Combined Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Notes on amendments
Schedule 1 - Amendment of the ASIC Act
5.1 These amendments will correct the omission of 'in' in expressions in section 12GM.
5.2 This amendment will correct the reference to subsection (4F) in subsection 127(5). This should refer to subsection (4FA) in view of the amendments to section 127 (and the inclusion of a new subsection 127(4FA)) made by the Financial Services Reform (Consequential Provisions) Act 2001 (items 194, 195, 196 and 197 of Schedule 1).
5.3 The Australian Society of Certified Practising Accountants has changed its name to CPA Australia. Item 4 will substitute the correct name in section 203(1)(c).
5.4 This amendment will amend the definition of 'old ASIC legislation' in subsection 254(1) in Part 16 of the ASIC Act to correct a minor drafting oversight. Part 16 of the ASIC Act provides for the transition from the 'old ASIC legislation' to the 'new ASIC legislation'. It ensures that individuals and bodies corporate are put in the position immediately after commencement of the ASIC Act that they would have been in if their existing rights and liabilities under the former ASIC legislation had arisen under the new ASIC legislation. The new ASIC legislation is taken to be a continuation of the application of the old ASIC legislation to the extent that the old legislation corresponds to provisions of the new legislation.
ASIC has advised that it is "not aware of any specific matter that is potentially adversely affected by the failure to include laws of the Commonwealth referred to in sections 74 and 75 of the old application Acts in the definition of 'old ASIC law'." The amendment may have the effect of protecting persons and the integrity of examinations and proceedings in circumstances where it has effect. Without applying the correction as from commencement of the Act the relevant provisions would be uncertain in their operation.
5.5 Paragraph (b)(iii) of the definition of 'old ASIC legislation' in subsection 254(1) covers certain laws of the Commonwealth that were applied as State and Territory laws because of Part 8 of the State and Territory Corporations Acts. However, other Commonwealth laws were also applied by Division 6 of Part 11 of those Acts and were inadvertently omitted from the definition of 'old ASIC legislation'. They include Part III of the Crimes Act 1914 which is specifically applied in relation to examinations and hearings under Part 3 of the various ASIC laws (see section 74 of the State and Territory Corporations Act) and provisions of the Evidence Act 1995 (see section 75 of the State and Territory Corporations Act). In order for the transitional provisions of the ASIC Act to be fully effective in 'federalising' rights and responsibilities that arose under the old ASIC legislation as intended, it is necessary to include a reference to that Division in the definition; and for that inclusion to have effect from the commencement of the Act, being 15 July 2001.
The need for the amendments in items 3, 5, 6 and 7 in the table to subclause 2(1) of item 4 of Schedule 1 of the Bill was noted by ASIC and the Office of Parliamentary Counsel in routine reviews of recent enactments for minor anomalies and discrepancies and drafting oversights. Neither body has indicated any disadvantage flowing to any person from them.
Schedule 2 - Amendment of the Banking Act
5.6 The amendments will improve compliance with the Basel Committee on Banking Supervision's Core Principles for Effective Banking Supervision;
5.7 The definition of 'prudential matters' has been amended to provide that prudential matters include matters relating to the conduct of a group of companies to which an ADI or NOHC is a member. This clarifies that APRA has power to undertake consolidated group supervision and is in line with the Basel Committee's Core Principles for Effective Banking Supervision.
5.8 This amendment has been made to give effect to the amendments to provide APRA with powers to undertake consolidated group supervision.
Item 3, Parliamentary Amendment (1)
5.9 This amendment has been made to give effect to the amendments to provide APRA with the power to apply fit and proper tests to senior managers of ADIs and authorised NOHCs. Parliamentary Amendment (1) will make the definition of 'senior manager' in the Banking Act consistent with that in the Insurance Act. It will have the effect of defining 'senior manager' in terms of the relevant prudential standard issued by APRA.
5.10 This amendment has been made to give effect to the amendments to provide APRA with powers to undertake consolidated group supervision.
5.11 Subsection 9A(2) is amended to clarify that APRA may revoke an authority granted to an ADI in the event that APRA has been provided with any false or misleading information by an institution or in connection with the application of an institution for an authority.
5.12 Subsection 11AB(2) is amended to clarify that APRA may revoke an authority granted to a NOHC in the event that APRA has been provided with any false or misleading information by an institution or in connection with the application of an institution for an authority.
5.13 This amendment to subsection 11AF allows APRA to apply the Prudential Standards on a consolidated group basis.
5.14 Subsection 11CA(2) is repealed and substituted by an amendment which allows APRA to give particular directions to a subsidiary of an ADI or NOHC.
5.15 This amendment creating a new subsection 11CA(4A) will require that where APRA gives a direction to an ADI or authorised NOHC requiring it to cause a subsidiary to do something, then the subsidiary will have power to do that thing, despite anything in its constitution, or any contract or arrangement to which the subsidiary is a party.
5.16 The amendments to subsections 11CD(1) and 11CD(2) have been made to give effect to the amendments to provide APRA with powers to undertake consolidated group supervision.
5.18 This amendment changes the reference to paragraph 11CA(2)(m) to give effect to the renumbering of the directions in subsection 11CA(2).
5.19 This amendment is to enable APRA to require an auditor of any Australian subsidiary of a foreign corporation which operates an ADI in Australia to provide information.
5.20 The amendment to subsection 16B(1A) will ensure consistency with other similar provisions.
5.21 This amendment which creates subsections 16B(4A)(4B)(C) is an offence provision which is invoked where an auditor of any Australian subsidiary of a foreign corporation with an ADI operating in Australia withholds particular information in certain circumstances.
5.22 This amendment which substitutes a new subsection 16C is to enable APRA to require an auditor of any Australian subsidiary of a foreign corporation which operates an ADI in Australia to provide information to APRA if it will assist APRA in performing its functions under the Banking Act.
Item 17, Parliamentary Amendments (2) and (15)
5.23 This amendment inserts sections 17 - 23 to address the 'fit and proper' status of directors and senior managers of an ADI or NOHC. The amendment also provides APRA with the power to prevent the appointment of, or remove, unsuitable directors and senior management of ADIs. APRA will address the 'fit and proper' requirements in a prudential standard(s).
5.24 In addition the amendment allows APRA to apply a fit and proper test to auditors; refer matters to the auditors professional associations; and an appeals process for affected parties to lodge an appeal against APRA's decision.
Parliamentary Amendments (2) and (15) will ensure that an ADI or authorised NOHC must comply with APRA's directions under the new sections 17 (removal of auditors of ADIs) and 23 (removal of directors or senior managers of ADIs or authorised NOHCs) and to insert penalty provisions under section 11CG in the case of non-compliance.
This amendment introduces a short transitional period of three months during which the operation of new section 19, which states that disqualified persons under the new fit and proper regime must not act for ADIs or authorised NOHCs, will be suspended. It is considered that some regulated entities (and potentially affected persons) may require time in which to assess which persons may be disqualified under the new provisions (section 20) and for any application to be made to APRA to have them 'undisqualified'. However, during the transitional period, APRA will still be able to disqualify or remove persons determined otherwise to be not 'fit and proper', that is, under its own initiative pursuant to new sections 21 and 23 respectively.
This amendment seeks to clarify the mechanism in new section 23 for the removal of a director upon a direction from APRA to do so. It is intended that these provisions will act as a 'by-pass' to other powers for removal of a director. However, they will not limit any other powers of an ADI or authorised NOHC to remove a director, whether under the Corporations Act or otherwise. The amendment will provide a mechanism by which a director can be removed by either the chair of the board of directors or a majority of directors acting together to remove a director, upon signing a notice to that effect. This will be considered sufficient to give effect to the direction from APRA for the removal of a director.
Parliamentary Amendments (13), (14), (16), (18), (19), (20), (21), (23), (24) and (25)
These are technical corrections relating to new sections 21, 22 and 23 which will amend incorrect numbering and sequencing of sections; and will correct the reference to submissions being made 'in response' to a notice rather than 'pursuant to' a notice. The opportunity has been taken to make these technical corrections.
5.25 This amendment inserting new Part VIA provides for an appeals process modelled on Part VI of the Insurance Act by which any affected parties (that is, the officer, ADI or NOHC concerned) can lodge an appeal against particular APRA decisions.
5.26 Section 61 is amended to give effect to the power for APRA to undertake consolidated group supervision. This particular amendment will enable APRA to investigate any Australian subsidiary of a foreign corporation with an ADI operating in Australia.
5.27 Subsections 62(1)(a)(b) and (c) are amended to give effect to the power for APRA to undertake consolidated group supervision.
5.30 Subsection 62(1)(c) is amended to give effect to the power for APRA to undertake consolidated group supervision. This particular amendment will enable APRA to collect information from any Australian subsidiary of a foreign corporation with an ADI operating in Australia.
5.31 This amendment creates section 62A which provides that an ADI, authorised NOHC or a subsidiary of such institutions is required to promptly notify APRA of any breaches of prudential requirements (for example, licensing conditions or the Prudential Standards) or any information with a material bearing on the safety and soundness of an ADI or a group to which an ADI is a member.
This amendment creates subsection 69F(3A) to correct references to subsidiaries of foreign corporations and body corporates that are members of a relevant group of bodies corporate.
5.32 Section 70A is amended to give any person under the Banking Act the same protection as is provided by section 58 of the APRA Act.
Parliamentary Amendments (3), (4), (5), (6), (9), (10) and (11)
The proposed amendments to sections 16B (APRA's power to require auditors to provide information) and 16C (auditors' right to provide information voluntarily to APRA) do not contain a definition of 'information'. The amendments will enable APRA to require regulated entities and auditors to supply information which may include books, accounts or documents. An example of a document is audit working papers. These amendments will enhance APRA's ability to undertake a prudential assessment of a regulated institution, including the fit and proper status of auditors. It will also clarify the definition of 'information' contained in section 14A which deals with the powers of a statutory manager appointed to an ADI. This measure ensures a statutory manager is able to obtain the material they might need to deal with a troubled ADI and brings greater consistency with information collection powers in other parts of the Banking Act.
Parliamentary Amendments (7), (8) and (12)
The amendments to new sections 16B and 16C will ensure that the Banking Act continues to capture the provisions of the Financial Sector (Collection of Data) Act, which have the effect of enhancing APRA's ability to collect information for the purposes of conducting prudential assessments of regulated institutions.
Parliamentary Amendments (26) and (27)
These are technical amendments to sections 62(2) and 62A to ensure consistency across new provisions contained in the Banking Act in relation to collection of information and notification to APRA of breaches of standards etc where these may be related to relevant groups of bodies corporate of which an ADI is a member. It is consistent with APRA's group approach to regulation of ADIs and authorised NOHCs.
Schedule 3 - Amendment of the Corporations Act
5.33 These amendments will make technical amendments and corrections to the Corporations Act in light of recent extensive changes to company laws. The amendments will correct anomalies, grammatical mistakes, typographical errors and erroneous cross references (items 1, 3, 4, 6, 7, 21-27, 29, 32, 33, 36, 37, 39, 40, 41 and 42); replace an inappropriate heading (item 38); clarify a definition (item 2); omit redundant or incorrect cross references and citations (items 34, 35 and 42); repeal provisions that are no longer required (items 5, 28, 30 and 31); and remove ambiguities.
5.34 These amendments will clarify the language of the Small Business Guide in Part 1.5 of the Act (item 14). References in the notes to the main provisions in the Act that are relevant to the information in the Guide (items 8-13, 15-20) will be updated.
5.35 Item 1 will correct an erroneous cross reference. Subparagraph (a)(ii) of the definition of 'administrator' in section 9 is intended to refer to section 1381 as it existed prior to the enactment of the Corporations Act, not the current section 1381. As section 1408 preserves the effect of former section 1381 it is not necessary to retain subparagraph (a)(ii).
5.36 Item 2 will amend paragraph (d) of the definition of 'Corporations legislation' to include a reference to the rules of court of the Supreme Court of the Northern Territory.
5.37 Item 5 will delete section 91. The references to section 206D and 206E orders in section 91 predate the Corporate Law Economic Reform Program Act 1999. Neither these nor the other concepts in section 91 are used in the Act.
5.38 Item 6 repeals unnecessary words in subsection 109X(2). They refer to subsection 4 which no longer exists. It was repealed as section 28A(1) of the Acts Interpretation Act 1901 covers this matter. Item 7 will clarify that section 109X does not limit any other provision of another law (such as subsection 28A(1) of the Acts Interpretation Act 1901 ) permitting a document to be served in a different way.
5.39 To avoid confusion item 21 will renumber items 32 and 33 (second occurring) in the table of replaceable provisions in section 141 as this numbering is used elsewhere in the table. Item 24 will renumber subsection 252Z(3) (second occurring) as there is already a subsection 252Z(3). Items 28 and 30 will repeal subsections 273B(5) and (6) and subsections 273C(5) and (6) as these provisions serve no purpose. Subsections 273B(5) and (6) indicate what are 'specified provisions'. Section 273B only contains operative provisions for 'specified laws' that are set out in subsection 273B(3). No other provision relies on 'specified provisions'. Subsections 273C(5) and (6) involve the same problem.
5.40 Item 31 will repeal subsections 319(5) and (6). Subsections 319(5) and (6) refer to subsection 319(4) which was omitted from the body of the Act but dealt with as an 'old transitional provision' under subsection 1408(6). Subsections 319(5) and (6) will be repealed but references to them will be added to the table of 'old transitional provisions' in subsection 1408(6) (item 39).
5.41 The Australian Society of Certified Practising Accountants has changed its name to CPA Australia. Items 34 and 35 will substitute the correct name in paragraphs 1280(2)(a)(i) and 1282(2)(a)(i).
5.42 Item 38 will replace the heading to Division 2 Part 9.6A, which inappropriately refers to cross-vesting arrangements of the previous Corporations Law scheme. The replacement heading will be consistent with the heading to Division 1.
Item 40 will correct a typographical error in item 112 of Schedule 3 - Penalties. Item 112 is intended to deal with section 319, not section 318. The previous item - item 111 - sets out penalties for the purposes of section 318.
Item 41 will set out penalties for offences against sections 320 and 321. These items will restore penalties as they existed under the former Corporations Law prior to the commencement of the Corporations Act and which were inadvertently omitted from that Act.
5.43 Item 42 will correct a reference to the Life Insurance Act 1995.
Schedule 4 - Amendment of the CRCT Act
5.42 These amendments will correct erroneous cross references in the CRCT Act with retrospective effect.
5.43 Item 1 will correct the reference to 'Schedule 2' to the Privacy Amendment (Private Sector) Act 2000 which should be to Schedule 1.
5.44 Item 2 will correct a misdescription of the wording of a definition in the Insurance Act.
5.45 Item 3 will correct a reference to 'paragraph (a)' of a provision of the Management and Investment Companies Act 1983 which should be to 'paragraph 1(a)'.
The need for the amendments in items 3, 5, 6 and 7 in the table to subclause 2(1) (items 1, 2 and 3 of Schedule 4) of the Bill was noted by ASIC and the Office of Parliamentary Counsel in routine reviews of recent enactments for minor anomalies and discrepancies and drafting oversights. Neither body has indicated any disadvantage flowing to any person from them.
Schedule 5 - Amendment of the Insurance Act
Under the Insurance Act, a general insurer (under section 11) and a NOHC (under section 18) is a body corporate and cannot be a person. Some of the penalties inserted under the General Insurance Reform Act 2001 assume that a general insurer or NOHC can be a person and therefore specify a penalty for an offence relevant to a person. The affected sections (14(1), 17(8), 20(1), 27(7), 37(1), 37(2), 37(3), 47(5), 49F(2), 49L, 49L(1), 49L(2), 49P and 49P(1)) note that 'If a body corporate is convicted of an offence against this section, subsection 4B(3) of the Crimes Act 1914 allows a court to impose a fine of up to 5 times the penalty above'. However, this is not valid as a general insurer or NOHC is, by definition, a body corporate. These amendments revise the incorrectly specified penalties to ensure that a body corporate is subject to the appropriate penalty. Other items (3, 6, 7, 10, 14, 15, 19, 22, 23, 26, 27 and 30) are technical corrections to repeal redundant notes and make minor corrections to references.
5.46 This amendment modifies section 27. Section 27 allows APRA to remove a director or senior manager of a general insurer or NOHC. Subsection 27(3) allows the person, general insurer or NOHC to make a submission disputing or querying the decision.
5.47 The new subsections 27(3A) and 27(3B) allow APRA to discuss material raised in the submission under subsection 27(3) with third parties to test the veracity of the claims, notwithstanding any privacy or confidentiality concerns. This would enable APRA to make a more informed judgement on the fit and proper status of a director or senior manager in response to any submissions made under the subsection.
5.48 This amendment inserts a new section 35A into the Insurance Act. This clause requires that a general insurer, authorised NOHC, or subsidiary of a general insurer or authorised NOHC notify APRA if it breaches any part of the Prudential Standards or if there are any developments that are detrimental to its financial position.
Parliamentary Amendments (28) and (29)
5.49 These are technical corrections to sections 27(3A) and 27 (3B) to correct the reference to submissions being made 'in response to' a notice rather than 'pursuant to' a notice.
5.50 This amendment to section 27(5A) seeks to clarify the mechanism for the removal of a director upon a direction from APRA to do so. It is intended that these provisions will act as a 'by-pass' to other powers. However, they will not limit any other powers of an insurer to remove a director, whether under the Corporations Act or otherwise. The amendment will provide a mechanism by which a director can be removed by either the chair of the board of directors or a majority of directors acting together to remove a director, upon signing a notice to that effect. This will be considered sufficient to give effect to the direction from APRA for the removal of a director.
The Bill introduces provisions in the Insurance Act by which regulated entities must report breaches of prudential standards to APRA. This amendment ensures that the penalty provision in section 35A is consistent with other penalty provisions in the Insurance Act.
Parliamentary Amendments (32) and (33)
Currently, the definition of information contained within sections 49(1) and 49B limits APRA's ability to obtain working papers from auditors and actuaries. The amendments will enable APRA to require auditors and actuaries to supply information which may include books, accounts or documents. An example of a document is audit working papers. Section 49(2) is covered by the Criminal Code Act 1995, Division 137 and for this reason there is no need to amend this subsection. These amendments will enhance APRA's ability to undertake a prudential assessment of a regulated institution, in particular, the fit and proper status of auditors and actuaries.
Schedule 6 - Amendment of the SIS Act
5.51 Part 7A of the SRC Act relating to arbitration ceased to have effect by proclamation on 13 September 1999 (see Gazette 1999, No. S423).
5.52 Despite the cessation of Part 7A, the proposed section 337A allows the trustee to give effect to an award made in an arbitration agreement entered into under Part 7A that is still in force.
Schedule 7 - Amendment of the SRC Act
5.53 In February 1998, the Federal Court decision of Wilkinson v Clerical Administrative and Related Employees Superannuation [1998] 51 FCA (12 February 1998) held that the review powers of the SCT were invalid. As a result the SCT's operations were significantly curtailed.
5.54 As an interim measure, pending a Commonwealth appeal to the High Court, the Superannuation Legislation Amendment (Resolution of Complaints) Act 1998 amended the SRC Act to enable the SCT to arbitrate complaints with the consent of the parties. Part 7A was introduced setting out the SCT's arbitration powers.
5.55 In June 1999 the High Court held in the
Attorney-General of the Commonwealth v Breckler
[1999] HCA 28
(17 June 1999) that the powers of the SCT were constitutionally valid and therefore the arbitration powers were no longer required. Part 7A ceased to have effect by proclamation on 13 September 1999 (see
Gazette
1999, No. S423).
5.56 There remain a number of references to 'arbitration' throughout the SRC Act. As the arbitration power has ceased to have effect and these references are redundant and misleading, it is proposed to remove these references from the following sections of the SRC Act:
5.57 These amendments delete definitions of 'arbitration', 'arbitration agreement', 'nominated state or territory' and 'party' in relation to arbitration from subsection 3(2).
5.58 This amendmet deletes sub-paragraph 11(b)(ii).
5.59 This amendment deletes sub-paragraph 12(1)(b)(ii).
5.60 These amendments delete paragraph 13(1)(d).
5.61 This amendment deletes subsection 30(2).
5.62 This amendment repeals Part 7A.
5.63 These amendments delete paragraph 59(2)(c).
5.64 This amendment deletes the words 'or arbitration' in paragraph 63(2)(a).
5.65 The Superannuation (Industry) Supervision Legislation Amendment Act 1995, amended the SRC Act to enable the SCT to deal with complaints that involve the assessment of disability complaints.
5.66 In light of the nature of disability complaints and the fear that the SCT would be 'swamped' with such complaints, it was decided that mandatory time limits would also be introduced. Paragraphs 14(6A)(b) and 14(6B)(b) of the SRC Act provide that the SCT cannot deal with a complaint about a decision of a trustee relating to the payment of a disability benefit if the complaint was not made within one year. The SCT has no discretion in relation to the operation of these provisions.
5.67 The objective of the time limits in paragraphs 14(6A)(b) and 14(6B)(b) is to require disability claims to be made to the trustee and disability complaints to be made to the SCT in a timely manner. Timeliness is particularly important in relation to claims and complaints about disability benefits as subsequent medical conditions may obscure the original condition. However, the time limits can operate harshly in certain circumstances and as a result some flexibility is now considered desirable.
5.68 These amendments insert proposed subsections 14(6BA) and 14(6BB). This gives the SCT discretion to hear a complaint that falls outside the legislative time limits for making a claim and lodging a complaint. It also provides that the SCT is to formulate administrative guidelines indicating the kinds of circumstances in which it would ordinarily make a determination under subsection 14(6BA).
5.69 This amendment proposes to enhance the SCT's conciliation powers. The process of conciliation is being increasingly recognised as an integral part of the resolution of complaints in many jurisdictions and can be required in relation to proceedings before bodies such as the Administrative Appeals Tribunal.
5.70 Under section 28 of the SRC Act, participation in conciliation processes before the SCT is voluntary, as it only has the power to request parties to attend a conciliation conference. In light of the significant advantages of conciliation compared to formal review of a complaint, item 13 proposes an amended section 28 of the SRC Act to give the SCT the power to require parties to attend a conciliation conference where it considers this would be desirable.
5.71 Proposed subsection 28(4) provides that if the complainant doesn't comply with a direction of the SCT to attend a conciliation conference, it will be given the discretion to treat the complaint as 'withdrawn'. This approach is considered fair and reasonable, given that if a person has made a complaint to the SCT they should, in most circumstances, be prepared to participate in the SCT processes for dispute resolution.
5.72 In relation to a person other than the complainant, such as an insurance company against which a complaint has been made, if there is a failure to comply with a direction of the SCT to attend a conciliation conference under the proposed subsection 28(5), a penalty will be imposed that is consistent with similar Commonwealth offences regarding a failure to attend a tribunal when summonsed.
5.73 The amendments also seek to give the SCT the ability to formulate administrative guidelines in relation to the operation of the power to require parties to attend a conciliation conference.
5.74 It is proposed to undertake the following series of minor and technical amendments to improve the operation of the SRC Act:
5.75 This amendment substitutes subsections 7(2) and 7(2A) to enable the Chairperson and Deputy Chairperson of the SCT to be appointed on a part-time basis to improve the flexibility of appointments.
5.76 This amendment omits the word 'Chairperson' from subsections 32(1) and 32(2) to enable the SCT Chairperson to delegate the power to request submissions and arrange review meetings.
5.77 This amendment omits '12(a)' from subsection 59(1) as the SRC Act does not have a paragraph 12(a).
5.78 This amendment includes section 32 in subsection 59(1) to allow flexibility in the exercise of the SCT's power concerning a review meeting.
5.79 This amendment inserts a reference to section 64A as an exception subsection 63(2), along with the similar sections 64 and 65.
5.80 These amendments remove administrative inefficiencies that currently exist in relation to the referral of details to APRA. Currently, the SCT Chairperson can only refer matters under sections 64 and 64A and paragraph 65 to ASIC. This is even if the matter does not concern ASIC and leads to the cumbersome procedure where ASIC is required to forward the information to APRA.
5.81 These amendments repeal the sections and substitute new sections 64 and 64A and paragraph 65(1)(b). They enable APRA to receive information directly from the SCT in a manner similar to that in which ASIC receives information.
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