Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Jim Chalmers MP)General outline and financial impact
Schedules 1-3 & 5 — Strengthening Australia's Financial Market Infrastructure regulatory framework
Schedules 1, 2 and 3 to the Bill implement recommendations of the Financial Market Infrastructure Regulatory Reforms: Advice to Government from the Council of Financial Regulators, July 2020 (CFR Advice to Government) to strengthen Australia's financial market infrastructure. The CFR Advice to Government makes sixteen recommendations for regulatory reform to strengthen Australia's financial market infrastructure.
The Bill implements the recommendations by:
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- introducing a crisis management and resolution regime through the amendments in Schedule 1;
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- enhancing ASIC and the RBA's licensing, supervisory and enforcement powers through the amendments in Schedule 2; and
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- streamlining and adjusting roles and responsibilities between the Minister, ASIC and the RBA through the amendments in Schedule 3.
Schedule 5 to the Bill makes related minor and technical amendments to the Corporations Act, ASIC Act and Insurance Act 1973.
Outline
Schedules 1, 2 and 3 to the Bill implement the recommendations of the CFR Advice to Government to strengthen Australia's FMI regulatory framework.
Schedule 1 to the Bill amends the Corporations Act to implement the CFR Advice to Government to establish an FMI crisis resolution regime - enabling the RBA to step in and ensure the continuity of CS facility services in the face of a crisis (Recommendation 1). The amendments also establish regulatory powers for the RBA aimed at preventing crises.
Schedule 2 to the Bill implements recommendations of the CFR Advice to Government to:
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- clarify the circumstances where a licence can be suspended or cancelled (Recommendation 3);
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- amend the arrangements under which an overseas market operator or overseas CS facility operator is required to be licensed or exempt (Recommendation 4);
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- provide ASIC with the power to impose limits on the scope and level of activity that a market licensee or CS facility licensee is permitted to undertake as an overseas licensee (Recommendation 5);
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- require a domestic CS facility licensee to be domestically incorporated (Recommendation 6);
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- provide ASIC with declaration powers with respect to declared financial markets (previously known as prescribed financial markets) and widely held market bodies (Recommendations 7 and 8);
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- harmonise the arrangements for approving increases in voting power in widely held market bodies and in ASX Limited (Recommendation 9) – the amendments also increase the threshold for the Minister to approve increases in voting power in all widely held market bodies from 15 per cent to 20 per cent;
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- implement a fit, proper and competent person standard for those involved in licensed FMIs (Recommendation 10);
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- require ASIC approval for a person to hold more than 20 per cent voting power in domestically-incorporated FMI licensees that are not widely held market bodies (Recommendation 11);
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- provide ASIC with the powers to make rules for the purpose of promoting the fair and effective provision of CS facility services (Recommendation 12);
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- provide ASIC and the RBA with a power to obtain a report from an expert on specified matters (Recommendation 13);
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- provide the RBA with directions powers that are aligned with its mandate (Recommendation 14).
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- remove the qualification on the obligation of CS facility licensees to comply with Financial Stability Standards (Recommendation 15); and
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- streamline ASIC's existing directions powers and remove the time limit on the period a direction may remain in place (Recommendation 16).
Schedule 3 amends the Corporations Act to transfer existing ministerial powers relating to the licensing and supervision of CS facilities and financial markets to ASIC and the RBA according to their respective areas of responsibility (Recommendation 2). These powers are currently delegated to ASIC in the instrument Ministerial Powers (ASIC) Delegations 2021.
Schedule 5 to the Bill makes related minor and technical amendments to the Corporations Act, ASIC Act and Insurance Act 1973.
Chapter 1 of this Explanatory Memorandum explains the amendments with respect to the new crisis resolution powers for the RBA (Schedule 1, Part 1). Chapter 2 explains the amendments that introduce crisis prevention powers for the RBA (Schedule 1, Part 2 and Schedule 2, Part 9). Chapter 3 explains the amendments that enhance and streamline the regulatory powers of the RBA and ASIC and transfer existing ministerial power to those regulators (Schedule 2 and Schedule 3) and associated minor and technical amendments in Schedule 5.
Date of effect
Schedule 1 to the Bill (except for the items 60, 61, 62, 63, 64, 65, and 66) commence 7 days after Royal Assent. The commencement of those items is contingent on the commencement of other Acts, these commencements are explained at paragraphs 1.344 and 2.98.
For Schedule 2 to the Bill:
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- Parts 1 to 10, 12 and 13 commence 7 days after Royal Assent;
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- Part 11 commences 6 months after Royal Assent; and
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- Part 14's commencement is contingent on the commencement of another Act – see paragraph 3.195.
Schedule 3 to the Bill commences 7 days after Royal Assent.
Schedule 5 to the Bill commences on the day after Royal Assent.
Proposal announced
Schedules 1, 2 and 3 to the Bill partially implement the Modernising Australia's financial system measure announced on 14 December 2022.
Financial impact
Nil
Impact Analysis
The following reports were certified as equivalent to a Policy Impact Analysis relating to the amendments in this Bill.
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- Financial Market Infrastructure Regulatory Reforms, 2020 Advice to Government from the Council of Financial Regulators
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- Financial Market Infrastructure Regulatory Reforms, 2019 Consultation Paper, Council of Financial Regulators
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- Financial System Inquiry Report, 2014
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- IMF Financial Sector Assessment Program, 2019 Financial System Stability Assessment (Australia)
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- IMF Financial Sector Assessment Program, 2019 Technical Note – Supervision, Oversight and Resolution Planning of Financial Market Infrastructures
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- Overseas Clearing and Settlement Facilities: The Australian Licensing Regime, 2015 Consultation paper, Council of Financial Regulators
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- Overseas Clearing and Settlement Facilities: The Australian Licensing Regime, 2015 Response to Consultation, Council of Financial Regulators
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- Resolution Regime for Financial Market Infrastructures, 2015 Consultation Paper, Australian Government
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- Resolution Regime for Financial Market Infrastructures, 2015 Response to Consultation, Council of Financial Regulators
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- Review of Financial Market Infrastructure Regulation, 2011 Consultation Paper, Council of Financial Regulators
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- Review of Financial Market Infrastructure Regulation, Advice to Government, Council of Financial Regulators
The executive summaries and recommendations contained in each report are included in this Explanatory Memorandum at Attachment 1.
Human rights implications
Schedules 1 to 3 to the Bill engage a number of human rights issues. See Statement of Compatibility with Human Rights — Chapter 5.
Compliance cost impact
This measure is estimated to have an annual average compliance cost for business of $0.3 million.
Schedule 4 — Climate-related financial disclosure
Outline
Schedule 4 to the Bill generally requires entities that lodge financial reports under Chapter 2M of the Corporations Act and meet certain minimum size thresholds, or have emissions reporting obligations under the NGER scheme, to make disclosures relating to climate in accordance with relevant sustainability standards made by the AASB. The amendments phase-in the new obligations for climate-related financial disclosure depending on entity size and type over a number of years.
Date of effect
Schedule 4 to the Bill commences the day after Royal Assent.
The new requirements generally apply to reporting entities from financial years starting on or after 1 January 2025.
Transitional provisions phase-in these new obligations, generally depending on the size and type of the reporting entity, over a number of years.
Proposal announced
Schedule 4 to the Bill fully implements the 'Mandating Climate-Related Financial Disclosure' measure in the 2023-2024 MYEFO.
Financial impact
Nil
Impact Analysis
The Impact Analysis relating to the amendments in Schedule 4 can be found at the Office of Impact Analysis website:
https://oia.pmc.gov.au/published-impact-analyses-and-reports/climate-risk-disclosure
Human rights implications
Schedule 4 to the Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights — Chapter 5.
Compliance cost impact
Schedule 4 to the Bill is expected to increase regulatory costs by $1.0 to $1.3 million per year per entity, averaged over 10 years.