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Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2007

Schedule 2 Direction powers

Part 1 Amendments commencing on Royal Assent

Banking Act 1959

1  Subsection 11CA(1)

Repeal the subsection, substitute:

             (1)  APRA may give a body corporate that is an ADI or an authorised NOHC a direction of a kind specified in subsection (2) if APRA has reason to believe that:

                     (a)  the body corporate has contravened a provision of this Act or the Financial Sector (Collection of Data) Act 2001 ; or

                     (b)  the body corporate has contravened a prudential requirement regulation or a prudential standard; or

                     (c)  the body corporate is likely to contravene this Act, a prudential requirement regulation, a prudential standard or the Financial Sector (Collection of Data) Act 2001 , and such a contravention is likely to give rise to a prudential risk; or

                     (d)  the body corporate has contravened a condition or direction under this Act or the Financial Sector (Collection of Data) Act 2001 ; or

                     (e)  the direction is necessary in the interests of:

                              (i)  if the body corporate is an ADI—depositors of the ADI; or

                             (ii)  if the body corporate is an authorised NOHC—depositors of any ADI that is a subsidiary of the NOHC; or

                      (f)  the body corporate is, or is about to become, unable to meet its liabilities; or

                     (g)  there is, or there might be, a material risk to the security of the body corporate’s assets; or

                     (h)  there has been, or there might be, a sudden material deterioration in the body corporate’s financial condition; or

                      (i)  the body corporate is conducting its affairs in an improper or financially unsound way; or

                      (j)  the failure to issue a direction would materially prejudice the interests of:

                              (i)  if the body corporate is an ADI—depositors of the ADI; or

                             (ii)  if the body corporate is an authorised NOHC—depositors of any ADI that is a subsidiary of the NOHC; or

                     (k)  the body corporate is conducting its affairs in a way that may cause or promote instability in the Australian financial system.

          (1A)  The direction must:

                     (a)  be given by notice in writing to the body corporate; and

                     (b)  specify the ground referred to in subsection (1) as a result of which the direction is given.

2  Before paragraph 11CA(2)(a)

Insert:

                    (aa)  to comply with the whole or a part of this Act or the Financial Sector (Collection of Data) Act 2001 ;

                   (ab)  to comply with the whole or a part of a condition or direction referred to in paragraph (1)(d);

3  Paragraphs 11CA(2)(c), (d) and (e)

Omit “director, secretary, executive officer or employee”, substitute “director or senior manager”.

4  After subsection 11CA(4A)

Insert:

          (4B)  APRA may, by notice in writing to the body corporate, vary the direction if, at the time of the variation, it considers that the variation is necessary and appropriate.

5  Subsection 11CA(6)

Repeal the subsection, substitute:

             (6)  In this section, the expression director has the same meaning as it has in the Corporations Act 2001 , and the affairs of a body corporate include those set out in section 53 of that Act.

Note 1:       Senior manager is defined in section 5 of this Act.

Note 2:       For further information about directions, see Subdivision C.

6  Application

(1)       The amendments made by items 1 to 3 and 5 of this Schedule apply to any direction given after this item commences.

(2)       The amendment made by item 4 of this Schedule applies to any direction, whether given before or after this item commences.

Insurance Act 1973

7  Division 2 of Part IIIA

Repeal the Division.

8  Sections 49M to 49P

Repeal the sections.

9  Section 51

Repeal the section.

10  Subparagraph 60(2)(c)(ii)

Omit “section 62”, substitute “section 104”.

11  Section 62

Repeal the section.

12  After Part VIII

Insert:

Part IX Directions

   

104   APRA may give directions in certain circumstances

Basis on which directions may be given

             (1)  APRA may give a body corporate that is a general insurer or an authorised NOHC a direction of a kind specified in subsection (3) if APRA has reason to believe that:

                     (a)  the body corporate has contravened a provision of this Act, regulations made under this Act, prudential standards, or the Financial Sector (Collection of Data) Act 2001 ; or

                     (b)  the body corporate is likely to contravene this Act, regulations made under this Act, prudential standards, or the Financial Sector (Collection of Data) Act 2001 , and such a contravention is likely to give rise to a prudential risk; or

                     (c)  the body corporate has contravened a condition or direction under this Act or the Financial Sector (Collection of Data) Act 2001 ; or

                     (d)  the direction is necessary in the interests of:

                              (i)  if the body corporate is a general insurer—policyholders of the general insurer; or

                             (ii)  if the body corporate is an authorised NOHC—policyholders of any general insurer that is a subsidiary of the NOHC; or

                     (e)  the body corporate is, or is about to become, unable to meet its liabilities; or

                      (f)  there is, or there might be, a material risk to the security of the body corporate’s assets; or

                     (g)  there has been, or there might be, a sudden material deterioration in the body corporate’s financial condition; or

                     (h)  the body corporate is conducting its affairs in an improper or financially unsound way; or

                      (i)  the failure to issue a direction would materially prejudice the interests of:

                              (i)  if the body corporate is a general insurer—policyholders of the general insurer; or

                             (ii)  if the body corporate is an authorised NOHC—policyholders of any general insurer that is a subsidiary of the NOHC; or

                      (j)  the body corporate is conducting its affairs in a way that may cause or promote instability in the Australian financial system.

Requirements for direction

             (2)  The direction must:

                     (a)  be given by notice in writing to the body corporate; and

                     (b)  specify the ground referred to in subsection (1) as a result of which the direction is given.

Contents of directions

             (3)  The kinds of direction that the body corporate may be given are directions to do, or to cause a body corporate that is its subsidiary to do, any one or more of the following:

                     (a)  to comply with the whole or a part of this Act, regulations made under this Act, prudential standards, or the Financial Sector (Collection of Data) Act 2001 ;

                     (b)  to comply with a condition or direction referred to in paragraph (1)(c);

                     (c)  to order an audit of the affairs of the body corporate, at the expense of the body corporate, by an auditor chosen by APRA;

                     (d)  to remove a director or senior manager from office;

                     (e)  to ensure a director or senior manager of the body corporate does not take part in the management or conduct of the business of the body corporate except as permitted by APRA;

                      (f)  to appoint a person or persons as a director or senior manager of the body corporate for such term as APRA directs;

                     (g)  to remove any auditor of the body corporate from office and appoint another auditor to hold office for such term as APRA directs;

                     (h)  not to give financial accommodation to any person;

                      (i)  not to renew any policy;

                      (j)  not to borrow any amount;

                     (k)  not to accept any payment on account of share capital, except payments in respect of calls that fell due before the direction was given;

                      (l)  not to repay any amount paid on shares;

                    (m)  not to pay a dividend on any shares;

                     (n)  not to pay or transfer any amount to any person, or create an obligation (contingent or otherwise) to do so;

                     (o)  not to undertake any financial obligation (contingent or otherwise) on behalf of any other person;

                     (p)  to provide, or further provide, in its accounts for the purposes of this Act, regulations made under this Act and the prudential standards, a specified amount or an amount determined in a specified way in respect of its liabilities or the value of a specified asset of the body corporate;

                     (q)  to order an actuarial investigation of the affairs of the body corporate, at the expense of the body corporate, by an actuary chosen by APRA;

                      (r)  to terminate the appointment of the actuary appointed by the body corporate and to appoint another actuary to hold office for such terms as APRA directs;

                      (s)  not to issue any policy, undertake any liability under any contract of insurance or collect any premium;

                      (t)  not to discharge any policy or other liability;

                     (u)  to do, or to refrain from doing, an act that relates to the way in which the affairs of the body corporate are to be conducted or not conducted.

A direction under paragraph (n) not to pay or transfer any amount does not apply to the payment or transfer of money pursuant to an order of a court or a process of execution.

             (4)  Without limiting subsection (3), a direction referred to in a paragraph of that subsection may:

                     (a)  deal with only some of the matters referred to in that paragraph; or

                     (b)  deal with a particular class or particular classes of those matters; or

                     (c)  make different provision with respect to different matters or different classes of matters.

             (5)  The direction may deal with the time by which, or period during which, it is to be complied with.

Body corporate and subsidiary have power to comply with direction

             (6)  The body corporate has power to comply with the direction despite anything in its constitution or any contract or arrangement to which it is a party.

             (7)  If the direction requires the body corporate to cause a subsidiary to do, or to refrain from doing, an act or thing:

                     (a)  the body corporate has power to cause the subsidiary to do, or to refrain from doing, the act or thing; and

                     (b)  the subsidiary has power to do, or to refrain from doing, the act or thing;

despite anything in the subsidiary’s constitution or any contract or arrangement to which the subsidiary is a party.

Variation and revocation of directions

             (8)  APRA may, by notice in writing to the body corporate, vary the direction if, at the time of the variation, it considers that the variation is necessary or appropriate.

             (9)  APRA may, by notice in writing to the body corporate, revoke the direction if, at the time of the revocation, it considers that the direction is no longer necessary or appropriate.

Reviewable decisions

           (10)  Part VI applies to a decision to give a direction under subsection (1) as a result of the ground referred to in paragraph (1)(a), (b), (c) or (d).

Definitions

           (11)  In this section, the expression director has the same meaning as it has in the Corporations Act 2001 , and the affairs of a body corporate include those set out in section 53 of that Act.

Note:          Senior manager is defined in section 3 of this Act.

105   Direction not grounds for denial of obligations

             (1)  Subject to subsections (2) and (3), the fact that a general insurer or an authorised NOHC is subject to a direction by APRA under section 104 is not a ground for any other party to a contract to which the insurer or NOHC, or a subsidiary of the insurer or the NOHC, is a party:

                     (a)  to deny any obligations under that contract; or

                     (b)  to accelerate any debt under that contract; or

                     (c)  to close out any transaction relating to that contract.

             (2)  If a general insurer or an authorised NOHC, or a subsidiary of a general insurer or authorised NOHC, is prevented from fulfilling its obligations under a contract because of a direction under section 104, other than a direction under paragraph 104(3)(t), the other party or parties to the contract are, subject to any orders made under subsection (3) of this section, relieved from obligations owed to the insurer or NOHC under the contract.

             (3)  A party to a contract to which subsection (2) applies may apply to the Federal Court of Australia for an order relating to the effect on the contract of a direction under section 104. The order may deal with matters including (but not limited to):

                     (a)  requiring a party to the contract to fulfil an obligation under the contract despite subsection (2); or

                     (b)  obliging a party to the contract to take some other action (for example, paying money or transferring property) in view of obligations that were fulfilled under the contract before the direction was made.

The order must not require a person to take action that would contravene the direction, or any other direction under section 104.

106   Supply of information about issue and revocation of directions

Power to publish notice of directions in Gazette

             (1)  APRA may publish in the Gazette notice of any direction made under section 104. The notice must include the name of the general insurer or authorised NOHC given the direction and a summary of the direction.

Requirement to publish notice of revocation of certain directions in Gazette

             (2)  If APRA publishes notice of a direction made under section 104 and then later revokes the direction, APRA must publish in the Gazette notice of that revocation as soon as practicable after the revocation. Failure to publish notice of the revocation does not affect the validity of the revocation.

Requirement to provide information about direction to Treasurer

             (3)  If the Treasurer requests APRA to provide information about:

                     (a)  any directions given under section 104 to a particular general insurer or authorised NOHC; or

                     (b)  any directions given under section 104, during a specified period, to any general insurers or authorised NOHCs;

APRA must comply with the request.

Power to inform Treasurer of direction

             (4)  APRA may provide any information that it considers appropriate to the Treasurer about:

                     (a)  any directions given under section 104 to any general insurer or authorised NOHC at any time; or

                     (b)  any revocations of any such directions.

Requirement to inform Treasurer of revocation of direction if informed of making of direction

             (5)  If APRA provides the Treasurer with information about a direction and then later revokes the direction, APRA must notify the Treasurer of the revocation of the direction as soon as practicable after the revocation. Failure to notify the Treasurer does not affect the validity of the revocation.

107   Secrecy requirements

                   Information relating to directions and revocations of directions is subject to the secrecy requirements in Part 6 of the Australian Prudential Regulation Authority Act 1998 , unless the information has been published in the Gazette under section 106 of this Act.

108   Non-compliance with a direction

             (1)  A general insurer or an authorised NOHC commits an offence if:

                     (a)  it does, or fails to do, an act; and

                     (b)  doing, or failing to do, the act results in a contravention of a direction given to it under section 104; and

                     (c)  there is no order in force under section 7 determining that this subsection does not apply to the general insurer or authorised NOHC.

Penalty:  50 penalty units.

Note 1:       Chapter 2 of the Criminal Code sets out the general principles of criminal responsibility.

Note 2:       If a body corporate is convicted of an offence against this subsection, subsection 4B(3) of the Crimes Act 1914 allows a court to impose a fine of up to 5 times the penalty stated above.

             (2)  Subsection (1) is an offence of strict liability.

Note:          For strict liability , see section 6.1 of the Criminal Code .

             (3)  If a general insurer or authorised NOHC does or fails to do an act in circumstances that give rise to the insurer or NOHC committing an offence against subsection (1), the insurer or NOHC (as the case requires) commits an offence against that subsection in respect of:

                     (a)  the first day on which the offence is committed; and

                     (b)  each subsequent day (if any) on which the circumstances that gave rise to the insurer or NOHC committing the offence continue (including the day of conviction for any such offence or any later day).

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

             (4)  An officer of a general insurer or an authorised NOHC commits an offence if:

                     (a)  the officer fails to take reasonable steps to ensure that the insurer or NOHC complies with a direction given to it under section 104; and

                     (b)  the officer’s duties include ensuring that the insurer or NOHC complies with the direction or with a class of directions that includes the direction; and

                     (c)  there is no order in force under section 7 determining that subsection (1) does not apply to the general insurer or authorised NOHC.

Penalty:  50 penalty units.

Note:          Chapter 2 of the Criminal Code sets out the general principles of criminal responsibility.

             (5)  Subsection (4) is an offence of strict liability.

Note:          For strict liability , see section 6.1 of the Criminal Code .

             (6)  If an officer of a general insurer or authorised NOHC fails to take reasonable steps to ensure that the insurer or NOHC complies with a direction given to it under section 104 in circumstances that give rise to the officer committing an offence against subsection (4), the officer commits an offence against that subsection in respect of:

                     (a)  the first day on which the offence is committed; and

                     (b)  each subsequent day (if any) on which the circumstances that gave rise to the officer committing the offence continue (including the day of conviction for any such offence or any later day).

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

             (7)  In this section, officer has the meaning given by section 9 of the Corporations Act 2001 .

13  Subsection 116A(4)

Omit “section 49M”, substitute “section 104”.

14  Subsection 128A(1)

Omit “, 28, 37 or 49P”, substitute “or 28”.

15  Subsection 129A(1)

Omit “49M or subsection 62(9)”, substitute “108”.

16  Saving directions

(1)       This item applies to a direction that is in force under section 36, 49M, 49N, 51 or 62 of the Insurance Act 1973 immediately before this item commences.

(2)       For the purposes of the Insurance Act 1973 , the direction continues in force after this item commences as if the direction were given under section 104 of that Act (as inserted by this Act).

Life Insurance Act 1995

17  Section 134

Repeal the section.

18  Section 150

Repeal the section.

19  Subsection 230B(1)

Repeal the subsection, substitute:

             (1)  APRA may give a life company a direction of a kind specified in subsection (2) if APRA has reason to believe that:

                     (a)  the company has contravened a provision of this Act or the Financial Sector (Collection of Data) Act 2001 ; or

                     (b)  the company is likely to contravene this Act or the Financial Sector (Collection of Data) Act 2001 , and such a contravention is likely to give rise to a prudential risk; or

                     (c)  the company has contravened a condition or direction under this Act or the Financial Sector (Collection of Data) Act 2001 ; or

                     (d)  the direction is necessary in the interests of policy owners or prospective policy owners of the company; or

                     (e)  the company is, or is about to become, unable to meet its liabilities; or

                      (f)  there is, or there might be, a material risk to the security of the company’s assets; or

                     (g)  there has been, or there might be, a sudden material deterioration in the company’s financial condition; or

                     (h)  the company is conducting its affairs in an improper or financially unsound way; or

                      (i)  the failure to issue a direction would materially prejudice the interests of policy owners or prospective policy owners of the company; or

                      (j)  the company is conducting its affairs in a way that may cause or promote instability in the Australian financial system.

          (1A)  The direction must:

                     (a)  be given by notice in writing to the company; and

                     (b)  specify the ground referred to in subsection (1) as a result of which the direction is given.

20  Paragraph 230B(2)(a)

Repeal the paragraph, substitute:

                     (a)  a direction to comply with the whole or a part of this Act or the Financial Sector (Collection of Data) Act 2001 ;

                    (aa)  a direction to comply with a condition or direction referred to in paragraph (1)(c);

21  Subparagraphs 230B(2)(d)(i), (ii) and (iii)

Omit “director, secretary, executive officer or employee”, substitute “director or senior manager”.

22  After paragraph 230B(2)(p)

Insert:

                   (pa)  a direction relating to the amount of capital to be held by the company;

23  Subsection 230B(10)

Insert:

senior manager of a life company means a person who has or exercises any of the senior management responsibilities (within the meaning of the prudential standards) for the life company.

24  Subsection 236(1) (paragraphs (zj), (zk), (zl) and (zm) of the definition of reviewable decision )

Repeal the paragraphs.

25  Saving directions

(1)       This item applies to a direction that is in force under section 134 or 150 of the Life Insurance Act 1995 immediately before this item commences.

(2)       For the purposes of the Life Insurance Act 1995 , the direction continues in force after this item commences as if the direction were given under section 230B of that Act (as amended by this Act).

Superannuation Industry (Supervision) Act 1993

26  Subsection 264(1)

Repeal the subsection, substitute:

Regulator may act to preserve values of interests

             (1)  The Regulator may do any one or more of the things set out in subsections (2) to (4) if it appears to the Regulator that conduct that has been, is being, or is proposed to be, engaged in by a trustee or an investment manager of a superannuation entity is likely to:

                     (a)  if the Regulator intends to do a thing set out in subsection (2)—adversely affect the values of the interests of beneficiaries; or

                     (b)  otherwise—significantly adversely affect the values of the interests of the beneficiaries.

27  Application

The amendment made by item 26 of this Schedule applies to any direction given after this item commences.



 

Part 2 Amendments contingent on the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007

Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007

28  Item 121 of Schedule 1

Repeal the item.