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Monday, 2 December 2002
Page: 6868

Senator PATTERSON (Minister for Health and Ageing) (5:16 PM) —I table a revised explanatory memorandum relating to the bill and move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows

I rise today to introduce a bill which has been agreed to in the House of Representatives. The bill consists of a package of amendments to seven Acts dealing with the financial sector. These Acts are the:

· Australian Securities and Investments Commission Act 2001

· Banking Act 1959

· Corporations (Repeals, Consequentials and Transitionals) Act 2001

· Corporations Act 2001

· Insurance Act 1973

· Superannuation (Resolution of Complaints) Act 1993; and

· Superannuation Industry (Supervision) Act 1993.

Most of the amendments are in the nature of minor technical matters that have no policy implications. Other amendments, such as those to the Banking Act have the effect of improving prudential regulation by the Australian Prudential Regulation Authority (APRA) of authorised deposit-taking institutions and ensuring that Australian regulation is in compliance with world's best practice.

Passage of the bill will enable the financial sector to operate more effectively and efficiently by improving the application and implementation of the various Acts. The amendments will help to avoid confusion that currently exists in penalties, in definitions and in discrepancies with other legislation. The bill does not contain any controversial amendments and there has been wide consultation with industry and Government agencies where appropriate.

The amendments to the Banking Act largely reflect that it has not been updated for some time. They include provision for the application of a `fit and proper' test to directors and senior managers of authorised deposit-taking institutions (ADIs) and authorised non-operating holding companies. Currently, there is no formal test of expertise and integrity of directors and senior management. This amendment will make Australia compliant with the requirement for a `fit and proper' test as specified by the Basel Committee, which prescribes the international benchmark for banking regulation. These amendments will reduce the risk exposure faced by depositors arising from mismanagement. A three month transitional period will be applied to part of the `fit and proper' test, which will especially benefit smaller institutions in implementing the test.

Amendments will also make the provisions in the Banking Act that deal with auditors consistent with the auditor provisions in the Insurance Act. The amendments will provide APRA with the means to remove auditors who fail to perform adequately and properly. This is essential for APRA to receive accurate information in carrying out its prudential regulation.

The Banking Act will also be amended to include the requirement for an ADI, authorised non-operating holding company of an ADI, and their subsidiaries to notify APRA immediately of any breaches of prudential requirements and any material adverse developments. This will enable APRA to more effectively monitor the position of potentially troubled organisations in order to seek earlier remedial action and will assist in protecting depositor interests. Penalties have been specified for breaches of this requirement. It will also improve compliance with the Basel Core Principles dealing with regular banking supervision.

Another amendment to the Banking Act will allow APRA to continue to apply prudential standards on a consolidated group basis. This is consistent with APRA's own conglomerate policy and also with the Basel Core Principles, which require that supervision of a banking group be on a consolidated basis.

The Banking Act will also be amended to provide additional grounds for APRA to revoke the authority granted to an ADI or non-operating holding company where the application for the authority contained false or misleading information. Currently APRA must rely on uncertain national interest provisions. This amendment will remove the uncertainty. This is also a requirement of the Basel Core Principles.

Other proposed amendments to the Banking Act correct a discrepancy between the indemnity provisions of the Banking Act and the Australian Prudential Regulation Authority Act 1998. The discrepancy relates to the extent of protection available to APRA officers under these Acts. This will ensure that Australia is in compliance with the Basel Core Principles, which require that legal protection should be afforded to the supervisory agency and its staff against lawsuits when they have acted in good faith.

The information and data-gathering powers of APRA will be enhanced with amendments made to capture the provisions of the Financial Sector (Collection of Data) Act 2001 and to clarify the definition of `information'. This will improve APRA's investigative capacity. These amendments are being made to both the Banking Act and the Insurance Act.

There are further proposed amendments to the Banking and Insurance Acts that will enable APRA to more quickly and easily direct the removal of directors of regulated institutions.

Amendments to the Insurance Act are required to allow APRA to discuss submissions from a director or senior manager who is being removed with third parties. This would mean that APRA could test the veracity of any material notwithstanding privacy or confidentiality concerns. This is a vital part of APRA's ability to apply the `fit and proper' test to management.

A further amendment under the Insurance Act is the requirement that an insurance company must notify APRA of any breach of prudential standards, including any material developments that are detrimental to its financial position. This will allow APRA to deal earlier with potentially troubled institutions.

Another amendment deals with the incorrect specification of penalties. The penalty provisions in the Insurance Act need to be increased so that the penalty units applying to a body corporate are appropriate and consistent with penalty provisions specified in the Crimes Act 1914 that apply to bodies corporate.

Amendments to the Superannuation (Resolution of Complaints) Act will introduce flexibility in the time limits relating to complaints about disability benefits. This acknowledges the difficulty in assessing medical conditions over time and gives the Superannuation Complaints Tribunal discretion in dealing with time limits, which are currently fixed.

Another amendment to the Superannuation (Resolution of Complaints) Act will act to strengthen, modernise and improve the conciliation powers of the Superannuation Complaints Tribunal. This will enable the Tribunal to require parties to attend conciliation, instead of the current voluntary system. There will be penalties for non-compliance. These amendments will make the use of conciliation in the Superannuation Complaints Tribunal consistent with other administrative tribunals.

A further amendment to the Superannuation (Resolution of Complaints) Act is required to remove redundant powers that deal with arbitration. There will also be further minor technical amendments which will have the effect of streamlining the application of the Act.

Amendments to the Superannuation Industry (Supervision) Act will allow the recognition of awards that were given under arbitration agreements and are still in force, even though the arbitration power has been removed.

Amendments to the Australian Securities and Investments Commission Act, the Corporations Act and the Corporations (Repeals, Consequentials and Transitionals) Act correct minor errors, grammatical mistakes and erroneous cross references and remove obsolete provisions. The Ministerial Council for Corporations has been consulted about the amendments and has approved them.

This bill builds on financial sector reforms already undertaken. They emphasise the commitment of the Government to ongoing reforms that ensure Australia is at the forefront of international best practice in financial regulation.

The financial sector is a key driver in the economy. These amendments will increase the efficiency of the financial industry and, through improving the operation of the Acts, assist the regulators in ensuring a stronger regulatory environment.

I commend the bill to the Senate.

Ordered that further consideration of this bill be adjourned to the first day of the next period of sittings, in accordance with standing order 111.