House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)

General outline and financial impact

Crisis management powers

Schedules 1 to 7 to the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017 (the Bill) makes amendments to the Banking Act 1959, Insurance Act 1973, Life Insurance Act 1995, Australian Prudential Regulation Authority Act 1998, Payment Systems and Netting Act 1998, Financial Sector (Business Transfer and Group Restructure) Act 1999, Corporations Act 2001 and the Income Tax Assessment 1997.

The Bill strengthens the powers of the Australian Prudential Regulation Authority (APRA) to facilitate the orderly resolution of an authorised deposit-taking institution (ADI) or insurer so as to protect the interests of depositors and policyholders, and to protect the stability of the financial system.

The Bill also ensures that APRA has powers to set appropriate prudential requirements and take action in relation to resolution planning so that ADIs and insurers are better prepared for resolution.

Date of effect : The amendments will commence on the day the Bill receives Royal Assent.

Proposal announced: The Government announced on 20 October 2015 its intention to provide regulators with clear powers in the event a prudentially regulated financial entity fails as part of its response to the Financial System Inquiry (FSI).

Financial impact: Nil.

Human rights implications: This Bill does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 12.

Compliance cost impact: $1.3 million annually.

Summary of regulation impact statement

Impact: The amendments to the above listed Acts impact ADIs, insurers and related group entities as well as their respective depositors and policyholders.

Main points :

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The Government considered the regulatory impacts of various reform options through three papers (and their associated consultation processes) - the Financial System Inquiry (Murray Inquiry) Final Report, the 2012 consultation paper 'Strengthening APRA's Crisis Management Powers', and the 2011 consultation paper 'Financial Claims Scheme' - as well as through extensive consultation with industry stakeholders.

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The Murray Inquiry noted that CFR agencies reviewed Australia's existing crisis management toolkit and found that although Australia has a strong framework, there are gaps in powers that could be strengthened.

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The Murray Inquiry also noted that there are high costs associated with the disorderly failure of an institution, particularly where this creates financial system instability or the need for Government support. These costs would be exacerbated should reforms to strengthen resolution powers and support pre-planning for financial failure not proceed.

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The CFR will continue to review and test the effectiveness and efficiency of the crisis management powers every year. These crisis management powers will also be independently assessed as part of the International Monetary Fund's Financial System Assessment Program in 2018.