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Wednesday, 27 May 2009
Page: 4475

Mr BOWEN (Minister for Competition Policy and Consumer Affairs, and Assistant Treasurer) (12:09 PM) —in reply—At the outset, could I thank honourable members who have contributed to this debate on the Financial Sector Legislation Amendment (Enhancing Supervision and Enforcement) Bill 2009. The members for Aston, Blair, Wakefield and Oxley all made well-thought-out contributions. I did not get to hear the entire contribution of the member for Aston, but I did get to hear some of it and have had the rest of it relayed to me. I recognise the opposition’s support for this bill and I thank them for it.

The member for Aston, if I understand correctly, made the suggestion that more of APRA’s decisions should be reviewable and appealable. I recognise that that is a sincere suggestion on his behalf, but it is not one I would be supportive of. My view has long been that the Australian Prudential Regulation Authority is one of the most respected and most efficient regulators of financial prudential requirements in the world, and I would not be supportive of another layer over and above the majority of APRA’s decisions. I think we need to recognise that APRA has a very significant skills base and that it is the body charged with ensuring the ongoing prudential soundness of Australia’s financial institutions. We also need to recognise that, having charged it with that responsibility, we cannot in a broad sense put another hand over its shoulder. We need to rely on it to do the job. I do recognise that the member for Aston’s suggestion is a serious and sincere one but, on the face of it, it is not one to which I would lend my support.

This bill has not been universally welcomed. I know that ING and AXA made submissions to the Senate Standing Committee on Economics, which considered this matter, and the Chief Executive of AXA has taken the opportunity to discuss their concerns with me personally. No modern government should embark lightly on further regulation. The compliance costs of further regulation must always be very carefully considered. I have tested and raised with the Chair of APRA, with the other members of the APRA governing body, Mr Trowbridge and Mr Jones, the compliance burden in this bill and of how necessary it is that they be able to do their job. I am satisfied with APRA’s responses. They have assured me that they will of course be very cognisant of the compliance impacts of any action that they may take under this bill and that they do not intend to create a whole new compliance infrastructure around it. Having said that, they are also very strongly of the view that this bill is extremely important for their ability to do their job. They would characterise the lack of regulation that this bill fixes as a yawning gap in their capacity to do their work, to ensure that a problem in an entity will not spread to other entities in the entire group and to be satisfied that people in the economy are not being adversely exposed to risk.

This bill will enhance Australia’s effective and robust prudential regulation framework in the current climate and ensure that the regulatory framework applying to financial entities remains flexible and responsive going forward. This bill removes the gap in Australia’s prudential regulation framework by ensuring that the Australian Prudential Regulation Authority supervises life insurance non-operating holding companies—known as NOHCs—which can have a significant impact on the conduct and financial health of insurance companies, and of life insurance companies in particular.

This measure is consistent with Insurance Core Principle ICP 17 of the International Association of Insurance Supervisors on group-wide supervision, which is that the supervisory authority supervise its insurers on a solo and group-wide basis. This was an important point in convincing me and the government of the appropriateness of this amendment. These measures bring the prudential supervision of such companies into line with the prudential supervision of NOHCs, general insurance and authorised deposit-taking institutions. The prudential requirements that will apply to life insurance NOHCs are consistent with those that apply to life insurers. The scope of the prudential regulation regime introduced by the schedule is closely modelled on existing regulation of NOHCs, general insurers and authorised deposit-taking institutions. APRA is undertaking industry consultation on consequential changes to prudential standards should the bill be passed by the parliament.

This approach will minimise compliance costs for industry and ensure a smooth transition. This was recognised by the Senate Standing Committee on Economics report on this bill, which notes that:

…the overriding policy of the bill is to line regulation of life insurers with the regulation of general insurers and ADIs.

This bill ensures that the injunctions that may be issued under the prudential legislation are effective tools to enforce financial entities compliance with prudential requirements. The bill also introduces measures to harmonise court injunction powers across prudential legislation—namely, the Banking Act 1959, the Insurance Act 1973, the Life Insurance Act 1995 and the Superannuation Industry (Supervision) Act 1993. The amendments will give APRA flexibility to respond to a range of circumstances relating to the health of an entity in a timely and appropriate way.

International experience has demonstrated the importance of understanding the interconnection between companies and a corporate group, including between prudentially regulated entities and unregulated entities. International experience has also demonstrated the need for regulators to have the ability to take appropriate and timely action. The Senate Standing Committee on Economics has recognised that in the current environment the government may want to act promptly to fill gaps in the prudential architecture. The government is bringing these measures forward to remove a gap in the prudential regulation framework for the life insurance industry and enhance APRA’s ability to use injunctions to respond to the emerging prudential concerns in a timely and appropriate way. I commend the bill to the House.

Question agreed to.

Bill read a second time.