House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Jim Chalmers MP)

Chapter 2: Strengthening Australia's FMI regulatory framework - Crisis prevention (RBA powers)

Outline of chapter

2.1 Schedules 1 and 2 provide the RBA with certain enforcement powers with respect to its role in supervising CS facilities to mitigate the risk of a crisis occurring.

2.2 All legislative references in this chapter are to the Corporations Act unless otherwise stated. Further, all references to "domestic CS facility licensee" in this chapter are references to a body corporate registered under Chapter 2A who is granted an Australian CS facility licence under subsection 824B(1) of the Act unless the contrary intention is stated.

Context of amendments

2.3 The regulation of CS facilities is shared between ASIC and the RBA, where:

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ASIC is responsible for licensing and compliance obligations of licensees; and

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the RBA is responsible for maintaining the stability of Australia's financial system by determining the Financial Stability Standards and assessing whether licensees have complied with the Financial Stability Standards and taken other necessary steps to reduce systemic risk.

2.4 To achieve this the RBA has a role in mitigating the risk of financial disturbances with potentially systemic consequences, and in responding if such a disturbance does occur. This role involves monitoring CS facilities and providing advice on emerging stress in these facilities.

2.5 The RBA currently does not have any enforcement powers to require CS facilities to take actions to promote financial stability. The amendments explained in this chapter (as well as some amendments explained in Chapter 3) equip the RBA with enforcement powers in line with their objective of promoting financial system stability.

Summary of new law

2.6 The RBA will have a suite of increased general powers that may be used at any time. These powers are intended to enhance supervision so the RBA can effectively prevent a crisis, including:

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imposing notification requirements;

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issuing directions, including the power to request information;

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resolution planning; and

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setting resolvability standards.

Notification requirements

2.7 The amendments impose notification obligations on CS facility licensees to advise the RBA of a material change in circumstances. This has the effect of increasing the RBA's awareness of potentially distressed CS facilities and mitigating the risk of a crisis materialising.

Directions

2.8 The RBA will be equipped with powers to issue a direction at any time with the aim of preventing a crisis from crystalising. Given the co-regulatory nature of the oversight of CS facilities between the RBA and ASIC, providing a directions power to the RBA clarifies the RBA's role in the oversight of CS facilities with respect to financial system stability. Further, transferring the Ministerial directions powers to ASIC (see Chapter 3) solidifies ASICs supervisory role and assists in further clarifying regulator responsibilities.

2.9 The RBA will have the power to direct a licensee to preserve financial stability, reduce systemic risk and issue recapitalisation directions which is accompanied by powers to request the provision of information by CS facility licensees and related bodies corporate. The information gathering power enables the RBA to request information to fulfill any of its functions, including resolution planning.

Resolution planning and resolvability standards

2.10 In addition to having a wide and flexible set of powers to intervene in a crisis, it is important that the RBA has clear powers to undertake resolution planning and set appropriate resolvability standards to address potential barriers to the orderly resolution of a CS facility.

2.11 The RBA will be empowered to set resolvability standards that stipulate compliance with requirements and activities for classes of domestic CS facility licensees or related bodies corporate. The standards address potential impediments to resolution of the facility.

Detailed explanation of new law

Notification obligations

2.12 In order to prevent a crisis from materialising, the RBA must be notified of certain circumstances to assess whether intervention is required. CS facility licensees and related bodies corporate must notify the RBA of specified events.

Events the RBA must be notified of

2.13 CS facility licensees must notify the RBA immediately once they become aware of any changes in their circumstances, including:

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failure, or likely failure, to comply with either the Financial Stability Standards or resolvability standards;

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breaching, or likely to no longer meet, the obligation to do all things necessary to reduce systemic risk;

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the ability to continue providing critical CS facility services (including where external support is needed or where the entity has ceased, is ceasing or is likely to cease to provide critical CS facility services);

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financial viability is at risk or likely to be at risk, including financial viability risk in the absence of external support (for example, financial obligations that can no longer be met or an intention to suspend payment); or

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where a participant has met one or more of the default event conditions in the operating rules of the CS facility or is declared to be in default under those rules. [Schedule 1, item 26, section 821BA of the Act]

Material changes

2.14 CS facility licensees and related bodies corporate that are incorporated in Australia, must notify the RBA immediately once they become aware of any material changes in their circumstances that relate to risk management or the ability of CS facility licensee to operate and affect:

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the solvency of the body corporate;

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changes to ownership of greater than 20 per cent in voting power for a related body corporate that is a listed entity;

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changes to the structure of the body corporate or the group that includes the body corporate and related bodies corporate; or

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the provision of one or more CS facilities that are critical to the functioning of the financial system. [Schedule 1, item 28, section 821J of the Act]

2.15 A CS facility licensee or related body corporate that is incorporated in Australia must provide the RBA with immediate written notification if it:

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intends to enter into a transaction to recapitalise, such as the sale or disposal of any of its shares or shares of a holding company (this does not prevent the normal trading of shares in a listed entity); or

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proposes a plan to restructure that is agreed by the board of the body corporate. [Schedule 1, item 28, section 821H of the Act]

2.16 If the body corporate purports to enter into a transaction to recapitalise, or carries out a plan to restructure and does not provide written notice, then the act is invalid. However, the body corporate has the opportunity to write to the RBA to have the contravention disregarded. It is at the discretion of the RBA on whether to disregard the contravention. If the RBA agrees to disregard the contravention, the act will be valid and have effect. [Schedule 1, item 28, subsections 821H(2), (3), (4) and (5) of the Act

2.17 It is intended for a body corporate to only notify the RBA once, so subsequent notification of the same matter does not need to be provided to the RBA This is the case for a body corporate that has provided notification of material changes under another provision under Part 7.3 of the Act. Similarly, where a CS facility licensee has provided notification to the RBA under 821BA on a matter that relates to subsections 821B(1) to (4) of the Act, additional notification is not required to be provided to ASIC. [Schedule 1, item 25 and 28, subsections 821B(7) and 821J(5) of the Act]

External administrators subject to notification requirements

2.18 Domestic CS facility licensees and related bodies corporate that are incorporated in Australia must provide the RBA at least seven days notice that an external administrator is to be appointed. This requirement to notify the RBA also applies where the person appointing the external administrator is not the body corporate (for example, a creditor – see Division 2 of Part 5.3A of the Act). [Schedule 1, item 28, subsection 821K(1) of the Act]

2.19 The appointment of an external administrator indicates a potential default event and could trigger termination rights which have the potential to jeopardise the continuity of critical CS facility services. The prior notification offers the RBA the opportunity to understand the circumstances and to take appropriate and timely action.

2.20 The RBA must approve the appointment of the external administrator before it is appointed to the body corporate that is incorporated in Australia. If the RBA does not approve and the external administrator is appointed, all actions in relation to the body corporate's business are invalid. [Schedule 1, item 28, subsections 821K(3) and (4) of the Act]

2.21 The notice period provides the RBA with time to consider the circumstances and decide if the RBA should exercise any of its resolution powers, including the appointment of a statutory manager.

2.22 Between the time that a person notifies the RBA and the RBA consents to the appointment of an external administrator, or the RBA exercises a resolution power, there is a risk that directors of the body corporate are exposed to liability for insolvent trading. Therefore, a safe harbour protection is applied so that, for example, the Board of a body corporate that provides notification is not exposed to risk during the period starting once one of the triggers for the offence of trading while insolvent are active (see 588G(1) of the Act) and ending on the appointment of the external administrator, or exercise of a resolution power, if the required notice is given to the RBA prior to that starting point. [Schedule 1, item 28, subsection 821K(5) of the Act]

Liquidators subject to notification requirements

2.23 Liquidators or provisional liquidators will be subject to notification requirements due to their actions having a potential impact on the continuity of CS services or the stability of Australia's financial system.

2.24 A liquidator must give written notice to the RBA at least seven days prior to making a court application under Chapter 5 of the Act in relation to a matter arising under the winding up or proposed winding up of a domestic CS facility licensee or a related body corporate that is incorporated in Australia. The written notice must include the details of the proposed application and the RBA is entitled to be heard on an application. [Schedule 1, item 28, subsections 821L(1), (2) and (3) of the Act]

2.25 The RBA may request the liquidator or provisional liquidator to provide additional information within a reasonable time about the application, winding up (or proposed winding up) of the body corporate or any other affairs of the body corporate. The liquidator or provisional liquidator must comply with this request. [Schedule 1, item 28, subsections 821L(4) and (5) of the Act]

Consequences of failing to notify

2.26 Failure to notify the RBA of a material change of circumstances or intended actions is a criminal offence of imprisonment for 2 years. [Schedule 1, items 26, 28 and 34, subsections 821BA(1), 821H(1), 821J(1), 821K(1) and Schedule 3 of the Act]

2.27 A strict liability offence is considered appropriate in this instance as failure to notify of material changes or intended appointments may have detrimental impacts on the stability of the financial system in Australia. If the RBA is not given prior notice it risks the RBA's ability to effectively consider the circumstances and take appropriate and timely action to protect financial system stability.

2.28 The penalty for the offence complies with the requirements of the Government's Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers.

Directions

2.29 The amendments provide the RBA with powers to issue directions to a CS facility licensee to:

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comply with its obligations;

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increase compliance or reduce systemic risk;

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preserve stability in the Australian financial system;

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provide information to assist the RBA in performing its functions.

Direction to comply with CS facility licensee obligations, increase compliance, reduce systemic risk or ensure effective crisis resolution

2.30 The RBA is empowered to issue a direction to a CS facility licensee and in some cases, a related body corporate, to do specified things that the RBA believes will promote compliance by the licensee with those obligations if it considers a CS facility licensee has not fulfilled the obligation to:

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comply with the Financial Stability Standards determined under section 827D of the Act;

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comply with the resolvability standards under section 827DA of the Act;

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take a specified action to address an impediment to the effective exercise of the resolution powers;

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do all things reasonably practicable to reduce systemic risk in the provision of the facility's services;

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comply with the notification obligations under section 821BA; or

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comply with the obligation to give the RBA assistance, including in a crisis, under section 821C(3). [Schedule 1, item 27, and subsection 821C(3) of the Act; Schedule 2, item 88, sections 823E, 823F and 823G of the Act]

2.31 The power to issue a direction to reduce systemic risk is transferred from ASIC to the RBA, consistent with streamlining and clarifying regulator roles to produce the outcome of the RBA having oversight of CS facilities in relation to financial stability and the reduction of systemic risk. The RBA's power to issue a direction to preserve financial system stability and ensure effective crisis resolution are new directions powers.

2.32 The process of issuing a direction to reduce systemic risk is broadly the same, with the main intention to simplify the ability for the RBA to issue a direction on the basis that it considers that a CS facility licensee is not complying with the Financial Stability Standards. Under the current law to issue a direction to reduce systemic risk, the RBA may only request ASIC to issue a direction, with ASIC making the decision on whether to issue the direction.

Removing the qualifier to complying with the Financial Stability Standards

2.33 A CS facility licensee is currently required to comply with the Financial Stability Standards to the extent that it is reasonably practicable to do so. This qualifier has the potential to prevent the effective exercise of the RBA issuing directions as the making of the direction could be challenged on the basis that the measures to achieve compliance with the Financial Stability Standards exceed what is reasonably practicable for the CS facility licensee. This could potentially delay full compliance with the Financial Stability Standards.

2.34 The amendments remove the qualifier for complying with the Financial Stability Standards. This means CS facility licensees will be required to comply with standards in force under section 827D of the Act and, to the extent that it is reasonably practicable to do so, continue to do all other things necessary to reduce systematic risk. [Schedule 2, item 80, paragraphs 821A(1)(aa) and (ab) of the Act]

Direction to preserve stability in the Australian financial system

2.35 Where the RBA considers that a domestic CS facility licensee is conducting, or likely to conduct, its affairs in a way that may cause or promote instability in the Australian financial system, the RBA may issue a direction outlining a specific course of action the CS facility licensee must take. The RBA may exercise these powers if:

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the licensee informs the RBA it is likely to be unable to meet one or more of its obligations;

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the RBA reasonably believes the licensee may become unable to meet one or more of its critical obligations or operate the facility consistently with the stability of the Australian financial system, without external support; or

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the RBA reasonably believes the licensee is conducting or is likely to conduct its affairs in a way that may cause or promote instability in the Australian financial system. [Schedule 2, item 88, subsection 823F(2)of the Act]

2.36 The regulations may specify a particular form of support is not external support. [Schedule 2, item 88, subsection 823F(3) of the Act]

2.37 The following are types of specific directions the RBA may issue to a CS facility licensee:

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to do, or refrain from doing, anything under the CS facility licensee's operating rules or procedures (including documents, determinations, practice notes or handbooks relating to the licensee's operation, conduct of participants in the facility, or the structure and operation of electronic communications);

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amend its operating rules or procedures;

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a recapitalisation direction (refer below);

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not to pay a dividend on any shares;

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not to repay any amount paid on shares; or

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exercise rights under a contract or agreement (including termination rights). [Schedule 2, item 88, subsection 823F(1) of the Act]

2.38 Where a CS facility licensee is directed to change the operating rules according to the procedures outlined in the operating rules and the Act (and other than under a direction given under section 840A of the Act), the licensee must provide notice to ASIC under section 822D(1) of the Act. However, the changes to the rules will continue to have effect regardless if notification is provided after 21 days under subsection 822D(2) of the Act. ASIC may not disallow changes under section 822E of the Act when a CS facility is directed to do make such changes. [Schedule 2, item 88, section 823S of the Act]

Recapitalisation direction

2.39 In accordance with an expert's report on the fair value of shares or after working out the fair value of other capital instruments, the RBA may issue a recapitalisation direction to a domestic CS facility licensee to deal with the following:

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increase the licensee's level of share capital to a specified level;

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issue one or more classes of shares or right to acquire shares in the licensee; or

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issue one or more capital instruments prescribed by the regulations. [Schedule 2, items 88 and 96, paragraph 823F(1)(c) and section 9 of the Act]

Expert report

2.40 Prior to issuing a recapitalisation direction relating to shares, the RBA must obtain an expert report on the fair value of the shares or rights in the domestic CS facility licensee. The report cannot be completed by an associate (within the meaning of Division 2 of Part 1.2 of the Act) of the body corporate. [Schedule 2, item 88, subsection 823M(1) of the Act]

2.41 The report must set out the fair value of each share or right, and the reasons for the expert forming that opinion. In addition, the report must specify any monetary or non-monetary interest that could affect the expert's judgment, including any connection between the expert, the licensee and persons associated with the licensee. The RBA must consider the report. [Schedule 2, item 88, subsection 823M(2) of the Act]

2.42 In determining the fair value of each share in a CS facility licensee, the expert must:

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assess the licensee's value as a whole in accordance with any assumptions the Minister provides;

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allocate that value among the classes of shares that have been issued or that the RBA proposes to be issued in compliance with the direction (taking into account financial risk and voting distribution rights of the classes);

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then after that allocation, allocate the value of each class pro rata among the shares in the class that has been issued, or that the RBA proposes to be issued. [Schedule 2, item 88, subsection 823N(1) of the Act]

2.43 Written assumptions that the Minister or RBA may provide to the expert include the valuation of the CS facility licensee and the valuation of rights to acquire shares in the CS facility licensee. The Minister and RBA may not amend the assumptions provided to the expert, but are permitted to revoke the assumptions in writing. The written assumptions or subsequent revocation is not a legislative instrument – this provision is included to assist readers.

2.44 If there is any inconsistency between the Minister's assumptions and RBA's assumptions, the Minister's assumptions prevail to the extent of any inconsistency. [Schedule 2, item 88, subsections 823N(3), (4), (5) and (6) of the Act]

2.45 Where the RBA gives a direction relating to capital instruments, the RBA must comply with any requirements prescribed in the regulations for ascertaining the fair value of capital instruments or classes of capital instruments. [Schedule 2, item 88, section 823P of the Act]

Exception

2.46 An expert report is not required to be obtained where the RBA considers that obtaining the expert report would detrimentally affect the continuity of critical CS facility services or financial stability. Similarly, failure for the RBA to obtain an expert report, determine the fair value of shares or comply with the requirements in the regulations relating to capital instruments does not affect the validity of a recapitalisation direction or anything done in complying with the direction. This is justified on the basis that certainty is required for recapitalisation to support the continuity of CS facility services and ultimately the financial stability in Australia. The 'no invalidity' clause does not exclude judicial review under section 75(v) of the Constitution and section 39B of the Judiciary Act 1903 where failure to meet procedural requirements would amount to jurisdictional error. [Schedule 2, item 88, subsection 823M(4) and section 823Q of the Act]

2.47 The RBA may publish details of the report or details that relate to the report. [Schedule 2, item 88, subsection 823M(3) of the Act]

2.48 As soon as practicable after complying with a recapitalisation direction, a domestic CS facility licensee or related body corporate must provide written notice to members of the body corporate (including those who were members of the licensee just before the issue), identifying the issue and explaining its effect on their interests as members. [Schedule 2, item 88, subsection 823L(1) of the Act]

2.49 The acquisition of shares or other capital instruments as a result of compliance with a recapitalisation direction is specifically authorised and is disregarded in working out whether a person has contravened restrictive trade practices under subsection 51(1) of the Competition and Consumer Act 2010. [Schedule 2, item 88, section 823R of the Act]

Direction to provide information

2.50 The RBA may give a written direction to a CS facility licensee or related body corporate to provide the RBA with specified information or documents containing specified information relating to the CS facility licensee's business where:

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the RBA reasonably believes that the CS facility licensee has information or documents and can give that information or the documents; and

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that information or documents would assist the RBA to perform its functions under Part 7.3 of the Act. [Schedule 2, item 88, subsections 823H(1) and (2) of the Act]

2.51 The direction may specify the form and manner that the information or documents are to be provided. [Schedule 2, item 88, paragraph 823H(3)(b) of the Act]

Process of directions

Variation or revocation and publication

2.52 The RBA may vary or revoke a direction but is required to provide written notice to the CS facility. Upon revocation of a direction, the direction ceases to have effect. The RBA is permitted to publish the details of directions, variations or revocations to a direction as it considers appropriate. [Schedule 2, item 88, section 823K and 823T of the Act]

Referral to the Minister

2.53 The RBA must comply with a request from a licensee for the RBA to refer a direction to increase compliance or reduce systemic risk to the Minister. If the Minister considers it appropriate, the Minister may require the RBA to vary or revoke the direction, where the RBA must comply immediately. [Schedule 2, item 88, subsections 823E(4) and (5) of the Act]

Reviewability

2.54 For most directions issued by the RBA under Part 7.3 of the Act, applications may be made to the tribunal for review. The exception to this is a direction issued to preserve stability in the financial system under section 823F of the Act. The RBA's decision to issue a direction would be a financial decision of significant public interest, which is an allowable exemption from merits review under the Administrative Review Council's publication 'What decisions should be subject to merit review' (see paragraphs 4.34 to 4.38 of that publication). [Schedule 1, item 32, subsection 1317B(1) and Schedule 2, item 91, paragraph 1317C(gcce) of the Act]

Compliance with RBA direction

2.55 CS facility licensees must comply with all directions issued by the RBA. [Schedule 2, item 88, subsections 823E(3), 823F(5), 823G(3), 823H(4), 823L(2) of the Act]

2.56 Directions issued by the RBA must specify a reasonable period for the CS facility licensee to comply with the direction. A direction concerned with preserving the stability of the financial system may deal with multiple matters. [Schedule 2, item 88, subsections 823E(2), 823F(4), 823G(2), 823H(3) of the Act]

Contravention

2.57 Failure to comply with the RBA's direction to provide information is 100 penalty units for each day or part of day the offence is committed, for an individual and 1,000 penalty units for a body corporate. [Schedule 2, items 88 and 94, subsection 823H(5) and Schedule 3 to the Act]

2.58 Failure to comply with the RBA's specific direction to preserve financial stability incurs a penalty of 2 years imprisonment. [Schedule 2, items 88 and 94, subsection 823F(5) and Schedule 3 to the Act]

2.59 Failure to comply with the RBA's direction to take measures to comply with resolvability standards or remove an impediment to respond to a crisis condition is an offence with a penalty of 2 years imprisonment. [Schedule 2, items 88 and 94, subsection 823G(3) and Schedule 3 of the Act]

2.60 A CS facility must comply with a recapitalisation direction despite the Act, its constitution, its operating rules or procedures, any contract or arrangement to which it is a party, and any listing rules of a financial market in whose official list it is included. [Schedule 2, item 88, subsection 823L(5) of the Act]

Orders

2.61 Where a CS facility licensee fails to comply with a direction, the RBA may apply to the court. The Court may make orders on the application of the RBA (alone or jointly with ASIC), if it appears to the Court that a person has contravened a direction. However, the Court can only make such an order if the Court is satisfied that the order would not unfairly prejudice any person. In addition, in the event of non-compliance with a recapitalisation direction, the RBA may apply to the Court for an order that the licensee comply with the recapitalisation direction. The Court may order the CS facility licensee to comply with the direction [Schedule 2, item 88, section 823J of the Act]

2.62 The RBA may apply itself or jointly with ASIC for an injunction in relation to a provision under Part 7.3 of the Act. [Schedule 2, item 88, section 823U of the Act]

Resolution planning

2.63 It is at the discretion of the RBA to make a resolution plan for any CS facility licensee. The RBA may subsequently review, vary or revoke the resolution plan. [Schedule 1, item 35, section 827DB of the Act]

2.64 Resolution planning is important to crisis prevention by identifying potential barriers to orderly resolution.

Resolvability standards

2.65 The RBA has the power to set resolvability standards to ensure that domestic CS facility licensees and their related bodies corporate conduct their affairs in a way that would facilitate resolution of the domestic CS facility licensee if required. The RBA may assess domestic CS facility licensees and related bodies corporate against the standards. [Schedule 1, item 31, subsections 827DA(1) and (9) of the Act]

2.66 The resolvability standards may stipulate different requirements and activities to be complied with in different situations. [Schedule 1, item 31, subsection 827DA(4) of the Act]

Compliance by affected entities

2.67 The resolvability standards are to be complied with by all domestic CS facility licensees, related bodies corporate of a domestic CS facility licensee that are incorporated in Australia, or a specified class of CS facility licensees. The RBA will have the power to exempt specific CS facility licensees, classes of CS facility licensees or related bodies corporate. These entities may be exempt from all or part of the resolvability standards. [Schedule 1, item 31, subsection 827DA(2) of the Act]

2.68 Bodies corporate are to comply with the resolvability standards when they come into force which is either the day the determination of the standard is made or when that determination specifies commencement. The standards cease to apply when they are revoked. [Schedule 1, item 31, subsection 827DA(5) of the Act]

2.69 In the event of any conflict between the resolvability standards and any other rules, including the Financial Stability Standards, derivative transaction rules, derivative trade repository rules, CS services rules or CS facility rules, market integrity rules, the resolvability standards will prevail. [Schedule 1, item 31, subsection 827DA(8) of the Act]

2.70 A CS facility licensee is required to provide immediate notification to the RBA that it is likely to fail to comply with the standards. This obligation is the same as for the Financial Stability Standards. [Schedule 1, item 26, section 821BA of the Act]

Process of making standards

2.71 Prior to making the resolvability standards, the RBA must consult with affected bodies corporate and ASIC. The RBA may subsequently vary or revoke the standard where the RBA must follow a similar procedure to consult with ASIC and affected licensees. [Schedule 1, item 31, subsection 827DA(3), 6), (7) of the Act]

2.72 The resolvability standards are not subject to merits review. [Schedule 1, item 33 paragraph 1317C(gccj) of the Act]

Assessing compliance with resolvability standards

2.73 In addition to assessing compliance with the Financial Stability Standards, the RBA may assess how well a domestic CS facility licensee and its related bodies corporate are complying with their respective obligations under any resolvability standards that apply. In making this assessment, the RBA may take account of any information and reports it considers appropriate. [Schedule 1, items 29 and 30, subsection 823CA(1) of the Act]

2.74 Assessing compliance with resolvability standards is not intended to impose a recurring frequency, or to require a written report on the assessment to the Minister (noting this obligation will be removed under Schedule 3) and ASIC (or other person) or to publish (all or part of) a written report on an assessment

Resolvability standards to be a legislative instrument

2.75 The resolvability standards will be a legislative instrument for the purposes of the Legislation Act. The power of the RBA to set these standards will be similar to the existing provision for the RBA to set Financial Stability Standards in section 827D of the Act. [Schedule 1, item 31, subsection 827DA(1) of the Act]

2.76 The RBA's Financial Stability Standards are currently available on the RBA's website. To reflect the introduction of the resolvability standards, amendments are made to clarify that the Financial Stability Standards are a legislative instrument [Schedule 3, items 125 and 126 subsections 827D(1), (6), (7), (8), (9) and (10) ]

2.77 Subsections 56(2) and (3) of the Legislation Act requires legislative instruments to be published on the Gazette and will continue to apply. The amendment does not change the form of the Financial Stability Standards but is merely a technical amendment to provide clarity.

Power to require a report

2.78 The RBA is afforded powers to require body corporates to produce a special or expert report, depending on the circumstances. Given that ASIC and the RBA co-supervise CS facility licensees, they each have the power to request special and expert reports. ASIC and the RBA will aim to coordinate requests for a report to avoid duplication.

Power to require a special report

2.79 The RBA may give a CS facility licensee written notice requiring the licensee to give the RBA a special report on specified matters. [Schedule 2, item 87, subsection 823BA(1) of the Act]

2.80 The licensee must give the special report to the RBA within the time required by the notice. Failure to do so incurs a maximum penalty of 2 years imprisonment. [Schedule 2, items 87 and 93 subsection 823BA(2) and Schedule 3 of the Act]

2.81 The existing power for the Minister to require a special report on specified matters is formally transferred to ASIC, as detailed in Chapter 3.

Power to require an expert report

2.82 The RBA will be provided with the power to obtain an expert report. The power to obtain an expert report provides the RBA with timely and sufficient access to appropriate expertise from an independent source that will assist in fulfilling their oversight and supervision of CS facility licensees.

2.83 The RBA may appoint a person or require a CS facility licensee to appoint a person to provide an expert report on specified matters relating to the licensee and relevant to fulfilling the RBA's functions. The RBA must give notice of the appointment to the CS facility licensee. The CS facility licensee must give assistance to the appointed person preparing an expert report as reasonably required. [Schedule 2, item 87, subsection 823BC(1) and (6) of the Act]

2.84 If the appointed person requests the licensee to give them such information, explanation or assistance, the RBA may direct the licensee to comply with the request on a specified day.

2.85 Where the RBA appoints a person, written notice must be provided to the expert and a fee must be determined equal to the RBA's expenses in appointing and paying the expert to provide the report. The CS facility licensee will be responsible for the fee involved in appointing expert, which is payable to the RBA. [Schedule 2, item 87, subsection 823BC(1)and (7) of the Act]

2.86 Where the RBA directs a CS facility licensee to appoint a person to produce an expert report, the CS facility licensee is required to pay the expert directly. A person appointed to provide an expert report must be a person that has the necessary skills to provide a report on the specified matter and must be a person nominated or approved by the RBA (the RBA approves an expert appointed by the CS facility licensee). [Schedule 2, item 87, subsection 823BC(3) and (4) of the Act]

Contravention

2.87 Failure to comply with a requirement or give assistance is a criminal offence with a maximum penalty of 2 years imprisonment. [Schedule 2, items 87 and 93, subsections 823BC(5) and Schedule 3 of the Act]

Other powers

2.88 The RBA is afforded additional powers that mirror ASIC's existing powers, such as the power to compel a licensee to give the RBA access to a CS facility, and the ability to exempt licensees from certain obligations. These powers reflect the vital function the RBA has in oversight of CS facilities that contribute to financial system stability in Australia.

Obligation to give RBA access to the facility

2.89 The existing obligation to provide ASIC access to a CS facility under section 821D of the Act is extended to the RBA so that an authorised person of the RBA may also access the CS facility. [Schedule 2, items 81 to 83, section 821D of the Act]

2.90 Failure to provide access to the RBA attracts the existing penalty for failure to comply with the obligation to give ASIC access, being a maximum penalty of 2 years imprisonment. [Schedule 2, item 92, Schedule 3 of the Act]

Exemption

2.91 The RBA is empowered to exempt CS facilities from the obligation of a CS facility license to comply with the Financial Stability Standards and particular provisions of those standards.

2.92 The RBA may vary the exemption to impose additional conditions or revoke the exemption entirely. This power is extended so the RBA may exempt a particular related body corporate of a CS facility licensee, or a class of those related body bodies corporate.

2.93 The RBA may, in writing, vary an exemption. The purpose of varying the exemption may be to impose conditions or additional conditions, or to revoke or vary existing conditions on the exemption. The RBA may also extend or shorten the exemption duration. However, the RBA may only do this after providing the operator of the CS facility with notice and an opportunity to make submissions on the proposed action. The exemption may apply conditionally or unconditionally, and for a specified time or indefinitely. An exemption is not a legislative instrument.

2.94 If the RBA gives an exemption or varies or revokes an exemption, it must publish notice of the exemption, variation or revocation on the RBA's website. [Schedule 3, item 78, section 820CA of the Act]

Consequential amendments

2.95 The ALRC's recommendation to introduce a single definition has been adopted for updating the definition of the RBA. Amendments are made throughout Chapter 7 of the Act to accommodate this change. [Schedule 2, items 96 to 113, heading to section 828Q, sections 9 and 828Q, subsections 821C(3), 823C(3),827D(1), 828B(6), 828H(b), 828L(4), 901B(4), 901B(6) and 908BR(1), paragraphs 824B(2)(d), 827A(2)(h), 827A(3)(d), 828B(5)(b), 904B(2)(c) and 904D(1)(c), subparagraphs 828J(1)(b)(ii) and 901J(1)(b)(ii) of the Act]

2.96 The definition of restructuring is amended to specify that the general definition does not apply to a body corporate providing notification under section 821H of the Act. Restructuring is defined by reference to concepts which only apply for certain small business companies under Part 5.3B of the Act, which is not appropriate for body corporates providing notification under section 821H of the Act. [Schedule 1, item 56, 57, 58, and 59, section 9 definition of 'restructuring' in section 9 of the Corporations Act]

Commencement, application, and transitional provisions

2.97 The amendments that establish the crisis resolution powers and the crisis prevention powers in Schedule 1 and Part 9 of Schedule 2 to the Bill commence on the seventh day after Royal Assent.

Definition of restructuring

2.98 Given that the amendments to the definition of restructuring interact with the amendments under Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Act 2024, three alternative commencement dates are included to ensure that regardless of whether that Bill commences, section 821H of the Act does not take the general definition of restructuring under section 9 of the Act. [Schedule 1, items 56, 57, 58, and 59, definition of 'restructuring' in section 9 of the Act]

Directions to reduce systemic risk

2.99 Given that the directions power to reduce systemic risk under section 823E of the Act is transferred from ASIC to the RBA, any directions that were issued by ASIC and in force before the commencement of Schedule 2 will continue in force as if the RBA had issued the direction. [Schedule 2, item 142, subsection 1705S(1) of the Act]