Mr BOWEN (Minister for Competition Policy and Consumer Affairs, and Assistant Treasurer) (10:23 AM) —I move:

The Financial Sector Legislation Amendment (Enhancing Supervision and Enforcement) Bill 2009 introduces measures to regulate the non-operating holding companies (NOHCs) of life insurers, and harmonise the injunctions that may be issued in respect of prudentially regulated entities.

This bill removes a gap in Australia’s prudential regulation framework by ensuring that the Australian Prudential Regulation Authority (APRA) supervises life insurance NOHCs, which can have a significant impact on the conduct and financial health of life insurance companies. This measure is consistent with the Insurance Core Principle ICP17 of the International Association of Insurance Supervisors on Group-wide supervision, which is that ‘[t]he supervisory authority supervises its insurers on a solo and a group-wide basis.’

This bill also ensures that the injunctions that may be issued under the prudential legislation are effective tools to enforce financial entities’ compliance with prudential requirements.

Non-operating holding companies of life insurers

Schedule 1 of this bill introduces a prudential regulation framework for the NOHCs of life insurers, and brings the prudential supervision of such companies into line with the prudential supervision of the NOHCs of general insurers 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 this schedule is closely modelled on the existing regulation of the NOHCs of general insurers and authorised deposit-taking institutions.

This approach will minimise compliance costs for industry and ensure a smooth transition.

The main elements of the prudential regulation regime for life insurance NOHCs are as follows.

Life insurance NOHCs will be required to be registered under the Life Insurance Act 1995 and be subject to APRA’s supervision. They will be required to comply with prudential standards, reporting obligations, directions issued by APRA and investigations authorised by the act. APRA will be able to seek the disqualification of persons in specified positions in the body corporate. Registered NOHCs may also be liable to pay a financial institutions levy.

Where appropriate, prudential standards and reporting obligations will also apply to the subsidiaries of NOHCs and life insurers. Again, this is in line with the treatment of the subsidiaries of general insurers, ADIs and their holding companies. APRA is expected to consult with industry before determining or amending prudential standards. The auditors of NOHCs and the subsidiaries of NOHCs and life insurers will also have obligations to report significant prudential breaches to APRA.

International experience has demonstrated the interconnection between companies in a corporate conglomerate, including between prudentially regulated entities and unregulated entities. This measure will strengthen the prudential regulation of life insurance conglomerates in line with the regulation of other financial conglomerates.

Injunctions in prudential legislation

Schedule 2 of the bill introduces measures to harmonise court injunction powers across prudential legislation (namely, the Banking Act 1959, Insurance Act 1973, Life Insurance Act 1995 and Superannuation Industry (Supervision) Act 1993 (SI(S) Act)). The harmonised provisions will enable APRA to seek a comprehensive and consistent set of injunctions in appropriate circumstances.

The amendments will give APRA flexibility to respond to a range of circumstances relating to the financial health of an entity in a timely and appropriate way.

APRA will be able to seek an injunction where a person engages, or proposes to engage, in contravention of the prudential acts, fails to comply with a requirement of these acts, fails to comply with a direction issued by APRA or breaches a condition on the authorisation or registration of a prudentially regulated entity. The Federal Court of Australia may issue restraining, performance, consent and interim injunctions.

Under the SI(S) Act, affected persons such as superannuation beneficiaries retain their existing ability to seek an injunction.

The amendments to the SI(S) Act will apply to the conduct of superannuation trustees that offer first home saver accounts. This is because the First Home Saver Accounts Act 2008 applies relevant provisions of the SI(S) Act to superannuation trustees that provide first home saver accounts.

Conclusion

The government is bringing these measures forward because they remove a gap in the prudential regulation framework for the life insurance industry and enhance APRA’s ability to use injunctions to respond to emerging prudential concerns in a timely and appropriate way.

Full details of the amendments are contained in the explanatory memorandum. I commend the bill to the House.

Debate (on motion by Mr Wood) adjourned.