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Thursday, 13 August 2009
Page: 4867

Senator COONAN (12:45 PM) —I speak on the proposed Financial Sector Legislation Amendment (Enhancing Supervision and Enforcement) Bill 2009 and confirm that the coalition supports this bill. I will address a few comments to it briefly. The purpose of the bill is twofold: firstly, to make APRA responsible for the supervision of what are called non-operating holding companies—otherwise known as NOHCs—of life insurers; and, secondly, to harmonise and strengthen the regulators’ powers to seek court injunctions under a range of acts, including the Banking Act 1959, the Insurance Act 1973, the Life Insurance Act 1995 and the Superannuation Industry (Supervision) Act 1993.

Prudential regulation of non-operating holding companies and related corporate groups was a recommendation from the HIH royal commission. It was also identified in the Wallis report that the former coalition government commissioned in 1997 and acted upon. With the passage of the bill, APRA will be able to seek a consistent and comprehensive range of injunctions from the Federal Court of Australia, and this power will apply to authorised deposit-taking institutions—otherwise known as ADIs—and to general insurance, life insurance and superannuation.

The bill is aimed at ensuring that, where life insurance companies are part of large corporate groups, they are not exposed to risks that stem from other companies within the group. As these risks may affect policy holders, the parent of the non-operating holding company will become subject to APRA’s prudential supervision. The objectives of the bill are consistent with international agreements on prudential supervision of systemically important financial institutions. Following the Wallis inquiry and the HIH royal commission, APRA was given regulatory oversight of ADIs and of general insurers, and this particular bill continues the former government’s work by bringing the non-operating holding companies of life insurers within APRA’s bailiwick.

There was, however, an important matter, which I will just mention, raised during the coalition’s consultation phase with industry into this bill. Many APRA directions are not subject to a merits review process. APRA’s power to issue directions without merits reviews is used to prevent borrowing, prevent the payment of dividends, and remove directors and senior managers—all very significant matters for listed companies. So we have come to the view that there may be some value in considering having a universal merits review process for all of APRA’s directions. If there were processes for merits review available on all of the directions, it could enhance natural justice, improve prudential regulation in our country and instil greater confidence in stakeholders across industries in working with the regulator. Such a merits review would have the added advantage of allowing the regulator and regulated entities to better understand the practical implications of such directions and indeed whether such directions were necessary.

I reinforce that the coalition support this bill, but we do ask the government to have a look at this and to work with us and industry stakeholders across the entire Australian financial services field to consider whether a widened merits review capability is warranted. With those comments, I commend the bill.