Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 (87 of 2024)

Schedule 2   Financial market infrastructure: new and enhanced regulatory powers

Part 9   Enhancing regulator powers for CS facility licensees

Division 1   Main amendments

Corporations Act 2001

88   Section 823E

Repeal the section, substitute:

Subdivision D - Reserve Bank's directions powers

823E Reserve Bank's directions power - directions to increase compliance or reduce systemic risk

(1) The Reserve Bank may, by written notice given to a CS facility licensee, direct the licensee to take:

(a) specified action that the Reserve Bank reasonably believes will promote compliance by the licensee with its obligations as a CS facility licensee under:

(i) paragraph 821A(1)(aa) or (ab); or

(ii) section 821BA; or

(iii) subsection 821C(3);

if the Reserve Bank reasonably believes that the licensee is not complying or is not likely to comply with those obligations; or

(b) specified action to comply with all or part of one or more standards in force under section 827D that applies to the licensee, if the Reserve Bank reasonably believes that the licensee is not complying with those standards or parts; or

(c) specified action to reduce systemic risk in the provision of the facility's services, if the Reserve Bank reasonably believes that the licensee:

(i) has not done; or

(ii) is unlikely to do;

all things reasonably practicable to reduce systemic risk in the provision of the facility's services.

(2) The direction must specify a reasonable time by which, or a reasonable period during which, it is to be complied with.

(3) The licensee must comply with the direction (even if, under subsection (4), the licensee has requested the Reserve Bank to refer the direction to the Minister).

Note: Failure to comply with this subsection is an offence: see subsection 1311(1).

Referrals to the Minister

(4) If, at any time after a CS facility licensee receives a direction under subsection (1), the licensee requests in writing that the Reserve Bank refer the direction to the Minister, the Reserve Bank must do so immediately.

(5) The Minister may, if the Minister considers it appropriate after being referred the direction, direct the Reserve Bank to vary or revoke the direction.

(6) The Reserve Bank must comply with the direction given under subsection (5).

Note: The Reserve Bank will need to do so immediately: see paragraph 823K(1)(b).

(7) A direction given under subsection (5) is not a legislative instrument.

823F Reserve Bank's directions power - directions to preserve stability in the Australian financial system

(1) The Reserve Bank may, by written notice given to a CS facility licensee holding a licence granted under subsection 824B(1) (domestic clearing and settlement facilities), direct the licensee to:

(a) do, or refrain from doing, anything under either or both of the following instruments (the operating instruments ):

(i) the facility's operating rules;

(ii) the written procedures the facility must have under regulations made for the purposes of subsection 822A(2); or

(b) change one or more of those operating instruments; or

(c) subject to sections 823M and 823P:

(i) increase the licensee's level of share capital to a specified level; or

(ii) issue one or more specified classes of shares, or one or more specified classes of rights to acquire shares, in the licensee; or

(iii) issue one or more specified classes of capital instruments that are prescribed by the regulations; or

(d) refrain from paying a dividend on any shares; or

(e) refrain from repaying any amount paid on shares; or

(f) exercise rights under an agreement (including termination rights);

if subsection (2) of this section applies to the licensee.

Note 1: The direction is a recapitalisation direction to the extent that it deals with a matter in paragraph (c).

Note 2: The procedures referred to in subparagraph (a)(ii) could relate to matters such as:

(a) the licensee's operations; or

(b) the conduct of participants in the facility; or

(c) the structure and operation of electronic communications with those participants; or

(d) default management or recovery.

(2) This subsection applies to the licensee if:

(a) the licensee informs the Reserve Bank that the licensee considers that the licensee is likely to become unable to meet one or more of its obligations under paragraphs 821A(1)(aa), (ab) and (d) (its critical obligations ); or

(b) the Reserve Bank reasonably believes that, in the absence of external support:

(i) the licensee may become unable to meet one or more of its critical obligations; or

(ii) it is likely that the licensee will be unable to operate the facility in Australia consistently with the stability of the Australian financial system; or

(c) the licensee becomes unable to meet one or more of its critical obligations; or

(d) the Reserve Bank reasonably believes that the licensee is conducting, or is likely to conduct its affairs in a way that may cause or promote instability in the Australian financial system.

(3) For the purposes of paragraph (2)(b), the regulations may specify that a particular form of support:

(a) is external support; or

(b) is not external support.

(4) The direction:

(a) must specify a reasonable time by which, or a reasonable period during which, it is to be complied with; and

(b) may deal with one or more of the matters in the paragraphs or subparagraphs of subsection (1).

(5) The licensee must comply with the direction.

Note: Failure to comply with this subsection is an offence: see subsection 1311(1).

823G Reserve Bank's directions power - directions to enhance resolvability

(1) The Reserve Bank may, by written notice given to:

(a) a body corporate that is a CS facility licensee; or

(b) a body corporate that:

(i) is a related body corporate of a CS facility licensee; and

(ii) is incorporated in Australia;

direct the body corporate to take:

(c) specified measures to comply with all or part of one or more standards in force under section 827DA that applies to the body corporate, if the Reserve Bank reasonably believes that the body corporate is not complying with those standards or parts; or

(d) specified action to manage or resolve an impediment to the effective management of or response to a condition in section 831A being satisfied in relation to the CS facility licensee, if the Reserve Bank reasonably believes that the body corporate:

(i) has not done; or

(ii) is unlikely to do;

all things reasonably practicable to manage or resolve the impediment.

(2) The direction must specify a reasonable time by which, or a reasonable period during which, it is to be complied with.

(3) The body corporate must comply with the direction.

Note: Failure to comply with this subsection is an offence: see subsection 1311(1).

823H Reserve Bank's directions power - directions to give information to assist the Reserve Bank perform its functions

(1) The Reserve Bank may, by written notice given to a body corporate to which subsection (2) or (3) applies, direct the body corporate to give:

(a) specified information; or

(b) documents containing specified information;

to the Reserve Bank or a Reserve Bank staff member.

(2) This subsection applies to a body corporate if:

(a) the body corporate is a CS facility licensee; and

(b) the Reserve Bank reasonably believes that the licensee possesses the information or documents; and

(c) the Reserve Bank reasonably believes that the information or documents could assist the Reserve Bank to perform its functions, or exercise its powers, under this Part.

(3) This subsection applies to a body corporate if:

(a) the body corporate:

(i) is a related body corporate of a CS facility licensee; and

(ii) is incorporated in Australia; and

(b) the Reserve Bank reasonably believes that the body corporate possesses the information or documents; and

(c) the Reserve Bank reasonably believes that the information or documents could assist the Reserve Bank to perform its functions, or exercise its powers:

(i) under section 823CA in relation to the body corporate or the licensee; or

(ii) under section 827DB (resolution planning) in relation to the licensee.

(4) The direction:

(a) must specify a reasonable time by which, or a reasonable period during which, it is to be complied with; and

(b) may specify the form and manner in which the information or documents must be given.

(5) The body corporate must comply with the direction.

Note: Failure to comply with this subsection is an offence: see subsection 1311(1).

823J Matters relating to all Reserve Bank directions - order for body corporate to comply with direction

If a body corporate fails to comply with a direction given under this Subdivision to the body corporate, the Reserve Bank may apply to the Court for, and the Court may make, an order that the body corporate comply with the direction.

823K Matters relating to all Reserve Bank directions - variation or revocation

(1) The Reserve Bank:

(a) may, by written notice given to a body corporate:

(i) vary a direction given under this Subdivision to the body corporate if, at the time of variation, the Reserve Bank reasonably believes the variation is necessary or appropriate; or

(ii) revoke such a direction if, at the time of revocation, the Reserve Bank reasonably believes the direction is no longer necessary or appropriate; and

(b) for a direction given under subsection 823E(1) - must immediately do so if required under subsection 823E(6).

(2) A direction given under this Subdivision has effect until the Reserve Bank revokes it under subsection (1).

Subdivision E - Matters relating to Reserve Bank recapitalisation directions

823L Recapitalisation directions - matters relating to compliance

Giving members of the licensee notice of share issue etc.

(1) As soon as practicable after a CS facility licensee issues shares, rights to acquire shares, or other capital instruments in compliance with a recapitalisation direction, the licensee must give a written notice:

(a) to the persons who were members of the licensee just before the issue; and

(b) that:

(i) identifies the issue; and

(ii) explains the effect of the issue of the shares, rights to acquire shares, or other capital instruments on the members' interests.

(2) If the licensee fails to comply with subsection (1), the Reserve Bank may apply to the Court for, and the Court may make, an order that the licensee comply with that subsection.

Issue of shares etc. despite other laws etc.

(3) A CS facility licensee may issue shares, rights to acquire shares, or other capital instruments in compliance with a recapitalisation direction despite all of the following:

(a) this Act;

(b) the licensee's constitution;

(c) the facility's operating instruments referred to in paragraph 823F(1)(a);

(d) any arrangement to which the licensee is a party;

(e) any listing rules of a financial market in whose official list the licensee is included.

823M Recapitalisation directions - Reserve Bank must obtain expert's report on the fair value of shares etc.

(1) Before giving a recapitalisation direction directing a CS facility licensee to issue one or more specified classes of:

(a) shares in the licensee; or

(b) rights to acquire shares in the licensee;

the Reserve Bank must:

(c) obtain a report on the fair value of those shares, or those rights, from an expert who is not an associate of the licensee; and

(d) consider the report.

Note: The report may not always be required: see subsection (4).

(2) The report must set out:

(a) the amount that is, in the expert's opinion, the fair value for each of those shares or rights; and

(b) the reasons for forming the opinion; and

(c) any relationship between the expert and:

(i) the licensee; or

(ii) a person who is an associate of the licensee;

including any circumstances in which the expert gives the licensee or person advice, or acts on behalf of the licensee or person, in the proper performance of the functions attaching to the expert's professional capacity or business relationship with the licensee or person; and

(d) any financial or other interest of the expert that could reasonably be regarded as being capable of affecting the expert's ability to give an unbiased opinion in relation to the matter being reported on.

(3) The Reserve Bank may publish details of, or relating to the report.

(4) Despite subsection (1), the Reserve Bank need not obtain the report if it is satisfied that doing so would detrimentally affect:

(a) participants, or proposed participants, in the CS facility; or

(b) the continuity of one or more clearing and settlement facility services that are critical to the functioning of the financial system in Australia; or

(c) the stability of the financial system in Australia.

823N Recapitalisation directions - determination of the fair value of shares or rights by an expert

Determining the fair value of shares

(1) In determining the fair value for each share in a CS facility licensee for the purposes of paragraph 823M(2)(a), the expert must:

(a) first, assess the value of the licensee as a whole in accordance with the assumptions (if any) notified to the expert under subsection (3) of this section for the valuation of the licensee; and

(b) second, allocate that value among the classes of shares in the licensee that:

(i) have been issued; or

(ii) the Reserve Bank proposes to direct be issued (taking into account the relative financial risk, and voting and distribution rights, of the classes); and

(c) third, allocate the value of each class pro rata among the shares in that class that:

(i) have been issued; or

(ii) the Reserve Bank proposes to direct be issued (without allowing a premium or applying a discount for particular shares in that class).

Determining the fair value of rights

(2) In determining the fair value for each right to acquire shares in a CS facility licensee for the purposes of paragraph 823M(2)(a), the expert must act in accordance with the assumptions (if any) notified to the expert under subsection (3) of this section for the valuation of that right.

Ministerial or Reserve Bank assumptions

(3) The Minister or the Reserve Bank may give written notice of the following to the expert:

(a) assumptions for the valuation of the CS facility licensee;

(b) assumptions for the valuation of rights to acquire shares in the CS facility licensee.

(4) An entity who gave assumptions under subsection (3) may, by further written notice given to the expert, revoke, but not vary, those assumptions.

(5) Ministerial assumptions prevail over Reserve Bank assumptions to the extent of any inconsistency.

(6) A notice given under subsection (3) or (4) is not a legislative instrument.

823P Recapitalisation directions - working out the fair value of other capital instruments

(1) Before giving a recapitalisation direction directing a CS facility licensee to issue one or more specified classes of capital instruments (see subparagraph 823F(1)(c)(iii)), the Reserve Bank must comply with any requirements prescribed by the regulations for ascertaining the fair value of the capital instruments.

(2) Regulations made for the purposes of this section may specify different requirements for different classes of capital instruments.

823Q Recapitalisation directions - contravening certain provisions does not affect the validity of the direction etc.

A contravention of section 823M, 823N or 823P does not affect the validity of a recapitalisation direction or anything done in compliance with the direction.

823R Recapitalisation directions - exceptions to Part IV of the Competition and Consumer Act 2010

For the purposes of subsection 51(1) of the Competition and Consumer Act 2010, the following things are specified and specifically authorised:

(a) the acquisition of shares in a CS facility licensee as a direct result of:

(i) the issue of the shares in compliance with a recapitalisation direction given to the licensee; or

(ii) the exercise of a right to acquire the shares that was issued in compliance with such a recapitalisation direction;

(b) the acquisition of other capital instruments as a direct result of the issue of those capital instruments in compliance with a recapitalisation direction given to a CS facility licensee.

Subdivision F - Other matters relating to Reserve Bank directions

823S Directions to preserve stability in the Australian financial system - relationship with other provisions

If a direction under subsection 823F(1) directs a CS facility licensee to change any of the facility's operating rules or procedures (see subparagraph 823F(1)(a)(ii)), neither of the following provisions apply in relation to the change:

(a) subsection 822D(2) (about change ceasing to have effect if ASIC not notified);

(b) section 822E (about disallowance).

Note: The licensee would still need to notify ASIC of the change: see subsection 822D(1).

823T All Reserve Bank directions - publishing details about directions

The Reserve Bank may publish details of, or relating to:

(a) a direction given under Subdivision D; or

(b) a variation or revocation of such a direction.

823U All Reserve Bank directions - injunctions

(1) The Reserve Bank has the same powers as ASIC to apply for an injunction under section 1324 in relation to a provision of this Part.

(2) The Reserve Bank may so apply itself or jointly with ASIC.

Subdivision G - Other matters relating to ASIC or Reserve Bank powers

823V Exercise of Reserve Bank powers to give directions under section 823F not grounds for denial of obligations

(1) This section applies if a body corporate is party to an agreement, whether the proper law of the agreement is:

(a) Australian law; or

(b) foreign law, including the law of part of a foreign country.

(2) None of the matters mentioned in subsection (3) allows the agreement, or a party to the agreement (other than the body corporate), to do any of the following:

(a) deny any obligation under the agreement;

(b) accelerate any debt under the agreement;

(c) terminate or close out the agreement, or any transaction relating to the agreement;

(d) enforce any security under the agreement.

(3) The matters are as follows:

(a) the body corporate being subject to the exercise of a power under section 823F by the Reserve Bank;

(b) if the body corporate is a member of a group of bodies corporate - another member of the group being subject to the exercise of such a power.

Payment Systems and Netting Act 1998 prevails over this section

(4) If there is any inconsistency between:

(a) subsections (1) to (3) of this section; and

(b) the Payment Systems and Netting Act 1998;

that Act prevails to the extent of the inconsistency.

Agreements to which this section does not apply

(5) This section does not apply to a kind of agreement prescribed by the regulations for the purposes of this subsection.

823W All ASIC and Reserve Bank directions etc. under this Part - failure by officers to take reasonable steps to ensure compliance

(1) An officer of a CS facility licensee contravenes this subsection if:

(a) the officer fails to take reasonable steps to ensure that the licensee complies with a direction given under this Part by ASIC, or the Reserve Bank, to the licensee; and

(b) it would be reasonable to expect that the officer's duties include ensuring that the licensee complies with that direction.

Note: Failure to comply with this subsection is an offence: see subsection 1311(1).

(2) If an officer of a CS facility licensee contravenes subsection (1), the officer contravenes that subsection in respect of:

(a) the first day the contravention happens; and

(b) each later day (if any) the circumstances that gave rise to the contravention continue (including the day of conviction for any such offence or any later day).

Note: This subsection does not imply that section 4K of the Crimes Act 1914 does not apply to offences against this Act or the regulations.

(3) For the purposes of subsection (2), a contravention of subsection (1) by an officer of a CS facility licensee in respect of a direction given to the licensee under subsection 823BB(8) or 823BC(8) is taken to begin on the later of:

(a) the day by which the licensee was required to comply with the direction; and

(b) the first day on which paragraph (1)(b) applied in relation to the officer and the direction.

823X All ASIC and Reserve Bank directions under this Part - protection from liability for compliance in good faith

(1) An action or other proceeding (whether criminal or civil) does not lie against a person in relation to anything done, or omitted to be done, in good faith by the person if:

(a) the person does the thing, or omits to do the thing, for the purpose of any of the following:

(i) complying with a direction given under this Part by ASIC, or the Reserve Bank, to a body corporate;

(ii) taking a measure, or an action, specified in such a direction;

(iii) doing, or refraining from doing, anything in accordance with such a direction; and

(b) it is reasonable for the person to do the thing, or to omit to do the thing, in order to achieve that purpose; and

(c) the person is any of the following:

(i) an officer or senior manager of the body corporate, or of a related body corporate;

(ii) an employee or agent of the body corporate, or of a related body corporate;

(iii) the body corporate or a related body corporate;

(iv) a person engaged to provide services (including advice) to the body corporate or a related body corporate.

Note: In a prosecution for an offence, a defendant bears an evidential burden in relation to the matters in this subsection: see subsection 13.3(3) of the Criminal Code.

(2) For the purposes of paragraph (1)(b), treat it as reasonable for a person to do a thing, or to omit to do a thing, in order to achieve a purpose unless no reasonable person in that person's position would do the thing, or omit to do the thing, in order to achieve that purpose.