2001

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

HOUSE OF REPRESENTATIVES

 

FINANCIAL SECTOR (COLLECTION OF DATA) BILL 2001

REVISED SUPPLEMENTARY EXPLANATORY MEMORANDUM





Amendments to be moved on behalf of the Government

(Circulated by authority of the Minister for Financial Services and Regulation,

the Hon ourable Joe Hockey, MP)

42231

 

Table of Contents

 

Table of Contents Contents                                                                                                         Page

 

O UTLINE utline ……… …… ………………………………………………………………………… …… . …                                                                                                                                                                      1

FINANCIAL IMPACT STATEMENT………………………………………………………….… 1

REGULATION IMPACT STATEMENT…………… …… ……… ……………… ……… ……………… … … ……. . .                                                                                                                                                      … ….    2

NOTES ON CLAUSES ………… …… ………………………… …… ……… …… .. …. …… ………………………                                                                                                                                                            3

PROPOSED LEGISLATION…………………………………….….…………………………… 4 8 Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

1

Outline

1.1               The Regulation Impact Statement is updated to reflect the outcome of consultation on the content of the Financial Sector (Collection of Data) Bill 2001 and Financial Sector (Collection of Data — Consequential and Transitional Provisions) Bill 2001.  The Office of Regulation Review has advised that the Government amendments do not require a further Regulation Impact Statement.

1.1 1.2               Government amendments amend clause 2 and clause 14 of the Financial Sector (Collection of Data) Bill 2001.

Financial impact statement

1.3               The amendments will not have a financial impact on the operations of government.  APRA is self-funded through financial sector levies .

 

 

2

Regulation Impact Statement

Consultation

The following paragraphs replace paragraphs 3.27 and 3.28.

3.27     Consultation on the content of the Financial Sector (Collection of Data) Bill 2001 and Financial Sector (Collection of Data — Consequential and Transitional Provisions) Bill 2001 involved representative bodies including the Australian Bankers’ Association, International Banks and Securities Association of Australia, Credit Union Services Corporation (Australia) Limited, National Credit Union Association Inc., Australian Association of Permanent Building Societies, Australian Friendly Societies Association, Australian Superannuation Funds Association, Australian Institute of Superannuation Trustees, Insurance Council of Australia, Australian Equipment Lessors Association Inc, Investment & Financial Services Association Limited and the Industry Funds Forum.

3.28           Consultations were largely positive, particularly in the banking sector, although a few refinements to the legislation were suggested by the superannuation sector partly reflecting factors specific to this sector.  These suggestions have been taken into account through the Government amendments to the legislation.

Implementation and review

In the Regulation Impact Statement replace the date of 1 July 2001 in paragraph 3.34 with the words on a day to be fixed by Proclamation.

 

Regulation Impact Statement

DRAFT REGULATION IMPACT STATEMENT

Problem identification

The Australian Prudential Regulation Authority (APRA) was established on 1 July 1998 as the single integrated, prudential regulator of banks, insurance companies, building societies, credit unions, friendly societies and superannuation funds.  APRA’s primary role is to protect the interests of depositors, insurance policy holders and superannuation fund members.  It does this through a variety of methods including through licensing institutions and implementing risk management requirements. 

To understand the condition of financial institutions and to monitor their compliance with prudential requirements, APRA gathers detailed financial data from the entities it supervises through financial reporting requirements.  This data is more frequent, and in some respects more detailed, than fr om general purpose reporting (eg. accounting standards) and continuous disclosure (eg. Corporations Law) which are aimed mainly at listed companies to inform the marketplace.  The collection of APRA’s financial reporting data also enables general research and analysis to be undertaken into the trends and pressures affecting the financial sector and the publication of relevant information.

On establishment, APRA inherited a variety of data-collection tools and analysis systems.  These tools and systems were tailored to meet the data needs of APRA’s predecessor organisations.  Three problems have been identified with this inherited data-collection framework. 

First, the existing data-collection framework is fragmented, cumbersome and in some areas outdated.  APRA collects 153 forms, comprising 17,000 data items.  In some cases the data collected is inadequate or no longer relevant to the performance of APRA’s functions.  For example, the current tools do not permit APRA to collect data about conglomerate groups and industry sub-sectors.  In addition, in this ‘information age’ the current collection framework provides no incentives for institutions to provide data in a timely manner.

The second problem concerns the inflexibility and inconsistency of the current data-collection and publishing powers.  APRA’s current data-collection works in conjunction with its data publishing powers and both are contained in a variety of industry-specific legislation and regulation:  including the Banking Act 1959, Insurance Act 1973, Life Insurance Act 1995, Superannuation Industry (Supervision) Act 1993, Retirement Savings Account Act 1997 and the Australian Prudential Regulation Authority Act 1998.  Changes to APRA’s data-collection and publishing powers can only be made by changes to such legislation and associated regulations.  This is a lengthy process and has meant that APRA’s data-collection and publishing tools have failed to keep pace with rapid industry development and the demand for current financial sector information.  This situation is inconsistent with APRA’s aims to streamline and harmonise supervisory and information requirements across APRA supervised institutions.

Finally, the current situation means that there is a significant overlap in reporting duties imposed on entities to provide similar data to different government agencies.  That is, to APRA, the Reserve Bank of Australia (RBA) and the Australian Bureau of Statistics (ABS).

Under While there is the FCA Act , and that under this Act, data is formally provided to the RBA, even though it is actually collected by APRA collect .  Further , the ABS also collects data on financial statistics , which overlaps under the ABS Act which overlaps with data colected collected under the FCA Act .

[ Currently the RBA collects essential financial information under the FCA Act for non-APRA regulated entities.  The ABS also receives similar financial statistics from non-APRA regulated entities and APRA regulated entities.  It therefore is logical to have one central collection and repository for financial sector data. ] - APRA Comments [Redraft]

Objectives

The objectives of the proposed regulatory measures are three-fold.  First, to modernise and increase the relevance of data collections, thereby ensuring that APRA collects the data it requires for the purposes of its prudential functions.  Secondly, to harmonise and increase the flexibility of the data-collections and publishing regimes and finally, to have a central repository for the collection of financial data.  Overall, the proposed regulatory measures are designed to streamline and simplify the current data-collection methods and systems.

Identification of options

Option 1 - Amendments to current financial sector data collection powers

A modernised and harmonised set of financial sector data-collection powers could be inserted into a renamed Financial Corporations Act 1974 .  Under this option, the responsibility for collecting information required by the RBA for monetary policy and related purposes under the Financial Corporations Act , would be transferred to APRA.  Similarly, consequential amendments would need to be made to the various industry Acts and regulations to repeal the current data-collection powers.  Under the revamped Financial Corporations Act , APRA would retain the current power to impose financial penalties on institutions that fail to provide data in a timely manner.  In addition, it will have power to publish data received from institutions, except for data flagged as ‘commercial in confidence’ or ‘public interest in confidence’ by APRA after consultation with industry.

As data requirements are generally stable for several years at a time, with only minor additions needed over the short-term, it is proposed that a rolling review of all data items be undertaken.  This would entail a complete reassessment of data requirements by APRA, RBA and ABS and justification of both new and existing data items in terms of ownership and the final use of that data.  In effect, a “sunset clause” would be imposed on each data item.

Option 2 - No specific action

Under this option, no measures would be introduced, and APRA regulated financial institutions would continue to provide data according to the financial reporting requirements under the current legislation.  The compliance burden would remain higher than necessary, overlap in data collections would remain, the information would remain disparate, and superfluous data collections would remain in place.

Impact analysis

Impact group identification

The main groups likely to be affected by the proposed amendments are: financial institutions regulated by APRA, financial institutions regulated under the Financial Corporations Act 1974 (eg merchant banks and finance companies), APRA, the RBA and ABS.

Assessment of costs and benefits

Option 1 - Proceed with legislative amendments

The proposed amendments will benefit all of the parties identified as being affected by the proposed changes.

Financial Institutions

Financial institutions will benefit from a more streamlined collection process.

· Improved data submission mechanisms and a reduction in the frequency of certain key collections will contribute to a substantial decrease in the amount of data required to be provided in total to APRA, the RBA and ABS, leading to a reduction in the compliance costs and time required to fulfil data providing duties.  Financial institutions will not have to spend valuable time providing similar data to RBA, ABS and APRA; instead, APRA will be the central data collection repository.

· Modernised and harmonised collections amongst APRA, RBA and ABS will contribute to easier compliance with APRA’s requests for data, as these will be more commercially aligned.  Harmonising each of the data collections that APRA is responsible for with the public disclosure requirements of provider institutions and with the financial collections of the ABS and RBA will make it simpler for institutions to comply.

· Implementation of a well understood annual change cycle (involving industry consultation and reasonable lead times) and certainty as to what data is required.  Flowing from this will be the ability for institutions to comply with APRA’s request for data in a measured and timely manner.

· The ability to examine industry data collected by APRA and selectively use this data as a basis for comparison with other institutions or sectors of the financial system (peer groups) will also benefit the industry directly and analysts more broadly.

The costs associated with the proposed amendments are not easily measurable.  A small number of financial institutions may initially face some transitional costs as a result of having to provide data to APRA in a different form.  However, given that one of the aims of the amendments is to closely mirror the way APRA collects data with the way that financial institutions report their business activities, these costs should be modest.  Further, the disciplined review cycle means future data changes will follow a predictable process with adequate industry consultation and lead times.  In the long term, the benefit in cost savings to financial institutions will be substantially greater than the initial costs incurred.

APRA

APRA will benefit from the proposal through an increased ability to collect data required to effectively perform its supervisory functions.  For example:

· a single reporting and analysis platform across industries;

· new risk rating and improved exception reporting arrangements;

· more efficient and effective offsite analysis tools for APRA front line supervisors;

· APRA will be able to collect and analyse data across conglomerate groups and industry sub-sectors; and

· where APRA has specific concerns about a financial institution, APRA will be able to more effectively gather information from that institution in a more timely manner.

In addition, the proposed amendments will provide industry with an incentive to comply with APRA’s request for data.  It also encourages prudent practice amongst institutions by ensuring that they examine their activities in a similar manner to that of the supervisor.  The proposed amendments will also facilitate the continued development of a cooperative relationship between APRA and industry.

It is envisaged that the costs to APRA will be substantial in the initial set up of systems and staff training required to collect and analyse the different data.  However, the amendments provide for a long-term solution to a problem that involves disparate data-collection and analytical systems, the long term benefits will far outweigh the initial start-up costs.

ABS and RBA

The amendments will benefit the RBA and ABS through:

· reducing staff and systems costs that were duplicating processes already undertaken by APRA;

· more efficient and rationalised data collection methods; and

· allowing duplicated resources to be concentrated on other core activities.

The costs associated with the proposed amendments to the ABS and RBA will be negligible.

Option 2 - No specific action

The major costs of not taking any action to address these problems are:

· for APRA, an ageing set of systems and forms which will become increasingly difficult to maintain and increasingly outmoded in content;

· a continued burden on financial institutions to provide similar data to different government bodies; and

· a continued duplication of government processes and resources.

Under this option, APRA and financial institutions would benefit through avoiding initial outlays to improve systems and undertake staff training to adapt to the new data-collection systems.

Also, in the absence of reform in the area, APRA frontline supervisors will need to put disproportionate store on other prudential techniques such as licensing, capital, audits and inspections which are staff resource intense.  APRA’s standing and credibility within the regulatory community and the financial marketplace could diminish.

Consultation

APRA has consulted extensively with the banking industry (both regional and in Sydney and Melbourne), via presentations and one-on-one meetings on the proposed changes to the banking collections.  Highly positive reactions were received with significant support for the overall objectives of modernisation and rationalisation.  Banks are particularly enthusiastic about the possibility of reducing the frequency of reporting in some cases and the dropping of outmoded content in others.

Consultation has already taken place with all major industry bodies including Australian Superannuation Funds Association (ASFA) , Australian Bankers ’ Association (ABA) , Investment & Financial Services Association Limited (IFSA) , Credit Union Services Corporation (Australia) Limited (CUSCAL) and the International Bank s and Securities Association (IBSA) .  All industry bodies consulted are supportive of the proposed changes.

Similarly, the Australian Securities and Investments Commission, the Australian Taxation Office, RBA and ABS are supportive of the proposed amendments.  The RBA and ABS fully support that APRA should be the central repository for the collection of financial sector data.

Conclusion and recommended option

Given substantial benefits will be provided to all parties affected by the proposed amendments, and that the costs to all of the parties will be minimal, Option 1 is the preferred option.  The proposed amendments are necessary to remedy the current deficiencies in the data-collection system.

Implementation

It is proposed that the Financial Corporations Act 1974 be amended so that APRA will act as a single Government collection agency for the financial sector.  It is also proposed that this Act be renamed the Financial Sector (Collection of Data) Act 2001 . The Financial Sector (Collection of Data) Bill will consequentially amend all of APRA’s industry supervision Acts to remove data collection provisions.  All current data collection powers in the industry specific legislation will be transferred and harmonised into this new Act.

3.1    

3.2    

3.3     3.4     3.5     3.6     3.7     3.8     3.9     3.10  

3.11   3.12  

3.13   Financial institutions will benefit from a more streamlined collection process.

3.14   Under the proposed legislation, improved data submission mechanisms (for example, secure website submission in addition to the current disk and email submission - which can be easily corrupted and are time-consuming, particularly for download of many data sets - improved system speed and a data integrity process) and a reduction in the frequency of certain key collections will contribute to a decrease in the amount of data required to be provided in total to APRA, the RBA and ABS, leading to a reduction in the compliance costs and time required to fulfil data providing duties.  Financial institutions will not have to spend valuable time providing similar data to RBA, ABS and APRA; instead, APRA will be the central data collection repository.

3.15   Under the proposed legislation, modernised and harmonised collections amongst APRA, RBA and ABS will contribute to easier compliance with APRA’s requests for data, as these will be more commercially aligned.  Harmonising each of the data collections that APRA is responsible for with the public disclosure requirements of provider institutions and with the financial collections of the ABS and RBA will make it simpler for institutions to comply.

3.16   Implementation of a well understood annual change cycle.  As data requirements are generally stable for several years at a time, with only minor additions needed over the short term, it is proposed that a rolling review of all data items be undertaken.  This would entail a complete reassessment of data requirements by APRA, RBA and ABS and a rationalisation of data collection and to use, wherever possible, the same conceptual framework.  This process (involving industry consultation and reasonable lead times) will enable institutions to comply with APRA’s request for data in a measured and timely manner and add certainty as to what data is required.

·                    3.17   The ability to examine industry data collected by APRA and selectively use this data as a basis for comparison with other institutions or sectors of the financial system (peer groups) will benefit the industry directly and analysts more broadly by facilitating greater market transparency leading to better informed commercial decisions.3.18      Financial institutions will benefit from a more streamlined collection process.

·                    Under the proposed legislation, improved data submission mechanisms (for example, secure website submission in addition to the current disk and email submission - which can be easily corrupted and are time-consuming, particularly for download of many data sets - improved system speed and a data integrity process) and a reduction in the frequency of certain key collections will contribute to a decrease in the amount of data required to be provided in total to APRA, the RBA and ABS, leading to a reduction in the compliance costs and time required to fulfil data providing duties.  Financial institutions will not have to spend valuable time providing similar data to RBA, ABS and APRA; instead, APRA will be the central data collection repository.

·                    Under the proposed legislation, modernised and harmonised collections amongst APRA, RBA and ABS will contribute to easier compliance with APRA’s requests for data, as these will be more commercially aligned.  Harmonising each of the data collections that APRA is responsible for with the public disclosure requirements of provider institutions and with the financial collections of the ABS and RBA will make it simpler for institutions to comply.

·                    Implementation of a well understood annual change cycle.  As data requirements are generally stable for several years at a time, with only minor additions needed over the short term, it is proposed that a rolling review of all data items be undertaken.  This would entail a complete reassessment of data requirements by APRA, RBA and ABS and a rationalisation of data collection and to use, wherever possible, the same conceptual framework.  This process (involving industry consultation and reasonable lead times) will enable institutions to comply with APRA’s request for data in a measured and timely manner and add certainty as to what data is required.  

·                    The ability to examine industry data collected by APRA and selectively use this data as a basis for comparison with other institutions or sectors of the financial system (peer groups) will benefit the industry directly and analysts more broadly by facilitating greater market transparency leading to better informed commercial decisions.

 

 

3.19   3.20   3.21  

2.1                    3.22   The amendments will benefit the RBA and ABS through: The amendments will benefit the RBA and ABS through:

3.23   3.24   3.25   3.26   3.2 7    3.2 8    3.2 9    3. 30    3.3 1    3.3 2    3.3 3   

 

3

Notes on Clauses

Clause 14 ¾ Principal executive officer of financial sector entity (other than a superannuation entity) to notify the entity’s governing body of a failure to provide reporting documents to APRA

This amendment removes the application of this clause on superannuation entities, as the concept of a ‘principal executive officer’ could potentially be confusing for, and difficult to identify for these entities.   In some industry funds and large public offer funds, a principal executive officer will be clearly identified.  In other superannuation funds, there can also be a group of trustees or trustee directors making decisions collectively and contracting out other functions to service providers, custodians, fund managers etc.  In this situation, identifying a principal executive officer is difficult and potentially confusing in contrast to an ordinary corporation. 

Trustees of superannuation funds will remain solely responsible for lodging annual returns and other documents with APRA. 

Clause 31 ¾ Definitions

The definition of a superannuation entity is included in this clause to assist in the interpretation and application of clause 14. 

 

4

Proposed legislation

Clause 2 ¾ Commencement

Notes 4.3 and 4.4 are replaced with -

4.3  Parts 2, 3 and 4 which relate to the registration of companies, the provision of documents and miscellaneous provisions commence on a day to be fixed by proclamation.

4.4  This clause ensures that Parts 2, 3 and 4 commence no later than 12 months after the Act receives Royal Assent.

 

Other - to be inserted when next draft arrives

Power to delegate to the Reserve Bank

The systems for APRA collection of ‘registered entities’ will not be ready on 1 July 2001 but sometime thereafter.  Therefore it will be necessary for the Reserve Bank of Australia to continue to collect this information on behalf of APRA until the APRA systems are set up. 

We therefore need a delegation power from APRA to the RBA (similar to current section 22A of the Financial Corporations Act 1974 ) but only in respect of functions for registered entities ; ie only the functions in Part 2 of the main Bill.  I note the specific information to be lodged is mainly found in the Financial Corporations (Statistics) Regulations.  These regulations will continue to apply to registered entities until the new standards making power is invoked.