Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)Chapter 3 Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Restrictions on shareholdings
3.1 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
3.2 The Financial Sector (Shareholdings) Act 1998 (FSSA) operates to provide an upper limit restricting the allowable shareholdings of an ADI or an authorised insurance company (as authorised under the Insurance Act 1973 and registered under section 21 of the Life Insurance Act 1995, respectively).
3.3 Currently, the FSSA outlines that an unacceptable shareholding situation will exist for a financial sector company (defined in the FSSA as an ADI, an authorised insurance company or a 100 per cent holding company) if a person has shareholdings exceeding the legislated percentage amount or shareholdings which exceed the higher approved percentage made in accordance with Division 3 of the FSSA.
3.4 A higher percentage approval is required to exceed the minimum acceptable shareholding amount. To receive this, a person must apply to the Treasurer for approval to hold more than the legislated shareholding limit in a financial sector company (either at the time of market entry or following a change of ownership). Approval can be granted if the Minister determines it to be in the 'national interest'.
3.5 To encourage more participation and greater competition in the financial sector market, the shareholding rules are amended to increase the minimum shareholding amount requiring approval from 15 to 20 per cent.
3.6 In addition, the Schedule creates a streamlined path for owners of domestically incorporated companies with assets less than the relevant threshold applying to become a financial sector company. This will enable owners who are found to be fit and proper persons to hold a stake of more than 20 per cent in a qualifying new or recently established financial sector company.
Who is regulated by this Schedule?
3.7 The amendments in this Schedule apply to persons who are seeking authority to hold a shareholding in excess of the acceptable shareholding limit imposed by the FSSA. These persons may be Australian residents or foreign persons (as defined by the Foreign Acquisitions and Takeovers Act 1975 ).
Application of civil penalties
3.8 Practice Note 2: Offence provisions, civil penalties and human rights [1] observes that civil penalty provisions may engage criminal process rights under Articles 14 and 15 of the International Covenant on Civil and Political Rights (ICCPR), regardless of the distinction between criminal and civil penalties in domestic law. This is because the word 'criminal' has an autonomous meaning in international human rights law. When a provision imposes a civil penalty, an assessment is therefore required as to whether it amounts to a 'criminal' penalty for the purposes of the Articles 14 and 15 of the ICCPR.
3.9 The civil penalty provisions in the schedule (which are in Division 2 of Part 6 of the FSSA) should not be considered 'criminal' for the purposes of international human rights law. While the civil penalty provisions included in the schedule are intended to deter people from not complying with the obligations imposed by the Act, none of the civil penalty provisions carry a penalty of imprisonment and there is no sanction of imprisonment for non-payment of any penalty. In addition, the maximum pecuniary penalty that may be imposed on an individual for contravening a civil penalty provision is generally lower than maximum pecuniary penalty that may be imposed for the corresponding criminal offence. The statement of compatibility therefore proceeds on the basis that the civil penalty provisions in the schedule do not create criminal offences for the purposes of Articles 14 and 15 of the ICCPR.
Human rights implications
3.10 This Schedule does not engage any of the applicable rights or freedoms.
Conclusion
3.11 This Schedule is compatible with human rights as it does not raise any human rights issues.
Limited banking licences
3.12 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
3.13 This Schedule applies to corporate entities and not individuals.
3.14 This Schedule promotes new entrants to the banking sector. The time limited ADI licence conditions will impose appropriate business restrictions but provide eligible new entrants considerable concessions, to allow the ADI a period of time to build the full suite of resources and capabilities necessary to transition to a full licence.
3.15 Taking into account the fact that these entrants to the market are new ADIs, they will be given concessionary treatment designed to allow them time to develop their business model, increase their capital base and comply with all regulatory requirements applying to ADIs.
3.16 With new entrants having different prudential standards applying, there are possible impacts on the soundness of the ADI as well as on competitive neutrality. As a result, a two year time limit will apply to these ADIs meaning the licence will automatically terminate at the expiration of that time period. The ADI can then seek an ADI licence pursuant to section 9 of the Banking Act 1959 if it wishes to continue to carry on banking business.
Human rights implications
3.17 This Schedule does not engage any of the applicable rights or freedoms.
Conclusion
3.18 This Schedule is compatible with human rights as it does not raise any human rights issues.