House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Honourable Peter Costello MP)

5 Explanation of Items

Schedule 1 - Amendment of the Australian Securities Commission Act 1989

The purposes of Schedule 1 are to change the name of the Australian Securities Commission, to provide it with additional functions, particularly in relation to the consumer protection and market integrity aspects of insurance and superannuation regulation, and to make certain ancillary amendments to the Australian Securities Commission Act 1989 (the Act).

In brief, the Act establishes the Australian Securities and Investments Commission (and certain other bodies under the national companies and securities scheme), provides its investigatory powers in relation to matters under that scheme and includes certain related matters.

Commencement

5.1 Schedule 1 will commence on the commencement of the proposed Australian Prudential Regulation Authority Act 1998.

Change of Name of the Australian Securities Commission

Items 1, 4, 6, 7, 8, 33, 34

5.2 From the date of commencement of this schedule, the Australian Securities Commission is to be known as the Australian Securities and Investments Commission (item 8).

5.3 This change of name indicates the new functions which the Commission will acquire - at this stage, in relation to insurance, superannuation and the payments system but, subject to agreement being reached with the States and Territories, further functions may be added in relation to building societies, credit unions and friendly societies.

5.4 The body corporate established by the Australian Securities Commission Act 1989, however, will continue in existence.

5.5 The changed name is substituted in the short title of the Act (items 4; 33; 34).

5.6 The long title of the Act is amended consistently with this change (item 1) and a new definition of Commission inserted (item 7). A definition of APRA is also inserted (item 6).

The new functions

Item 10

5.7 The new functions and powers of the Commission are referred to in proposed section 12A (Item 10).

5.8 In brief, they are:

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the functions of the Insurance and Superannuation Commissioner under the Insurance (Agents and Brokers) Act 1984, the Insurance Contracts Act 1984 and the Superannuation (Resolution of Complaints) Act 1993;

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certain functions and powers of the Insurance and Superannuation Commissioner under the Insurance Act 1973, the Life Insurance Act 1995, the Retirement Savings Accounts Act 1997 and the Superannuation Industry (Supervision) Act 1993.

Administrative responsibility for these four Acts will be divided between APRA and ASIC. Those functions which relate to prudential supervision of the relevant bodies will be performed by APRA while those functions which relate to consumer protection and market integrity will be performed by ASIC.

5.9 In accordance with the Government's response to the recommendations of the Financial System Inquiry, the Commission will also be given the function of monitoring and promoting market integrity and consumer protection in relation to the payments system (proposed subsection 12A(3)). This function was previously undertaken by the Australian Payments System Council which is to be disbanded.

5.10 Proposed subsection 12A(5) also empowers the Commission to make recommendations to the Minister, including in relation to law reform, within the scope of ASIC's superannuation and insurance responsibilities. This is consistent with section 11 of the Act, which describes the functions and powers of the Commission in relation to the national companies and securities scheme.

5.11 The amendments to the individual Acts to effect this transfer of responsibility are included in Schedules 9-10, 12-13 and 15-17 of this Bill.

The new functions and the national companies and securities legislative scheme

Items 5, 15 and 29

5.12 The Act forms part of the legislative structure of the national companies and securities scheme.

5.13 The national companies and securities scheme involves:

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the enactment by the Commonwealth of the Corporations Act 1989 (which includes the Corporations Law) and the Australian Securities Commission Act 1989 as laws for the Australian Capital Territory;

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the automatic application of the Commonwealth Corporations Law and the relevant provisions of the Australian Securities Commission Act 1989 as the law of each State and the Northern Territory; and

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its administration by the ASC and its enforcement on a national basis.

5.14 In contrast, the superannuation and insurance legislation, parts of which the ASC is to administer, are enacted by virtue of Commonwealth constitutional power to apply of their own force across Australia.

5.15 It is therefore desirable that the amendments relating to the new functions do not form part of the applied laws regime and do not apply in relation to the ACT as a part of the national companies and securities scheme. For this reason, amendments are to be made to subsection 1B(1) and sections 102 and 127 of the Act:

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subsection 1B(1) of the Act is amended to provide that the new functions (specified in proposed section 12A) do not form part of the ASC Law of the ACT (Item 5).

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Sections 102 (delegations) and 127 (confidentiality) are provisions which are applied as the law of each State and the Northern Territory by virtue of the Corporations ([Name of State]) Acts. They are to be amended in relation to the additional functions which the Commission is undertaking (see below). The amendments therefore include a provision which states that if the section is being applied as a law of a State, it applies only in relation to functions and powers conferred by a national scheme law (Items 15 and 29).

Consequential amendments

The objects of the Act

Items 2 and 3

5.16 The objects of the Act have been amended so that they include a reference to the Commonwealth laws to be administered by ASIC (item 2).

5.17 Subsection 1(2), which gives directions to the Commission as to how it will perform its functions and exercise its powers, is amended consistently with the wider functions of the Commission (item 3).

5.18 Thus, the amended provision urges the Commission:

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to 'maintain, facilitate and improve the performance of the financial system and the entities within that system' and no longer refers only to companies and the securities and futures markets; and

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to promote the 'confident and informed participation of investors and consumers in the financial system', consistently with the increased consumer protection role to be undertaken by the Commission.

5.19 Subsection 1(2) of the Act also refers to the activities of the Commission in receiving and processing information and making it available to the public. References in the appropriate paragraphs to both documents and information have been amended to refer only to information. This change does not alter the effect of this provision.

Delegation

Items 12 - 14

5.20 It is desirable that APRA and ASIC be able to work closely together. For this reason, the power in the Act to delegate is to be amended to permit the Commission to delegate to a member of the staff of APRA without the Minister's approval, but only with the agreement of the Chief Executive Officer of APRA (items 12-14).

Disclosure of interests by the Chairperson

Item 16

5.21 The Act currently requires the Chairperson of the Commission to give written notice to the Minister of all direct or indirect pecuniary interests that the Chairperson has or acquires in, or in a body corporate carrying on, a business carried on in Australia (section 123).

5.22 This provision is to be amended by specifically mentioning the interests, relating to superannuation and retirement savings accounts, which the Insurance and Superannuation Commissioner is currently required to disclose (item 16).

How the Commission's money is to be applied

Items 30 and 31

5.23 The provision of the Act (section 135) which sets out the purposes for which the Commission can apply its money is to be amended so that it can apply its funds in relation to its new functions (item 30).

5.24 In addition, this section is to be amended so that the ASC can administer unclaimed monies under the Superannuation Industry (Supervision) Act 1993 in accordance with the procedures currently set out in Part 22 of that Act (item 31).

Annual report

Item 32

5.25 The Commission is required by the Commonwealth Authorities and Companies Act 1997 to provide the Minister with an annual report.

5.26 Section 138 of the Act requires that the Commission include certain matters in that report.

5.27 That section is to be amended to include the additional matters which the Insurance and Superannuation Commissioner has been required to include in the annual reports under Retirement Savings Accounts Act 1997, the Insurance (Agents and Brokers) Act 1984 and the Superannuation Industry (Supervision) Act 1993 and for which ASIC is taking responsibility (item 32).

Confidentiality

Extension to new functions

Items 17 and 29

5.28 The Act requires the Commission to take all reasonable measures to protect from unauthorised use or disclosure information given to it 'in confidence in or in connection with' the performance of its functions and the exercise of its powers under a national scheme law (subsection 127(1)).

5.29 This provision is to be amended so that the obligation extends to information obtained under the additional functions of the Commission (item 17 and the definition of 'protected information' in proposed subsection 127(9)(item 29)).

Disclosure of statistics and superannuation/RSA information, and to the Minister and APRA

Items 18 and 19

5.30 The current confidentiality provision of the Act will be amended (items 18; 19) so that the following additional disclosure will be authorised:

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summaries of information or statistics provided that information relating to any particular person cannot be found out from the summaries or statistics;

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certain information about retirement savings account providers and superannuation funds which is currently available under the Retirement Savings Accounts Act 1997 and Superannuation Industry (Supervision) Act 1993;

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disclosure to the Minister, the Secretary of the Department (or an authorised officer), or APRA.

Disclosure to additional specified Commonwealth and State bodies

Items 20 and 21

5.31 Currently, where the Chairperson is satisfied that particular information will enable or assist a Commonwealth agency to perform or exercise any of the agency's functions or powers, the disclosure of the information is taken to be authorised (paragraph 127(4)(a)). The class of agencies to which this provision applies is those which are an agency within the meaning of the Freedom of Information Act 1982. The same section permits disclosure to an agency of a State or Territory.

5.32 The proposed amendments will enlarge this class by including the Australian Bureau of Criminal Intelligence, the Australian Financial Institutions Commission, the Superannuation Complaints Tribunal and the Office of Law Enforcement Co-ordination (items 20; 21). These bodies do not fall within the categories of agency to which disclosure is currently permitted, for technical reasons.

Disclosure to prescribed professional disciplinary bodies

Items 22, 23 and 26

5.33 In addition, the Commission is to be empowered to disclose information to prescribed professional disciplinary bodies to enable or assist them to perform their functions (items 22 and 23).

5.34 It should be noted that the Chairperson can impose conditions on the disclosure of information (subsection 127(4A)) and that further disclosure by a member of the professional disciplinary body is prohibited (item 26).

Disclosure to foreign financial exchanges

Item 24, 25 and 27

5.35 The current confidentiality provision in the Act also permits disclosure to a prescribed body corporate which conducts a securities or futures market or is a clearing house for securities or futures in certain circumstances. Disclosure is only authorised when the Chairperson is satisfied that the information will enable or assist the body corporate to monitor compliance with or exercise powers under the Corporations Law or the business or listing rules of the body corporate (subsections 127(4B) to (4F)).

5.36 This power is to be extended so that the Chairperson may, in comparable circumstances, disclose information to foreign financial exchanges (items 24 and 25). This is in accordance with the recommendation of the Parliamentary Joint Committee on Corporations and Securities following the collapse of Barings. The penalty provision is to be appropriately amended (item 27).

Updating cross-references

Item 28

5.37 References to the new provisions are inserted in subsection 127(6) which provides that nothing in the specified subsections limits anything else in any of them and what might otherwise constitute authorised use or disclosure of information (item 28).

Repeal of provision

Item 9

5.38 Subsection 9(3A) of the Act refers to a person being appointed as a full-time member of both the ASC and the National Companies and Securities Commission (which supervised regulation under the previous, 'co-operative' scheme).

5.39 This subsection has been omitted because the National Companies and Securities Commission Act 1979 has been repealed (item 9).

Other amendments

Items 11 and 35

5.40 Under proposed section 93A (item 11), the Commission will be empowered to accept a written undertaking without having first to initiate court proceedings. If the Commission considers that the person who gave the undertaking has breached any of its terms, the Commission can apply to the Court which is empowered to make a wide range of orders. The Australian Competition and Consumer Commission already has this power.

5.41 This Schedule also contains a general transitional provision in relation to the changes of name of ASC and the Act (item 35). Provisions in the Corporations ([Name of State]) Acts will assist in relation to the name of the body and the Act.

5.42 Specific amendments to such references in other Commonwealth Acts are included in Part 2 of Schedule 18 of this Bill.