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Wednesday, 31 October 2012
Page: 8695


Senator FEENEY (VictoriaParliamentary Secretary for Defence) (18:02): I present revised explanatory memoranda relating to the Corporations Legislation Amendment (Derivative Transactions) Bill 2012 and the Tax Laws Amendment (Clean Building Managed Investment Trust) Bill 2012 and I move:

That these bills be now read a second time.

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

Leave granted.

The speeches read as follows—

CORPORATIONS LEGISLATION AMENDMENT (DERIVATIVE TRANSACTIONS) BILL 2012

Today I introduce a bill to amend the Corporations Act 2001 (‘the Corporations Act’).

The Corporations Legislation Amendment (Derivative Transactions) Bill 2012 (‘the Bill’) contains measures to implement commitments made by Australia and other G20 nations regarding the regulation of over-the-counter (‘OTC’) derivatives.

The global OTC derivatives market is enormous. At end-2011 the Bank for International Settlements reported that total notional amount outstanding for OTC derivatives worldwide was $648 trillion.

The global financial crisis highlighted structural deficiencies in the OTC derivatives market and the systemic risks that those deficiencies can pose for wider financial markets and the real economy.

In many countries, these structural deficiencies contributed to the build-up of large, insufficiently risk-managed, counterparty exposures between some market participants in advance of the global financial crisis; and to the lack of transparency about those exposures for market participants and regulators.

At the G20 summit in Pittsburgh in 2009, the Australian Government joined other jurisdictions in committing to substantial reforms to practices in the OTC derivatives market. The three key G20 commitments addressed by the bill are:

the reporting of OTC derivatives to trade repositories;

the clearing of standardised OTC derivatives through central counterparties; and

the execution of standardised OTC derivatives on exchanges or electronic trading platforms, where appropriate.

These commitments are intended to:

increase transparency in the OTC derivatives market for regulators, market participants and the public; and

reduce counterparty credit risks and operational risks associated with OTC derivatives.

The implementation of the G20 commitments is being coordinated and monitored by the Financial Stability Board (FSB). The FSB has called on all jurisdictions to aggressively push ahead to achieve full implementation of market changes by end-2012 to meet the G-20 commitments in as many reform areas as possible.

In Australia, extensive consultation on implementing the G20 commitments has been conducted by the Council of Financial Regulators (‘the Council’), which is comprised of the Reserve Bank of Australia, the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission, and the Australian Treasury.

The public consultation process was wide-ranging and comprehensive. A call for submissions was made following the release of a public consultation paper. Most of the submissions received were from the financial services sector, both in Australia and internationally. Further face-to-face consultations were subsequently held with interested parties.

THE LEGISLATIVE FRAMEWORK

This bill amends the Corporations Act 2001 to allow for regulations and rules to be put in place to implement the G20 Commitments in a form flexible enough to deal with changing market conditions and to impose any future obligations on a coordinated basis with other nations.

Under the legislative framework introduced by this bill the Minister will be empowered by the Corporations Act to prescribe certain classes of derivatives.

Once a class of derivatives is prescribed, ASIC will have the power to issue rules to establish one or more mandatory obligations (reporting, clearing or execution) for transactions in that class.

The bill contains a range of checks and balances in relation to this rule making power, including a requirement that ASIC consult and obtain ministerial consent for any new rules.

It is intended that Australia’s financial regulators will conduct ongoing assessment and advise the Government on whether various derivative classes should be made subject to trade reporting, central clearing and on-platform execution requirements.

This will build on earlier assessments and consultations as well as assessments that are currently underway.

It is important to note that prior to making any decision to mandate reporting, central clearing or use of trading execution venues, the Government will engage with stakeholders further and consider any advice from the Council of Australian Regulators.

The bill will provide a high degree of flexibility in implementing trading, clearing and on-platform trading mandates. The regime can therefore be readily adapted to overseas regulatory developments.

This flexibility enables Australia’s financial regulators to work with their international counterparts to ensure a unified approach to regulation of global OTC derivatives markets.

Consistent implementation by all major economies is important to reduce systemic risk and the risk of regulatory arbitrage that could arise if there are significant gaps in implementation.

International cooperation and flexibility will also help to avoid unintended consequences of national laws such as the burden on businesses of duplicated or conflicting rules and the costs of reduced access to international markets.

Trade repositories

As well as facilitating the possible introduction of trade reporting requirements, the legislation sets out a new licensing regime for trade repositories. Trade repositories will record derivative trade data and make it available to relevant regulators. This information can be used by regulators for monitoring market integrity and stability. Trade repositories also have the potential to facilitate efficiency improvements in post-trade processing and production of high-level statistical data for market use.

This licensing regime is based upon existing licensing regimes for financial markets and clearing and settlement operators; but adapted for the different role that this new form of market infrastructure entity will play. A key aspect of the regime is the strong protections against improper use and disclosure of reported derivative trade data.

CONSEQUENTIAL AMENDMENTS

In addition to the key reforms I have outlined, the bill also contains consequential amendments to the Australian Prudential Regulation Authority Act 1998, the Australian Securities and Investments Commission Act 2001, the Mutual Assistance in Business Regulation Act 1992, and the Reserve Bank Act 1959.

These amendments relate largely to information sharing between, and the protection of the confidentiality of information held by, regulators.

MINCO APPROVAL

The Ministerial Council for Corporations has been consulted on the amendments to the Corporations Act contained in this bill.

SUMMING UP

This bill establishes the legislative framework necessary for Australia to implement its G20 commitments in relation to OTC derivatives.

The legislative framework in this bill aims to bring transparency to OTC derivatives in Australia and improve OTC risk management practices.

Implementing these reforms in a globally coordinated way will not only ensure that the risk of regulatory arbitrage is avoided but also ensure that Australian businesses can continue to participate in global markets while being primarily regulated in Australia.

Passage of this bill will enable the making of rules that will ensure Australian investors can be confident that financial markets will continue to function with certainty and transparency. The bill provides regulators and the Government with the tools necessary to improve risk management in the OTC derivatives market in a flexible way, taking account of ongoing analysis of market developments by Australia’s financial regulators, and in coordination with other economies.

 

CRIMES LEGISLATION AMENDMENT (SERIOUS DRUGS, IDENTITY CRIME AND OTHER MEASURES) BILL 2012

The Crimes Legislation Amendment (Serious Drugs, Identity Crime and Other Measures) Bill 2012 delivers on the Government’s continuing commitment to combat serious and organised crime and corruption. The Bill includes a range of measures which strengthen existing laws and ensure that the criminal law in this country is responsive to emerging threats.

The Bill will improve and clarify aspects of Commonwealth criminal law including:

amendments to the Commonwealth’s serious drug offences framework to allow it to be updated more quickly to list new substances, expand identity crime offences ,

create new offences and a police power relating to air travel and false identity,

improve the operation of the Law Enforcement Integrity Commissioner Act 2006,

clarify that superannuation orders can be made in relation to all periods of a person’s employment as a Commonwealth employee, and

increase the value of the penalty unit for Commonwealth criminal offences and provide for its regular review moving forward.

I will address each of these amendments in turn.

Illicit drugs have a terrible impact on the Australian community and cause a wide range of social, economic and personal harms. This Government is committed to minimising the use and availability of harmful drugs in Australia and ensuring that drug laws are as strong as possible.

This Bill ensures Commonwealth laws are up to date and allow for flexible, quick responses to new and emerging drug threats.

Firstly, the Bill will move the existing lists of illicit substances from the Criminal Code to Regulations, and allow for the future listing of substances to be done by Regulation. This will make it substantially quicker to update the lists in response to new threats and will make them more responsive to law enforcement needs. This will help prevent organised crime groups and individuals from seeking to exploit loopholes created when the lists of controlled drugs do not keep pace with the market for illicit substances.

Secondly, the Bill will improve existing mechanisms for making emergency determinations in relation to particular substances.

Emergency determinations may currently be made for a period of 28 days. The Bill will strengthen this framework by allowing determinations to operate for up to a maximum of 18 months.

This will provide a greater amount of time for experts to analyse substances and assess the harms they could cause. This approach is consistent with that taken in the United States and New Zealand for the temporary listing of substances.

Law enforcement agencies have identified identity crime as a significant threat and as one of the fastest growing crimes in Australia. The internet and other new technologies have provided ideal new instruments for organised criminals to harness and exploit the identity information of others.

The Government has a comprehensive identity security strategy and has already taken steps to counter identity crime. It is an offence for a person to deal in identification information for the purpose of a committing a crime against Commonwealth law.

The Bill will expand these offences to cover people who use a carriage service, such as the internet or a mobile phone, to obtain identification information with the intention of committing another offence. It will also criminalise the use of identity information with intent to commit a foreign offence.

The new offences will carry penalties of up to five years imprisonment

In keeping with the Government’s commitment to combating organised crime and providing strong management of our borders, the Bill will create new offences relating to air travel and the use of false identities.

Travelling under a false identity is a tactic commonly used by organised criminals in Australia and overseas to evade law enforcement detection. The Bill will make it a crime to use a false identity to book a flight over the internet or to take a commercial flight. It will also be a crime to use a false identity when identifying oneself for the purpose of travelling on such a flight.

The maximum penalty for the offences will be 12 months imprisonment. This penalty is consistent with the penalties for similar offences relating to providing false or misleading information in the Criminal Code.

The Bill will also give police powers to request evidence of a person’s identity where person is suspected of committing, or intending to commit, a serious offence. It is important that law enforcement agencies have the powers necessary to properly deal with these crimes, although of course, safeguards will also be put into place to ensure that these powers are used appropriately.

The Bill will make amendments to the Commonwealth’s penalty unit scheme. This is part of the Government's commitment to cracking down on serious and organised crime. We want to make a strong statement about this type of crime and ensure that courts have ability to impose appropriate penalties to deal with these offenders.

The penalty unit was introduced in 1992 to enable financial penalties across all Commonwealth criminal legislation to be easily increased in line with inflation with a single amendment to the Crimes Act. The penalty unit was last increased in 1997.

The Bill increases the value of a penalty unit to $170 to accommodate increases in the Consumer Price Index. This increase will strengthen all Commonwealth financial penalties, including those related to white collar crime and serious and organised crime. For example, the maximum financial penalty for the fraud offence of obtaining a financial advantage by deception will increase from $66,000 to $102,000 for an individual, and from $330,000 to $510,000 for a corporation. This is a significant increase and should send a strong message that crime does not pay.

The Bill also introduces a requirement for the penalty unit to be reviewed every three years to ensure its value continues to be regularly maintained in real terms in the future.

The Bill also includes amendments to strengthen the Commonwealth public sector integrity system by clarifying the functions of the Integrity Commissioner. This is consistent with recommendations of the Parliamentary Joint Committee for the Australian Commission on Law Enforcement Integrity.

Firstly, the Bill will more clearly state the Law Enforcement Integrity Commissioner’s statutory functions in relation to detecting and preventing corruption. This will better reflect the objects of the Law Enforcement Integrity Commissioner Act 2006 and enable the Commission to take a proactive approach to dealing with corruption.

Second, the Bill will provide the Minister with the discretion to refer a corruption issue involving a staff member of the Commission to the Integrity Commissioner, unless it involves the Integrity Commissioner or an Assistant Integrity Commissioner, to improve the management of internal corruption issues.

Third, the Bill will provide the Integrity Commissioner with greater flexibility in relation to holding a public inquiry.

Finally, the Bill will clarify the laws relating to superannuation orders and corruption offences.

The Crimes (Superannuation Benefits) Act allows for the forfeiture and recovery of employer funded superannuation benefits of Commonwealth employees who have been convicted of corruption offences.

The Bill will clarify that a superannuation order made under this Act relates to all employer funded contributions made or payable in relation to the person’s total period or periods of Commonwealth employment, not just the particular period of employment in which a corruption offence was committed.

Although these laws have always been intended to operate in this way, it is desirable to more clearly express this intention in response to a judicial decision in the New South Wales Supreme Court.

In conclusion, the Crimes Legislation Amendment (Serious Drugs, Identity Crime and Other Measures) Bill 2012 contains important measures that will ensure that Commonwealth criminal law remains up to date and effective, particularly in combating serious and organised crime and white collar crime. This government is committed to making sure that we have the right laws in place to create a hostile environment for organised crime, be that through increased monetary penalties or greater protection for identity information on the internet.

 

TAX LAWS AMENDMENT (CLEAN BUILDING MANAGED INVESTMENT TRUST) BILL 2012

This bill amends the Income Tax (Managed Investment Trust Withholding Tax) Act 2008, the Income Tax Assessment Act 1997 and the Taxation Administration Act 1953 to provide a final withholding tax rate of 10 per cent on fund payments from eligible Clean Building Managed Investment Trusts (MITs) made to foreign residents in information exchange countries.

For these amendments to apply, the managed investment trust must only invest in new energy efficient office, hotel and retail buildings that commenced construction on or after 1 July 2012. These trusts may also hold limited assets incidental to these buildings such as car parking facilities, telecommunications infrastructure or advertising billboards.

To be treated as an energy efficient building, a building must obtain and maintain either a 5-star Green Star rating or a 5.5 star National Australian Built Environment Rating System rating.

This criteria will be reviewed after 3 years to ensure that the measure continues to apply to buildings that are above the average level of energy efficiency.

Full details of the measures in this bill are contained in the explanatory memorandum.

Debate adjourned.

Ordered that the bills be listed on the Notice Paper as separate orders of the day.