security of its assets, it does not matter whether the liability or assets relates to the licensee's position as a trustee of an RSE or not. [Schedule 5, item 11, paragraphs 131D(1)(e) and (f)]

6.36 This scope is appropriate because the general financial position of an RSE licensee is relevant to its ability to comply with its specific duties as the trustee of an RSE.

Types of directions that may be given

6.37 Where one of the above conditions about the conduct of an RSE licensee is satisfied, APRA may give one or more of the directions outlined below.

6.38 While the type of direction that APRA issues will depend on the facts and circumstances of a particular case, some of these directions are directly relevant to the ground on which directions can be issued.

6.39 APRA may give a direction to an RSE licensee that covers only some of the matters to which a direction relates, deals only with particular classes of matters, or requires different actions to be taken in respect different classes of matters. [Schedule 5, item 11, subsection 131D(4)]

6.40 Directions may also contain particulars about the timing for complying with the direction. [Schedule 5, item 11, subsection 131D(5)]

Directions to comply with regulatory or prudential obligations

6.41 APRA may give a direction to an RSE licensee to comply with the whole or part of one of the regulatory or prudential obligations in relation to which a contravention is a ground for giving a direction. [Schedule 5, item 11, paragraphs 131D(2)(a) and (b)]

6.42 As noted above, these regulatory and prudential obligations relate to provisions of the SIS Act, SIS Regulations, prudential standards and the FSCODA, as well as certain conditions and directions under the SIS Act and the FSCODA.

6.43 A direction to comply with one of the obligations would generally be relevant where the basis for issuing a direction was related to the contravention of one of these obligations.

Directions about responsible officers

6.44 APRA may give a direction to an RSE licensee that is a body corporate to remove a responsible officer from office, to ensure that a responsible officer does not take part in the management or conduct of the business of the RSE licensee or the business of an RSE, or to appoint a person as a responsible officer on certain terms. [Schedule 5, item 11, paragraph 131D(2)(c)]

6.45 Directions of this kind will generally be relevant where the conduct of a particular responsible officer of an RSE licensee has formed the basis of one or more of the grounds on which directions can be issued.

6.46 The term responsible officer is defined by subsection 10(1), and relates to a director, secretary or executive officer of a body corporate. Restricting such directions to RSE licensees that are body corporates reflects that body corporates are the only entities that have responsible officers.

Directions where RSE licensee has failed to meet benchmarks

6.47 Amendments made by the Senate to this Schedule that were tabled by the Opposition allow APRA to give a direction where a fund has failed to meet a benchmark that relates to the licensee or entity. [Schedule 5, item 11, paragraph 131D(2)(ca)]

6.48 This allows APRA to direct trustees where it has concern about actions of trustees that are not in members' best interests.

Directions about audits or actuarial investigations

6.49 APRA may give a direction to an RSE licensee to order the audit of the affairs of the licensee or an RSE. Such audits are to be made at the expense of the RSE licensee and be undertaken by an auditor that is chosen by APRA. APRA may also remove an auditor from office and appoint another auditor to hold office on particular terms. [Schedule 5, item 11, paragraphs 131D(2)(d) and (e)]

6.50 APRA may also give a direction to an RSE licensee to order an actuarial investigation of the affairs of an RSE. Such investigations are to be made at the expense of the RSE licensee and be undertaken by an actuary that is chosen by APRA. APRA may also remove an actuary from office and appoint another actuary to hold office on particular terms. [Schedule 5, item 11, paragraphs 131D(2)(f) and (g)]

6.51 These types of directions are most relevant where APRA requires additional information about the affairs of an RSE licensee or an RSE, or has reason to believe that audit or actuarial information provided by an RSE licensee does not reflect the true position of the licensee or RSE.

6.52 Removing an existing auditor or actuary, as well as replacing them with another auditor or actuary, enables APRA to ensure that the financial position of a licensee or RSE is accurately reported in the future.

Directions about certain actions

6.53 APRA may give a direction to an RSE licensee to not do any of the following:

•

accept contributions to an RSE:

•

borrow any amount;

•

pay or transfer any amount or asset (or create an obligation to do so);

•

undertake a financial obligation; or

•

discharge a liability of the licensee or an RSE.

[Schedule 5, item 11, paragraphs 131D(2)(h) to (l)]

6.54 Directions of this kind are most relevant where there are substantial issues in respect of the financial position of an RSE licensee or the RSE.

6.55 Preventing contributions being made to an RSE ensures that members are not put at further risk by contributing amounts to the entity.

6.56 Enabling APRA to direct an RSE licensee to suspend further actions that it would ordinarily take in respect of its assets or liabilities would generally only be done where there is a substantial risk that continued actions would be to the detriment of the beneficiaries of the RSE, or would substantially increase the financial risks that were relevant to the direction.

6.57 However, a direction to not pay or transfer an amount or an asset does not apply to payments or transfer of money pursuant to an order of the court or a process of execution. [Schedule 5, item 11, subsection 131D(3)]

6.58 This limitation ensures that court orders and processes of execution take priority over any directions that APRA gives to an RSE licensee.

6.59 APRA may also direct an RSE licensee to do, or refrain from doing, anything else in relation to its affairs, or the affairs of the RSE of which it is a licensee. [Schedule 5, item 11, paragraph 131D(2)(n)]

6.60 Enabling APRA to issue directions about the affairs of a licensee or RSE ensures sufficient flexibility for APRA to make the directions that are necessary to prevent or mitigate the risks associated with the various grounds on which directions can be made.

Directions about the RSE licensee

6.61 APRA may give directions to an RSE licensee to make changes to its system, business practices or operations. [Schedule 5, item 11, paragraph 131D(2)(m)]

6.62 These directions cover organisational matters that are relevant to an RSE licensee's internal business structures. Enabling APRA to make directions of this kind enables actions to be undertaken to address broader issues that may arise as a result of the way an RSE licensee conducts its business.

Directions to RSE licensee about the conduct of a connected entity

6.63 In certain circumstances, the conduct of a connected entity of an RSE will give rise to the same sorts of contraventions and risks that are outlined above.

6.64 Where this is the case, the general requirements for issuing a direction on the basis of actions or risks that result from the conduct of the RSE licensee may not be able to be satisfied, because the conduct of a connected entity that is relevant.

6.65 Amendments made by the Senate to this Schedule that were tabled by the Opposition amends the definition of connected entity as being:

•

an associated entity (within the meaning of the Corporations Act);

•

if the RSE licensee is a group of individual trustees, an entity that has the capacity to determine or influence decisions made by the members in relation to the RSE; and

•

any other entity prescribed by regulations.

[Schedule 5, item 2A, subsection 10(1) definition of 'connected entity']

6.66 This amendment expands the scope of the directions power to an entity that has the capacity to determine or influence decisions made by one or more of the members of the group in relation to an RSE. Currently, no regulations have been prescribed meaning that connected entities are the subsidiaries of body corporates.

6.67 These amendments ensure that APRA is also able to give a direction to an RSE licensee in respect of the conduct of one of its connected entities.

6.68 The grounds on which such directions may be given are based on the ground on which directions about the conduct of an RSE licensee can be given.

6.69 APRA may give a direction where it has reason to believe that:

•

a connected entity has contravened, or is likely to contravene, a provision of the SIS Act, the SIS Regulations, the prudential standards, or the FSCODA;

•

the direction relates to the connected entity and is necessary to protect the interests of beneficiaries;

•

the direction is required to prevent the interests of beneficiaries from being materially prejudiced;

•

the connected entity is unable to meet its liabilities;

•

there is a material risk to the security of the assets of the connected entity;

•

there has been a material deterioration in the financial condition of the connected entity; or

•

the connected entity is conducting its affairs in an improper or financially unsound way or in a way that negatively affects the stability of Australia's financial system.

[Schedule 5, item 11, paragraphs 131DA(1)(a) to (h) and (j)]

Example 6.1

Moira Superannuation Limited (Moira Super) is the RSE licensee of a number of large superannuation funds. The investment management of each of the RSEs under Moira Super is outsourced to Pyramid Investment Limited, which is a subsidiary of Moira Super.

Based on historical experience with a now closed RSE licensee, APRA has significant concerns about fitness of Mr Gibbs, a director and responsible officer of Pyramid Investments Limited, who has previously been disqualified from acting as a director or senior officer of an RSE licensee.

APRA believes that Mr Gibbs' involvement represents a serious concern and threat to the security of the assets of the funds under the trusteeship of Moira Super. APRA decides to direct Pyramid Investments Limited to ensure that Mr Gibbs does not take part in the conduct of the business of Moira Super except as permitted by APRA.

6.70 Each of these grounds for issuing a direction in respect of a connected entity is based on the grounds that apply in respect of the conduct of an RSE licensee. The matters set out above in respect of the equivalent grounds are also relevant for connected entities.

6.71 However, unless the grounds relate to contraventions of particular provisions or to the interests of beneficiaries, APRA can only give a direction in respect of the conduct of a connected entity if APRA considers that the direction is reasonably necessary to ensure that the RSE licensees duties as trustee of an RSE are properly performed. [Schedule 5, item 11, subsection 131DA(2)]

6.72 This additional requirement about the performance of the RSE licensee's duties ensures that there is a nexus between the functions of the RSE licensee that are regulated and the activities of, or conduct undertaken, by the connected entity. This means that there will not be grounds for issuing a direction in respect of the conduct of a connected entity where that conduct relates to something that has no impact on an RSE licensee or its ability to perform its functions.

6.73 The additional requirement is not explicitly applied to the grounds about contravening certain provisions or protecting the interests of beneficiaries because those grounds already relate to matters that are directly relevant to the RSE licensee's duties or obligations that are separately imposed on the connected entity.

6.74 In addition to the above grounds for giving a direction, APRA may also give a direction if it has reason to believe that a connected entity of an RSE licensee is conducting its affairs in a way that may cause the connected entity to be unable to continue to supply products or services to the licensee or an RSE of the licensee. [Schedule 5, item 11, paragraphs 131DA(1)(i)]

6.75 This additional ground recognises that in certain circumstances, a connected entity provides products and services that are integral to an RSE licensee complying with its own obligations.

Types of directions that may be given

6.76 Consistent with directions in relation to the conduct of RSE licensees, APRA may give one or more direction where the grounds for doing so are satisfied.

6.77 However, for directions about the conduct of a connected entity, APRA may give the direction to the RSE licensee to cause the connected entity to do or not do a particular thing. [Schedule 5, item 11, subsection 131DA(1)]

6.78 In certain circumstances, it may be more efficient for APRA give a direction directly to the connected entity. However, APRA may do so only in circumstances where it is able to give a direction to the RSE licensee in respect of the conduct of a connected entity (including where it has already given such a direction). [Schedule 5, item 11, subsection 131DA(3)]

6.79 Based on the current definition, all connected entities are the subsidiaries of an RSE licensee that is a body corporate. Given this parent-subsidiary relationship, an RSE licensee has the ability to direct its connected entities to take, or not take, the action specified in a direction.

6.80 To ensure that directions powers in respect of connected entities operate appropriately, regulations may be made to prevent APRA from giving directions to a particular type of connected entities. For example, regulations may carve out entities that are regulated under other legislation and subject to a separate directions powers regime. [Schedule 5, item 11, subsection 131DA(4)]

6.81 As with the directions for the conduct of RSE licensees, APRA may give a direction that covers only some of the matters to which a direction relates, deals only with particular classes of matters, or requires different actions to be taken in respect different classes of matters. [Schedule 5, item 11, subsection 131DA(7)]

6.82 Directions may also contain particulars about the timing for complying with the direction. [Schedule 5, item 11, subsection 131DA(8)]

6.83 As with the directions in respect of the conduct of an RSE licensee, APRA may give a direction in respect of a connected entity that requires the connected entity to:

•

comply with certain regulatory or prudential obligations;

•

remove or appoint responsible officers, or to prevent responsible officers from taking part in certain activities;

•

order an audit or actuarial investigation;

•

remove or appoint an auditor or actuary;

•

not undertake particular actions, including:

-

borrowing any amount;

-

paying or transferring any amount or asset (or create an obligation to do so);

-

undertaking a financial obligation; or

-

discharging a liability of the connected or an RSE;

•

take actions in respect of the connected entity's systems, business or operations; or

•

do, or refrain from doing, particular things in relation to the affairs of the connected entity or an RSE.

[Schedule 5, item 11, section 131DA(5) ]

Example 6.2

Fortis Superannuation Limited (Fortis Super), an RSE licensee, has established a subsidiary company (Strongarm Limited) which undertakes the administration of Grapple Super. Fortis Super has also established an RSE under its trusteeship.

In addition to providing administrative services, Strongarm provides general financial advice to members of Grapple Super including advice relating to superannuation.

Information becomes available which indicates that several financial advisors previously employed by Strongarm have been disqualified from providing financial services. Whilst these financial advisors are no longer employed by Strongarm, Strongarm has employed a number of disqualified financial advisors over a period ten years. APRA has reason to believe that there are significant gaps in the risk mitigation systems of Strongarm and issues a direction to Strongarm Limited to make changes to its processes for vetting and training its financial advisors.

6.84 As with the grounds on which these directions can be made, the particulars of each type of direction are based on the types of directions that can be issued to RSE licensees in respect of their conduct. The matters set out above in respect of the equivalent directions for RSE licensees are also relevant for connected entities.

Requirements for giving a direction

6.85 To be a valid direction under Division 1 of Part 16A, the direction must be given by notice in writing. For directions about the conduct of an RSE licensee, the notice must be given to the licensee. For directions about the conduct of a connected entity, the direction must be given by notice to both the connected entity and the RSE licensee. [Schedule 5, item 11, paragraph 131DB(1)(a)]

6.86 The notice must specify the ground on which the direction was given. [Schedule 5, item 11, paragraph 131DB(1)(b)]

6.87 These requirements ensure that RSE licensees and connected entities are provided with the information that is necessary for them to understand the basis on which a direction is given, and to comply with the direction that APRA has given.

6.88 A direction given under Division 1 of Part 16A is not a legislative instrument. [Schedule 5, item 11, subsection 131DB(2)]

6.89 Directions that are made by APRA are not legislative instruments within the meaning of subsection 8(1) of the Legislation Act 2003 as they merely apply provisions of the SIS Act to an RSE licensee or connected entity (rather than determining the content of the law). Subsection 131DB(2) does not alter the scope of this existing exclusion and therefore is not strictly necessary. However, it is being inserted to clarify this position for RSE licensees and connected entities.

6.90 In deciding whether to give a direction to an RSE licensee or a connected entity, APRA may disregard any external support for the RSE licensee or the connected entity. [Schedule 5, item 11, subsections 131DB(3) and (4)]

6.91 External support includes particular guarantees or assurances, and are required to support the stability of the superannuation system.

6.92 For example, the provision of external support to a stressed entity in some form of temporary public support would not fetter the ability of APRA to determine that the preconditions are met for giving a direction to the entity.

6.93 Regulations may also specify that particular types of support are not external support for these purposes. [Schedule 5, item 11, subsection 131DB(5)]

Varying or revoking directions

6.94 APRA may vary or revoke a direction under Division 1 of Part 16A where it considers that it is necessary or appropriate to do so. [Schedule 5, item 11, subsections 131DC(1) and (3)]

6.95 Directions continue to have effect according to their terms up until the time that APRA revokes the direction. [Schedule 5, item 11, subsection 131DC(2)]

6.96 Variations and revocations may be necessary where APRA's view about particular contraventions or risks has changed, based on the available information or actions that an RSE licensee or connected entity has undertaken. For example, some directions to not do particular things may not be required if corrective action is taken by an RSE licensee or connected entity.

Consequences of failing to comply with a direction

6.97 A failure to comply with a direction given under Division 1 of Part 16A is an offence that may result in a penalty of 100 penalty units. Offences of this kind are strict liability offences consistent with Commonwealth guidelines for drafting offences. [Schedule 5, item 11, subsections 131DD(1) to (4) and (6)]

6.98 Directions given by APRA are to protect the interests of the beneficiaries of an RSE and to ensure the stability of the Australian financial system by maintaining the integrity of the regulatory and prudential framework. Therefore, an entity subject to such a direction needs to undertake reasonable steps to comply with the direction. The gravity of consequences following non-compliance with a direction makes it appropriate for the non-compliance to be strict liability offence. This is also likely to significantly enhance the effectiveness of the enforcement regime in deterring the conduct.

6.99 A person who commits an offence for not complying with a direction given under Division 1 does so from the day that the offence was committed until the circumstances that caused the offence no longer exist. [Schedule 5, item 11, subsections 131DD(5)]

6.100 The entity that commits an offence for a failure to comply with a direction will depend on the type of direction.

6.101 For directions given to RSE licensees, a person commits an offence if they are the RSE licensee, or if they are a member of a group of individual trustees that is an RSE licensee, and the RSE licensee does or fails to do something that results in a contravention of the direction. [Schedule 5, item 11, subsection 131DD(1)]

6.102 A person also commits an offence if they are an officer of an RSE licensee who is responsible for ensuring the licensee complies with directions, and the person fails to take reasonable steps to ensure that the licensee complies with a direction. [Schedule 5, item 11, subsection 131DD(2)]

6.103 For directions given to a connected entity, the connected entity commits an offence if it fails to do something that results in a contravention of the direction. [Schedule 5, item 11, subsection 131DD(3)]

6.104 A person also commits an offence if they are an officer of a connected entity who is responsible for ensuring the entity complies with directions, and the person fails to take reasonable steps to ensure that the connected entity complies with a direction. [Schedule 5, item 11, subsection 131DD(4)]

6.105 For the purposes of working out whether a person is an officer of an RSE licensee or a connected entity, the definition of officer in section 9 of the Corporations Act applies. [Schedule 5, item 11, subsection 131DD(7)]

Provision relating to all directions under the SIS Act

6.106 In addition to introducing the new directions that may be issued, Schedule 5 introduces provisions that relate to all directions that may be issued under the SIS Act.

6.107 These rules insert Division 3 into Part 16A to:

•

ensure that APRA can give more than one direction;

•

ensure that RSE licensees and connected entities can comply with directions;

•

provide protections from liability for complying with directions;

•

provide for information about directions to be provided to the Treasurer; and

•

ensure that a person does not have to comply with a direction that would result in the acquisition of property, other than on just terms.

APRA may give more than one direction

6.108 These amendments clarify that APRA's ability to give a direction is not affected by the fact it has given, or can give, another direction under any provision of the SIS Act. [Schedule 5, item 11, subsection 131F(1)]

6.109 This ensures that APRA is able to use a combination of directions, where it is appropriate to do so, and clarifies that an earlier direction does not prevent APRA from issuing another direction.

6.110 The amendments also clarify that the types of directions that may be given under a particular provision do not affect the type of direction that can be given under a different provision of the Act. [Schedule 5, item 11, subsection 131F(2)]

RSE licensees and connected entities can comply with directions

6.111 If an RSE licensee is required to comply with any direction issued under the SIS Act, the licensee has the power to comply with the direction despite anything in its constitution or any contract or arrangement that it has with another entity. [Schedule 5, item 11, subsection 131FA(1)]

6.112 A connected entity that is required to comply with a direction issued has the power to comply with the direction despite anything in its constitution or any contract or arrangement that it has with another entity. [Schedule 5, item 11, subsection 131FA(3)]

6.113 RSE licensees also have the power to cause a connected entity to do, or not to do, something in accordance with a direction. Similarly, the connected entity has the power to do the thing, or not do the thing, that is required of it. These powers exist irrespective of anything in the connected entity's constitution, or any contract or arrangement to which it is a party. [Schedule 5, item 11, subsection 131FA(2)]

6.114 These amendments ensure that any obligation to comply with a direction takes priority over other requirements that an RSE licensee or connected entity would otherwise be subject to that would prevent them from complying with the direction.

Protection from liability

General protection from liability

6.115 The amendments also prevent a person from being subject to any liability that would otherwise arise from any act or omission that is performed in good faith and without negligence in complying with the performance of powers, functions or duties under the SIS Act. [Schedule 5, item 11, subsection 131FB(1)]

6.116 This general protection from liability ensures that persons who genuinely comply with the provisions of the SIS Act are not subject to liability for having done so.

6.117 The general protection extends to the provision of any information by an auditor or actuary to APRA under section 130A of the SIS Act (which relates to circumstances in which an auditor or actuary considers that giving the information will assist APRA in performing its function under the SIS Act). [Schedule 5, item 11, subsection 131FB(2)]

6.118 However, this general protection does not apply persons referred to in section 58 of the Australian Prudential Regulation Authority Act 1998 (APRA Act) or affect the operation of that section. [Schedule 5, item 11, subsection 131FB(3)]

6.119 Section 58 of the APRA Act provides a protection from liability to APRA, its staff members and its agents. Limiting the general protection in the SIS Act to persons that are not covered by section 58 is appropriate because the protections in section 58 are specifically targeted towards APRA, its staff members and agents.

Protection from liability for complying with direction

6.120 In addition to the general protection with complying with the SIS Act, these amendments also prevent any action, suit or proceeding (whether criminal or civil) from being brought against a person who does something, or omits doing something, in compliance with a direction given by APRA to an RSE licensee or a connected entity. [Schedule 5, item 11, paragraph 131FC(1)(a)]

6.121 For this protection to apply, it must have been reasonable for the person to do the thing, or omit to do thing, and the person must be an officer, agent or employee of the RSE licensee or connected entity. [Schedule 5, item 11, paragraphs 131FC(1)(b) and (c)]

6.122 These protections are necessary to ensure that persons can take the action that is required to ensure compliance with a direction given under the SIS Act. The protections are particularly relevant given the penalties that apply for not complying with a direction, and the fact that RSE licensees and connected entities are empowered to comply despite provision in their constitution, or any other contract or arrangement, that would otherwise prevent them from complying.

6.123 For the purposes of this protection from liability, the term officer has the meaning given by section 9 of the Corporations Act, and the term employee means a person who is engaged to provide advice or services to the RSE licensee or connected entity. [Schedule 5, item 11, subsection 131FC(2)]

6.124 This meaning of employee is an expansive one, and enables the protection from liability to extend to persons who undertake a range of functions on behalf of a licensee or connected entity.

Protections do not limit each other

6.125 The amendments also clarify that the various protections offered by section 336B (protections for disclosure by whistleblowers), section 131RA (the general protection for compliance with the SIS Act), section 131S (protection for complying with a direction) and section 58 of the APRA Act (protection for APRA, APRA members or agents) do not limit each other. [Schedule 5, item 11, section 131FD]

6.126 As a result, a person who is covered by more than one of the above protections can be protected from liability under more than one provision. Similarly, a failure to be protected by one of the provisions does not affect the protection that a person may receive under another provision.

Providing information to the Treasurer

6.127 APRA must comply with a request that is made by the Treasurer to provide information about any directions given under the SIS Act to a particular entity, or about any directions given over a specified period to an entity of a specified kind. [Schedule 5, item 11, subsection 131FE(1)]

6.128 APRA may also provide the Treasurer with any information that it considers appropriate about directions that it has given, or revocations about any such directions. [Schedule 5, item 11, subsection 131FE(2)]

6.129 Where APRA has provided the Treasurer with information about a direction but later revokes that direction, it must notify the Treasurer of the revocation as soon as is practicable. However, a failure to notify the Treasurer of a revocation does not affect its validity. [Schedule 5, item 11, subsection 131FE(3)]

6.130 Requiring APRA to make notifications about revocations ensures that the Treasurer is made aware that a direction is no longer in effect.

Acquisitions of property

6.131 Despite the general obligation to comply with a direction given under the SIS Act, a person is not required to comply with a direction in circumstances that would result in an acquisition of property otherwise than on just terms. [Schedule 5, item 12, subsection 349B(6A)]

6.132 This limitation supplements the general restriction contained in subsection 349B(1) about acquisitions of property and ensures that the rules about directions in the SIS Act do not purport to require a person to comply with a direction that would otherwise be inconsistent with paragraph 51(xxxi) of the Constitution.

6.133 The amendments also clarify that any provision that requires a person to comply with a direction that does not result in an acquisition of property continues to apply in relation to a direction given under the SIS Act. [Schedule 5, item 13, paragraph 349B(7)(f)]

Consequential amendments

6.134 Schedule 5 makes consequential amendments to repeal the provision that permitted APRA to issue a direction to an RSE licensee to comply with the conditions of its licence, and the provisions that specified that non-compliance with such a direction constituted an offence. [Schedule 5, items 6 and 8, sections 29EB and 29JB]

6.135 These specific provisions are no longer required as APRA can now issue such directions under Division 1 of Part 16A.

6.136 Schedule 5 also makes consequential amendments to update references to the direction to comply with the conditions of an RSE license to reflect the relevant provisions in Division 1. [Schedule 5, items 4, 5, 7, 9 and 10, note 1 to subsection 29E(1), note 1 to subsection 29EA(2), paragraphs 29G(2)(e) and (f), section 29JD and note to subsection 29K(2)]

6.137 Amendments to the summary of provisions and the allocation of administrator for specific provisions are made to reflect the insertion of Part 16A (including those directions about relinquishing controlling stakes described in Chapter 5) and that APRA has general administration of those provisions. [Schedule 5, items 1 and 2, section 4 and subparagraph 6(1)(a)(vii)]

Application and transitional provisions

6.138 The amendments in Schedule 5 apply to events that occur on or after the commencement of the Schedule, being the day after the Schedule receives the Royal Assent. [Schedule 5, item 14]

STATEMENT OF COMPATIBILITY OF HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

APRA directions power

6.139 This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

6.140 Schedule 5 to this Bill amends SIS Act to strengthen APRA's supervision and enforcement powers to include the power to issue a direction to an RSE licensee where APRA has prudential concerns.

Human rights implications

6.141 This Schedule does not engage any of the applicable rights or freedoms.

Conclusion

6.142 This Schedule is compatible with human rights as it does not raise any human rights issues.