House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Revenue and Financial Services, Minister for Women and Minister Assisting the Prime Minister for the Public Service, the Hon Kelly O'Dwyer MP)

Chapter 1 Amendments relating to competition in the financial system

Outline of chapter

1.1 This chapter explains the amendment in Schedule 1 to the Bill to require ASIC to consider the effects that the performance of its functions and the exercise of its powers will have on competition in the Australian financial system.

Context of amendments

1.1 In October 2015, the Government accepted recommendation 30 of the Financial System Inquiry (FSI) to include consideration of competition in ASIC's mandate.

Summary of new law

1.2 Schedule 1 to the Bill amends the ASIC Act to require ASIC to consider competition in the financial system when performing its functions and exercising its powers.

Comparison of key features of new law and current law

Detailed explanation of new law

1.3 Schedule 1 to the Bill amends the ASIC Act to require ASIC to consider the effects that the performance of its functions and the exercise of its powers will have on competition in the financial system. [Schedule 1, item 1, subsection 1(2A) of the ASIC Act]

1.4 ASIC already must strive to improve the performance of the financial system in the interests of the efficiency and development of the economy (see paragraph 1(2)(a) of the ASIC Act). As competition is important to improving the performance of the financial system and will impact on the efficiency and development of the economy, ASIC is already implicitly required to consider competition.

1.5 However, an explicit reference to take competition issues into account would oblige ASIC to consciously consider how its actions may impact on competition in the financial system and will enable ASIC to favour one option over another due to its effects on competition.

1.6 Some of the specific aspects of competition that ASIC may have regard to include:

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whether the decision will create a barrier to entry, making it more difficult for new firms to enter the industry;

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whether the decision will create regulatory advantages for some companies over others competing in the same sector, or generally across the industry as a whole;

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whether the decision will improve consumers' ability to exert demand-side competitive pressure in a market;

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whether the decision will disproportionately impact small entities (for example by imposing obligations that do not appropriately scale the regulatory risks presented by those entities) and the impact that would have on competition; and

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whether alternative competitively-neutral approaches can be identified.

1.7 Competition should not be considered in isolation. ASIC should consider competition in conjunction with the elements in subsection 1(2) of the ASIC Act, such as striving to improve the performance of the financial system and promoting commercial certainty and economic development and efficiency while reducing business costs.

1.8 For example, ASIC may decide to proceed with an intervention that has a detrimental impact on competition because the intervention would significantly improve confident and informed participation by investors in the market.

1.9 ASIC is required to determine the weight it will give to competition based on the relevant circumstances.

1.10 In cases where competition is not relevant to how ASIC performs its functions and exercises its powers (for example, internal corporate functions), ASIC could note that competition has no bearing on the function or power.

1.11 The measure is not intended to limit or expand the scope of ASIC's regulatory responsibilities. The Australian Competition and Consumer Commission will remain as the competition regulator across the economy.

Application and transitional provisions

1.12 Schedule 1 will commence the day after Royal Assent.