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

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2004-2005-2006-2007

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

FINANCIAL SECTOR LEGISLATION AMENDMENT (SIMPLIFYING REGULATION AND REVIEW) BILL 2007

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

(Circulated by the authority of the

Minister for Revenue and Assistant Treasurer, the Hon Peter Dutton MP)

 



T able of contents

Glossary.............................................................................................................. 1

General outline and financial impact............................................................ 1

Chapter 1           Streamlining prudential regulation .................................. 1

Chapter 2           Financial assistance............................................................ 1

Chapter 3           Accounts, reporting, obligations etc.................................. 1

 Chapter 4          Technical amendments relating to legislative instruments 1

 



The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

ABN

Australian Business Number

ABN Act

A New Tax System (Australian Business Number) Act 1999

ABN Regulations

A New Tax System (Australian Business Number) Regulations 1999

ABR

Australian Business Register

ADF

Approved Deposit Fund

ADI

Authorised Deposit-taking Institutions

AIA

Acts Interpretation Act 1901

APRA

Australian Prudential Regulation Authority

APRA Act

Australian Prudential Regulation Authority Act 1998

ASIC

Australian Securities and Investments Commission

ASIC Act

Australian Securities and Investments Commission Act 2001

ATO

Australian Taxation Office

Banking Act

Banking Act 1959

Banking Regulations

Banking Regulations 1966

CALDB

Companies Auditors and Liquidators Disciplinary Board

Corporations Act

Corporations Act 2001

Corporations Regulations

Corporations Regulations 2001

Abbreviation

Definition

Criminal Code

Criminal Code Act 1995

DBF

Defined Benefit Fund

FRLI

Federal Register of Legislative Instruments

FSCODA

Financial Sector (Collection of Data) Act 2001

ITAA 1936

Income Tax Assessment Act 1936

ITAA 1997

Income Tax Assessment Act 1997

Insurance Act

Insurance Act 1973

Insurance Regulations

Insurance Regulations 2002

ISC

Insurance and Superannuation Commission

LIA

Legislative Instruments Act 2003

LIASB

Life Insurance Actuarial Standards Board

Life Act

Life Insurance Act 1995

Life Regulations

Life Insurance Regulations 1995

NOHC

Non-Operating Holding Company

Prudential Acts

Banking Act 1959, Insurance Act 1973, Life Insurance Act 1995, Superannuation Industry (Supervision) Act 1993

PST

Pooled Superannuation Trust

RSE

Registrable Superannuation Entity

SIS Act

Superannuation Industry (Supervision) Act 1993

SIS Regulations

Superannuation Industry (Supervision) Regulations 1994

SMSF

Self-managed superannuation fund

SMSF Taxation Act

Superannuation (Self Managed Superannuation Funds) Taxation Act 1987



Streamlining prudential regulation

Schedule 1 to this Bill amends the Banking Act 1959 , Insurance Act 1973 , Life Insurance Act 1995 , Superannuation Industry (Supervision) Act 1993 (collectively, the prudential Acts) and other related legislation, including the Corporations Act 2001 (Corporations Act) and Financial Sector Collection of Data Act 2001 (FSCODA), to implement Government commitments relating to prudential regulation in response to Rethinking Regulation : The Report of the Taskforce on Reducing Regulatory Burdens on Business (Regulation Taskforce) It also includes additional measures to streamline and simplify the prudential Acts in a manner that is consistent with the Regulation Taskforce’s findings.

Date of effect : These amendments apply from the date of Royal Assent unless specified otherwise.

Proposals announced : The proposals were announced in a paper released on 4 December 2006 by the Minister for Revenue and Assistant Treasurer entitled Streamlining Prudential Regulation: ‘Response to Rethinking Regulation’ .

Financial impact : Nil

Compliance cost impact : These amendments are expected to result in a reduction in compliance costs for the finance sector.  The Office of Best Practice Regulation granted an exemption from having to provide a Regulation Impact Statement.

Financial assistance

Schedule 2 to this Bill amends the SIS Act and the Financial Institutions Supervisory Levies Collection Act 1998 so that, where a superannuation fund has suffered loss as a result of fraudulent conduct or theft, financial assistance is available on a more equitable basis.  The amendments also abolish the Special Protection Account.

Date of effect : These amendments apply from the date of Royal Assent.

Proposals announced : The proposals were announced in the former Minister for Revenue and Assistant Treasurer, Senator the Hon Helen Coonan, Press Release No.  C065/04 of 7 July 2004.

Financial impact : Nil

Compliance cost impact : Low.  A Regulation Impact Statement has been prepared. 

Accounts, reporting, obligations etc

3.1         Schedule 3 to this Bill amends the SIS Act, the Superannuation (Self Managed Superannuation Funds) Taxation Act 1987 (SMSF Taxation Act) and the Income Tax Assessment Act 1936 (ITAA 1936) to:

·          consolidate and rationalise the prudential reporting requirements under the SIS Act;

·          distinguish between reporting requirements relating to registrable superannuation entities (RSEs) and self-managed superannuation funds (SMSFs); and

·          close the regulatory gap that exists in the SIS Act for the reporting of contraventions of the market conduct and disclosure provisions in the Corporations Act..

Date of effect : These amendments apply from the date of Royal Assent.

Proposals announced : The proposal was announced on 4 December 2006 in a paper released by the Minister for Revenue and Assistant Treasurer entitled Streamlining Prudential Regulation: ‘Response to Rethinking Regulation’ .

Financial impact : Nil

Compliance cost impact : Nil

 

 

Technical amendments relating to legislative instruments

Schedule 4 to this Bill makes amendments to various legislation that are consequential on the enactment of the Legislative Instruments Act 2003 .

Date of effect : These amendments apply from the date of Royal Assent. 

Proposals announced : The amendments have not previously been announced.

Financial impact : Nil.

Compliance cost impact : Nil.

 



C hapter 1

Streamlining prudential regulation

Outline of chapter

1.1                    Schedule 1 to this Bill amends the Banking Act 1959 , Insurance Act 1973 , Life Insurance Act 1995 , Superannuation Industry (Supervision) Act 1993 (collectively, the prudential Acts) and other related legislation, including the Corporations Act 2001 (Corporations Act) and Financial Sector Collection of Data Act 2001 (FSCODA), to implement Government commitments relating to prudential regulation in response to Rethinking Regulation : The Report of the Taskforce on Reducing Regulatory Burdens on Business (Regulation Taskforce) It also includes additional measures to streamline and simplify the prudential Acts in a manner that is consistent with the Regulation Taskforce’s findings.

Context of amendments

1.2                    The prudential framework within Australia is widely acknowledged to be meeting its broad objectives.  Rethinking Regulation found that ‘Australia’s financial and corporate sectors, and the associated regulatory structures, are highly regarded internationally’ and that the ‘broad policy framework has widespread support within business and the wider community in Australia’.

1.3                    However, Rethinking Regulation also noted that there is scope to improve the regulatory framework in some areas and made recommendations to improve the flexibility of the framework, harmonise aspects of the framework with the Corporations Act and improve coordination between the key financial sector regulators, the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC)).  The Government accepted all the recommendations in Rethinking Regulation relevant to prudential regulation.

1.4                    Recommendation 5.4 of Rethinking Regulation stated that the Government should ensure that APRA has sufficient flexibility to tailor requirements to accommodate differing circumstances.  It should also be flexible to cater for the diverse range of entities operating within the financial sector.

1.5                    The Government has already made considerable progress in this regard through recent reforms to the prudential framework for both general insurers and superannuation funds, implemented through the General Insurance Reform Act 2001 and the S uperannuation Safety Amendment Act 2004 .  These amendments build on these initiatives through further reforms to streamline and improve the flexibility of the prudential framework.

1.6                    The prudential Acts administered by APRA and related legislation, such as the Corporations Act, have often evolved separately and in response to industry developments, and there is scope to refine and update the four prudential Acts to make them more consistent.  Rethinking Regulation highlighted breach reporting under the prudential Acts and Corporations Act as a particular area where there is scope to improve consistency and reduce the compliance burden.  These amendments address concerns in this area.

1.7                    On 4 December 2006, the Minister for Revenue and Assistant Treasurer released a paper entitled Streamlining Prudential Regulation: ‘Response to Rethinking Regulation’ to facilitate discussion on the Government’s proposed response to various Rethinking Regulation recommendations, outstanding HIH Royal Commission recommendations and additional reforms to streamline and simplify the prudential Acts in a manner that is consistent with the Regulation Taskforce’s findings.  The amendments give effect to most of the proposals in that paper.

Summary of new law

1.8                    The amendments will simplify and streamline the prudential Acts and in doing so will improve the flexibility, consistency and transparency of those Acts and reduce the compliance burden for the financial sector. 



Comparison of key features of new law and current law

New law

Current law

Only significant breaches need to be reported under the prudential Acts.  A written report on significant breaches needs to be made to APRA as soon as practicable, and in any event, no later than 10 business days after the entity becomes aware of the breach.  Some breaches will need to be notified in writing to APRA immediately.

Where an actuary or auditor identifies a breach and is required to notify APRA and the regulated entity of a breach, the ADI, general or life insurer or superannuation trustee is not also required to report the breach to APRA.  The reverse also applies.

Where a breach was previously reported to APRA and ASIC, the breach is only required to be reported to APRA.

All breaches need to be reported under the prudential Acts.

There are inconsistent and ambiguous timing requirements under the prudential Acts and the Corporations Act for the reporting of breaches.

Overlapping reporting requirements between responsible persons and officers, actuaries and auditors may be creating the need for multiple reporting of breaches. 

There may be unnecessary breach reporting where a breach is required to be reported to both APRA and ASIC.

Consistent protection is provided for whistleblowers and persons who report information under the prudential Acts.  These persons enjoy ‘use immunity’ in relation to reported information.

Inconsistent protection for whistleblowers and persons who report information.

APRA’s exemption powers have been expanded under the SIS and Life Acts while reduced under the Banking and Insurance Acts.  It is clarified that decisions relating to classes of persons are legislative in nature while those relating to a particular person are administrative in nature and are reviewable decisions.

There is lack of a flexibility in the prudential regime which may impose unnecessary compliance costs.

New law

Current law

APRA will gain the power under the Banking and Life Acts to make discretionary decisions under its prudential standards.  It is clarified that decisions relating to classes of persons are legislative in nature while those relating to a particular person are administrative in nature and are reviewable decisions.

APRA’s ability to tailor prudential requirements to particular circumstances under prudential standards is limited, and these requirements are not transparent.

Section 33 of the Insurance Act has been repealed, so APRA only needs to comply with the consultation requirements under Legislative Instruments Act 2003.

APRA currently must comply with two sets of legislative requirements with respect to consultation on general insurance prudential standards.

APRA has the power to accept court enforceable undertakings under the Banking and Life Acts.

APRA is unable to enforce cooperative agreements made with entities to address prudential concerns under the Banking and Life Acts.

The Board will have responsibility for the appointment of the actuary or auditor of the entity.  There will be no requirement for APRA approval. 

Under the Insurance and SIS Acts, APRA can direct a regulated entity to remove the auditor or actuary who does not meet the fit and proper requirements or has been disqualified.  Under Life Act, APRA can declare the auditor or actuary ineligible for appointment.

Entities are required to seek APRA approval for the appointment of its actuaries and auditors, which is inconsistent with a principles based legislative framework.

APRA has the power to refer matters relating to actuaries and auditors to their professional bodies under the Banking, Insurance and Life Acts.  This will improve industry self-regulation and enhance co-operation between APRA and industry professional bodies.

APRA does not have the power to share information regarding actuary and auditor conduct with appropriate professional bodies under the Banking and Life Acts and its power under the Insurance Act is limited. 

New law

Current law

Prudential rules will be phased out by 30 June 2011.

Prudential rules add prescription and unnecessary complexity to the prudential framework

The LIASB will be abolished.  The requirements currently found under actuarial standards in the Life Act will be prescribed under prudential standards. 

The Life Act provides that APRA may determine standards on prudential matters for life companies under section 230A but grants actuarial standards-making powers to the LIASB under section 101.

 

 

The eligibility requirements for appointed actuaries under the Life Act will be replaced by principles-based legislation, with further requirements prescribed under prudential standards. 

Requirements with respect to actuaries in the Life Act are prescriptive and inflexible.

Duplication in reporting requirements has been removed and replaced by a process of information sharing between APRA and ASIC.

Duplication in reporting requirements under the Life Act.

Sections 123 and 125 of the Life Act, relating to reinsurance contracts, have been repealed.

Reinsurance reporting requirements are under the Life Act rather than responsibility of the Board of the life company.

Subsections 20(2), (3) and (4), sections 25 and 28 of the Life Act and Part 3 of the Life Regulations have been repealed.  Section 21 of the Life Act has been amended so that APRA would no longer issue a certificate but would provide ‘authorisation in writing’.

The Life Act and Life Regulations contain prescriptive requirements with respect to registration of life insurers, and requirements to notify changes to information provided in a registration application.  These requirements overlap with other information gathering processes.

ABNs will become a uniform business identifier.  All RSE licensees and superannuation entities are required to obtain and display an ABN.

There is a requirement under the SIS Act to display RSE licence and registration numbers on certain documents.

The obsolete provisions have been repealed from the Life and SIS Acts.

Several transitional arrangements in the Life and SIS Acts are obsolete and add to complexity.

Detailed explanation of new law

Streamlining breach reporting arrangements

1.9                    The breach reporting regimes under the prudential Acts ( Banking Act 1959 (Banking Act), Insurance Act 1973 (Insurance Act), Life Insurance Act 1995 (Life Act), Superannuation Industry (Supervision) Act 1993 (SIS Act)), administered by the Australian Prudential Regulation Authority (APRA), and the Corporations Act 2001 (Corporations Act), administered by ASIC, are different, reflecting differences between the objectives of prudential regulation and corporations and financial services regulation, as well as the independent development of each Act.

1.10                However, there are a number of areas in the breach reporting regimes under the prudential Acts and Corporations Act which can be harmonised and streamlined so that the regulatory burden on entities is reduced.  These areas relate to:

·          harmonising the timeframe for reporting breaches;

·          eliminating the requirement for breaches to be reported twice; and

·          introducing a significance test where appropriate so that only significant breaches need to be reported.

1.11                Whilst the approach taken to harmonising breach reporting is aimed at streamlining the processes which entities, auditors and actuaries must undertake to fulfil their breach reporting obligations, some differences remain under the prudential Acts and the Corporations Act which reflect the different objectives of prudential regulation and corporations and financial services regulation.

1.12                The amendments to the breach reporting obligations under the prudential Acts will require the reporting of significant breaches that have occurred or that will occur in the future.  This approach differs from the Corporations Act approach where there is an obligation to report likely breaches.  The requirement to report breaches that will occur in the future takes into account that in some circumstances, entities, actuaries and auditors will be able to identify where it is inevitable that a breach will occur.  In such circumstances, it is desirable that the breach be reported at this time rather than waiting for the breach to actually occur.

1.13                Under these amendments, significant breaches of the prudential Acts will be divided into two groups.  Breaches relating to minimum capital requirements or where an entity may not be able to meet its obligations are always deemed to be significant and must be notified to APRA immediately. 

1.14                The requirement to report such breaches to APRA immediately takes into account that entities, auditors and actuaries will have to undertake certain internal processes in establishing some details surrounding the breach, but the obligation imposed on them is one which requires them to escalate the notification of the breach to APRA as breaches of this kind are often the most severe and which require APRA’s immediate attention.

1.15                All other breaches deemed to be significant must be reported by the entity, auditor or actuary as soon as possible and in any event within 10 business days after becoming aware of the breach.  The point when the 10 day reporting period begins is framed in such a way as to not be prescriptive, so the obligation rests with the entity, auditor or actuary to have processes in place which will allow them to meet their breach reporting obligations.  This approach acknowledges that entities structure their breach reporting processes in a way which is appropriate for their circumstances.  It is envisaged that both APRA and ASIC will provide guidance for entities in relation to how they meet their breach reporting obligations and that entities will be able to engage with APRA and ASIC in the development of this guidance material. 

1.16                A breach is determined to be significant by taking into account factors including the frequency of similar previous breaches; the impact on the entity’s ability to meet its obligations; the extent to which the breach indicates arrangements for ensuring compliance are inadequate; the actual or potential loss arising from the breach; and any other matters prescribed by regulations.  A written report on a significant breach is expected to contain more detailed information on the matter whereas notification, which is still required to be in written form, would contain less detailed information.

1.17                Amendments are also made to ensure that breaches are not required to be reported twice.  If an auditor or actuary identifies a breach and submits a breach report, an entity may also have to submit a report on the same breach.  Amendments to the prudential Acts will ensure that breaches will only be reported once with auditors, actuaries or entities able to fulfil their breach reporting obligations if they ensure that the breach has already been reported.  Offence provisions have been included to ensure that it is an offence if an auditor, actuary or entity informs another party that a breach has been reported when it has not.  In such circumstances, the onus of proof is reversed.  For example, where auditors or actuaries are required to give information, the effect of reversing the onus of proof is that the auditor or actuary is required to establish, on the balance of probabilities, that they had no reason to disbelieve that the entity has already informed APRA of the breach in writing.  The onus of proof is reversed because of the substantial evidentiary difficulty the prosecution would face if they were required to prove whether the auditor or actuary believed the entity’s statement.

1.18                All the amendments for breach reporting under the prudential Acts and the Corporations Act will begin from 1 January 2008.

Banking Act 1959 (Banking Act) (Items 158-166 )

Amendments relating to auditors

1.19                Item 159 repeals subsections (2) to (4C) of section 16B and item 160 inserts a new section 16BA into the Banking Act which introduces a significance test for the reporting of breaches by auditors.  Under these amendments, requirements to report breaches of legislation or prudential standards to APRA will become subject to a significance test so that only significant breaches will need to be reported.  The significance test, which is contained in new subsection 16BA(7), takes into consideration a number of factors to be used when judging if a breach is significant or not.  Significant breaches must be written and must be reported as soon as practicable and in any event within 10 business days (new subsection 16BA(6)). 

1.20                Item 158 provides a definition of business day into the Banking Act as significant breaches must be reported within 10 business days.

1.21                Item 160 introduces new subsection 16BA(2) so that where a person has reasonable grounds for believing that the body corporate is insolvent or an existing or proposed state of affairs may significantly prejudice the interests of depositors, the person must immediately notify APRA in writing.  Failures of this kind are often the most severe breaches and require APRA’s immediate attention.  These circumstances are always deemed to be significant and must be reported immediately.

1.22                Item 160 also streamlines the breach reporting process by ensuring that information is not required to be given twice.  Under current reporting obligations, if an auditor and body corporate are both aware of a breach, then both must submit a separate breach report to APRA on the same breach, irrespective of whether the other party has reported the breach.  This doubling up of breach reports creates an unnecessary regulatory burden.  This item inserts new subsection 16BA(5) which provides that if the auditor is informed by a director or senior manager that the breach has been reported to APRA, then the auditor does not have to report the same breach.  A similar provision applies to directors and senior managers of a regulated entity (see item 163 ).

1.23                Offence provisions are introduced in subsections 16BA(3), (4), (8), (9) and (11).  New subsections 16BA(3) and (4) make it an offence to contravene subsection (2), relating to matters requiring immediate notice.  New subsections 16BA(8) and (9) make it an offence to contravene subsection (6), relating to matters requiring notice as soon as practicable.  The offence created by these provisions mirror the offences found in old section 16B. 

1.24                The offence under new subsections (4) and (9) are strict liability offences punishable by 60 penalty units.  These offences are ones of strict liability because they are basic, objective requirements of APRA’s prudential supervision functions, and should be complied with by all persons.  Consistent with section 6.1 of the Criminal Code Act 1995 (Criminal Code), the offence provisions under subsections (4) and (9) do not require proof of a mental element. 

1.25                It is also an offence under subsection (11) to falsely state that matter has been brought to the attention of APRA when it has not.  This offence is punishable by a maximum of 12 months imprisonment. 

Amendments relating to bodies corporate

1.26                Items 161 and 162 amend paragraphs 62A(1)(a) and (b) of the Banking Act so that where a member of a relevant group of bodies corporate becomes aware that it, or another member of the group, or the group as a whole, may not be in a sound financial position, it must notify APRA in writing immediately.  Failures of this kind are often the most severe breaches and require APRA’s immediate attention.  These circumstances are always deemed to be significant and must be reported immediately. 

1.27                Item 163 inserts new subsections 62A(1A) to 62A(1D) of the Banking Act, to introduce a significance test for the reporting of breaches by a member of a relevant group of bodies corporate.  The significance test, which is contained in new subsection 62A(1C), lists a number of factors which must be considered to determine if a breach is significant or not.  Significant breaches must be reported as soon as practicable and in any event within 10 business days. 

1.28                Item 163 also streamlines the breach reporting process by ensuring that information is not required to be given twice.  Under new subsections 62A(1A) and (1D), a member of a relevant group of bodies corporate will not commit an offence if the auditor of the member of the group gives APRA a written report about the matter and, in the case of significant breaches, this report is given within 10 business days after the member becomes aware of the breach.  This amendment is designed to reduce the regulatory burden on entities by eliminating the requirement for some breaches to be reported twice, by bodies corporate and their actuaries.

Consequential Amendments

1.29                Items 164 to 166 make consequential amendments to section 62A of the Banking Act to reflect the new numbering of the subsections.  Item 165 inserts reference to ‘report’ under subsection 62A(3).  This clarifies that a report submitted under section 62A must comply with the confidentiality requirements in subsection 62A(3).

Insurance Act 1973 (Insurance Act) (Items 177-179, 185, 186, 187)

Amendments relating to general insurers

1.30                Item 178 repeals section 35A.  and item 179 inserts new section 38AA into the Insurance Act which introduces a significance test for the reporting of breaches by a general insurer.  The significance test, which is contained in new subsection 38AA(5), takes into consideration a number of factors to be used when judging if a breach is significant or not.  Significant breaches must be reported as soon as practicable and in any event within 10 business days. 

1.31                Item 177 provides a definition of business day in the Insurance Act as significant breaches must be reported within 10 business days.

1.32                Item 179 inserts an obligation on a general insurer to notify breaches involving the insurers’ financial obligations to its policy holders or its minimum capital requirements in writing to APRA immediately.  Breaches of this kind are often the most severe breaches and require APRA’s immediate attention.  These circumstances are always deemed to be significant and must be notified to APRA immediately.

1.33                Item 179 also streamlines the breach reporting process by removing the need for dual reporting of the same breach by the general insurer and the general insurer’s auditor or actuary.  Under new subsections 38AA(3) and (7), a general insurer, an authorised Non-operating Holding Company (NOHC) or a subsidiary of a general insurer or authorised NOHC, will not commit an offence if the auditor or actuary of the general insurer gives APRA a written report about the matter and, in the case of significant breaches, this report is given within 10 business days after the member becomes aware of the breach. 

1.34                Item 186 amends subsection 49A(2) to provide that breaches are required to be notified immediately under this section.  Breaches of this kind are often the most severe breaches and require APRA’s immediate attention.  These circumstances are always deemed to be significant and must be reported immediately.

1.35                Item 187 inserts new subsections (5) to (11) into section 49A of the Insurance Act, which introduces a significance test for the reporting of breaches.  The significance test, which is contained in new subsection 49A(7), takes into consideration a number of factors to be used when judging if a breach is significant or not.  Significant breaches must be reported as soon as practicable and in any event within 10 business days. 

1.36                Item 187 also streamlines the breach reporting process by ensuring that information is not required to be given twice.  This item inserts new subsection 49A(10) which provides that, if the auditor or actuary is informed by a director or senior manager that the breach has been reported to APRA, then the auditor or actuary does not have to report the same breach. 

1.37                Offence provisions are introduced in subsections 49A(8), (9) and (11).  Subsections (8) and (9) make it an offence to contravene the new subsection (6), and these provisions mirror the offences under subsections 49A(3) and (4).  The offence under subsection (8) carries a maximum penalty of 100 penalty units or 6 months imprisonment, or both.  Subsection (9) makes it a strict liability offence to contravene the new subsection (6), which is punishable by 60 penalty units.  This offence is one of strict liability because it is a basic, objective requirement to the performance of APRA’s prudential supervision functions.  Consistent with section 6.1 of the Criminal Code, it does not require proof of a mental element.  Lastly, it is an offence under subsection (11) to state falsely that amatter has been brought to the attention of APRA when it has not.  This offence carries a maximum penalty of 12 months imprisonment. 

Consequential amendments

1.38                Item 185 makes consequential amendments to subsection 49A(2) of the Insurance Act.  It repeals paragraphs 49A(2)(b) and (c), as these types of breaches will now be included in the new subsections in item 187 .

Life Act (Items 135, 208, 209, 215, 216, 220, 235)

1.39                Item 208 amends subsection 88(2) and item 215 amends subsection 98(2) of the Life Act so that any breaches under these sections are reported to APRA immediately.  Breaches of this kind are often the most severe breaches and require APRA’s immediate attention.  These circumstances are always deemed to be significant and must be reported immediately.

1.40                Item 209 amends section 88 and item 216 amends section 98 of the Life Act to streamline the breach reporting process so that information is not required to be reported twice.  Under new subsection 88(2A) and subsection 98(2A), if the auditor or actuary is informed by a director or senior manager that the breach has been reported to APRA, then the auditor or actuary does not have to report the same breach. 

1.41                Item 220 inserts new section 132A into the Life Act which creates an obligation on life companies to report significant breaches.  Under the other prudential Acts, obligations to report breaches rest with the bodies corporate of general insurers and Authorised Deposit-taking Institutions (ADIs) as well as with Registrable Superannuation Entity (RSE) licensees of superannuation funds.  At present, there is a gap in the Life Act in that there are no reporting obligations on life insurers.  Item 220 addresses this gap.  The reference to ‘this Act’ in paragraph 132A(1)(a) includes a reference to the prudential standards. 

1.42                Under new section 132A of the Life Act, life companies will be required to report any breaches under subsection 132A(1) to APRA immediately.  Breaches relating to minimum capital requirements or that impact upon the life company’s financial obligations or its policy holders are often the most severe breaches and require APRA’s immediate attention.  These circumstances are always deemed to be significant and must be reported immediately.

1.43                Item 220 also inserts new subsection 132A(3) into the Life Act to streamline the breach reporting process by ensuring that information is not reported twice.  Under this new subsection, a life company will not commit an offence if they do not to report the breach to APRA under 132A(1) if before becoming aware of the breach, the auditor or appointed actuary of the life company notifies APRA of the breach in writing.

1.44                Item 220 introduces a significance test for the reporting of breaches under new subsection 132A(5).  The significance test takes into consideration a number of factors to be used when judging if a breach is significant or not.  Significant breaches must be reported as soon as practicable and in any event within 10 business days. 

1.45                Item 135 inserts a definition of senior manager in the Schedule, as items 209 and 216 make reference to a senior manager of a life company.  This item commences on Royal Assent. 

1.46                Item 235 inserts a definition of business day into the Schedule to the Life Act as significant breaches must be reported within 10 business days.  Business day means a day that is not a Saturday, a Sunday or a public holiday or bank holiday in the place concerned. 

SIS Act (Items 240-243)

1.47                Item 240 amends subsection 29JA(1) so that the timeframe for reporting of breaches is 10 business days.  This will bring the timeframe for reporting breaches under the SIS Act into line with the other prudential Acts. 

1.48                Item 240 inserts a reference to ‘significant’ in subsection 29JA(1) to reflect the change in breach reporting requirements under the prudential Acts so that only significant breaches need to be reported to APRA.  This item also inserts new subsection (1A) into section 29JA of the SIS Act which introduces a significance test for the reporting of breaches.  The significance test takes into consideration a number of factors to be used when judging if a breach is significant or not.  Significance breaches must be reported as soon as practicable and in any event within 10 business days.

1.49                Item 241 amends subsection 106(1) in line with the new harmonised breach reporting framework introduced by this Bill, so that a trustee of a superannuation entity must immediately notify APRA in writing of a significant adverse event covered under section 106 of the SIS Act.  Item 243 amends subsection 130(2) of the SIS Act so that a person to whom section 130 applies must immediately inform APRA in writing about the matter.  Breaches of this kind are often the most severe breaches and require APRA’s immediate attention.  These circumstances are always deemed to be significant and must be reported immediately.

1.50                Item 242 amends subsection 129(3) so that a person to whom section 129 applies must immediately tell APRA in writing about the matter.  Breaches of this kind are often the most severe breaches which require APRA’s immediate attention.  These circumstances are always deemed to be significant and must be reported immediately.

Corporations Act (Items 167 -172)

1.51                Item 171 makes a number of amendments to facilitate a streamlined process for breach reporting under section 912D of the Corporations Act and the prudential Acts.

1.52                Item 171 increases the timeframe in which breach reports under section 912D must be submitted from five to 10 business days.  There is currently a wide range of reporting timeframes under the prudential Acts and the Corporations Act.  The existence of a range of time periods creates additional costs in complying with different regulatory requirements.  Provision of a consistent 10 day breach reporting timeframe across all the prudential Acts and the Corporations Act is designed to reduce the regulatory burden when reporting breaches.

1.53                Item 171 also establishes an optional mechanism for entities regulated by both APRA and ASIC to report significant breaches through a single breach report submitted to APRA.  Under the current breach reporting regime, if a dual-regulated entity identifies a breach which is a breach of both a prudential Act provision and a Corporations Act provision, they must submit separate reports to APRA and ASIC in respect of the same breach.  To facilitate the single breach reporting mechanism, item 31 provides for APRA to be appointed as an agent of ASIC for the purposes of receiving notices under section 912D by a dual-regulated entity for breaches of:

·          APRA’s legislation; and

·          both APRA’s and ASIC’s legislation. 

1.54                This arrangement will not cover breaches of ASIC’s legislation only.  Under the terms of the agreement, it will be optional for a dual regulated entity to utilise the single breach report arrangement.  Entities would continue to have the option of lodging separate breach reports to APRA and ASIC.  It is envisaged that APRA and ASIC will provide guidance as to how this agreement will operate and that entities will be able to engage with APRA and ASIC in the development of this guidance material. 

1.55                Item 171 also amends section 912D in relation to the reporting obligations of entities where a breach has already been reported by the auditor or actuary of the entity.  If the auditor or actuary gives a written breach report to APRA and the report is given within 10 business days after the licensee becomes aware of the breach, the entity will not be required to submit a breach report on that incident.

1.56                Items 167 to 170 and item 172 facilitate a restructuring of section 912D to accommodate the new streamlined breach reporting arrangements.

Protection for whistleblowers

1.57                These amendments introduce a consistent framework of protection for whistleblowers across the prudential Acts.  These provisions commence on Royal Assent. 

1.58                This framework is designed to encourage employees, officers and subcontractors engaged by a company to report to APRA or prescribed persons within the entity information relating to misconduct, or an improper state of affairs or circumstances, if they believe the information would assist APRA or the prescribed persons to carry out their functions in relation to the entity.  Under the Banking and Insurance Acts, these disclosures can also be made to prescribed persons in a ‘related body corporate’.  The provisions will prohibit employers from victimising employees, officers or subcontractors when they make such disclosures in good faith. 

1.59                Further, the provisions will provide whistleblowers, and individuals who provide information to APRA under a requirement of the Acts or FSCODA with ‘use immunity’ in relation to the information provided. 

Banking Act (Items 35, 44, 50)

Protection for whistleblowers

1.60                Item 44 inserts a new Divisions 1 and 2 of Part IVA (Protections in relation to information).

1.61                New section 52A defines the disclosures that will qualify for whistleblower protection under Division 1.  Disclosures can be made to APRA, or to prescribed persons within the body corporate or a related body corporate.  These persons include the auditor or audit team of the body corporate or a related body corporate, a director or senior manager of the body corporate or a related body corporate, or a person authorised by the body corporate to receive such disclosures (new paragraph 52A(2)(a)).

1.62                The definition of ‘related body corporate’ differs from the definition of ‘relevant group of bodies corporate’ under the Banking Act.  It includes the ADI, the authorised NOHC of an ADI, and a subsidiary of the ADI or the authorised NOHC (new paragraphs 52A(3)(i) to (iii)).  This extends whistleblower protection to reflect corporate structures in the banking sector. 

1.63                A disclosure of information to APRA or the prescribed persons will be protected if the conditions outlined in new section 52A are met.  This provision applies to an officer or employee of the regulated body corporate, a contractor of the regulated body corporate or an employee of the contractor (new subsection 52A(1)).  The term ‘officer’ has the same meaning as in the Corporations Act (subsection 52A(4)).  This ensures consistency between the Corporations Act and the prudential Acts.

1.64                The disclosure will be subject to the protections in sections 52B to 52F if the information relates to misconduct or an improper state of affairs or circumstances, and person believes the information may assist APRA or the persons referred to under paragraph 52A(2)(a) to perform their functions or duties in relation to the body corporate (new paragraphs 52A(2)(c)), and discloses the information in good faith (paragraph 52A(2)(d)).  The protection extends to disclosures regarding suspected breaches of the Banking Act and FSCODA. 

1.65                If a person makes a vexatious or malicious disclosure, it would not be made in good faith and so would not be protected (see also paragraph 1.73).  Moreover, a person who knowingly provides false or misleading information to APRA may be guilty of an offence, pursuant to Division 137 of the Criminal Code.

1.66                Before disclosing the information, the person must provide their name and the disclosure therefore cannot be made anonymously (new paragraph 52A(2)(b)).

1.67                Information disclosed under new section 52A attracts the application of confidentiality requirements in proposed section 52E.  It should also be noted that any protected information provided to APRA will attract the application of the secrecy requirements contained in existing section 56 of the Australian Prudential Regulation Authority Act 1998 (APRA Act)

1.68                A whistleblower who makes a disclosure in good faith will be protected against civil and criminal liability for making the disclosure, enforcement of contractual remedies, liability for defamation, and termination of contract on the basis of the disclosure (new section 52B).  Where detriment has occurred, it would be open to a Court to order a suitable remedy, including a remedy under new subsection 52B(3). 

1.69                New subsections 52C(1) and (2) prohibit any actual or threatened detriment being levelled against a person because of their disclosure.  The types of detriment contemplated would include the termination of employment, a reduction in a person’s terms and conditions of employment, demotion, or unfair or unequal treatment in the workplace.  A person commits an offence if they ‘engage in conduct’, which is defined as to do an act; or omit to do an act. 

1.70                The offences under new subsections 52C(1) and (2) carry a maximum penalty of 25 penalty units or 6 months imprisonment, or both, which is consistent with the penalty scale under equivalent provisions of the Corporations Act. 

1.71                Where damage is suffered by a whistleblower as a result of a contravention of subsections 52C(1) and (2), compensation may be available under new section 52D.  A person may be also liable to pay compensation if they contravene subsections 52(1) or (2) because of the application of Part 2.4 of the Criminal Code, which extends the offence to attempt, incitement or conspiracy to victimise a whistleblower (new paragraph 52D(a)(ii)). 

1.72                Importantly, the whistleblower could be protected from liability for past wrongdoings, as new subsection 52B(4) provides that the information disclosed cannot be used in evidence against the person in a criminal proceedings or proceedings for the imposition of a penalty.  This encourages whistleblowers to make full and frank disclosures, so the company or APRA can obtain the relevant information to perform their functions and avoid prudential risks. 

1.73                The protection provided under Division 1 of Part IVA relies on the disclosure being made in good faith.  As such the ‘good faith’ requirement also sets the threshold for obtaining ‘use immunity’ under subsection 52B(4).  This is considered appropriate given the need to discourage malicious or unfounded disclosures being made and ensure the integrity of these provisions.  Where a person has a malicious or secondary purpose in making a disclosure, or makes a vexatious disclosure, it is considered that the good faith requirement would not be met.

1.74                It should be noted that section 16C provides that auditors may provide information , or produce books, accounts or documents to APRA if the person believes that the information will assist APRA in performing its functions.

Self incrimination and use immunity

1.75                Item 44 inserts a new Division 2 of Part IVA, which provides a new self incrimination and use immunity provision.  Subsection 52F(1) provides that the privilege against self incrimination is not available in relation to providing information to APRA.  This applies to provisions of the Banking Act or FSCODA that require a person to provide information to APRA.  It is considered that APRA’s interest in receiving information that would assist to maintain the integrity of the prudential regulation framework outweighs, in this context, the privilege against self incrimination.  However if an individual provides information to APRA in compliance with a requirement of this Act or FSCODA, the individual would enjoy ‘use immunity’ in relation to the information provided (subsection 52F(2)). 

1.76                It should be noted that current subsection 14A(3) to (4A) provide that individuals cannot claim the privilege against self incrimination when required to give information to a statutory manager, but the individual enjoys ‘use immunity’ in relation to the information provided.  These subsections prevail over the general requirements and protections under new section 52F. 

Consequential Amendments

1.77                Items 35 and 50 are consequential amendments to item 44 Item 35 omits subsections including subsections 16B(6) and (7).  Item 50 omits subsections 62(3) and (4).  Information reported to APRA under sections 16 and 62 cannot be used in evidence against the person in criminal proceedings or proceedings for the imposition of a penalty.  As these protections are provided by item 44 under section 52F, these subsections are no longer necessary.

Insurance Act (Item 62)

Protection for whistleblowers

1.78                Item 62 inserts new Subdivisions A and B of Division 4 (Protections in relation to information).

1.79                New section 38A defines the disclosures that will qualify for whistleblower protection under Subdivision A.  Disclosures can be made to APRA, or to prescribed persons within the body corporate or a related body corporate.  These persons include the body corporate or a related body corporate’s actuary, auditor or audit team, a director or senior manager of the body corporate or a related body corporate, or a person authorised by the body corporate to receive such disclosures (new paragraph 38A(2)(a)). 

1.80                A ‘related body corporate’ includes the general insurer, the authorised NOHC of the general insurer, or a subsidiary of the general insurer or the authorised NOHC (new paragraph 38A(3)).  This definition extends whistleblower protection to reflect corporate structures in the insurance sector. 

1.81                A disclosure of information to APRA or the prescribed persons will be protected if the conditions under new section 38A are met.  This provision applies to an officer or employee of a general insurer or a related body corporate, a contractor of a general insurer, and the employee of the contractor (new subsection 38A(1)).  The term ‘officer’ has the same meaning as under Corporations Act (new subsection 38A(4)).  This ensures consistency between the Corporations Act and the prudential Acts. 

1.82                The disclosure will be subject to the protections under sections 38B to 38F if the information relates to misconduct or an improper state of affairs and circumstances, and the whistleblower believes the information may assist APRA or a prescribed person to perform their functions or duties in relation to the body corporate or a related body corporate (new paragraph 38A(2)(c)), and discloses the information in good faith (new paragraph 38A(2)(d)).  The protection extends to suspected breaches of the Insurance Act and FSCODA. 

1.83                If a person makes a vexatious or malicious disclosure, it would not be made in good faith and so would not be protected (see also paragraph 1.91).  Furthermore, a person who knowingly provides false or misleading information to APRA may be guilty of an offence, pursuant to Division 137 of the Criminal Code.

1.84                Before disclosing the information, the person must provide their name and the disclosure cannot, therefore, be made anonymously (new paragraph 38A(2)(b)).

1.85                Information disclosed under new section 38A attracts the application of confidentiality requirements in proposed section 38E.  It should also be noted that any protected information provided to APRA will attract the application of the secrecy requirements contained in existing section 56 of the APRA Act.

1.86                A whistleblower who makes a disclosure in good faith will be protected against civil and criminal liability for making the disclosure, enforcement of contractual remedies, liability for defamation, and termination of contract on the basis of the disclosure (new section 38B).  Where detriment has occurred, it would be open to a Court to order a suitable remedy, including a remedy under new subsection 38B(3). 

1.87                New subsections 38C(1) and (2) prohibit any actual or threatened detriment being levelled against a person because of their disclosure.  The types of detriment contemplated include the termination of employment, a reduction in a person’s terms and conditions of employment, demotion, or unfair or unequal treatment in the workplace.  A person commits an offence if they ‘engage in conduct’, which is defined as to do an act, or omit to do an act

1.88                The offences under new subsections 38C(1) and (2) carry a penalty of up to 25 penalty units or 6 months imprisonment, or both, which is consistent with the penalty scale under equivalent provisions of the Corporations Act.   

1.89                Where damage is suffered by a whistleblower as a result of a contravention of subsections 38C(1) or (2), compensation may be available under new section 38D.  A person may be also liable to pay compensation if they contravene subsections 38C(1) or (2) because of the application of Part 2.4 of the Criminal Code, which extends the offence to attempt, incitement or conspiracy to victimise a whistleblower (new paragraph 38D(a)(ii)).

1.90                Importantly, the whistleblower could be protected from liability for past wrongdoings, as new subsection 38B(4) provides that the information disclosed cannot be used in evidence against the person in a criminal proceedings or proceedings for the imposition of a penalty (see paragraph 1.85).  This encourages persons to make full and frank disclosures, so the company or APRA can obtain the necessary information to perform their functions and avoid prudential risks. 

1.91                The application of Subdivision A of Division 4 relies on the disclosure being made in good faith.  As such the ‘good faith’ requirement also sets the threshold for obtaining ‘use immunity’ under new subsection 38B(4).  This is considered appropriate given the need to discourage malicious or unfounded disclosures being made and ensure the integrity of these provisions.  Where a person has a malicious or secondary purpose in making a disclosure, or makes vexatious disclosures, it is considered that the good faith requirement would not be met. 

Self incrimination and use immunity

1.92                Subdivision B of Division 4 provides a new self incrimination and use immunity provision.  Subsection 38F(1) provides that self incrimination is not available in relation to providing information to APRA.  This applies to provisions of the Insurance Act or FSCODA that require a person to provide information to APRA.  It is considered that APRA’s interest in receiving information that would assist to maintain the integrity of the prudential regulation framework outweighs, in this context, the privilege against self incrimination.  However if an individual provides information to APRA in compliance with a requirement of this Act or FSCODA, the individual will enjoy ‘use immunity’ in relation to the information provided (new subsection 38F(2)).

Life Insurance Act (Items 108, 109, 114, 115)

Protection for whistleblowers

1.93                 Item 115 inserts new Subdivisions A and B of Division 5 (Protections in relation to information). 

1.94                New section 156A defines the disclosures that will qualify for whistleblower protection under Subdivision A.  Disclosures can be made to APRA or a prescribed person under new paragraph 156A(2)(a).  These persons include an actuary, auditor or audit team of the life company, a director or senior manager of the life company, or a person authorised by the life company to receive such disclosures. 

1.95                A disclosure of information to APRA or to prescribed persons will be protected if the conditions outlined in new section 156A are met.  This provision applies to an officer or employee of a life company, a contractor of the life company, and an employee of the contractor (subsection 156A(1)).  The term ‘officer’ has the same meaning as in the Corporations Act (subsection 156A(4)).  This ensures consistency between the Corporations Act and the prudential Acts. 

1.96                The disclosure will be subject to the protections in sections 156B to 156F if the information relates to misconduct or an improper state of affairs and circumstances in the life company, and the person believes the information may assist APRA or the prescribed persons perform their functions or duties in relation to the life company (new paragraph 156A(2)(c)), and discloses the information in good faith.  The protection extends to disclosures regarding suspected breaches of the Life Act and FSCODA. 

1.97                If a person makes a vexatious or malicious disclosure, it would not be made in good faith and so would not be protected (see also paragraph 1.105) A person who knowingly provides false or misleading information to APRA may be guilty of an offence, pursuant to Division 137 of the Criminal Code. 

1.98                Before disclosing the information, the person must provide their name and the disclosure therefore cannot be made anonymously (new paragraph 156A(2)(b)).

1.99                Information disclosed under new section 156A attracts the application of confidentiality requirements in new section 156E.  It should be noted that any protected information provided to APRA will attract the application of the secrecy requirements contained in existing section 56 of the APRA Act.

1.100            A whistleblower who makes a disclosure in good faith is protected against civil or criminal liability for making the disclosure, enforcement of contractual remedies, liability for defamation, and termination of contract on the basis of the disclosure (new section 156B).  Where detriment has occurred, it would be open for a Court to order a suitable remedy, including a remedy under new subsection 156B(3). 

1.101            New subsections 156C(1) and (2) prohibit any actual or threatened detriment being levelled against a person because of their disclosure.  The types of detriment contemplated include the termination of employment, a reduction in a person’s terms and conditions of employment, demotion, or unfair or unequal treatment in the workplace.  A person commits an offence if they ‘engage in conduct’, which is defined as to do an act, or omit to do an act. 

1.102            The offences under new subsections 156C(1) and (2) carry a penalty of up to 25 penalty units or 6 months imprisonment, or both, which is consistent with the penalty scale under equivalent provisions of the Corporations Act. 

1.103            Where damage is suffered by the whistleblower as a result of a contravention of subsections 156C(1) or (2), compensation may be available under new section 156D.  A person may also be liable to pay compensation if they contravene subsections 156C(1) or (2) because of the application of Part 2.4 of the Criminal Code, which extends the offence to attempt, incitement or conspiracy to victimise the whistleblower (new paragraph 156D(a)(ii)). 

1.104            Importantly, the whistleblower could be protected from liability for past wrongdoings, as new subsection 156B(4) provides that the information disclosed cannot be used in evidence against the person in a criminal proceedings or proceedings for the imposition of a penalty.  This encourages persons to make full and frank disclosures, so the company or APRA can obtain the necessary information to perform their functions and respond to prudential risks. 

1.105            The application of Subdivision A relies on the disclosure being made in good faith.  As such, the ‘good faith’ requirement also sets the threshold for obtaining use immunity.  This is considered appropriate given the need to discourage malicious or unfounded disclosures being made and ensure the integrity of these provisions .  Where a person has a malicious or secondary purpose in making a disclosure, it is considered that the good faith requirement would not be met.

Self incrimination and use immunity

1.106            Item 114 repeals section 148 of Life Insurance Act.  The provision that a person cannot refuse to provide information under the Life Act on the basis of the privilege against self incrimination, and the subsequent ‘use immunity’ in relation to the information, is provided in new section 156F ( item 115 ). 

1.107            Item 115 inserts new Subdivision B of Division 5 (Self incrimination).  New subsection 156F(1) provides that self incrimination is not available in relation to providing information to APRA under this Act.  This applies to all provisions under the Life Act and FSCODA that require a person to provide information to APRA.  It is considered that the APRA’s interest in receiving information that would assist to maintain the integrity of the prudential regulation framework outweighs, in this context, the privilege against self incrimination.  However if an individual provides information to APRA under a requirement of this Act or FSCODA, the individual will enjoy ‘use immunity’ in relation to the information provided (new subsection 156F(2)). 

1.108            It should be noted that current section 247 also provides ‘use immunity’ for persons who are required to disclose information or produce records under Life Act, which protects a broader range of disclosures than the protection for ‘information’ under new section 156F. 

Related Amendments

1.109            Items 108 and 109 insert sections 88A and 99A, to provide a consistent framework across the prudential Acts enabling auditors and actuaries to provide relevant information to APRA, which would assist in maintaining the integrity of the prudential regulation framework. 

1.110            Subsections 88A(1) and 98A(1) provide that auditors and actuaries of a life company may provide information to APRA, if the auditor or actuary considers that doing so would assist APRA to perform its functions under the Life Act or FSCODA.  Subsections 88A(2) and 98A(2) provide that auditor and actuaries who provide information in good faith is protected from civil liability for giving the information.  It should be noted that the auditor and actuary would also enjoy use immunity in relation to the information, pursuant to the new section 156F. 

SIS Act (Items 145, 146, 148, 149, 154)

Protection for whistleblowers

1.111             Item 155 inserts new Divisions 1 and 2 of Part 29A (Protections in relation to information). 

1.112            New section 336A defines the disclosures that will qualify for whistleblower protection under Division 1.  Disclosures can be made to the Regulator or to persons prescribed under paragraph 336A(2)(a).  These persons are the auditor or actuary of the superannuation entity, the trustee or trustees of the superannuation entity, or a person authorised by the trustees to receive such disclosures. 

1.113            A disclosure of information to the Regulator or the prescribed persons will be protected if the conditions under new section 336A are met.  This provision applies to an individual trustee, an officer or employee of a body corporate trustee, custodian or investment manager, a contractor or an employee of the contractor (new subsection 336A(1)).  The term ‘officer’ has the same meaning as under the Corporations Act (new subsection 336A(3)).  This ensures consistency between the Corporations Act and the prudential Acts. 

1.114            The disclosure will be subject to the protections under sections 336B to 336F if the information concerns misconduct or an improper state of affairs or circumstances in relation to the entity or trustees, and the person believes that the information may assist the Regulator or the prescribed persons perform their functions in relation to the superannuation entity or the trustee (new paragraph 336A(2)(c)), and makes the disclosure in good faith (new paragraph 336A(2)(d)).  The protection extends to disclosures about suspected breaches of the SIS Act, the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) or FSCODA. 

1.115            If a person makes a vexatious disclosure, it would not be made in good faith and so would not be protected (see also paragraph 1.222).  Furthermore, a person who knowingly provides false or misleading information to the Regulator may be guilty of an offence, pursuant to Division 137 of the Criminal Code.

1.116            Before disclosing the information, the person must provide their name and the disclosure cannot therefore be made anonymously (proposed paragraph 336A(2)(b)).

1.117            Information disclosed under new section 336A attracts the confidentiality requirements in new section 336E.  It should also be noted that any protected information provided to APRA will attract the application of the secrecy requirements contained in existing section 56 of the APRA Act.

1.118            A whistleblower who makes a disclosure in good faith is protected against civil and criminal liability for making the disclosure, enforcement of contractual remedies, liability for defamation, and termination of contract on the basis of the disclosure (new section 336B).  Where detriment has occurred, it would be open for a Court to order a suitable remedy, including a remedy under the new subsection 336B(3).

1.119            New subsections 336C(1) and (2) prohibit any actual or threatened detriment being levelled against a person because of their disclosure.  The type of detriment contemplated include the termination of employment, a reduction in a person’s terms and conditions of employment, demotion, or unfair or unequal treatment in the workplace.  A person commits an offence under this section if they ‘engage in conduct’, which is defined as to do an act, or omit to do an act. 

1.120            The offences under subsection 336C(1) and (2) carry a penalty of up to 25 penalty units or 6 months imprisonment, or both.  Also, where damage is suffered by the whistleblower as a result of the contravention, compensation may be available under proposed section 336D.  A person may also be liable to pay compensation if they contravene subsections 336C(1) or (2) because of the application of Part 2.4 of the Criminal Code, which extends the offence to attempt, incitement or conspiracy to victimise the whistleblower (new paragraph 336D(a)(ii)).

1.121            Importantly, a whistleblower could be protected from liability for past wrongdoings, as new subsection 336B(4) provides that the information disclosed cannot be used in evidence against the individual in a criminal proceedings or proceedings for the imposition of a penalty.  This encourages whistleblowers to make full and frank disclosures, so the trustees, the superannuation entity or the Regulator can obtain the necessary information to perform its functions and avoid prudential risks. 

1.122            The application of Part 29A relies on the disclosure being made in good faith.  As such the ‘good faith’ requirement also sets the threshold for obtaining ‘use immunity’ under subsection 336B(4).  This is considered appropriate given the need to discourage malicious or unfounded disclosures being made and ensure the integrity of these provisions of the Bill.  Where a person has a malicious or secondary purpose in making a disclosure, it is considered that the good faith requirement would not be met.

1.123            It should be noted that existing section 130A provides that an actuary or auditor of a superannuation entity may provide information to the Regulator, if the person believes that the information may assist the Regulator in performing its functions.

Self incrimination and use immunity

1.124            Item 155 inserts Division 2 of Part 29A, which provides a self incrimination and use immunity provision.  New subsection 336F(1) provides that self incrimination is not available in relation to a requirement to provide information to APRA under the SIS Act or FSCODA.  It is considered that APRA’s interest in receiving information that would assist to maintain the integrity of the prudential regulation framework outweighs, in this context, the privilege against self incrimination.  However if an individual provides information to APRA in compliance with a requirement under this Act or FSCODA, the individual will enjoy ‘use immunity’ in relation to the information provided (new subsection 336F(2)). 

1.125            New subsection 336F(3) provides that section 336F does not apply to Part 25 of the SIS Act, as Part 25 contains a self contained regime setting out APRA’s monitoring and investigation powers.  Current section 287 under Part 25 provides limited use immunity for information provided under a requirement of Part 25.

1.126            It should be noted that Part 16 requires auditors and actuaries to provide information to the Regulator, rather than to APRA.  New section 336F applies to information provided to the Regulator under Part 16. 

Consequential Amendments

1.127            Items 144, 145, 147 and 148 are consequential amendments to item 155 , which inserts new section 336F providing ‘use immunity’ for information disclosed to APRA under the SIS Act or FSCODA.  As a result, existing sections providing use immunity for various information disclosed under the SIS Act is no longer necessary. 

1.128            Item 144 repeals section 29JE, which provides ‘use immunity’ for information provided under sections 29CA, 29FA or 29HD. 

1.129            Item 145 repeals 29QB, which provides ‘use immunity’ for information provided under sections 29LA or 29PE. 

1.130            Item 148 repeals subsection 130A(2), which provides ‘use immunity’ for auditors or actuaries who provide information under subsection 130A(1).

1.131            Item 147 omits the heading (1) under section 130A.  As item 148 repeals subsection 130A(2), it is no longer necessary to have the heading (1).

1.132            Item 149 repeals section 130B, which provides use immunity for auditors and actuaries who provide information under sections 129 and 130.  The equivalent use immunity protection provided under these sections is now available under the new section 336F. 

Ensuring Flexibility through exemption powers and clarifying review and scrutiny of those powers

1.133            Under section 11 of the Banking Act and section 7 of the Insurance Act, APRA has the ability to exempt a person or class of person from the respective Acts, or from most sections of these Acts.  APRA has more limited powers to exempt persons or classes of persons from specific sections of the Life Act (section 125A and 125B) and from the SIS Act (Part 29).

1.134            These amendments provide APRA with the power to exempt a life insurer (or friendly society) from provisions of the Life Act.  It also expands APRA’s exemption powers under the SIS Act.  However, it is not appropriate that APRA have the ability to make exemptions to every particular section of the prudential Acts.  There are provisions of the Banking and Insurance Acts that are considered to be fundamental and should be complied with by all entities.  Hence, APRA’s powers in respect of exempting persons from particular sections will be reduced for the Banking and Insurance Act.

1.135            Amendments are also made to clarify in the prudential Acts that where APRA exempts a particular person, the decision would not be alegislative instrument for the purposes of the Legislative Instruments Act 2003 (LIA).

1.136            These amendments to the prudential Acts will commence from the date of Royal Assent.

Banking Act (Items 10-14)

1.137            Item 11 repeals subsections 11(1) and (2) of the Banking Act and replaces them with new subsections 11(1), 11(2) and 11(2A).  In order to harmonises the language across the prudential Acts, amendments are made so that APRA makes determinations rather than orders..  New subsection 11(1) removes APRA’s power to grant exemptions for provisions of the Banking Act that are considered to be fundamental and should be complied with by all entities.  APRA’s exemption powers will apply to:

·          Part II Division 1, Authority to carry on banking business; (other than 11A, 11B and 11C)

·          Part II Division 1AA, Authority to be a NOHC of an ADI (other than 11A, 11B and 11C);

·          Part II Division 1A, Prudential supervision and monitoring of ADIs and authorised NOHCs (other than 11A, 11B and 11C);

·          Section 66, Restriction on use of certain words and expressions;

·          Section 66A, Restriction on use of expressions ADIs;

·          Section 67, Restriction on establishment or maintenance of representative offices of overseas banks; and

·          Section 69, Unclaimed moneys.

1.138            New subsection 11(2) ensures that a determination under this section may apply to a particular person, or to the persons included in a class of persons; specifies the period the determination is in force and may be subject to specified conditions.  Subsection 11(2A) requires that, where the determination applies to a particular person, APRA give the person written notice of the determination.

1.139            Item 13 repeals subsection 11(4), which allows APRA to vary or revoke an order by publishing it in the Gazette, and replaces it with new subsections 11(4), 11(5) and 11(6).  New subsection 11(4) allows APRA to vary or revoke a determination made under Section 11 in writing.  Paragraphs 11(5)(a) and 11(5)(b) clarifies that, where APRA exempts a particular person under Section 11 or the variation is varied or revoked, it is not a legislative instrument for the purposes of section 5 LIA, because it is an administrative decision that applies the law to an entity and not to a class of entities.  It does not create an exemption from the requirements of the LIA.

1.140            Items 12 and 14 make consequential amendments to paragraphs 11(3)(b) and 11AA(5)(c), by omitting references to ‘an order’ and replacing them with references to ‘a determination’.

1.141            Item 10 makes consequential amendments.  It replaces reference to ‘an order in force under section 11’ with reference to ‘a determination in force under section 11’ in paragraphs 7(1)(c), 8(1)(d), 9(6)(c) and 10(3)(c). 

Insurance Act (Items 53 - 55, 65)

1.142            Item 53 repeals subsection 7(1), which gives APRA the ability to exempt a person or class of persons from the Act, or from most sections of the Act, and replaces it with new subsections 7(1).  This new subsection removes APRA’s power to grant exemptions for provisions of the Insurance Act that are considered to be fundamental and should be complied with by all entities.   APRA’s exemption powers will apply to:

·          Part III Division 1, Need to be authorised;

·          Part III Division 2, Authorisation to carry on insurance business;

·          Part III Division 3, Revocation of an authorisation;

·          Part III Division 3A, Transfer and amalgamation of insurance business;

·          Part III Division 4, Authorisation to be a NOHC of a general insurer;

·          Part III Division 5, Directors, senior managers and other representatives of general insurers and authorised NOHCs;

·          Part III Division 6, Other matters;

·          Section 35, Obligation to comply with the prudential standard;

·          Section 39, Requirement for general insurers to have an auditor and actuary;

·          Section 41, Compliance with prudential standards;

·          Part IV Division 3, Actuarial investigation required by APRA;

·          Part IV Division 4, Role of auditor and actuary of a general insurer;

·          Section 49Q, Keeping of accounting records;

·          Section 117, Address for service in Australia;

·          Section 118, Agent in Australia;

·          Section 120, Saving if section 93 ceases to have effect; and

·          Section 121, Service of documents and notices

1.143            Items 54 and 55 repeal subsections 7(2), 7(3) and 7(4), and inserts new subsections 7(2A), 7(3), 7(4) and 7(5).  These two items set out requirements for making, varying or revoking determinations that apply to an individual or a class of persons.  Item 55 also subjects certain determinations to the requirements of section 12 of the LIA instead of section 48 of the Acts Interpretation Act 1901 (AIA).

1.144            Under the LIA, legislative instruments are required to be published on the Federal Register of Legislative Instruments (FRLI), which is a designated public register of information.  Registration on FRLI replaces the requirement under the AIA for instruments to be published in the Gazette.

Determinations that apply to a class of persons are legislative instruments subject to the requirements of LIA (new subsection 7(5)).  Item 55 provides that APRA may make these determinations in writing (new subsection 7(2A)).  This removes the requirement for Gazettal, and consistent with the requirements of the LIA these determinations must be registered on FRLI.  Item 55 also inserts new subsection 7(4), which provides that determinations that apply to an individual are administrative decisions, not legislative instruments, because they apply the law to a person and not to a class of persons.  It does not create an exemption from the requirements of the LIA.  These determinations do not need to be registered on FRLI, however item 54 provides that APRA must give the person a written notice of the determination (new subsection 7(2A)).

1.145            Item 65 makes a consequential amendment to section 49A(2), by omitting reference to APRA’s power to make a determination concerning auditors’ and actuaries’ duty to give further information.  APRA no longer has power to make determinations on this subject. 

Life Act (Items 67, 70, 110, 121, 122, 125)

1.146            Item 110 repeals Division 8 which provides APRA’s power to make exemption orders.  Item 67 inserts new section 7A so that APRA has the ability to exempt a person or class of person specified provisions of the Life Act.  The specified provisions are limited to the following sections:

·          Part 2, Explanation of key concepts;

·          Part 2A, Special provisions relating to life companies that are friendly societies;

·          Part 2B, Special provisions relating to Australian branches of foreign life insurance companies;

·          Part 3, Registration of life companies;

·          Part 4 Division 1, Statutory funds of life companies — General requirements;

·          Part 4 Division 3, Restructure and termination of statutory funds;

·          Part 4 Division 4, Additional requirements for transfer of policies between statutory funds by endorsement;

·          Part 4 Division 5, Allocation of profits and losses and capital payments;

·          Part 4 Division 6, Distribution of retained profits and shareholders’ capital;

·          Section 75, Financial records — Australian and Australian/overseas funds;

·          Section 76, Financial records — overseas funds;

·          Section 78, Treatment of income and outgoings relating to mixed business;

·          Section 79, Treatment of income or outgoings relating to 2 or more categories of business etc;

·          Section 80, Basis of apportionment; and

·          Section 81, Treatment of appreciation and depreciation of assets.

1.147            Item 67 also inserts section 7B which makes it an offence for a person to breach a condition of the determination.  The penalty is 60 penalty units and the offence is a strict liability offence.  Offences that are strict liability are those that contain basic, objective requirements to the operation of the life company and do not require proof of a mental element (section 6.1, Criminal Code). 

1.148            Items 70, 121, 122 and 125 make consequential amendments as a result of repealing sections 125A and 125B and replacing it with section 7A.

SIS Act (Items 138-142, 150-153)

1.149            Item 150 repeals section 327 of the SIS Act which provides a definition of modifiable provision and replaces it with a new definition which expands the previous definition to make the following sections modifiable provisions under section 327 of the SIS Act:

·          Part 2A, Licensing trustees;

·          Part 2B, Registration of entities;

·          Part 3, Operating Standards;

·          Section 36, Trustee to give copy of audit report to APRA;

·          Section 54, Prerequisites to variation of repayment period

·          Subsections 63(7B), (7C) and 7(D), Certain regulated superannuation funds not to accept employer contributions in certain circumstances;

·          Section 113, Audit of accounts and statements (except so far as it applies in relation to SMSFs);

·          A provision of Part 19 (public offer entities: provisions relating to superannuation interests) or Part 24 (Facility to pay benefits to eligible rollover funds); and

·          A provision of any regulations made for the purposes of a provision referred to above.

1.150            Item 151 repeals section 328 which outlines APRA’s powers of exemption with respect to modifiable provisions and inserts a new section 328.  New section 328(1) allows APRA to in writing, exempt from compliance with any or all of the modifiable provisions a particular person or class of persons or a particular group of individual trustees or a class of groups of individual trustees.  Subsections 328(2) and (3) clarify that when the declaration applies to a particular person or group it is not a legislative instrument for the purposes of section 5 LIA.  This is because it is an administrative decision that applies the law to an individual and not to a class of persons.  This provision does not create an exemption from the requirements of the LIA.

1.151            Item 152 repeals section 332 which outline’s APRA’s modification powers with respect to modification provisions and replaces it with a new section 332.  New subsection 332(1) provides that APRA may declare in writing that a modifiable provision is to have effect as if it was changed for a particular person or class or persons or a particular group of trustees or a class of groups of individual trustees.  Subsections 332(2) and (3) clarify that a declaration of a modification provision is not a legislative instrument for the purposes of section 5 LIA where the declaration of a modification provision in respect of a particular person or group, because it is an administrative decision that applies the law to an individual and not to a class of persons.  It does not create an exemption from the requirements of the LIA.

1.152            Item 153 repeals sections 335 and 336 and replaces them with new sections 335 and 336.  New section 335 allows APRA to vary or revoke an exemption or declaration made under Part 29 in writing.  New section 336 requires APRA to notify a person or group of individual trustees of an exemption or modification or variation or exemption of the modification under Part 1 that affects them in writing.   

1.153            Items 138 to 142 make consequential amendments to the definition of reviewable decision as a result of changes to sections 327, 328 and 332.

Discretionary decisions under prudential standards and scrutiny of variations to prudential standards

1.154            Prudential standards assist to improve the clarity and certainty of prudential regulation by providing additional detail on prudential matters set out in the enabling legislation.  Standards complement and reinforce the prudential requirements set out in the Banking Act, Insurance Act and Life Act by specifying how the regulatory framework is intended to operate in practice and APRA’s expectations in overseeing that framework.  Standards enable key minimum requirements to be articulated at a level of detail that would not be appropriate within principles-based, enabling legislation.

1.155            Standards introduce greater flexibility into the prudential framework as they can be more readily adjusted over time to respond to developments in both domestic and international conditions, industry best practice and broader structural changes in the market.  This enhances the effectiveness of prudential regulation by ensuring that regulation remains relevant over time.

1.156            The Banking Act and Life Act currently provide APRA with limited flexibility to exercise discretion under prudential standards.  The amendments to the Banking and Life Acts enhance flexibility by providing APRA with a specific discretionary power, including discretion to approve, impose, adjust or exclude specific prudential requirements in relation to a particular ADI or NOHC, or life company.  These amendments also improve flexibility by providing APRA with a power under the Insurance Act to make prudential standards for an individual entity.  Addressing these gaps in the regulatory framework ensure that entities are not unnecessarily burdened by requirements which are not appropriate to their situations.

1.157            Amendments are also made to clarify that all variations or modifications to prudential standards which affect a class of persons are legislative instruments and are subject to the requirements of the LIA.  These amendments promote transparency and accountability, while ensuring APRA has the flexibility to ensure that prudential standards cater for particular circumstances.

1.158            The amendments to the Banking Act, Insurance Act and Life Act commence from date of Royal Assent.

Banking Act (Items 15-19, 31-34, 38-43, 45-49, 51 )

1.159            Item 15 repeals subsection 11AF(2), and inserts a new subsection 11AF(2) to provide APRA with the discretion to approve, impose, adjust or exclude specific prudential requirements in relation to one or more ADIs or authorised NOHCs.  Section 11AF provides the power for APRA to make prudential standards for ADIs and authorised NOHCs. 

1.160            Item 16 inserts new subsection 11AF(3A) into section 11AF so that a standard to be complied by one or more specified ADIs or authorised NOHCs or instrument varying or revoking such a standard has effect from the day on which the standard, variation or revocation is made (despite section 12 of the LIA) or if the standard, variation or revocation specifies a later day, from the later day. 

1.161            Item 17 repeals subsections 11AF(4) to 11AF(6A).  The old subsections (4) and (5) require APRA to publish in the gazette and daily newspaper, a standard or a variation to the standard or revocation of the standard.  The old subsection 11AF(6) requires APRA to have copies of the current text of the standards available for inspection and purchase.  The old subsection 11AF(6A) allows APRA not to publish or include for inspection commercially sensitive information in a standard or variation of a standard.  These requirements are obsolete, as they relate to legislative instruments which are listed on the FRLI.  Consequently it is no longer necessary to publish the standards or have the text available for inspection or purchase.

1.162            Item 19 inserts new subsections 11AF(7A) and (7B) into section 11AF.  Subsection (7A) provides that APRA’s decisions in relation to a standard, variation or revocation of the standard that applies to one or more specified ADIs or authorised NOHCs, are not legislative instruments within the meaning of section 5 of the LIA.  This is because these are administrative decisions that apply the law to a person not a class of persons, and do not create an exemption from the requirements of the LIA.  These decisions are subject to merits review.  Subsection (7B) provides that all other decisions under section 11AF are legislative instrumens, subject to the requirements of the LIA. 

1.163            Item 18 makes consequential amendments to subsection 11AF(7) by removing references to ‘subsections (4), (4A), (5), (5A) or (6)’ and replacing them with references to ‘subsections (4A) and (5A)’ as subsections (4), (5) and (6) have been repealed. 

1.164            Items 20 and 21 make consequential amendments.  Item 21 repeals paragraph 11CG(1)(c), because APRA does not have the power to make orders, but has power to make determinations.  Item 20 is a drafting amendment.  It places a full stop after paragraph 11CG(1)(b), because paragraph (c) has been repealed. 

1.165            Items 22 and 23 make consequential amendments.  Item 23 repeals paragraph 11CG(2)(c), because APRA does not have the power to make orders, but has power to make determinations.  Item 22 is a drafting amendment.  It places a full stop after paragraph 11CG(2)(b), because paragraph (c) has been repealed.

1.166            Items 24 and 25 make consequential amendments.  Item 25 repeals paragraph 11E(2)(c), because APRA does not have the power to make orders, but has power to make determinations.  Item 24 is a drafting amendment.  It places a full stop after paragraph 11E(2)(b), because paragraph (c) has been repealed.

1.167            Items 26 and 27 make consequential amendments.  Item 27 repeals paragraph 13(3)(c), because APRA does not have the power to make orders, but has power to make determinations.  Item 26 is a drafting amendment.  It places a full stop after paragraph 13(3)(b), because paragraph (c) has been repealed.

1.168            Items 28 and 29 make consequential amendments.  Item 29 repeals paragraph 13A(4)(c), because APRA does not have the power to make orders, but has power to make determinations.  Item 28 is a drafting amendment.  It places a full stop after paragraph 13A(4)(b), because paragraph (c) has been repealed. 

1.169            Items 31 and 32 make consequential amendments.  Item 32 repeals paragraph 14A(2A)(d), because APRA does not have the power to make orders, but has power to make determinations.  Item 31 is a drafting amendment.  It places a full stop after paragraph 14A(2A)(c), because paragraph (d) has been repealed.

1.170            Items 33 and 34 make consequential amendments.  Item 34 repeals paragraph 16B(1A)(c), because APRA does not have the power to make orders, but has power to make determinations.  Item 33 is a drafting amendment.  It places a full stop after paragraph 16B(1A)(b), because paragraph (c) has been repealed.

1.171            Items 38 and 39 make consequential amendments.  Item 39 repeals paragraph 33(4)(c), because APRA does not have the power to make orders, but has power to make determinations.  Item 38 is a drafting amendment.  It places a full stop after subparagraph 33(4)(b)(ii), because paragraph (c) has been repealed.

1.172            Items 40 and 41 make consequential amendments.  Item 41 repeals paragraph 36(1A)(c), because APRA does not have the power to make orders, but has power to make determinations.  Item 40 is a drafting amendment.  It places a full stop after paragraph 36(1A)(b), because paragraph (c) has been repealed.

1.173            Items 42 and 43 make consequential amendments.  Item 43 repeals paragraph 36(2A)(c), because APRA does not have the power to make orders, but has power to make determinations.  Item 42 is a drafting amendment.  It places a full stop after paragraph 36(2A)(b), because paragraph (c) has been repealed.

1.174            Item 43 and 47 repeal paragraphs 41(2)(b), 42(1A)(b), 42(3)(b), 45(1A)(b), 45(4)(b) and 46(2)(b), and subsection 61(4), which contain references to orders made under section 11. 

1.175            Items 45 and 46 make consequential amendments.  Item 46 repeals paragraph 61(3)(c), because APRA does not have the power to make orders, but has power to make determinations.  Item 45 is a drafting amendment.  It places a full stop after subparagraph 61(3)(b)(ii), because paragraph (c) has been repealed. 

1.176            Items 48 and 49 make consequential amendments.  Item 49 repeals paragraph 62(1A)(c), because APRA does not have the power to make orders, but has power to make determinations.  Item 48 is a drafting amendment.  It places a full stop after paragraph 62(1A)(b), because paragraph (c) has been repealed. 

1.177            Item 51 replaces references to an order under section 11 with reference to a determination under section 11. 

Insurance Act (Items 56-60)

1.178            Item 56 amends subsection 32(1), which establishes the categories of entities for which APRA can make prudential standards, to add a new category ‘one or more specified general insurers, authorised NOHCs or subsidiaries of general insurers or authorised NOHCs’.  This addresses a gap in APRA’s prudential standards-making powers.  Item 57 corrects a typographical error in paragraph 32(3D)(b).

1.179            Item 58 repeals paragraph 32(3D)(c) which allows APRA to exercise discretion to approve, impose, adjust or exclude specific prudential requirements in relation to a class of general insurers, authorised NOHCs or subsidiaries of general insurers or authorised NOHCs, because item 57 imposes additional scrutiny on the standards.

1.180            Item 59 gives APRA a new power to make prudential standards that apply to an individual entity which improves flexibility under the Insurance Act.  Item 59 also sets out different requirements applying to prudential standards that apply to a single entity and prudential standards that apply to a class of entities.  This item repeals existing subsections 32(4), (4A) and (5) and replaces them with new subsections 32(4), (4A) and (5).  New subsection 32(4) allows APRA in writing to vary or revoke a standard, except if the standard relates to a prudential standard with an in-house capital adequacy model as outlined in subsection 32(3A), as capital adequacy requirements are fundamental to the prudential framework and should be complied with by all entities.  New subsection 32(4A) ensures that a standard, which relates to one or more specified general insurers, authorised NOHCs or subsidiaries of general insurers, has effect from the day on which the standard, variation or revocation is made (despite section 12 of the LIA) or if the standard, variation or revocation specifies a later day, from the later day. 

1.181            New subsection (5) ensures that APRAs decisions in relation to a standard, variation or revocation of the standard where it applies to one or more specified general insurers, authorised NOHCs or subsidiaries of general insurers, are reviewable under Part VI. 

1.182            New subsection 32(5A) clarifies that a standard, variation or revocation of the standard where it applies to one or more specified general insurers, authorised NOHCs or subsidiaries of general insurers is not a legislative instrument for the purposes of section 5 LIA.  This is because it is an administrative decision that applies the law to an entity and not to a class of entities.  This amendment does not create an exemption from the requirements of the LIA. 

1.183            Item 60 makes a technical amendment to subsection 32(6).  It omits reference to section 48 of AIA and inserts a reference to section 5 of the LIA.  This subjects section 32 to the requirements of the LIA, such as requiring determinations that are legislative instruments to be registered on FRLI. 

Life Act (Items 116 - 120, 126)

1.184            Item 116 repeals the current subsection 230A(4) and inserts a new subsection 230A(4) to allow APRA to make discretionary decisions under its prudential standards, including discretions to approve, impose, adjust or exclude specific prudential requirements in relation to one or more specified life companies. 

1.185            Item 117 inserts new subsection 230A(5A) into section 230A so that a standard, which applies to one or more specified companies has effect from the day on which the standard, variation or revocation is made (despite section 12 of the LIA) or if the standard, variation or revocation specifies a later day, from the later day.

1.186            Item 118 repeals subsections 230A(6), (8), (10) and (11).  The old subsections (6) and (8) require APRA to publish in the gazette and daily newspaper, a standard or a variation to the standard or revocation of the standard.  The old subsection 230A(10) requires APRA to have copies of the current text of the standards available for inspection and purchase.  The old subsection 230A(11) allows APRA not to publish or include for inspection commercially sensitive information in a standard or variation of a standard.  As standards made under section 230A are legislative instruments which are on the FRLI, which is a designated public register, it is no longer necessary to publish the standards on the Gazette, or have the text available for inspection or purchase. 

1.187            Item 120 inserts new subsections 230A(12A) and 230A(12B).  These two items set out requirements for making, varying or revoking determinations that apply to an individual or a class of persons, and subjects determinations that are legislative instruments to the requirements of the LIA. 

1.188            Subsection 230A(12A) provides that a standard, variation or revocation of the standard that applies to one or more specified life companies is not a legislative instrument for the purposes of section 5 LIA.  These are administrative decisions that apply the law to an entity and not to a class of entities.  It does not create an exemption from the requirements of the LIA.  New subsection 230A(12B) provides that all other standards are legislative instruments, and as such are required to be published on FRLI, the public register of information. 

1.189            Item 119 makes consequential amendments to subsection 230A(12) to remove references to subsections 230A(6), (8) and (10) which have been repealed by item 118

1.190            Item 126 provides that a decision made under paragraph 230A(1)(c) is subject to merits review under section 236. 

Simplifying legislative requirements relating to consultation on prudential standards in the Insurance Act (Items 61 and 66)

1.191            Currently, APRA must comply with legislative requirements relating to consultation under both section 33 of the Insurance Act (subsection 70(5) of the Insurance Act with respect to Lloyd’s) and Part 3 of the LIA.  The requirements under each Act are essentially the same.  Sections 33 and 70 were included in the Insurance Act prior to the enactment of the LIA.  However, these requirements are no longer necessary as the LIA provides a universal regime for consultation on all Commonwealth legislative instruments. 

1.192            Items 61 and 66 repeal section 33 and subsection 70(5) of the Insurance Act.  These amendments will not alter the obligation on APRA to consult with industry in respect of prudential standards or Lloyd’s in respect of rules about its designated security trust funds. 

1.193            These amendments commence on the date of Royal Assent.

Flexibility through court enforceable undertakings

1.194            Court enforceable undertakings can provide a flexible enforcement tool which allows entities to work cooperatively with APRA in developing a mutually agreed solution to an enforcement issue.  APRA can enforce these undertakings through the courts in the event that such action becomes necessary.  This power allows the Board and senior management of an entity to maintain full responsibility for decisions made by the entity and to arrive at solutions which suit both the needs of the entity and APRA. 

1.195            Currently, APRA only has the power to accept court enforceable undertakings under the Insurance and SIS Acts.  These amendments provide the power for APRA to accept court enforceable undertakings under the Banking and Life Acts.  It is envisaged that entities will be able to engage in discussion with APRA in relation to how these new powers are used.

1.196            To protect the integrity of the enforceable undertaking as an effective enforcement tool, it is also important that APRA has the power to investigate matters where it suspects that an enforceable undertaking is not being honoured.

1.197            These amendments commence from the date of Royal Assent.

Banking Act (Item 37)

1.198            Item 37 inserts new section 18A, under Division 2C, into the Banking Act to give APRA a power to accept court enforceable undertakings.  APRA may accept a written undertaking given by a person (subsection 18A(1)) and the person may vary or withdraw that undertaking with APRA’s consent (subsection 18A(2)).  Where APRA considers the person has breached the undertaking, APRA may apply to the Federal Court of Australia (subsection 18A(3)).  If the Court is satisfied that the person has breached any terms of the order it may make various orders it considers appropriate including an order directing the person to comply with the undertaking (subsection 18A(4)).

1.199            Note that the current section 61 of the Banking Act allows APRA to investigate prudential matters.  This would include suspected breaches of an enforceable undertaking.

Life Act (Items 111, 113)

1.200            Item 111 inserts new section 133A into the Life Act to give APRA a power to accept court enforceable undertakings.  APRA may accept a written undertaking given by a person (subsection 133A(1)) and the person may vary or withdraw that undertaking with APRA’s consent (subsection 133A(2)).  Where APRA considers the person has breached the undertaking, APRA may apply to the federal Court of Australia (subsection 133A(3)).  If the Court is satisfied that the person has breached any terms of the order it may make various orders it considers appropriate including an order directing the person to comply with the undertaking (subsection 133A(4)).

1.201            Item 113 insert a new paragraph 136(ca) to ensure that where a court enforceable undertaking referred to in section 133A is breached by a person that this may be one of the grounds on which a show cause notice may be given to a life company. 

Clarifying processes concerning the appointment of actuaries and auditors

1.202            These items clarify that the ultimate responsibility for the prudent management of a regulated entity, including ensuring that auditors and actuaries meet, on a continuing basis prescribed standards of fitness and propriety, resides with the Board of the entity.  Under these changes, the Board is responsible for appointing actuaries and actuaries under the prudential Acts.  However, APRA can direct the entity to remove them if APRA considers that the person does not meet the standards under legislation.  These items are modelled on provisions under the Banking Act, and will introduce a consistent framework for appointments under the prudential Acts. 

1.203            These amendments commence on 1 January 2008.

Insurance Act (items 63, 64, 180-184, 188)

Amendments concerning auditors and actuaries

1.204            Item 180 places responsibility on the Board to appoint the auditor or actuary.  This item repeals subsection 39(3) which requires APRA to approve the auditor or actuary, and substitutes a new subsection 39(3) which provides that the Board of the general insurer or authorised NOHC is responsible for these appointments.  The Board of the general insurer or authorised NOHC can appoint a person as the auditor or actuary if it is satisfied that the person meets the eligibility criteria set out in the prudential standards, and the person is not disqualified under section 44 (new paragraph 39(3)). 

1.205            Where the Board of the general insurer or authorised NOHC appoints a person who does not meet the criteria, the entity will breach its obligations under the new subsection 39(3). 

1.206            Item 184 provides that the Board of the regulated entity is required to remove the auditor or actuary if the person does not meet the criteria set out in new subsection 43(2).  The grounds for removal are the failure to perform its functions under the Insurance Act or FSCODA; or failure to meet ‘fit and proper’ standards or eligibility criteria under prudential standards. 

1.207            It should be noted that under new section 39(3), the Board is taken not to have appointed an auditor or actuary if there is a current determination disqualifying the person from holding such an appointment.  In these cases, the obligation to remove the person under new subsection 43(2) does not arise but the Board will not have fulfilled its obligation to appoint the auditor or actuary.  Moreover, under item 188 APRA can direct the Board to remove the auditor or actuary if the person is disqualified under section 44. 

1.208            Item 188 provides that APRA will have power under new section 49R to direct the Board of the general insurer or authorised NOHC to remove the auditor or actuary (new subsections 49R(1) and (2)).  APRA can give this direction if APRA is satisfied the person is disqualified under section 44, or does not meet the ‘fit and proper’ standards (new paragraph 49R(3)). 

1.209            Subsections 49R(3) to (12) set out the process to be followed when APRA is giving a direction under this section.  These subsections provide certainty to the entities and to APRA as to the procedural requirements relating to the issue of a direction (new subsections 49R(3) to (8)).  In particular, new subsection 49R(7) provides that APRA must allow the individual and entity at least seven days to comply with such a direction.  Subsections 49R(9) and (10) also clarify that this section does not limit the entity’s powers to terminate the person’s appointment. 

1.210            If APRA gives a direction on the grounds that the person does not meet the ‘fit and proper’ standards, this direction is subject to merits review under new subsection 49R(11) because it is a direction affecting an individual.  A direction given on the grounds that the person is disqualified under section 44 is not a merits reviewable decision.  Since the original decision to disqualify a person under section 44 is already subject to merits review, it is not appropriate for a direction based on such a disqualification to be also subject to merits review. 

1.211            New subsection 49R(12) clarifies that APRA’s direction under this section is not a legislative instrument for the purposes of section 5 of the LIA, because it is a decision that applies the law to an individual and not to a class of persons.  This provision does not create an exemption from the requirements of the LIA.  

1.212            If an entity does not comply with APRA’s direction within seven days, the entity commits an offence under the new subsection 49R(13), which is punishable by 60 penalty units.  This is a strict liability offence (new subsection 49R(14)) because it is a basic, objective requirement of the prudential framework and must be complied with by all entities.  Under section 6.1 of the Criminal Code, there is no need to prove a fault element.  The defence of mistake of fact is available under section 9.2 of the Criminal Code.  

Consequential Amendments

1.213            Items 63 and 64 are consequential amendments.  Item 64 repeals section 47, which enables an insurance company to seek an exemption from the requirement to have an actuary.  This is more appropriately addressed through the new principles-based regime.  Item 63 repeals the note to subsection 39(1), which notes insurance companies may seek an exemption from the requirement to have an actuary. 

1.214            Item 181 is a consequential amendment to item 180 .  It repeals sections 40 and 42, which provide that APRA can approve, and revoke the approval, of the auditors and actuaries, as item 180 provides that the general insurer has responsibility to ensure the auditors and actuaries are eligible persons. 

1.215            Item 182 is a drafting amendment and is a consequential amendment to item 184 .  This item inserts the numbering (1), because item 184 inserts a new subsection 43(2).

1.216            Item 183 is a consequential amendment to item 180 , and repeals paragraph 43(b) as APRA will no longer have the power to approve the appointment of a general insurer’s auditor or actuary.

Life Insurance Act (Items 189, 206, 207, 211, 212, 214, 226, 228, 233)

Amendments concerning auditors

1.217            Item 206 repeals section 83 of the Life Act and substitutes a new section 83.  The new section 83 clarifies the obligation for the life company to appoint an auditor (new subsection 83(1)), but removes the details prescriptions concerning an auditor’s duties in relation to audit reports.  New subsections 83(2) requires the auditor to perform its functions set out under prudential standards as well as reporting standards made under FSCODA.  This allows APRA to set flexible standards concerning auditors’ functions, and APRA may grant exemptions from prudential standards under new subsection 230A(4) ( item 116 ).  New subsection 83(3) requires the life company to make arrangements necessary to enable the auditor to perform those functions. 

1.218            Item 207 repeals sections 84, 85 and 86, and substitutes new sections 84, 85 and 86. 

1.219            Under the amendments, a life company is not required to nominate a person as the company’s auditor (current section 84), APRA does not approve an auditor (current section 85) and does not have the power to revoke an approval (current section 86).  It should be noted that APRA retains the power to direct a life company to remove its auditor under paragraph 230B(2)(e).

1.220            New section 84 provides the life company has the obligation to ensure that the company’s auditor meets the criteria under prudential standards, and is not declared to be ineligible for appointment under the new section 86 of the Life Act (new paragraphs 84(a) and (b)).  This allows APRA to set flexible standards concerning the auditors’ functions, and APRA may grant exemptions from prudential standards under new subsection 230A(4) ( item 116 ).

1.221            Where the Board of a life company appoints a person as the auditor who does not meet the criteria under subsections 84(1) or (2), the life company will breach its obligations.  This would trigger the company’s obligation to remove the person under new section 85.  It should be noted that life companies retain the obligation under section 87 to notify APRA of a person’s appointment as the company’s auditor. 

1.222            New subsection 85(1) provides that the Board of the life company must remove the auditor if the person does not meet the eligibility criteria in prudential standards, fails to perform its functiosn and duties under Life Act, or there is a declaration under the new section 86 that the person is not eligible.  

1.223            This ensures that the Board, rather than APRA, has primary responsibility for ensuring the company’s auditor has fulfilled its duties and functions.  It should be noted that if a person does not meet the criteria under subsection 85(1), it may trigger APRA’s power to direct a company to remove the person under section 230B. 

1.224            New subsection 85(2) provides a procedure for the life company to remove the auditor, in addition to the company’s internal procedures and triggers for removing the auditor. 

1.225            New section 86 provides that APRA may declare a person ineligible for appointment as the auditor of any life company.  A declaration under this section applies to all life companies registered under the Life Act.  New subsection 86(4) clarifies that such declarations are not legislative instruments within the meaning of section 5 of the LIA, it does not create an exemption from the requirements of the LIA.  These declarations are subject to merits review under section 236 of the Life Act (see item 228 ). 

Amendments concerning actuaries

1.226            Item 211 omits subsections 93(4), (5) and (6), and substitutes new subsection 93(4).  This amendment removes APRA’s power to approve a person’s appointment as the company’s actuary.  Instead, the life company is required to be reasonably satisfied that the actuary meets the eligibility criteria under prudential standards, and there is no declaration under new section 94A that the person is not eligible.  The new provision allows APRA to set flexible standards concerning the eligibility criteria for the actuary, and APRA may grant exemptions from prudential standards under new subsection 230A(4) ( item 116 ).

1.227            The Board retains the obligation under section 95 to notify APRA in writing when it has made an appointment under this section. 

1.228            Item 212 repeals section 94, and inserts a new section 94 which sets out the circumstances under which a life company is required to remove the actuary.  A life company incurs an obligation to terminate the actuary’s appointment if the person does not meet the eligibility criteria, or has failed to perform the actuary’s functions under the Life Act, or is the subject of an ineligibility declaration under new section 94A (new subsection 94(1)).  It should be noted that these circumstances may also trigger APRA’s power to direct the company to remove the person under current paragraphs 230B(2)(f). 

1.229            New subsection 94(2) provides the procedure for a life company to terminate the actuary’s appointment under this section.  This is in addition to the company’s internal procedures and triggers for terminating the actuary’s appointment. 

1.230            Item 212 also inserts new section 94A, which allows APRA to declare that a person is not eligible for appointment as the actuary of a life company.  A declaration under this section applies to all life companies registered under the Life Act.  New subsection 94A(4) clarifies that such declarations are not legislative instruments within the meaning of section 5 of the LIA, it does not create an exemption from the requirements of the LIA.  These declarations are subject to merits review under section 236 of the Life Act (see item 228 ).

1.231            Item 214 repeals section 97 and inserts a new section 97, which contains principles-based provisions on the actuary’s functions.  The new subsection 97(1) requires the actuary to perform its functions as set out in the prudential standards as well as the reporting standards made under FSCODA.  This allows APRA to set flexible standards concerning auditors’ functions, and APRA may grant exemptions from prudential standards under new subsection 230A(4) ( item 116 ). 

1.232            New subsection 97(2) requires the company to make arrangements necessary to enable the actuary to perform its functions.  It is envisaged these arrangements may include giving access to company documents, requiring company employees to answer questions, and allowing the actuary to attend meetings and/or speak at these meetings. 

Consequential amendments

1.233            Item 226 is a consequential amendment to items 206, 207, 211 and 212 , and repeals the definition of ‘persons affected by a reviewable decision’ under section 236(1).  The current definition ensures that the individual can seek internal review and merits review of APRA’s decisions to revoke its approval of the auditor or actuary.  As these items remove APRA’s power to approve or revoke the appointment of the auditors and actuaries, this definition is no longer necessary. 

1.234            Item 228 is a consequential amendment to items 206, 207, 211 and 212 .  This item repeals current paragraphs 236(1)(v) to (z), under the definition of ‘reviewable decisions’, and inserts new paragraphs 236(1)(v) and (w) which provide that APRA’s decision to declare a person ineligible for appointment as the auditor or actuary is subject to merits review. 

1.235            Some of the repeals under item 228 remove APRA’s approval or revocation of approval for the appointment of auditors and actuaries from the definition of ‘reviewable decisions’.  As APRA can no longer make these decisions, it is not necessary to provide that these decisions are subject to merits review.  These repeals are:

·          paragraph 236(1)(v), concerning APRA’s decision under subsection 85(1);

·          paragraph 236(1)(w), concerning APRA’s decision under subsection 86(1);

·          paragraph 236(1)(y), concerning APRA’s decision under subsection 93(6); and

·          paragraph 236(1)(z), concerning APRA’s decision under section 94(3). 

1.236            It should be noted that APRA’s directions under current section 230B are not subject to merits review. 

1.237            Items 189 and 233 are consequential amendments to item 207 , which has removed APRA’s power to approve an auditor’s appointment. 

1.238            Item 189 repeals current subsection 16A(5) of the Life Act, which refers to special provisions relating to the appointment of auditors for friendly societies under Division 2 of Part 6, and substitutes a new subsection that does not refer to these provisions. 

1.239            Item 233 repeals the definition of ‘approved auditor’ in the Schedule.  This definition is no longer necessary because APRA no longer approves the appointment of auditors. 

SIS Act (Items 244, 239)

1.240            Item 244 inserts new section 131AA, which provides that APRA may direct the trustees of an entity to remove an auditor or actuary if satisfied that the person is disqualified under section 131, does not meet the fit and proper requirements, or has failed to perform its duties and functions under the SIS Act, SIS Regulations and FSCODA. 

1.241            New subsections 131AA (3) to (7) set out the process to be followed when APRA is giving a direction under this section.  These subsections provide certainty to the entities and to APRA as to the procedural requirements relating to the issue of a direction.  In particular, new subsection 131AA(6) provides that APRA must allow the individual and entity at least seven days to comply with the direction.  This section does not specify how the trustees may terminate the person’s appointment. 

1.242            If the trustee or trustees do not comply with APRA’s direction within seven days, the entity commits an offence (new subsection 131AA(9)).  This is a strict liability offence under the new subsection 131AA(10), which is punishable by 60 penalty units.  This is a strict liability offence because it is a basic, objective requirement of the prudential framework and should be complied with by all entities.  Compliant with section 6.1 of the Criminal Code, there is no need to prove a fault element.  The defence of mistake of fact is available under section 9.2 of thev Criminal Code. 

1.243            New subsection 131AA(8) clarifies that APRA’s direction under this section is not a legislative instrument for the purposes of section 5 of the LIA, because it is a decision that applies the law to an individual and not to a class of persons.  It does not create an exemption from the requirements of the LIA. 

1.244            A direction given on the grounds that an auditor is a disqualified person under section 131 is not subject to merits review.  Since the original decision to disqualify the auditor is already subject to merits review, it is not appropriate for a direction based on such a disqualification to be also subject to merits review.  Directions given under section 131AA(2)(b) and (c) are subject to merits review (see item 239 ).

1.245            Items 239 provides that APRA’s decisions to direct the trustee or trustees to remove an auditor or actuary (new paragraphs 131AA(2)(b) and (c)) are subject to merits review, under section 10(1) definition of ‘reviewable decisions’. 

1.246            APRA’s decision to issue a direction under paragraph 131AA(2)(a), on the grounds that the auditor is a disqualified person under section 131, is not subject to merits review because the disqualification decision is already subject to merits review.

Supporting cooperation between APRA and relevant professional bodies of actuaries and auditors

 

1.247            These amendments provide APRA with greater powers to cooperate with and refer matters relating to professional standards and performance of the auditor or actuary’s duties and functions to the relevant professional bodies.  As APRA does not have the power to enforce professional standards for auditors and actuaries, these amendments ensure that APRA has the power to share information with professional bodies of auditors and actuaries to encourage and assist self-regulation in these professions.  These amendments commence on the date of Royal Assent.

Banking Act (Item 36)

1.248            Item 36 repeals section 18 and inserts a new section 18, which provides that APRA may provide information to professional associations for auditors if APRA considers an auditor of a relevant body corporate is not a fit and proper person (new paragraph 18(1)(b)), or has failed to perform its duties or functions under the Banking Act, Banking Regulations 1966 (Banking Regulations), prudential standards, or a law of the Commonwealth, State or Territory including FSCODA (new paragraph 18(1)(a)). 

1.249            This gives APRA scope to refer matters arising out of the auditor’s conduct under the Act, Regulations and FSCODA, as well as matters that may be relevant to APRA’s prudential supervision but that arise under other legislation.  Matters may be referred to the Companies Auditors and Liquidators Disciplinary Board (CALDB) as well as members of the auditor’s professional association that APRA believes will be involved in considering the matter (new paragraph 18(1)(c) and (d)). 

1.250            APRA may only refer matters relating to an auditor of a ‘relevant body corporate’ (subsection 18(1)).  It should be noted this definition differs from the definition of a ‘relevant group of body corporate’ under subsection 5(3).  A ‘relevant body corporate’ includes:

·          an ADI;

·          an authorised NOHC;

·          a subsidiary of an ADI or authorised NOHC; and

·          for an ADI that is a subsidiary of a foreign corporation - a subsidiary of the foreign corporation that is incorporated, or carries on business in, Australia. 

1.251            APRA must give written notice of the referral to the auditor (new subsection 18(3)). 

Insurance Act (item 64)

1.252            Item 64 repeals section 48, and inserts a new section 48 which provides that APRA may refer matters to professional associations for auditors and actuaries if APRA considers an auditor or actuary of a general insurer is not a fit and proper person (new paragraphs 48(1)(b) and 48(2)(b)), or has failed to perform its duties or functions under the Insurance Act, Insurance Regulations 2002 (Insurance Regulations), prudential standards, or a law of the Commonwealth, State or Territory including FSCODA (new paragraphs 48(1)(a) and 48(2)(a)).

1.253            This gives APRA scope to refer matters arising out of the auditor’s or actuary’s conduct under the Act, regulations and FSCODA, as well as matters that may be relevant to APRA’s prudential supervision but arise under other legislation. 

1.254            For auditors, matters may be referred to the CALDB as well as members of the auditor’s professional association whom APRA believes will be involved in considering the matter (new paragraph 48(1)(c) and (d)).  For actuaries, matters may be referred to members of the actuary’s professional association whom APRA believes will be involved in considering the matter (new subsection 48(2)). 

1.255            APRA may make the referral whether or not it has disqualified a person as an auditor or actuary under section 44 (new subsection 48(4)).  This provision differs from the current section 48, which provides that APRA can refer matters only if it has revoked approval for an auditor or actuary, or has disqualified a person. 

1.256            APRA must give written notice of the referral to the auditor or actuary (new subsection 48(3)). 

Life Act (item 110)

1.257            Item 110 repeals sections including section 125, and inserts new section 125, which provides that APRA may provide information to professional associations for auditors and actuaries if APRA considers an auditor or actuary of a life company is not a fit and proper person (new paragraphs 125(1)(b) and 125(2)(b)), or has failed to perform its duties or functions under the Life Act, or a law of the Commonwealth, State or Territory including FSCODA (new paragraphs 125(1)(a) and 125(2)(a)).

1.258            This gives APRA scope to refer matters arising out of the auditor’s or actuary’s conduct under the Life Act, Life Regulations 1995 (Life Regulations) and FSCODA, as well as matters that may be relevant to APRA’s prudential supervision but arise under other legislation. 

1.259            For auditors, matters may be referred to the CALDB as well as members of the auditor’s professional association whom APRA believes will be involved in considering the matter (new paragraph 125(1)(c) and (d)).  For actuaries, matters may be referred to members of the actuary’s professional association whom APRA believes will be involved in considering the matter (new subsection 125(2)). 

1.260            APRA must give written notice of the referral to the auditor or actuary (new subsection 125(3)). 

Phase out prudential rules from the Life Act

Transition period (items 130, 287, 288)

1.261            Life company prudential requirements are currently provided for under prudential rules, actuarial standards, prudential standards, the Life Regulations and the Life Act.  Prudential rules were the main tool used by the Regulator to prescribe requirements of life insurers under the Life Act, prior to APRA obtaining a prudential standards-making power.  These amendments will simplify the Life Act by removing prudential rules from the Act and replace them with principles based prudential standards where necessary.  There will be a transition period from the date of Royal Assent to 1 July 2011.

1.262            Items 130 and 287 establish a transition period for replacing prudential rules with prudential standards under the Life Act.  Item 130 repeals subsection 252(2) and substitutes subsections providing that APRA cannot make prudential rules after the ‘cut-off day’.  The ‘cut-off day’ is the date on which Part 1 Schedule 1 of the this Act commences, which is the day of Royal Assent.  Item 287 commences on 1 July 2011, and repeals section 252.  The repeal removes APRA’s power to make prudential rules, and as a result will repeal prudential rules on 1 July 2011. 

1.263            After the cut-off day, APRA will not able to make new prudential rules, but existing rules will remain in force until repealed by item 287 on 1 July 2011.  Between the cut-off day and 1 July 2011, APRA will have power to vary or revoke existing prudential rules, which enables APRA to phase out prudential rules as they become unnecessary or are replaced by prudential standards. 

1.264            It should be noted that item 288 is a consequential amendment to item 287.  It repeals the definition of prudential rules in the Schedule, The concept of prudential rules is repealed by item 287 from 1 July 2011.

1.265            The following items give effect to the transition period described above. 

Amendments to Part 2, Key concepts (items 68, 69, 256-258)

1.266            Items 68 , 256 and 257 give effect to the transition period during which APRA may make prudential standards setting out requirements for applications for an APRA declaration that an insurance business or financial business is to be treated as a life business.  . 

1.267            Items 68 and 256 amend subsection 12A(2).  Item 67 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 256 omits references to ‘Prudential Rules’, and commences on 1 July 2011. 

1.268            Items 68 and 257 amends subsection 12B(3).  Item 68 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 257 omits references to ‘Prudential Rules’, and commences on 1 July 2011. 

1.269            Items 69 and 258 replace reference to prudential rules with reference to prudential standard under subsection 15(3).  It gives effect to the transition period in relation to APRA’s declaration concerning participating or non-participating benefits through prudential rules. 

Amendments concerning friendly societies (items 71-76, 79-81, 84-87, 259-272)

1.270            These following items give effect to the transition period during which APRA may make prudential standards relating to friendly societies under the Life Act (see above). 

1.271            Items 71 and 259 replace prudential rules with prudential standards in paragraph 16B(2)(a).  Item 71 inserts reference to ‘prudential standards’, and commences on royal assent.  Item 259 omits reference to ‘Prudential Rules’, and commences on 1 July 2011. 

1.272            These amendment give effect to the transition period in relation to APRA’s power to make prudential rules and prudential standards setting out requirements for a friendly society to adopt benefit fund rules or amendment to benefit fund rules. 

1.273            Item 260 repeals subsection 16C(4), and will commence on 1 July 2011.  This item removes APRA’s power to make prudential rules concerning when it may make or revoke a determination that a corporation is a friendly society for the purposes of the Life Act. 

1.274            Items 72 and 261 replace prudential rules with prudential standards in subsection 16H(4).  Item 77 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 261 omits reference to ‘Prudential Rules’, and commences on 1 July 2011. 

1.275            These amendment give effect to the transition period in relation to APRA’s power to make prudential rules and prudential standards setting out requirements for friendly societies that maintain one account for money that constitutes assets for 2 or more benefit funds.

1.276            Items 73 and 262 replace prudential rules with prudential standards in paragraph 16H(4A)(b).  Item 73 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 262 omits reference to ‘Prudential Rules’, and commences on 1 July 2011. 

1.277            These amendment give effect to the transition period in relation to APRA’s power to make prudential rules and prudential standards setting out requirements for friendly societies that invest assets of 2 or more benefit funds in a single investment.

1.278            Items 74 and 263 replace prudential rules with prudential standards in section 16J.  Section 16J modifies section 43 of the Life Act by adding subsection 43(ba), providing additional requirements for investments of assets of a friendly society’s approved benefit fund.  Item 74 inserts reference to ‘prudential standards’ in paragraph (ba)(ii), and commences on Royal Assent.  Item 263 omits reference to ‘Prudential Rules’ in paragraph (ba)(ii), and commences on 1 July 2011. 

1.279            These amendments give effect to the transition period in relation to APRA’s power to make prudential rules and prudential standards concerning investment of such assets under modified subsection 43(ba). 

1.280            Items 75 and 264 replace prudential rules with prudential standards in paragraph 16L(2).  Item 75 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 265 omits reference to ‘Prudential Rules’, and commences on 1 July 2011. 

1.281            These amendments give effect to the transition period in relation to APRA’s power to make prudential rules and prudential standards setting out requirements for applications seeking APRA approval of benefit fund rules for a benefit fund operated by a company.

1.282            Items 76 and 265 replace prudential rules with prudential standards in paragraph 16L(4)(b).  Item 76 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 265 omits reference to ‘Prudential Rules’, and commences on 1 July 2011. 

1.283            These amendments give effect to the transition period in relation to APRA’s power to make prudential rules and prudential standards requiring a company to give notice to its members that APRA has approved its benefit fund rules. 

1.284            Items 79 and 266 replace prudential rules with prudential standards in paragraph 16Q(2).  Item 79 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 266 omits reference to ‘Prudential Rules’, and commences on 1 July 2011. 

1.285            These amendments give effect to the transition period in relation to APRA’s power to make prudential rules and prudential standards setting out requirements for applications seeking APRA approval of amendments to benefit fund rules. 

1.286            Items 80 and 267 replace prudential rules with prudential standards in paragraph 16Q(4)(b).  Item 80 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 267 omits reference to ‘Prudential Rules’, and commences on 1 July 2011.

1.287            These amendments give effect to the transition period in relation to APRA’s power to make prudential rules and prudential standards requiring friendly societies to give notice to its members that APRA has approved amendments to its benefit fund rules. 

1.288            Items 81 and 268 replace prudential rules with prudential standards in paragraph 16R(6)(b).  Item 81 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 268 omits reference to ‘Prudential Rules’, and commences on 1 July 2011. 

1.289            These amendments give effect to the transition period in relation to APRA’s power to make prudential rules and prudential standards requiring friendly societies to give notice to its members that APRA has determined an amendment to its benefit fund rules. 

1.290            Items 84 and 269 replace prudential rules with prudential standards in paragraph 16U(2).  Item 84 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 269 omits reference to ‘Prudential Rules’, and commences on 1 July 2011.

1.291            These amendments give effect to the transition period in relation to APRA’s power to make prudential rules and prudential standards setting out requirements for applications seeking approval of consequential amendments to company constitutions. 

1.292            Items 85 and 270 replace prudential rules with prudential standards in paragraph 16U(4)(b).  Item 85 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 270 omits reference to ‘Prudential Rules’, and commences on 1 July 2011.

1.293            These amendments give effect to the transition period in relation to APRA’s power to make prudential rules and prudential standards requiring friendly societies to give notice to its members that APRA has approved consequential amendments to its company constitution. 

1.294            Items 86 and 271 replace prudential rules with prudential standards in paragraph 16V(3).  Item 86 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 271 omits reference to ‘Prudential Rules’, and commences on 1 July 2011. 

1.295            These amendments give effect to the transition period in relation to APRA’s power to make prudential rules and prudential standards setting out requirements for applications seeking approval of consequential amendments to company constitutions. 

1.296            Items 87 and 272 replace prudential rules with prudential standards in paragraph 16V(7)(b).  Item 87 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 272 omits reference to ‘Prudential Rules’, and commences on 1 July 2011.

1.297            These amendments give effect to the transition period in relation to APRA’s power to make prudential rules and prudential standards requiring friendly societies to give notice to its members that APRA has approved consequential amendments to its company constitution under section 16V(3). 

Amendments affecting life companies (items 94, 97, 106, 125, 273-279, 281-286)

1.298            These following items give effect to the transition period during which APRA may make prudential standards or reporting standards made under FSCODA relating to life companies. 

1.299            Items 94 and 273 replace prudential rules with prudential standards in subsection 34(4).  Item 94 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 273 omits reference to ‘Prudential Rules’, and commences on 1 July 2011.

1.300            These amendments give effect to the transition period in relation to APRA’s power to make prudential rules and prudential standards setting out requirements for life companies that maintain one account for money that constitutes assets for 2 or more benefit funds.

1.301            Items 97 and 274 replace prudential rules with reporting standards made under FSCODA in subsection 44(6).  Item 97 inserts reference to ‘reporting standards made under FSCODA’, and commences on Royal Assent.  Item 233 omits reference to ‘Prudential Standards’, and commences on 1 July 2011. 

1.302            These amendments give effect to the transition period in relation to APRA’s power to make prudential rules and reporting standards under FSCODA setting out requirements for making restricted investment returns. 

1.303            Items 98 and 275 replace prudential rules with reporting standards made under FSCODA in paragraphs 44(7)(a) and (b).  Item 98 inserts reference to ‘reporting standards made under FSCODA’, and commences on Royal Assent.  Item 275 omits reference to ‘Prudential Standards’, and commences on 1 July 2011. 

1.304            These amendments give effect to the transition period in relation to APRA’s power to make prudential rules and reporting standards under FSCODA concerning the form and time limits for restricted investment returns. 

1.305            Items 99 and 276 replace prudential rules with prudential standards in subsection 52(1).  Item 99 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 276 omits reference to ‘Prudential Standards’, and commences on 1 July 2011. 

1.306            These amendments give effect to the transition period in relation to APRA’s power to make prudential rules and prudential standards concerning applications to restructure statutory funds. 

1.307            Items 99 and 277 replace prudential rules with prudential standards in subsection 52(3).  Item 99 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 277 omits reference to ‘Prudential Rules’, and commences on 1 July 2011. 

1.308            These are consequential amendments to items 99 and 276 , which replace APRA’s power to make prudential rules with power to make prudential standards concerning applications to restructure statutory funds. 

1.309            Items 100 and 278 replace prudential rules with prudential standards in subsection 53(1).  Item 100 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 278 omits reference to ‘Prudential Standards’, and commences on 1 July 2011. 

1.310            These amendments give effect to the transition period in relation to APRA’s power to make prudential rules and prudential standards concerning applications to terminate statutory funds. 

1.311            Items 101 and 279 replace prudential rules with prudential standards in subsection 53(2).  Item 101 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 279 omits reference to ‘Prudential Rules’, and commences on 1 July 2011. 

1.312            These are consequential amendments to items 101 and 278 , which replace APRA’s power to make prudential rules with power to make prudential standards concerning applications to terminate statutory funds. 

1.313            Items 102 and 281 replace prudential rules with prudential standards in subsection 55(2).  Item 102 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 287 omits reference to ‘Prudential Rules’, and commences on 1 July 2011.

1.314            These amendments give effect to the transition period in relation to APRA’s power to make prudential rules and prudential standards in relation to ascertaining the value of liabilities for the purpose of transfer of policies by endorsement. 

1.315            Items 103 and 282 replace prudential rules with prudential standards in subsection 55(3).  Item 103 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 282 omits reference to ‘Prudential Rules’, and commences 1 July 2011.

1.316            These are consequential amendments to i tems 103 and 281, which replace APRA’s power to make prudential rules with power to make prudential standards in relation to ascertaining the value of liabilities under section 55. 

1.317            Items 104 and 283 replace reference to prudential rules with reference to prudential standards in the definition of ‘starting amount’ under subsection 61(1). 

1.318            These amendments give effect to the transition period in relation to APRA’s power to make prudential standards in relation to ascertaining the starting amount for the purposes of Division 6, Part 4. 

1.319            Items 106 and 285 replace prudential rules with prudential standards in subsection 62(5).  Item 106 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 285 omits reference to ‘Prudential Rules’, and commences on 1 July 2011. 

1.320            These amendments give effect to the transition period in relation to APRA’s power to make prudential rules and prudential standards setting out requirements relating to the distribution of Australian policy owners’ retained profits. 

1.321            Items 105 and 284 are consequential amendments to item 106 and 285.  Item 105 inserts reference to ‘prudential standards’ in paragraph 62(3)(c) from date of Royal Assent, as item 106 provides that APRA may make prudential standards under subsection 62(5).  Item 284 repeals reference to prudentail rules in paragraph 62(3)(c) from 1 July 2011.

1.322            Items 125 and 286 replace prudential rules with prudential standards in paragraphs 236(1)(k) and (l), under definition of ‘reviewable decision’.  Item 125 inserts reference to ‘prudential standards’, and commences on Royal Assent.  Item 286 omits reference to ‘prudential standards’, and commences on 1 July 2011. 

1.323            These amendments give effect to the transition period during which APRA’s decisions under prudential standards and prudential rules referred to in sections 52 and 53 will be subject to merits review.  On 1 July 2011, prudential rules will be repealed.  As such it will not be necessary to subject APRA’s decisions under prudential standards to merits review after 1 July 2011. 

Related amendments (items 111, 129, 131, 195, 218, 219, 280, 287-289)

1.324            Item 195 inserts reference to ‘annual’ in section 57.  It clarifies that section 57 refers to reports that need to be given to APRA each year, rather than quarterly or other reports. 

1.325            Item 219 commences on 1 July 2011.  It makes a number of amendments, including inserting a references to ‘prudential standards’ in new section 114.  This enables APRA to make prudential standards in relation to valuation of policy liabilities referable to a statutory fund. 

1.326            This item inserts reference to ‘annual financial statement’ in new section 124.  This is a consequential amendment to item 195 , and clarifies that the reference to financial statement is a statement under section 57. 

1.327            Items 111 and 218 makes various repeals, including repealing sections 123, 125, 125A and 125B in Divisions 6, 7 and 8 of Part 6.  As a result references to prudential rules in these sections are also repealed.    Item 111 commences on date of Royal Assent, and item 218 commences on 1 January 2008. 

1.328            Item 129 omits reference to ‘in writing’ and substitutes reference to ‘by legislative instrument’ in subsection 252(1).  This item provides that APRA may make legislative instruments regarding all matters that may be prescribed by prudential rules.  It also clarifies that prudential standards are legislative instruments for the purpose of section 5 LIA.  Section 252 will be repealed on 1 July 2011 by item 287

1.329            Item 131 omits reference to ‘prudential rules in paragraph 253(1)(a).  This removes limitation on matters that may be dealt with under the regulations.  As such matters necessary or convenient to give effect to the Life Act can be dealt with under regulations or prudential standards. 

1.330            Item 280 commences on 1 July 2011.  It repeals section 54, which provides that APRA may make prudential rules concerning transitional matters under Life Act.  As a result, prudential rules made under section 54 will be repealed on 1 July 2011. 

1.331            Items 288 and 289 remove reference to prudential rules from the Schedule, and commence 1 July 2011.  Item 288 repeals the definition of ‘Prudential Rules’.  Item 289 removes reference to ‘Prudential Standards’ in the definition ‘this Act’.  Item 287 repeals prudential rules on 1 July 2011, as a result references to Prudential Rules will no longer be necessary after 1 July 2011. 

Abolish the Life Insurance Actuarial Standards Board (LIASB) under the Life Act (Items 156, 157, 173-176, 190, 194, 196, 198-203, 213, 218-274)

1.332            The Life Act provides that APRA may determine standards on prudential matters for life companies under section 230A but grants actuarial standards making powers to the LIASB under section 101.  While actuarial matters are a subset of prudential matters, the distinction between the two under the legislation is not always clear.

1.333            At the time the LIASB was created, it was considered that the regulator did not have adequate actuarial capacity to develop actuarial standards for life companies.  Since that time, APRA has provided full secretariat support to the LIASB and has developed its own capacity to determine standards dealing with actuarial matters.  Therefore, these amendments abolish LIASB and remove the concept of actuarial standards from the Life Act from 1 January 2008.

1.334            Item 218 repeals Division 4 of Part 6 which deals with the LIASB. 

1.335            Item 274 removes from the Schedule of the Life Act the definition of Board, which means the ‘Life Insurance Actuarial Standards Board’.

Removal of actuarial standards from the Life Act

1.336            APRA has the power to make prudential standards under section 230A of the Life Act with respect to prudential matters currently addressed through actuarial standards.  Therefore, the concept of actuarial standards is being removed and replaced with prudential standards.  APRA will consult with industry groups on the development of prudential standards relating to actuarial issues.

1.337            Items 190, 194, 196, 198-203, 213 make various consequential amendments to the Life Act as a result of the removal of actuarial standards.

1.338            Items 156 and 157 make consequential amendments to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006

1.339            Items 173 to 176 make consequential amendments to the Income Tax Assessment Act 1997 .

Auditor, audit committee and actuarial requirements under the Life Act (Items 191, 192, 193, 205, 206, 210, 217, 218, 228, 229, 232, 236)

1.340            The current requirements with respect to auditors and actuaries under the Life Act will be replaced by principles based requirements that focus on the functions and duties of auditors and actuaries.  This aligns the Life Act with the Banking and Insurances Acts to provide a consistent framework.  Where detailed requirements are necessary, they are more appropriately addressed through prudential standards or practice guides. 

1.341            These amendments commence on 1 January 2008.

1.342            Item 205 omits the requirement under section 80 for an ‘approved auditor’ to prepare a report relating to apportionment, and substitutes the requirement for ‘an auditor of the life company for the purposes of the FSCODA’ to prepare the report.  As APRA is no longer responsible for approving the appointment of an auditor to the life company, this definition is no longer necessary.  This revised definition is consistent with the new provisions relating to the appointment and removal of auditors, and allows APRA to introduce more flexible audit requirements under prudential standards and reporting standards under FSCODA. 

1.343            Item 206 repeals the requirements under section 83 for auditors to prepare an annual financial statement, and substitutes a new section 83, which provides that auditors must carry out their functions as prescribed under the prudential standards and reporting standadards made under FSCODA.  This reflects the intention that prescriptive requirements should be removed from the Act, replaced by principles-based regulation.  The new subsection 83(1) enables APRA to introduce more detailed requirements relating to auditors functions under the prudential standards where necessary.  The life company is required to make necessary arrangements to enable the auditor to perform these functions. 

1.344            Item 210 repeals sections 90, 91 and 92, which requires a life company to have an audit committee.  As audit requirements under the legislation are replaced by more flexible prudential standards and reporting standards under FSCODA, it is no longer necessary to require life companies to have an audit committee.  Consequently, sections 91 and 92, which require APRA to approve members of the audit committee, set the quota for a committee meeting, and set out the powers and functions of the committee, are also unnecessary. 

1.345            Item 217 repeals subsection 98(4), which removes the requirement for an appointed actuary to report specific information to APRA.  This item is a consequential amendment to new sections 97 (actuary’s duties) and subsections 98(2A) and (2B).  As the actuary’s duties and functions will be set out under prudential standards, reporting standards made under FSCODA, and breach reporting requirements are clarified under proposed subsections 98(2A) and (2B), this subsection is no longer necessary. 

1.346            Item 218 makes a number of amendments that introduce actuarial requirements more consistent with principles-based regulation.  This item repeals Division 5 and 6 of Part 6 of the Life Act, and substitutes new section 114 and 124.  Under Division 5 of Part 6, this item removes requirements relating to actuarial investigations (sections 113 and 115), and the requirement to seek actuarial advice before issuing a new policy (section 116)

1.347            Item 218 also repeals old section 114 (requirements relating to valuing policy liabilities), and substitutes a new section 114 that provides valuation of policy liabilities must be made in accordance with prudential standards.  This makes this requirement consistent with principles-based regulation, and allows APRA to set more flexible requirements under prudential standards. 

1.348            Item 218 also removes requirements under Division 6 of Part 6 for a life company to provide reports to APRA, including its financial condition report (section 119), statement of the actuary’s pecuniary interest (section 120), reports given to shareholders or policy owners (section 122) and reinsurance arrangements reports (section 123). 

1.349            Item 218 retains section 124, and moves the section into Division 5 of Part 6, which ensures that policy owners can monitor the performance of the life company.  

1.350            Items 191, 192 and 193 substitutes references to prudential regulations with reference to prudential standards in subsections 47(1) and 47(2), and paragraphs 47(2)(a) and (b).  This removes prescriptive declarations made under prudential regulations, and enables APRA to set more flexible requirements under prudential standards.

1.351            Items 228 and 229 remove decisions made under section 91, subsection 94(3), subsection 115(3), and subsection 119(2) from the definition of ‘reviewable decisions’.  As these sections will be repealed, it is no longer necessary to subject decisions under these sections to merits review. 

1.352            Item 232 and item 236 repeal the definitions ‘annual actuarial investigation’ and ‘financial condition report’ in the Schedule.  As requirements to conduct an annual actuarial investigation and prepare an annual financial condition report is repealed by item 218, the definitions are no longer necessary.

 Overlaps in reporting requirements between APRA and ASIC

Life Act (Items 77, 78, 82, 83, 88, 89, 127)

1.353            Various sections under the Life Act result in life companies and friendly societies having to provide information to both APRA and ASIC.  These amendments ensure that this duplication in reporting requirements is removed and replaced by a process of information sharing between APRA and ASIC according to existing reporting requirements.  These amendments commence from the date of Royal Assent.

1.354            Under the Life Act, various documents approved by APRA must also be lodged with ASIC.

·          Section 16M — requires the lodging of benefit fund rules with ASIC after approval by APRA.  APRA approves benefit fund rules under section 16L.

·          Section 16S — requires lodging of amendment of benefit fund rules with ASIC after approval by APRA.  APRA approves amendments of benefit fund rules under section 16Q.

·          Section 16W — requires lodging of consequential amendments of the friendly society’s constitution with ASIC after approval by APRA.  APRA approves consequential amendments under subsection 16U(3) or subsection 16V(4). 

1.355            Items 77, 82, and 88 repeal sections 16M, 16S, 16W of the Life Act respectively, so that life insurers and friendly societies are no longer required to lodge benefit fund rules, amendments to benefit fund rules and consequential amendments of the friendly society’s constitution with ASIC after approval by APRA. 

1.356            Items 78, 83 and 89 amend paragraphs 16N(a), 16T(c) and 16X(c) of the Life Act respectively.  These are consequential amendments to items 77, 82 and 88 .  As life insurers and friendly societies are no longer required to lodge benefit fund rules, amendments to benefit fund rules and consequential amendments of the friendly society’s constitution with ASIC, references to lodgement with ASIC in these paragraphs are no longer necessary.  Instead, these items insert references to APRA approving the rules or determining the amendments. 

1.357            Item 127 repeals section 238 and 239 so that the life company is no longer required to give the documents to APRA.  Section 238 of the Life Act requires that if a life company lodges with ASIC, under Chapter 6D of the Corporations Act, a disclosure document relating to securities of the company, the company must give a copy of the prospectus to APRA.  Section 239 requires a life company or the holding company of a life company to give APRA documents relating to off-market takeover bids within seven days after lodging the documents with ASIC.

Corporations Act (Item 52)

1.358            Item 52 inserts subsection (2D) into section 1274 of the Corporations Act so that, when a copy of documents approved by APRA under sections 16L, 16Q, and 16U or 16V is given to ASIC by APRA, they are deemed to be ‘lodged with’ ASIC.  This amendment is necessary because of the consequences which flow from documents being ‘lodged’.  For example, with certain specified exceptions, a person may inspect any document lodged with ASIC and may require a copy of such a document.

1.359            The obligation to lodge the documents with APRA will remain in the prudential legislation.  Arrangements are in place to ensure that APRA provides a copy to ASIC.  It is envisaged that both APRA and ASIC will consult with the entities in relation to how these arrangements will work. 

 Reinsurance arrangements under the Life Act (Item 111, 218)

1.360            Under section 123 of the Life Act, companies are required to provide a reinsurance report to APRA every financial year, and under section 125 of the Life Act, APRA is required to approve certain limited types of reinsurance contracts before a life company can enter into such a contract.  Decisions to enter into reinsurance contracts are fundamentally business decisions and, as such, are more appropriately the responsibility of the Board of the company rather than of APRA.  APRA has various powers, such as the ability to accept court enforceable undertakings or use of directions powers, to address any prudential concerns it has regarding reinsurance contracts.

1.361            Items 111 and 218 repeals sections 123 and 125 of the Life Act.  Similar requirements for APRA to approve certain reinsurance contracts for general insurers were removed from the Insurance Act through the General Insurance Reform Act .  Where APRA considers such requirements are necessary, it is more appropriate to deal with these issues through prudential standards, as has been done for the general insurance industry.  Item 111 commences on date of Royal Assent, and item 218 commences on 1 January 2008. 

Registration of life companies under the Life Act (Items 90-93, 107, 128, 133)

1.362            The Life Act and Life Regulations contain detailed and prescriptive requirements in relation to the registration of life insurers.  In many cases, these requirements also duplicate requirements contained more appropriately elsewhere within the legislative framework. 

1.363            Section 20 of the Life Act requires an application for registration to be made in accordance with the Life Regulations.  Life Regulation 3.01 sets out a detailed list of requirements for a registration application.  Rather than setting out such requirements in the Life Regulations, and in order to provide a more flexible approach, these requirements will be provided under APRA’s non-binding prudential practice guides or under binding prescribed forms.

1.364            Item 90 repeals existing section 20 of the Life Act and replaces it with a new section 20 so that the application is no longer required to be made in accordance with the Life Regulation.  The new section 20 provides the procedure to be followed when a company applies to APRA for registration as a life company under the Life Act.

1.365            New subsection 20(1) allows a company to apply in writing to APRA for registration as a life insurer under the Life Act.  New subsection 20(2) sets out the requirements for these applications. 

1.366            New subsection 20(3) allows APRA to require, by written notice, the applicant to provide further information within a specified period.  New subsection 20(4) allows APRA to consider the application for registration withdrawn if the applicant does not provide the information requested by APRA within the specified time period or any longer period agreed to in writing by APRA.  Subsection 20(5) requires APRA to include a statement in their written notice about withdrawal of the application for registration under these circumstances.

1.367            Items 107 and 128 replace references to subsection 20(4) in subsections 77(2) and 246(1) with a reference to new section 20, as existing subsection 20(4) has been repealed and replaced with a new section 20.   

1.368            Item 91 repeals subsections 21(1) and (2) of the Life Act and replaces them with a new subsection 21(1), which ensures that APRA must, in writing, register a company that applies for registration unless APRA is satisfied that a grounds for refusal exists (paragraph 21(1)(a)) and the Treasurer approves of the refusal (paragraph 21(1)(b)). 

1.369            Item 93 repeals section 25 of the Life Act.  Section 25 of the Life Act requires authorised life insurers to notify APRA of any changes to the information in its original licensing application (under Life Regulation 3.01) within 14 days.  Most of this information is already gathered by APRA through alternative processes. 

1.370            Item 132 repeals subsection 254(4), which outlines how section 25 of the Life Act should apply to an existing life company.  As Section 25 has been repealed, this subsection is no longer necessary. 

1.371            Items 92, 93 and 133 repeal requirements relating to the life company’s ‘certificate of registration’.  Life insurers are currently issued with a ‘certificate of registration’ which, under subsections 21(5), (6) and (7), must be returned to APRA within seven days following a cancellation of registration.  Failure to return the certificate is a strict liability offence punishable by 10 penalty units.  This section creates an administrative burden on life insurers which is not imposed on general insurers or ADIs.

1.372            Item 92 repeals subsections 21(5), (6) and (7).  Item 93 repeals section 28, which removes the requirement for the company to return the certificate of registration.  Item 133 repeals subsection 254(6) which refers to the status of the certificate of registration. 

Replacing RSE license numbers with ABNs in the SIS Act

1.373            Under the SIS Act, APRA is responsible for the allocation of RSE licence numbers to bodies corporate and groups of individual trustees as well as RSE registration numbers for superannuation entities.  These numbers are used to identify entities and licensees that have met APRA requirements for obtaining a licence and there are provisions in the SIS Act as to when these numbers must be displayed on documents.

1.374            These amendments are aimed at achieving the long term objective of making the Australian Business Number (ABN) the sole business identifier number for all persons and entities in their dealings with the Government and its agencies.  Amendments to the SIS Act replace the requirement for APRA to allocate, and entities to display, RSE licence and registration numbers with the requirement to use the ABN. 

1.375            Amendments are also made to the A New Tax System (Australian Business Number) Act 1989 (ABN Act) to ensure that all RSE licensees are able to obtain an ABN and that the information available on the Australian Business Register is consistent with the information currently available on the registers maintained by APRA relating to RSE licensees and RSEs.

1.376            There will be a 12 month transitional period from the date of Royal Assent to allow existing RSE licensees to obtain ABNs for themselves and their entities if they do not already have them.  This transitional period also recognises the need to allow time for entities to put in place arrangements to ensure ABNs can be displayed on all the appropriate documents.  In order to facilitate the transition to displaying ABNs, a number of amendments will commence on Royal Assent whilst others will commence 12 months after Royal Assent.  These amendments are grouped by their commencement dates below.

Amendments Commencing On Royal Assent

ABN Act changes (Items 1-9)

1.377            Item 3 amends section 5 of the ABN Act so that an RSE licensee that is a group of individual trustees or a group of individual trustees applying for an RSE licence are classified as an entity carrying on an enterprise.  This amendment is necessary so that groups of individuals are able to obtain a single ABN which can be displayed on all the relevant documentation under the requirements found under the SIS Act. 

1.378            Item 5 amends the ABN Act so that any obligation imposed on an RSE licensee that is a group of individual trustees by section 14 or 15 of the ABN Act is imposed on each individual but may be discharged by any of the individuals.  This amendment mirrors similar provisions relating to partnerships and other unincorporated associations and bodies which also allow for a duty imposed on the group to be discharged by one member of that group. 

1.379            Items 8 and 9 introduce definitions into section 41 of the ABN Act relating to RSE licence and RSE licensee.  These amendments are required as the concepts of an RSE licence and RSE licensee are being introduced into the ABN Act.

1.380            Item 2 is a consequential amendment to section 5 of the ABN Act which is required as a new subsection to section 5 is being amended to accommodate groups of individual trustees being able to apply for an ABN.

1.381            Item 7 is a consequential amendment to subsection 16(3) of the ABN Act which is required as new subsection 2A is being added.

1.382            Items 1, 4 and 6 amend headings of provisions, and are consequential amendments to the above items. 

SIS Act changes (Item 143)

1.383            Item 143 inserts an offence into the SIS Act for a person to falsely represent themselves as being an RSE licensee.  This is a strict liability offence of 60 penalty units.  Offences that are strict liability are those that contain basic, objective requirements to the operation of the superannuation entity and do not require proof of a mental element (section 6.1 Criminal Code). 

Amendments Commencing 12 Months After Royal Assent

ABN Act changes (Item 245)

1.384            Item 245 inserts new paragraphs after paragraph 26(3)(j) of the ABN Act to require that certain information be displayed on the Australian Business Register (ABR) if the entity is an RSE licensee or an RSE.  Currently, APRA maintains and updates registers which contain details of RSE licensees and RSEs.  The information currently displayed on the ABR does not include all the details currently available on the APRA registers, so in order to ensure that the information currently hosted on these registers remains available, this amendment is required.  Changes will also be made to the A New Tax System (Australian Business Number) Regulations 1999 (ABN Regulations) to provide that this information must be entered in the ABR.

SIS Act changes (Items 248-256)

1.385            Items 248 and 249 make amendments to section 29DC of the SIS Act which substitutes the current requirement for RSE licensees to display an RSE licence number on certain documents with a requirement to display an ABN.

1.386            Item 250 inserts a condition into section 29E of the SIS Act so that all RSE licensees must have an ABN or have made an application for an ABN that has not been refused under the ABN Act.  This is to ensure that RSE licensees are able to apply for both an ABN and an RSE licence concurrently.

1.387            Item 251 inserts a condition into section 29E of the SIS Act so that each RSE licensee must ensure that each RSE of which it is the RSE licensee has an ABN.

1.388            Item 252 inserts a requirement into section 29L of the SIS Act so that when an RSE licensee applies to APRA for the registration of an RSE, the application must include an ABN.

1.389            Item 253 amends the requirements under section 29MA which currently requires that APRA must allocate a unique registration number for each superannuation entity it registers and notify the RSE licensee.  This item amends section 29MA so that APRA will only be required to notify the RSE licensee, in writing, of the registration.

1.390            Items 254 and 255 amend section 29MB to substitute the requirement to display a unique registration number for the entity with a requirement to display an ABN for the superannuation entity.

1.391            Item 246 inserts a definition of ABN into the SIS Act which is the same meaning as given by section 41 of the ABN Act 1999.

Simplification of Acts through removal of obsolete legislation

1.392            Several transitional arrangements in the Life and SIS Acts are obsolete.  Repealing the obsolete provisions will ensure the legislation remains relevant to today’s financial system.  These amendments commence on the date of Royal Assent.

Life Insurance Act 1995 (Items 95, 96, 112, 123, 124, 133, 134)

1.393            The Life Act replaced the Life Insurance Act 1945 .  When the Life Act was written, various transitional arrangements were inserted into it to ensure smooth transition from the previous Act.  These transitional arrangements are located in Part 12 of the Act.  Most of these transitional arrangements are now obsolete. 

1.394            Item 133 repeals sections 256 to 263.  Sections 256 and 257 are obsolete because APRA no longer has the power to approve the appointment of auditors and actuaries under the Life Act.  Sections 258 to 263 are obsolete as a result of various amendments.

1.395            Item 95 omits the reference to section 259 under subsection 39(2), which concerns the prohibition of reinsurance between funds and refers to section 259.  As section 259 has been repealed, this reference is obsolete.

1.396            References to the Commissioner (of the Insurance and Superannuation Commission (ISC)) are redundant because the ISC was abolished in 1998 and replaced with APRA.  Therefore, item 96 omits the reference in subsection 40(3) to ‘the Commissioner’ and replaces it with ‘APRA’.  Item 112 repeals the heading of Division 3 of Part 7 and replaces it with ‘Division 3 - Investigation by APRA’.  Item 134 repeals the definition of Commissioner in the Schedule. 

1.397            Items 123 and 124 amend paragraphs 236(1)(e) and (f) so that these paragraphs refer to ‘conditions’ rather than ‘directions’ made under section 22 of the Life Act.  Subsection 236(1) of the Life Act sets out decisions that are subject to merits review under the Life Act.  Paragraphs 236(1)(e) and (f) refer to decisions made under section 22 of the Act.  Section 22 allows APRA to impose conditions on the registration of a company.  The drafting under paragraphs 236(1)(e) and (f) incorrectly refers to ‘directions’ made by APRA under section 22, rather than ‘conditions’ on the registration of a company.

Superannuation Industry (Supervision) Act 1993 (Items 136, 137, 146, 155)

1.398            Item 155 repeals Part 31 of the SIS Act as it is obsolete.  Part 31 of the SIS Act relates to management companies of superannuation funds.  This section provided for a smooth transition to the SIS Act in 1993.  Following completion of the Government’s new superannuation licensing regime, there are no longer any management companies of superannuation funds.  Item 137 omits reference to Part 31 under subsection 6(2).  Item 136 omits reference to Part 31 in the Table under section 4 of the SIS Act. 

1.399            Item 146 removes the reference to subparagraph (ba) from subsection 71(2B) as paragraph 71(1)(ba) has been previously deleted.

Application and transitional provisions (items 290-296)

1.400            These amendments apply from the date of Royal Assent.

1.401            Part 5 of Schedule 1 provides savings and transitional arrangements relating to:

·          Item 290 , the registration of life companies (consequential to amendments to section 20 of Life Act made by item 90 );

·          Item 291 , APRA’s exemption powers (consequential to amendments to section 11 of Banking Act by items 9 and 11 );

·          Item 292 , APRA’s exemption powers (consequential to amendments to section 7 of Insurance Act by items 51-53 );

·          Item 293 , APRA’s exemption powers (consequential to repeals of sections 125A and 125B of Life Act by item 111 )

·          Items 294 and 295, APRA’s exemption powers (consequential to repeals of sections 328 and 332 of SIS Act by items 152 and 153 ); and

·          Item 296 , the Governor may make regulations.



C hapter 2

Financial assistance

Outline of chapter

2.1                    Schedule 2 to this Bill amends the SIS Act and the Financial Institutions Supervisory Levies Collection Act 1998 so that where a superannuation fund has suffered loss as a result of fraudulent conduct or theft that financial assistance is available on a more equitable basis.  The amendments also abolish the Special Protection Account.

Context of amendments

2.2                    Part 23 of the SIS Act provides a grant of financial assistance for certain superannuation entities that suffer loss as a result of fraudulent conduct or theft, subject to certain conditions.

2.3                    In 2003, the Government announced a review of Part 23 and released a consultation paper seeking written submissions on the operation of Part 23 and the associated levy process under the Superannuation (Financial Assistance Funding) Levy Act 1993 .  The Government released the outcomes of the review in 2004. 

2.4                    Following the review, the Government agreed to expand eligibility for financial assistance under Part 23 to ensure treatment is more equitable. 

Summary of new law

2.5                    These amendments will:

·          expand eligibility for financial assistance under Part 23 which will ensure that treatment is more equitable;

·          streamline the Part 23 application process to ensure that applications for financial assistance will be processed in a more efficient way; and

·          abolish the Special Protection Account as it is not used for the payment of financial assistance under Part 23.

Comparison of key features of new law and current law

New law

Current law

A superannuation fund that is eligible for financial assistance under Part 23 at the time an eligible loss is suffered is not prevented from making a Part 23 application despite subsequently restructuring to a SMSF.

In order to make an application for financial assistance under Part 23, a superannuation entity must meet the definition of ‘fund’ at three separate points in time.

A trustee of a superannuation fund may make an application for financial assistance on behalf of all beneficiaries of the fund at the time the loss was suffered (that is, both current and former beneficiaries of the fund).

Former beneficiaries of a fund, who were beneficiaries at the time of the eligible loss, may not be entitled to financial assistance if they have transferred their savings to another fund or exited the superannuation system subsequent to the loss being suffered but before the application for assistance is made.

There will be equitable access to financial assistance under Part 23 irrespective of whether the fund is a defined benefit fund or an accumulation fund.

The definition of eligible loss for a defined benefit fund and an accumulation fund differs so that a defined benefit fund must meet stricter criteria in order to obtain financial assistance.

Clarifies that any deficit in the fund arising from the failure to pay contributions is not covered under Part 23.

The definition of eligible loss as it currently stands may include losses in the fund arising from the failure the pay contributions into the fund.

The Minister will be able to delegate certain administrative functions under sections 230 and 230A of the SIS Act to reduce the length of time taken to consider an application.

Currently, the Minister does not have the ability to delegate administrative functions under sections 230 and 230A of the SIS Act.

The Special Protection Account will be abolished as it is not used for the payment of financial assistance under Part 23.

There is Special Protection Account for the payment of financial assistance under Part 23.

Detailed explanation of new law

2.6                    Part 23 of the SIS Act enables the trustee of a superannuation fund to apply to the Minister for a grant of financial assistance where the fund has suffered loss as a result of fraudulent conduct or theft.

2.7                    These amendments commence from the date of Royal Assent.

2.8                    Following on from a review into the operations of Part 23 a number of amendments are being made so that financial assistance is available under Part 23 on an more equitable basis.  The amendments include:

·          removing the differences between the treatment of accumulation funds and Defined Benefit Funds (DBFs);

·          allowing former beneficiaries to obtain financial assistance under Part 23;

·          allowing funds which were eligible for Part 23 assistance at the time the loss was suffered but which subsequently restructured into SMSFs to obtain financial assistance; and

·          streamlining the Part 23 application process.

Abolishing the Special Protection Account (Items 1, 2 and 20)

2.9                    The Superannuation Protection Account is a special account for the purposes of the Financial Management and Accountability Act 1997 .  It was established to pay grants of financial assistance to superannuation funds which suffer losses due to theft or fraud, and to hold funds collected from the superannuation industry through the Financial Assistance Levy (FAL).  In practice, the account has never been used as all grant payments and recoveries to date have been channelled through consolidated revenue.  As there is no intention to change the current approach for the foreseeable future, the Superannuation Protection Account serves no practical purpose.

2.10                Item 1 removes a definition of Account in section 16 of the Financial Institutions Supervisory Levies Collection Act which refers to the Special Protection Account established by section 234 of the SIS Act.  The Special Protection Account is being abolished with all payments of financial assistance under Part 23 of the SIS Act coming out of the Consolidated Revenue Fund, so the definition of Account is no longer required.

2.11                Item 2 repeals section 24 of the Financial Institutions Supervisory Levies Collection Act as it refers to the Special Protection Account in relation to how payments of levy, any late payment penalty and repayments of financial assistance are to be applied.  The Special Protection Account is being abolished.

2.12                Item 2 substitutes the current requirements with one that states that if a levy is imposed as a result of a determination by the Minister to make a grant of financial assistance then amounts of the levy and late payment penalty in respect of the levy received by the Minister and repayments of the financial assistance must be paid to the Commonwealth.

2.13                Item 20 repeals sections 234, 235, 236 and 237 of the SIS Act as they make reference to the Superannuation Protection Account which is being abolished so that any future payments of financial assistance under Part 23 will come out of the Consolidated Revenue Fund.

Differences between defined benefit and accumulation funds (Items 3-5)

2.14                Items 3, 4 and 5 remove definitions relating to aspects of DBFs so that there will be greater equity in how accumulation funds and DBFs are treated for the purposes of claiming financial assistance under Part 23.  These amendments are required to reduce the inequity currently present in the operation of Part 23.  Under current arrangements, an accumulation fund must have suffered loss as a result of fraudulent conduct or theft in order to be eligible for financial assistance under Part 23.  However, DBFs must meet a higher threshold in order to successfully claim financial assistance under Part 23. 

2.15                For a DBF, an eligible loss is a loss resulting from fraudulent conduct or theft that an employer sponsor is required to pay to the fund, but would be unable to pay without becoming insolvent.  This distinction in treatment between accumulation funds and DBFs creates inequity.  The inequity between accumulation funds and DBFs is pronounced when considered in light of the funding arrangements in place for Part 23.  All monies granted under Part 23 are recouped through a levy on industry.  This levy does not remove, reduce or adjust the liability of DBFs in recognition of the limited availability of financial assistance for this type of fund.

Definition of eligible loss (Item 6)

2.16                Item 6 repeals the current definition of eligible loss in section 228 of the SIS Act and substitutes a new definition which clarifies that any deficit in the fund arising from the failure to pay contributions is not covered under Part 23.

2.17                It is appropriate that the SIS Act only provide financial assistance in circumstances where the fund trustee has assumed responsibility for the money.  Therefore, the proposed amendment clarifies the intended scope of the framework under Part 23 by explicitly preventing losses being claimed that arise as a result of the failure to pay contributions.  This ensures that, for both DBFs and accumulation funds, financial assistance should not be available to recompense loss arising from a failure of the employer-sponsor to meet its existing obligations to pay contributions to the fund.

Self managed superannuation funds (Items 7-9)

2.18                Item 7 repeals the definition of fund from section 228 of the SIS Act as it currently defines fund as not including SMSFs.  Under these amendments, a fund which was a regulated superannuation fund at the time the loss was suffered but subsequently restructured to an SMSF will be eligible for financial assistance under Part 23.  Therefore, the current definition of fund in section 228 is no longer required as a definition reflecting this change is inserted in section 229 of the SIS Act.

2.19                Item 8 inserts a new paragraph in section 229 of the SIS Act so that a fund that is a regulated superannuation fund (other than a SMSF) or an approved deposit fund (ADF) at the time of the loss is eligible for financial assistance under Part 23.  This item clarifies that the superannuation entity must only meet the definition of fund at the time the loss is suffered.

2.20                Item 9 adds a subsection to section 229 of the SIS Act to clarify that as long as a SMSF met the requirements in subsection (1) at the time the loss was suffered, they will be eligible for financial assistance under Part 23.

Streamlining the Part 23 application process (Items 11 and 12)

2.21                Items 11 and 12 amend sections 230 and 230A of the SIS Act to enable the Minister to appoint a delegate and for that delegate to exercise certain administrative functions such as requesting additional information from the trustee submitting an application for financial assistance and requesting written advice from APRA in relation to an application for financial assistance.

2.22                In order to streamline the processing of applications, it will be beneficial if the Minister has the power to delegate certain administrative functions contained in Part 23, to address these concerns. 

2.23                Specifically, the Minister or a delegate of the Minister will be permitted to make a written request for advice to APRA under section 230A(1) and make any requests for further information from the trustee under section 230. 

Former beneficiaries (items 13, 16, 17, 18)

2.24                Item 13 amends section 231 of the SIS Act to ensure that the Minister may take into account the interests of former beneficiaries when determining the amount of financial assistance to be granted.

2.25                Under current section 231, if the Minister is satisfied that a fund has suffered an eligible loss, he or she must then determine whether the public interest requires that a grant of financial assistance should be made to the trustee for the purposes of the fund, and if so, the amount of the assistance.  A risk exists that section 231, as it is currently formulated, may be construed as not allowing a grant which extends to former beneficiaries as ‘the fund’ is no longer maintained for their benefit.

2.26                Item 13 clarifies that the interests of former beneficiaries are relevant as the grant for financial assistance should be made to the trustee for the purposes of restoring the loss.

2.27                Items 16 and 17 amend section 233 to ensure that the trustee is able to make payments to former beneficiaries who were beneficiaries of the fund when the eligible loss was suffered.

2.28                Former beneficiaries, who were beneficiaries at the time of the eligible loss, may not receive entitlement to Part 23 assistance due to the time delay from when an eligible loss is suffered, the making of a Part 23 application and the grant of financial assistance.  This may occur because the beneficiary has transferred their savings to another superannuation entity or they may have been forced to exit the system for reasons such as retirement, before a Part 23 application is made or subsequently granted.

2.29                It is inequitable to prevent former beneficiaries from receiving Part 23 financial assistance because they are no longer beneficiaries of the fund at the time the application or grant is made.  ‘Beneficiary’ is defined in section 10(1) as ‘a person … who has a beneficial interest in the fund, scheme or trust’.  Once a person has left a fund, in most circumstances, they will no longer have a beneficial interest in the fund and will therefore not be a ‘beneficiary’ for the purposes of the SIS Act.  This amendment will ensure that former beneficiaries are included when payments of financial assistance are made under Part 23.

2.30                Item 18 adds a new subsection to section 233 so that trustees are able to determine and distribute payments to former beneficiaries without breaching their legal duties to current beneficiaries.

2.31                The conditions on Part 23 grants do not require the trustee to pay certain amounts to each beneficiary.  Rather the trustee must pay the money into the corpus of the fund and it is then a matter for the trustee to determine how to distribute those funds between beneficiaries.  But if trustees are required to make payments to former beneficiaries (subject to any condition the Minister may impose under paragraph (d) of section 233), this gives rise to potential conflicts with requirements imposed on trustees by the SIS Act, the general law and the governing rules to act for the benefit of beneficiaries.

Consequential amendments (items 10, 14, 15, 19, 21)

2.32                Item 10 makes an amendment to section 230 to accommodate the changes being made to the structure of the section by the introduction of new subsections. 

2.33                Item 14 adds a new subsection to section 231 to state that the Minister may grant financial assistance to a SMSF if they satisfy the requirements in section 229.  This item also includes a standing appropriation which is appropriate as the amount paid out for claims under Part 23 are wholly dependent on the number of applications.  As this figure cannot be determined in advance, a standing appropriation is suitable. 

2.34                This item also adds a subsection to clarify that the Consolidated Revenue Fund is to be used when making payments under Part 23 rather than the Special Account as it is being abolished. 

2.35                Item 15 makes an amendment to section 233 to accommodate the changes being made to the structure of the section by the introduction of new subsections.

2.36                Item 19 repeals the current heading of Division 3 of Part 23 of the SIS Act and substitutes it with a new heading ‘Repayment of financial assistance’.

2.37                Item 21 relates to the how claims made before and after the commencement of this Schedule are to be treated.  If a loss is suffered by the fund before the commencement of this Schedule, but an application for financial assistance is made on or after the commencement of this Schedule, then the amendments will apply.

2.38                If an application for financial assistance in relation to an eligible loss was made before the commencement of this Schedule, the amendments being made by this Schedule do not apply.

2.39                This delineation between claims made before and after the commencement of this Schedule is required to create certainty for trustees submitting applications for financial assistance.

Regulation Impact Statement

Background

2.40                Superannuation is a key element of the Government’s retirement incomes policy and its strategy to address the long-term consequences of an ageing population.  The prudential regulatory framework for superannuation is set out in the Superannuation Industry (Supervision) Act 1993 (the SIS Act).  This framework is designed to provide a high level of safety for the superannuation savings of all Australians and promote public confidence in the superannuation system. 

2.41                The Government does not guarantee superannuation savings.  However, in recognition of the compulsory nature of superannuation and its role in retirement income policy, the Government provides protection for superannuation fund beneficiaries that have suffered loss as a result of fraudulent conduct or theft.  Part 23 of the SIS Act provides a clear framework for providing financial assistance to superannuation funds that suffer a loss as a result of fraudulent conduct subject to certain conditions being met. 

2.42                Under Part 23, if a fund suffers an ‘eligible loss’ and the loss has caused a substantial diminution of the fund leading to difficulties in the payment of benefits, the trustee may apply to the Minister for Revenue and Assistant Treasurer for a grant of financial assistance.  Eligible loss means losses resulting from fraudulent conduct or theft in superannuation funds regulated by the Australian Prudential Regulation Authority (APRA).  Note that pooled superannuation trusts (PSTs) and self managed superannuation funds (SMSFs) are not eligible for Part 23 financial assistance.

2.43                All grants of financial assistance made under the Part 23 framework are firstly paid by the Government from consolidated revenue.  The amount paid is then recovered from the superannuation industry through the imposition of the Financial Assistance Levy (FAL), which is applied to all APRA-regulated superannuation funds, including both DBFs and accumulation funds.  SMSFs and PSTs are not levied.

2.44                The Government examined the issue of compensating fund members affected by fraudulent conduct or theft in superannuation funds in its October 2001 Issues Paper, ‘Options for Improving the Safety of Superannuation’.  The Superannuation Working Group that was appointed by the Government to examine and consult on the Issues Paper recommended in its final report that the Government review the operation of Part 23 of the SIS Act after the first decision to pay financial assistance had been made.  The first decision to grant financial assistance under the provisions of Part 23 was made in June 2002.

Review of Part 23

2.45                The Government subsequently released the initial Consultation Paper ‘Review into Part 23 of the Superannuation Industry (Supervision) Act 1993’ on 4 June 2003.  The Review sought comments from industry on:

·          the entities covered by Part 23;

·          what should constitute an eligible loss;

·          what should constitute a substantial diminution of a fund’s assets;

·          the level of compensation;

·          whether post-retirement products should be eligible for compensation;

·          the process for determining applications; and

·          the funding of compensation arrangements.

Consultations

2.46                The paper sought submissions from the public by 1 August 2003 and eight written submissions were received from industry associations representing the superannuation industry, superannuation trustees, accountants, members of the public and APRA.

2.47                The Department of Finance and Administration and the Australian Taxation Office (ATO) were also consulted as part of the Review.

2.48                Comments from both industry stakeholders and Government agencies were generally supportive of proposals for change arising from the Review.  Representatives from industry were particularly supportive of proposals for legislative amendment to promote equitable access to financial assistance under Part 23 for DBFs. 

2.49                In relation to the definition of eligible loss, two submissions raised the possibility of including dishonesty in the definition.  Adding an element of dishonesty was deemed unnecessary as it is central to the concept of fraudulent conduct.  In addition, this would make the test for Part 23 more subjective and would require a much wider class of evidence to be considered.

2.50                In relation to the issue of what should constitute a substantial diminution of a fund’s assets, some submissions suggest that a threshold should be used.  These suggestions were not taken up to ensure flexibility and allow individual applications can be considered on a case by case basis.

2.51                In addition, the Government conducted an industry roundtable consultation with key stakeholders. 

2.52                On July 7 2004, the then Minister for Revenue and Assistant Treasurer, Senator Helen Coonan, announced that the Government accepted all the recommendations from the Review.  The key findings of the Review included that:

·          a fund must be a regulated superannuation fund or an approved deposit fund, but not a SMSF, at the time a loss is suffered in order to be eligible for financial assistance under Part 23;

·          however, if individual members transfer into a SMSF, another regulated superannuation fund or an approved deposit fund after the loss is suffered, they are not precluded from applying for assistance;

·          the existing distinction between DBFs and accumulation funds for the purposes of Part 23 should be removed;

·          Part 23 should only cover losses suffered as a result of fraudulent conduct or theft; however, the legislation should be amended to clarify that any deficit in the fund arising from the failure of an employer-sponsor to pay contributions, is not covered under Part 23; and

·          a number of specific policy aspects of the current arrangements under Part 23 be retained.

2.53                A more detailed examination setting out the particulars of some of the outcomes can be found in the next section.

Outcomes of the Review

1.  Ensure all beneficiaries of the fund at the time of the eligible loss are entitled to Part 23 financial assistance

2.54                Due to the time delay from when an eligible loss is suffered, to the time when a grant of financial assistance is made, former beneficiaries, who were beneficiaries at the time of the eligible loss, may not receive entitlement to Part 23 assistance.  This occurs where beneficiaries have transferred their superannuation savings to another fund before a Part 23 application, and subsequently a grant of financial assistance, is made.  Alternatively, they may have been forced to exit the system for reasons such as retirement. 

2.55                The Government considered it inequitable to prevent former beneficiaries from receiving Part 23 financial assistance because they are no longer beneficiaries of the fund at the time the grant is made.  As a result, the Government has committed to amend the SIS Act to ensure that a fund may make an application on behalf of all the members at the time the loss was suffered (that is, both current and former beneficiaries of the fund). 

2.  ‘Eligible loss’ fund restructures to an SMSF before making a Part 23 application

2.56                Difficulties in the operation of Part 23 have also occurred in the case of small APRA-regulated funds (SAFs) that have suffered an eligible loss (‘eligible loss’ funds) and subsequently restructured to become an SMSF before making a Part 23 application.  As a result of this restructure, they are ineligible for Part 23 financial assistance because the current legislative provisions specifically exclude an SMSF from making an application for financial assistance. 

2.57                The policy of Part 23 is that financial assistance is not available to SMSFs because all members are trustees and therefore responsible for the prudent operation of the fund and investment strategy.  However, the Government considered it inequitable to preclude a superannuation fund that was eligible for Part 23 financial assistance at the time the loss was suffered, and that restructured to an SMSF arrangement before making an application, from applying for Part 23 assistance.  The Government is committed to ensuring that a fund eligible for financial assistance under Part 23 is not precluded from making an application despite subsequently transferring to an SMSF.

2.58                In the case of Commercial Nominees of Australia Limited (CNAL), approximately 19 funds that were SAFs under the trusteeship of CNAL at the time of the eligible loss subsequently restructured to become SMSFs.  As a result, these funds were ineligible to apply.  The Government has provided financial assistance to some funds in this situation through an Act of Grace payment made under the Financial Management and Accountability Act 1997 (FMA Act).  However, this is not considered an optimal solution, as the costs are subsidised by Government since it is not possible to recoup these costs through the FAL.

3.  Distinction between accumulation funds and DBFs

2.59                The differential treatment of DBFs under the legislative criteria was raised by industry representatives during the consultation process.  An accumulation fund must have suffered loss as a result of fraudulent conduct or theft in order to be eligible for financial assistance under Part 23.  However, DBFs must meet a higher threshold in order to successfully claim financial assistance under Part 23.  For a DBF, an eligible loss is a loss resulting from fraudulent conduct or theft that an employer-sponsor is required to pay to the fund, but would be unable to pay without becoming insolvent.  

2.60                During the review consultation, stakeholders expressed concern that the existing legislation creates inequity by not recognising that a superannuation entity and its employer-sponsor are separate legal entities.  It was submitted that the impact of losses arising from fraudulent conduct or theft should not be borne by the employer-sponsor, who has already paid contributions to the fund.  The Government agreed that the SIS Act should be amended to remove the distinction between accumulation funds and DBFs.  This would ensure a level playing field for DBFs and accumulation funds in relation to access to financial assistance. 

Proposed Legislative Amendments

2.61                Part 23 of the SIS Act is being amended to ensure that the trustee of a fund may make an application for financial assistance on behalf of all beneficiaries of the fund at the time the loss was suffered (that is, both current and former beneficiaries).  In addition, the SIS Act is being amended to ensure that a superannuation fund that is eligible for financial assistance under Part 23 at the time a loss is suffered is not prevented from making a Part 23 application despite subsequently restructuring to an SMSF.

2.62                Amendments to Part 23 of the SIS Act are also being made to remove the distinction between DBFs and accumulation funds for the purpose of defining what constitutes an eligible loss.  This will ensure that both types of fund must meet the same threshold requirements in order to be eligible for financial assistance and will give clearer recognition to the employer-sponsor as a separate legal entity to the fund. 

2.63                These amendments would ensure that the Part 23 framework operates in a more equitable manner.

Assessment of impacts (costs and benefits)

2.64                The main groups likely to be affected by the proposed amendments are superannuation funds and their respective trustees, members of APRA-regulated superannuation funds, employer-sponsors of APRA-regulated DBFs, the Government and the community.

Costs

Costs to superannuation funds and trustees

2.65                These amendments would require trustees of an APRA-regulated fund eligible for Part 23 financial assistance to ensure that all eligible beneficiaries (both current and former fund members), that were beneficiaries at the time of the eligible loss, receive their entitlement to financial assistance.  It is expected that there will be some administrative costs involved in identifying and locating former beneficiaries as current arrangements under Part 23 do not allow financial assistance to be paid to these persons.  These administrative costs are generally included in the grant of financial assistance, which is subsequently recouped from all members of APRA-regulated superannuation funds through a levy. 

2.66                These amendments may potentially increase the number of determinations made under Part 23 (because the legislation will expand the eligibility criteria for DBFs and ‘eligible loss’ funds that subsequently restructure to an SMSF).  This is not expected to increase the compliance costs associated with the administration of the levy because there is only one levy to recoup the aggregate of financial assistance granted in a financial year.

Costs to employer-sponsors of APRA-regulated DBFs

2.67                These amendments would not impose any direct costs on employer-sponsors of APRA-regulated DBFs.

Costs to members of APRA-regulated superannuation funds

2.68                These amendments would potentially increase the amount of the FAL levied on industry.  Consequently the administrative costs payable on individual member accounts will also increase as trustees seek to recover the cost of the levy from members.  However, given that any increase in levies would be spread over a larger number of members, the additional cost per member would be very small. 

2.69                In addition, these amendments would potentially result in an increase in the number of applications.  The increase in applications from DBFs is not expected to be significant.  DBFs comprise a small proportion of the total superannuation market.  As at 30 June 2006, there were 327,214 superannuation funds in total with 57 of these funds being DBFs.  As a proportion of total assets, only 8.6 per cent (or $56.4 billion) of total superannuation assets were held by DBFs.

Costs to Government

2.70                The Government would incur costs in developing legislation.  However, those time and resource costs are not expected to be significant.  

2.71                These amendments may increase the administrative costs associated with processing Part 23 applications.  There may be an increase in the number of applications from ‘eligible loss’ funds that have restructured to an SMSF before making an application or from DBFs.

2.72                However, the increase in applications is not expected to be significant.  To date, there have been approximately 19 ‘eligible loss’ funds that have been denied access to financial assistance under Part 23 because they restructured to an SMSF arrangement before making an application.  These funds were compensated for lack of access to Part 23 financial assistance through Act of Grace payments made under the FMA Act.  The total amount paid to the SMSFs was $155,931.69

Benefits

Benefits to community

2.73                Given the role of superannuation in the Government’s retirement income policy, the compulsory nature of some superannuation savings and information asymmetries, it is essential that the community retain confidence in the safety of their superannuation savings.  The proposal would also enhance public confidence by providing greater certainty and equity in the operation of Part 23.

Benefits to superannuation funds and trustees

2.74                APRA-regulated funds that suffer an eligible loss and restructure to an SMSF before making an application under Part 23 would benefit directly from the proposed legislative amendments.  These amendments will result in a more equitable outcome for these funds that have inadvertently been denied access to financial assistance because they have restructured. 

2.75                DBFs would benefit directly from legislative amendments that remove the additional eligibility requirements for DBFs seeking financial assistance under Part 23.  Such amendments would improve the availability of financial assistance for DBFs, and would improve certainty by simplifying the process for seeking redress.  These amendments are also expected to improve equitable treatment between DBFs and accumulation funds. 

Benefits to employer-sponsors of APRA-regulated DBFs

2.76                These amendments directly reduce the employer-sponsor’s exposure to costs, as the employer-sponsor would no longer be solely responsible for making up contributions lost due to fraudulent conduct or theft.  The legislative amendments recognise that the employer-sponsor and the fund are separate legal entities and remove the potential liability for the employer-sponsor to make good losses suffered due to fraudulent conduct or theft.

2.77                In removing the employer-sponsor’s potential liability to the fund, these amendments also increase certainty for the employer-sponsor regarding their obligations to make contributions to the fund.

Benefits to members of APRA-regulated superannuation funds

2.78                These amendments facilitate more equitable access to financial assistance in cases of fraudulent conduct or theft.  By improving the certainty and security of the Part 23 framework, these amendments are also likely to increase confidence in the superannuation system.  These amendments further reinforce that there is an effective safety net available when funds suffer losses as a result of fraudulent conduct or theft. 

2.79                These amendments remove the legal impediments to the operation of Part 23 that prevent an equitable outcome for former beneficiaries and APRA-regulated funds that suffer an eligible loss and subsequently restructure to become an SMSF.

2.80                These amendments also ensure that members from both DBFs and accumulation funds have equitable access to financial assistance in instances of fraudulent conduct or theft.  Currently the cost of financial assistance is recovered through the imposition of levies on both DBFs and accumulation funds.  However, members of DBFs do not have the same access to financial assistance.

2.81                Improving access to the financial assistance provisions for DBFs may also impact on the financial viability of such funds, making it less likely that a DBF would be wound up in favour of an accumulation fund.

Benefits to Government

2.82                Improved confidence in the superannuation system is likely to result in more willingness to save for retirement.  This would assist the Government in achieving its retirement income goals.

Implementation and Review Strategy

2.83                The amendments will take effect for all applications lodged under Part 23 of the SIS Act after the date of Royal Assent.  As drafted, the proposed amendments will implement this.   

Review strategy

2.84                The Government will continue to monitor the operation of Part 23 in respect of any new applications for financial assistance after the amendments have been implemented and will liaise with APRA and industry on issues relating to:

·          the number of applications received;

·          the type of funds submitting applications; and

·          the processing of applications.



C hapter 3

Accounts, reporting obligations etc

Outline of chapter

3.1                    Schedule 3 to this Bill amends the SIS Act , SMSF Taxation Act and the ITAA 1936 to:

·          consolidate and rationalise the prudential reporting requirements under the SIS Act;

·          distinguish between reporting requirements relating to RSEs and SMSFs; and

·          remove the regulatory gap that exists in the SIS Act for the reporting of contraventions of the market conduct and disclosure provisions in the Corporations Act.

Context of amendments

3.2                    The prudential reporting requirements for superannuation entities are located in four Parts of the SIS Act and Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations).  This has the effect of creating unnecessary complexity and potential confusion as to reporting obligations.  In addition, the terminology used in the SIS legislation can make it difficult to determine which reporting obligations relate to SMSFs and which relate to APRA-regulated superannuation entities, as both are ‘superannuation entities’.  The reporting obligations for SMSFs (regulated by the ATO differ slightly from those requirements imposed on APRA-regulated entities.

Summary of new law

3.3                    New Part 4 of the SIS Act will contain the reporting obligations for RSEs and SMSFs.  These amendments apply from the date of Royal Assent. 

Comparison of key features of new law and current law

New law

Current law

The reporting obligations under the SIS Act will be found under new Part 4.

The reporting obligations under SIS are found in Parts 4 and 13 of the SIS Act.

Detailed explanation of new law (items 8, 10, 12, 14)

3.4                    The SIS Act is the principal legislation establishing the prudential framework for the regulation of the superannuation industry, including the prudential reporting requirements of superannuation entities.  The purpose of the reporting requirements is to assist the regulator in the prudential supervision of the superannuation industry. 

3.5                    The prudential reporting requirements in the SIS Act are currently located in Parts 4 and 13.  The consolidation and rationalisation of the prudential reporting requirements in the SIS Act aims to ensure ease of compliance by superannuation entities.  This assists the regulator in its prudential supervision activities and promotes confidence that the entities providing superannuation services are prudently managed.

3.6                    In accordance with the Superannuation Safety Amendment Act 2004 , an amendment was made that from 1 July 2006, the definition of ‘approved deposit fund’ would delete a reference to the fund being maintained by an approved trustee.  Accordingly, a fund which was formerly an Approved Deposit Fund, prior to 1 July 2006, because it had an approved trustee is no longer an ADF if the trustee has not become an RSE licensee.  The fund will also not meet the definition of an RSE in subsection 10(1) of the SIS Act because it is not an ADF.  This situation leads to the unintended result that the trustee of the fund will not be in breach of the offence provision in section 29J of the SIS Act because that provision only applies to a trustee of an RSE.

3.7                    By removing the reference to an RSE licensee in the definition of an ADF this will ensure that section 29J applies as intended.  That is, ADFs that operate with an unlicensed trustee will be subject to the offence provisions in section 29J.  This provision will provide a strong incentive for those funds to adhere to the licensing provisions under the SIS Act.

3.8                    Item 8 repeals the current Part 4 of the SIS Act and replaces it with a new Part 4 which consolidates the reporting obligations for RSEs and SMSFs that were previously found in Parts 4 and 13 of the SIS Act.  The consolidation and rationalisation of the prudential reporting requirements in the SIS Act aims to ensure ease of compliance by superannuation entities.  This assists the regulator in its prudential supervision activities and promotes confidence that the entities providing superannuation services are prudently managed.

3.9                    The new Part 4 is titled accounts, audit and reporting obligations for superannuation entities and includes requirements:

·          under new section 35A to keep accounting records (existing section 111 of the SIS Act);

·          under new section 35B to prepare reporting documents/accounts and statements (existing section 112 of the SIS Act);

·          under new section 35C relating to the audit of accounts and statements (existing section 113 of the SIS Act);

·          under new section 35D to lodge annual returns (existing section 36A of the SIS Act); and

·          under new section 36 to lodge audit reports (existing section 36 of the SIS Act).

3.10                Item 8 also clarifies which reporting requirements apply to RSEs and which reporting requirements apply to SMSFs.  SMSFs and RSEs are both ‘superannuation entities’, but as SMSFs are regulated by the ATO, the reporting requirements differ slightly from those requirements imposed on RSEs.  These amendments to the SIS Act aim to clearly distinguish between the reporting requirements that apply to RSEs and SMSFs.

3.11                More specifically, item 8 also makes technical amendments to current section 36 clarify the intent and improve the operation of the SIS Act.  The purpose of section 36 of the SIS Act is to impose the requirement for RSEs to lodge an audit report with APRA. 

3.12                Current subsection 36(4) is repealed under this item.  Pursuant to current subsection 36(4) if the return given under FSCODA (the APRA annual return) is not given on a data processing device, or by way of electronic transmission, that is, it is provided in hard copy format, the copy of the audit report may be endorsed as being a true copy on the return.  Therefore, the trustee may sign the annual return stating that a copy of the audit report provided to APRA is a true copy.

3.13                However, this does not occur in practice.  If a copy of the audit report is provided in hard copy, the trustee will endorse that it is a true copy on the audit report and not the annual return.  Therefore, this provision does not operate as intended.

3.14                Current subsection 36(5) is also being repealed.  Pursuant to subsection 36(5) SMSFs were explicitly exempted from this requirement.  However, in 2001, subsection 36(5) was amended to include a reference to FSCODA.  In its current form subsection 36(5) is no longer effective in exempting SMSFs from this requirement and therefore, technically, SMSFs are currently required to lodge an audit report under subsection 36(1) with APRA.  However, in practice SMSFs are not meeting this requirement because it is not the intent of the provision.

3.15                Item 8 also amends current paragraph 113(3)(b) so that it includes a reference to the Corporations Act and Corporations Regulations 2001 (Corporations Regulations).  Pursuant to current subsection 113(1) of the SIS Act, each trustee of a superannuation entity must appoint an approved auditor to provide the trustee with an audit report in the approved form.  Current subsection 113(3) expands on what is an approved form.

3.16                Current paragraph 113(3)(b) provides that the approved form must include a statement by the auditor relating to compliance with the provisions in the SIS Act, SIS Regulations and FSCODA, as identified in the form.  There is no reference to the Corporations Act and Regulations in this provision.  However, the approved form requires the approved auditor to provide a statement that the entity has complied with the provisions of the Corporations Act and Regulations, identified in the form.  This amendment ensures that the provisions in the Corporations Act and Regulations are also captured in paragraph 113(3)(b).

3.17                Item 10 amends paragraph 129(1)(a) of the SIS Act to include a reference to paragraph (b) of the definition of ‘regulatory provision’ in section 38A of the SIS Act.  Pursuant to current section 129 of the SIS Act, an auditor or actuary who in the performance of their functions, forms an opinion that it is likely that a contravention of the SIS Act, SIS Regulations or FSCODA may have occurred, may be occurring, or may occur, must tell the trustee of the superannuation entity about the matter in writing.  If the contravention or potential contravention may affect the interests of members or beneficiaries, the auditor or actuary is also required to notify the Regulator in writing. 

3.18                Under section 129 there is currently no obligation on the auditor or actuary to report contraventions of the market conduct and disclosure provisions of the Corporations Act to the trustee or the regulator.  This is contrary to the situation that existed before amendments were made by the FSR legislation which transferred the market conduct and disclosure provisions from the SIS Act to the Corporations Act.  These amendments will ensure that contraventions of the relevant Corporations Act provisions are reported.  The reporting of contraventions of the relevant Corporations Act provisions is to apply to RSEs and not SMSFs.

3.19                Items 11 and 12 amends subsection 130A(1) to include the giving of information to APRA if the auditor or actuary considers that the information will assist ASIC in performing its functions under the Corporations Act.

3.20                Pursuant to current section 130A of the SIS Act, an auditor or actuary may give the Regulator information about the superannuation entity or trustee in the performance of their functions if they consider that the information will assist the regulator in performing its functions under the SIS Act, SIS regulations or FSCODA.  For the purposes of this section, the regulator is APRA in relation to RSEs and the ATO in relation to SMSFs. 

3.21                However, this provision does not provide for the giving of information to the regulator to assist the ASIC in the performance of its functions under the Corporations Act.  Therefore, this amendment will ensure that auditors and actuaries may provide information to the Regulator (APRA) where they consider the information will assist ASIC in performing its functions under the Corporations Act. 

3.22                Item 14 introduces a number of savings and applications provisions into the SMSF Taxation Act so that if immediately before the commencement of this Schedule subsection 111(2) or 112(4) of the SIS Act applied to a trustee, then that subsection continues to apply.  Also, if before the commencement of this Schedule an auditor requested that a trustee of a superannuation entity give the auditor a document under subsection 113(1A) of the SIS Act and the request had not been complied with, the trustee’s obligation continues to apply.

3.23                In addition, sections 35B, 35C and 35D of the SIS Act apply in relation to a superannuation entity in respect of the year of income in which those sections commence and each later year of income.

Consequential amendments (items 1, 2, 4-7, 9, 13)

3.24                Items 1 and 2 are amendments to correct a misdescribed amendment. 

3.25                Item 1 inserts reference to a report submitted under section 13 of FSCODA.  Item 2 repeals item 152 of Schedule 2 under the Financial Sector (Collection of Data - Consequential and Transition Provisions) Act 2001 .  This removes the reference to section 36 SIS Act under paragraph 9(2)(a) of Financial Institutions Supervisory Levies Collection Act 1998

3.26                The proposed amendment was misdescribed as a result of two amendments in separate Bills attempting to amend paragraph 9(2)(a) at the same time. 

3.27                Item 3 makes consequential amendments to the ITAA 1936 to reflect the change in numbering of section 36A of the SIS Act to section 35D of the SIS Act. 

3.28                Item 4 is a consequential amendment as a result of consolidating the reporting obligations for RSEs and SMSFs.  It updates a table in section 4 of the SIS Act to reflect the consolidated reporting requirements in Part 4 of the SIS Act.

3.29                Item 5 repeals part of a table in section 4 of the SIS Act which refers to Part 13 of the SIS Act which is being repealed under the proposal to consolidate the reporting obligations under the SIS Act.

3.30                Item 6 is a consequential amendment as a result of consolidating the reporting obligations for RSEs and SMSFs.  It amends a reference under subparagraph 6(1)(a)(vii) to Part 13 which is being consolidated into the new Part 4 of the SIS Act.

3.31                Item 7 inserts new subsection 29(1A), to provide APRA with the power to cancel the registration of a RSE, where the entity moves from APRA-regulation to ATO-regulation after converting to an SMSF.  Current section 29N provides that APRA must cancel the registration of an RSE where the trustee lodges a reporting document stating that the entity has been wound up.  However, this provision does not give regard to the instance where an RSE switches to become a fund regulated by the ATO.  The fund will no longer be an RSE, but there are currently no grounds for APRA to cancel the registration of the fund. 

3.32                Item 9 repeals Part 13 of the SIS Act as the reporting requirements previously found in Part 13 will be moved to the new Part 4 of the SIS Act.

3.33                Item 13 is a consequential amendment that amends a reference to current section 36A in section 15DA of the SMSF Taxation Act so that it refers to the new numbering in the SIS Act. 



C hapter 4

Technical amendments relating to legislative instruments

Outline of chapter

4.1                    Schedule 4 to this Bill makes amendments to legislation that are consequential on the enactment of the LIA.  Items in this Schedule replace references to ‘Acts Interpretations Act 1901’ (AIA) with references to ‘Legislative Instruments Act 2003’.

Detailed explanation of new law

4.2                    Schedule 4 makes technical amendments to various legislation that are consequential on the enactment of the LIA.  These amendments do not in any way affect the operation of the various legislation. 

4.3                    The amendments replace references to ‘disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901’, ‘must be in writing’ and ‘determination in writing’ with ‘legislative instrument’, the latter being subject to the requirements of the LIA, rather than AIA.  These replace references to AIA with references to LIA. 

4.4                    These also specify that a legislative instrument may take effect before it is registered on the FRLI, notwithstanding section 12(2) of the LIA. 

4.5                    These amendments apply from the date of Royal Assent.

4.6                    These technical amendments are made to the:

·          ASIC Act ( Item 1 );

·          Authorised Deposit taking Institutions Supervisory Levy Imposition Act ( Items 2 and 3 );

·          Authorised Non operating Holding Companies Supervisory Levy Imposition Act 1998 ( Items 4 and 5 );

·          Banking Act ( Items 6 to 9 );

·          Cheques Act 1986 ( Items 10 and 11 );

·          Commonwealth Bank Sale Act 1995 ( Item 12 );

·          Commonwealth Borrowing Levy Collection Act 1987 (Items 13 to 15 );

·          Corporations Act ( Items 16 to 30 );

·          Currency Act 1965 (Items 31 to 34 );

·          Financial Sector (Transfers of Business) Act 1999 (Items 35 and 36) ;

·          Financial Sector (Collection of Data) Act 2001 ( items 37 to 40 );

·          Insurance Acquisitions and Takeovers Act 1991 (Items 41 and 42) ;

·          Insurance Act (Items 43 to 50) ;

·          Life Insurance Supervisory Levy Imposition Act 1998 (Items 51 and 52) ;

·          Payment Systems and Netting Act 1998 ( Items 53 and 54 );

·          Retirement Savings Account Providers Supervisory Levy Imposition Act 1998 (Item 55 and 56 );

·          SIS Act ( Items 57 to 73 );

·          Superannuation Supervisory Levy Determination Validation Act 2000 ( Item 74 ); and

·          S uperannuation Supervisory Levy Imposition Act 1998 ( Items 75 and 76 ).