House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Josh Frydenberg MP)

Chapter 13 - Statutory obligation to cooperate (recommendation 6.9)

Outline of chapter

13.1 Parts 1 and 2 of Schedule 12 to the Bill implement recommendation 6.9 of the Financial Services Royal Commission to remove barriers to efficient co-operation and information sharing between APRA and ASIC, including requiring that the regulators notify each other when they reasonably believe there may be material breaches of each other's legislation.

Context of amendments

13.2 The Financial Services Royal Commission considered the historical and current relationship between APRA and ASIC and made recommendations about how the regulators cooperate, share information and notify each other of breaches of the laws administered by the other regulator.

13.3 Recommendation 6.9 of the Financial Services Royal Commission recommended that APRA and ASIC:

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cooperate with each other;

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share information to the maximum extent practicable; and

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notify the other whenever either of the regulators forms the belief that a breach in respect of which the other has enforcement responsibility has occurred.

13.4 The Government's response to the Financial Services Royal Commission committed the Government to removing barriers to information sharing between APRA and ASIC and requiring them to cooperate, share information and notify each other of relevant breaches or suspected breaches, as appropriate.

13.5 Parts 1 and 2 of Schedule 12 give effect to the Government's response to recommendation 6.9.

Summary of new law

13.6 Parts 1 and 2 of Schedule 12 amend both the APRA Act and the ASIC Act to require:

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APRA and ASIC to cooperate with each other;

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APRA and ASIC to share information with each other on request; and

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each regulator to notify the other when either of the regulators forms the reasonable belief that a material breach may occur or has occurred, in respect of a law which the other regulator administers.

Comparison of key features of new law and current law

Detailed explanation of new law

Co-operation obligation

13.7 While cooperation is an ongoing part of the current operations of both regulators, in line with recommendation 6.9, Part 1 of Schedule 12 amends the ASIC Act and APRA Act to mandate that the regulators work in cooperation with each other so far as is practicable. The purpose of these new provisions is to require the regulators to support each other in discharging their regulatory functions and powers effectively. [Schedule 12, items 1 and 2, section 10B of the APRA Act and section 12AA of the ASIC Act]

13.8 The new co-operation requirements operate alongside existing co-operation and coordination provisions, which often relate to specific circumstances or areas of regulatory responsibility. [Schedule 12, items 1 and 2, section 10B of the APRA Act and section 12AA of the ASIC Act]

13.9 A failure to cooperate will not invalidate the exercise of a function or power by either regulator, nor give rise to an action or other proceeding for damages. [Schedule 12, items 1 and 2, section 10B of the APRA Act and section 12AA of the ASIC Act]

Information sharing between regulators

13.10 Part 2 of Schedule 12 amends both the APRA Act and ASIC Act to introduce a mandatory information and document sharing scheme between APRA and ASIC. Under the scheme, if either regulator requests information or documents from the other regulator, the regulator must comply with the request and provide the information or documents. A request by a regulator may be amended or withdrawn. [Schedule 12, items 3 and 9, sections 55A and 55B of the APRA Act and sections 122B and 122C of the ASIC Act]

13.11 A regulator does not need to notify any person that it has complied or intends to comply with a request for information or documents under the scheme. This is intended to exclude any requirement for the regulator to give any person the opportunity to make submissions, or to take any submissions into account, when deciding whether to comply with a request under the scheme. [Schedule 12, items 3 and 9, section 55B of the APRA Act and section 122C of the ASIC Act]

13.12 The existing information sharing arrangements in section 56 of the APRA Act and section 127 of the ASIC Act continue to operate to govern the sharing of information outside of the mandatory information and document sharing scheme.

13.13 The documents and information that are subject to the scheme are information in writing or documents that have been given to a regulator. This includes information or documents that are provided to a regulator under compulsory powers. This also includes information or documents that can or must be created as a record in accordance with a law, particularly transcripts of examinations and interviews that have been undertaken by the regulators. [Schedule 12, items 3 and 9, section 55C of the APRA Act and section 122D of the ASIC Act]

13.14 The regulations may specify additional kinds of written information or documents that may be requested. [Schedule 12, items 3 and 9, section 55C of the APRA Act and section 122D of the ASIC Act]

13.15 The requested information or documents must be relevant to the exercise or performance of the requesting regulator's functions and powers. [Schedule 12, items 3 and 9, section 55C of the APRA Act and section 122D of the ASIC Act]

13.16 Information in writing or documents that are provided by a person advising a regulator, such as a consultant or specialist, are also able to be requested under the scheme. [Schedule 12, items 3 and 9, section 55C of the APRA Act and section 122D of the ASIC Act]

13.17 For example, the types of information or documents that can be requested include:

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audit documents prepared for a company and disclosed to a regulator;

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information in writing or documents that have been compulsorily collected from a regulated entity;

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transcripts, notes and records from compulsory examinations that have been made in accordance with statutory requirements;

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information in writing or documents that have been voluntarily provided to either regulator about the types of financial products a person or company is offering to consumers;

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mandatory reports or filings provided by a company to a regulator; and

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a report commissioned and paid for by a regulator and compiled by a consultant.

13.18 There are exclusions to the information and documents that may be requested. [Schedule 12, items 3 and 9, section 55C of the APRA Act and section 122D of the ASIC Act]

13.19 Information or documents that relate to the internal or administrative functions of a regulator are out of scope. This would include material in relation to the day-to-day operation of an agency, such as leases, procurement or tender agreements, staff employment agreements or contracts for services. [Schedule 12, item 3 and item 9, section 55C of the APRA Act and section 122D of the ASIC Act]

13.20 Also out of scope is information or documents that disclose a matter in respect of which the regulator or another person has claimed legal professional privilege. Additionally, information or documents acquired by ASIC under the Telecommunications (Interception and Access) Act 1979 cannot be requested by APRA. [Schedule 12, items 3 and 9, section 55C of the APRA Act and section 122D of the ASIC Act]

13.21 The regulations may also exempt kinds of information or documents from being within scope. [Schedule 12, items 3 and 9, section 55C of the APRA Act and section 122D of the ASIC Act]

13.22 The Chair of APRA or the Chairperson of ASIC may make a determination in writing that a request will not be complied with as it would compromise the functioning of the respective regulator. The power to make such a determination is intended to be used only in limited circumstances. [Schedule 12, items 3 and 9, section 55B of the APRA Act and section 122C of the ASIC Act]

13.23 To provide ASIC and APRA with the necessary operational flexibility, the new law does not prescribe the form or method in which the information or documents must be shared, or a timeframe in which the request must be actioned, other than as soon as practicable. This provides the regulators with the opportunity to discuss the nature of the request and the best way to meet it.

13.24 Part 2 of Schedule 12 amends section 56 of the APRA Act to make clear that it is not an offence if an APRA officer gives information or documents to ASIC in response to a request under the mandatory information and document sharing scheme. [Schedule 12, items 4 and 5, section 56 of the APRA Act]

13.25 Further amendments to section 56 of the APRA Act ensure ASIC will be able to use and disclose information it has received from APRA under the mandatory information and document sharing scheme for the performance of ASIC's functions and powers without committing an offence. This provides a level of consistency in comparison to how ASIC can use information it receives from APRA under existing section 56 of the APRA Act. [Schedule 12, items 4 and 5, section 56 of the APRA Act]

13.26 Once information or documents are shared under the mandatory information and document sharing scheme, section 56 of the APRA Act and section 127 of the ASIC Act may apply to govern how information and documents can be used and shared by the receiving regulator.

13.27 Unlike the existing discretionary sharing regime, APRA will not be able to place conditions on protected information or protected documents it shares with ASIC under the mandatory information and document sharing scheme. [Schedule 12, item 6, section 56 of the APRA Act]

13.28 There are other more specific limitations that exist on the use of certain information that may be shared through the mandatory information and document sharing scheme. For example, where a party has claimed privilege against self-incrimination in relation to information or documents given to one regulator, this would apply to the information or documents in the hand of the next regulator.

13.29 There are also a number of protections and limitations on use and disclosure of information that apply under existing Commonwealth legislative provisions or the general law. Some examples of this are:

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privacy legislation;

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equitable duties of confidence; and

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whistleblower protections.

13.30 These protections and limitations will continue to apply to any document or information that has been shared between the regulators in compliance with a request under the scheme. These protections will only limit how each regulator is able to use a document or information after receiving it under a request.

13.31 As previously noted, information that is subject to a claim of legal professional privilege is out of scope of the mandatory information and document sharing scheme. [Schedule 12, items 3 and 9, section 55C of the APRA Act and section 122D of the ASIC Act]

13.32 Part 2 of Schedule 12 makes the required amendments to section 56 of the APRA Act to ensure that the disclosure of protected information or protected documents under the mandatory sharing scheme is authorised for the purposes of privacy legislation. [Schedule 12, item 7, section 56 of the APRA Act]

Notification of breaches of the law

13.33 In addition to the mandatory information and document sharing scheme, Part 2 of Schedule 12 requires APRA and ASIC to notify each other as soon as practicable, when they reasonably believe a material breach of a law for which the other regulator is responsible exists or may exist. [Schedule 12, items 3 and 9, sections 5 and 5D of the APRA Act and section 122E of the ASIC Act]

13.34 The aim of these provisions is to clarify the expectation that where one regulator possesses information about an obvious and significant breach of laws administered by the other, the regulator should pass that information on.

13.35 The requirement for a regulator to have a reasonable belief sets the threshold higher than a mere suspicion. This is an objective test based on the facts and circumstances of each case. [Schedule 12, items 3 and 9, section 55D of the APRA Act and section 122E of the ASIC Act]

13.36 The laws administered by each regulator are complex and wide-ranging, and it would not be reasonable to expect any staff member at a regulator - however expert - to have a full understanding of the laws administered by another regulator.

13.37 It does not require any person to attempt to form a view as to whether a specific law has in fact been breached. However, if it is sufficiently obvious that a significant breach of a law for which the other regulator has responsibility may have occurred, then that regulator must be notified.

13.38 The specific form or timing of the required notification is not prescribed. This provides the regulators with the scope to establish the most efficient system for complying with the legislative requirement.

Consequential amendments

13.39 Part 2 of Schedule 12 makes consequential amendments to the Insurance Act 1973 and the Life Insurance Act 1995 ensuring that information and documents that are regulated by these Acts are able to also be validly shared by APRA and ASIC under the new legislation. [Schedule 12, items 11 and 12, section 109E of the Insurance Act 1973 and section 231E of the Life Insurance Act 1995]

Application and transitional provisions

13.40 The amendments in Parts 1 and 2 of Schedule 12 apply from the later of 1 January 2021 and the day after Royal Assent. The cooperation regime as well as the information and document sharing scheme begin from this date. Requests under the information and document sharing scheme can be made about information or documents produced to APRA or ASIC before the commencement of Part 2 of Schedule 12. [Schedule 12, items 8 and 10]

13.41 Notifications of material breaches of the law by a regulator under the new law can be about material breaches that occurred before, on or after the commencement of Part 2 of Schedule 12. [Schedule 12, items 8 and 10]