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Banking Laws Amendment (Unclaimed Money) Bill 2015



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ISSN 1328-8091

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BILLS DIGEST NO. 14, 2015-16 2 SEPTEMBER 2015

Banking Laws Amendment (Unclaimed Money) Bill 2015 Tarek Dale Economics Section

Contents

Purpose of the Bill ............................................................... 2

Background ......................................................................... 2

The earlier change in the threshold: from seven to three years ........................................................................................ 2

Reviews and consultation ........................................................ 3

Discussion paper.................................................................... 3

Financial System Inquiry ........................................................ 3

Exposure draft legislation ...................................................... 3

Committee consideration .................................................... 3

Policy position of non-government parties/independents ..... 3

Position of major interest groups ......................................... 4

Australian Bankers’ Association .............................................. 4

Customer Owned Banking Association .................................... 4

Financial Rights Legal Centre ................................................... 4

National Seniors Australia ....................................................... 4

Privacy Commissioner ............................................................. 4

Financial implications .......................................................... 5

Statement of Compatibility with Human Rights .................... 5

Key issues and provisions..................................................... 5

Changing the period of inactivity from three years to seven years .............................................................................. 5

Regulatory impacts ................................................................ 6

Exemptions for foreign currency and children’s accounts ...... 6

Foreign currency accounts .................................................... 6

Changes to handling of personal information ......................... 7

Other provisions .................................................................. 7

Date introduced: 13 August 2015

House: House of Representatives

Portfolio: Treasury

Commencement: 31 December 2015.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website.

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Purpose of the Bill The Bill amends the Banking Act 1959 and the Life Insurance Act 1995 so that inactive bank accounts and unclaimed life insurance policies are treated as unclaimed (and therefore transferred to the Commonwealth) after seven years of inactivity, rather than after three years.1

The Bill also makes a number of other amendments. Foreign currency and children’s accounts will be added to the list of accounts which are exempt from the unclaimed moneys requirements under the Banking Act. Details of account holders with unclaimed money will no longer be published, and will be exempt from the requirements of the Freedom of Information Act 1982.2

Background Under the Banking Act and the Life Insurance Act, ‘unclaimed money’ is transferred to the Commonwealth. Unclaimed moneys include bank accounts that are inactive (no deposits or withdrawals) for a specified period, or life insurance policies that are unclaimed after the policy matures.3

Individuals whose money is transferred to the Commonwealth can reclaim it, and from July 2013 interest is paid at the rate of change in the consumer price index.4 The details of unclaimed moneys are publicly available, including through the Australian Securities and Investments Commission (ASIC) Moneysmart website, and publication in the ASIC Gazette.5

The earlier change in the threshold: from seven to three years The period of inactivity required before money is treated as unclaimed is currently three years. The threshold was seven years, prior to the commencement of Treasury Legislation Amendment (Unclaimed Money and Other Measures) Act 2012.6 That legislation also established a right to interest on unclaimed moneys from July 2013, among other changes.7

A joint press release by the former Treasurer Wayne Swan and Parliamentary Secretary to the Treasurer Bernie Ripoll stated that ‘Australians who have lost track of superannuation or old bank accounts will now have their money returned faster and interest paid to preserve its real value’.8 In its submission to a Senate inquiry on those changes, consumer organisation CHOICE commented:

The proposed amendment contains several important benefits for consumers. With unclaimed monies being transferred four years earlier to the Commonwealth, the Australian Securities and Investments Commission, or the Commissioner of Taxation, the erosion of balances through fees, commission and adverse market movements is substantially reduced.

9

1. Banking Act 1959 (Cth) and Life Insurance Act 1995 (Cth), both accessed 26 August 2015. 2. Freedom of Information Act 1982 (Cth), accessed 26 August 2015. 3. Australian Securities and Investments Commission (ASIC), ‘Unclaimed money: How to find your lost money’, ASIC website, accessed 24 August 2015; ASIC, ‘Claim money from life insurance policies’, Moneysmart website, 6 July 2015, accessed 24 August 2015. Subsection

69(1) of the Banking Act provides that unclaimed money is ‘moneys to the credit of an account that has not been operated on either by deposit or withdrawal’ for the time-frame specified (currently three years). Subsection 216(15) of the Life Insurance Act contains the definition in relation to life insurance policies. 4. ASIC, ‘Interest paid on unclaimed money’, Moneysmart website, 18 June 2015, accessed 24 August 2015. 5. ASIC, ‘Find unclaimed money: Find your lost money’, Moneysmart website, 18 June 2015, accessed 24 August 2015; ASIC, ‘ASIC gazette: unclaimed monies’, ASIC website, 11 August 2015, accessed 24 August 2015. 6. Treasury Legislation Amendment (Unclaimed Money and Other Measures) Act 2012 (Cth), accessed 24 August 2015. 7. K Swoboda, Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012, Bills digest, 50, 2012-13, Parliamentary Library, Canberra, 2012, p. 3, accessed 26 August 2015. These changes were announced in the 2012-13 Mid-Year Economic and Fiscal Outlook (W Swan (Treasurer) and P Wong (Minister for Finance and Deregulation), Mid-year economic and fiscal outlook 2012-13, p. 277, accessed 24 August 2015). 8. W Swan (Treasurer) and B Ripoll (Parliamentary Secretary to the Treasurer), Unclaimed money and lost super now properly protected, media release, 29 November 2012, accessed 26 August 2015. 9. CHOICE, Submission to Senate Economics Legislation Committee, Inquiry into the Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012, 9 November 2012, accessed 25 August 2015, p. 1.

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Reviews and consultation

Discussion paper In May 2014 the Government released a discussion paper on potential changes to the unclaimed moneys regime, including requests for comments on three options to:

• retain the status-quo of three years

• increase the period of inactivity required to five years or

• increase it to seven years.10

That discussion paper also included discussion on related issues, including:

• whether foreign currency accounts should be captured

• balancing privacy requirements with the requirement to publish information on unclaimed moneys and

• other administrative issues.11

Financial System Inquiry In November 2014 the Financial System Inquiry discussed unclaimed moneys in an appendix to its final report. The report stated:

At present, bank accounts and life insurance policies are deemed to be unclaimed moneys and transferred to Government if they are inactive for three years. The present position was changed in 2012, from a longstanding arrangement that required an inactive period of seven years.

The Australian Bankers’ Association estimates that reverting to seven years would halve the number of claims. The Inquiry believes Government should act to ensure bank accounts and life insurance policies are deemed unclaimed after seven years of inactivity and that these moneys should be held in a separate trust account. 12

The final report recommended that the Government should:

Define bank accounts and life insurance policies as unclaimed moneys only if they are inactive for seven years. 13

Exposure draft legislation The Government (Treasury) subsequently released an Exposure Draft of legislation proposing amendments to the unclaimed moneys regime, including changes to increase the period of inactivity back to seven years.14 The Bill as tabled is identical to the Exposure Draft.

Committee consideration At the time of writing the Bill had not been referred to a committee for inquiry and report.15 The Senate Standing Committee for the Scrutiny of Bills had no comment on the Bill.16

Policy position of non-government parties/independents At the time of writing, debate in the House of Representatives had not proceeded beyond the Minister’s second reading speech.17

10. Treasury, Options for improving the unclaimed bank account and life insurance money provisions, Discussion paper, 30 May 2014, p. 6, accessed 24 August 2015. 11. Ibid.

12. Financial System Inquiry (FSI), Final Report, Treasury, Parkes, November 2014, p. 272, accessed 26 August 2015. 13. Ibid., p. 272. 14. Treasury, Banking Laws Amendment (Unclaimed Money) Bill 2015—Exposure Draft, [28 May 2015], accessed 27 August 2015. 15. The House of Representatives Selection Committee had not yet considered the Bill. The Senate Selection of Bills Committee had deferred

consideration of the Bill: Senate Selection of Bills Committee, Report, 10, 2015, The Senate, Canberra, 20 August 2015, pp. 3-4, accessed 25 August 2015. 16. Senate Standing Committee for the Scrutiny of Bills, Alert digest, 8, 2015, Senate, Canberra, 19 August 2015, p. 4. 17. J Frydenberg, ‘Second reading speech: Banking Laws Amendment (Unclaimed Money) Bill 2015’, House of Representatives, Debates, 13 August 2015, pp. 3-4.

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The earlier change from seven to three years was a measure introduced by the previous Labor Government in the Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012.18 The Australian Greens and Senator Xenophon voted in support of that Bill, while Senator Madigan voted against it.19

Position of major interest groups The Treasury has not released the submissions on the exposure draft of the Bill.20 Some of the submissions made to the earlier discussion paper in 2014 are summarised below.

Australian Bankers’ Association The Australian Bankers’ Association (ABA) supported increasing the period of inactivity before money is treated as lost from three years to seven years.21 The ABA also recommended exemptions for a number of accounts, including children’s accounts and foreign currency accounts,22 and tightening the provisions on handling the personal information of account holders.23

Customer Owned Banking Association The Customer Owned Banking Association (COBA) is the ‘industry body for credit unions, mutual building societies and mutual banks’.24 Its submission noted:

We do not see any compelling argument which would suggest that moving from a three year period to a five of [sic] seven year period would reduce the number of accounts transferred unnecessarily. 25

The submission also noted the potential for regulatory costs in requiring authorised deposit-taking institutions (ADIs) to undertake further changes to the existing system.26

Financial Rights Legal Centre The Financial Rights Legal Centre supported the option of a five year threshold.27 It also argued for a requirement to notify consumers in writing before accounts are treated as unclaimed (this is not currently a requirement), and noted concerns about the publication of personal information.28

National Seniors Australia National Seniors Australia supported extending the period of inactivity to seven years, and amending the current legislation to ensure the protection of personal information.29

Privacy Commissioner The Privacy Commissioner, Timothy Pilgrim, provided a detailed submission to the Treasury discussion paper. This included a recommendation for Treasury to consider removing the requirement for publication of the details of unclaimed moneys.30

18. B Ripoll, ‘Second reading speech: Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012’, House of Representatives, Debates, 13 August 2015, pp. 12575-12576. 19. Australia, House of Representatives, ‘Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012’, Votes and Proceedings, 144, 27 November 2012; Australia, Senate, ‘Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012’,

Votes and Proceedings, 129, 29 November 2012. 20. Treasury, Banking Laws Amendment (Unclaimed Money) Bill 2015—Exposure Draft, op. cit. 21. Australian Bankers’ Association (ABA), Submission to Treasury, Options for improving the unclaimed bank account and life insurance money

provisions—Discussion paper, 11 July 2014, p. 1, accessed 24 August 2015. 22. Ibid., pp. 4-5. 23. Ibid., pp. 5-6. 24. Customer Owned Banking Association, Submission to Treasury, Options for improving the unclaimed bank account and life insurance money

provisions—Discussion paper, 11 July 2014, p. 1, accessed 24 August 2015. 25. Ibid., p. 3.

26. Ibid., p. 4.

27. Financial Rights Legal Centre, Submission to Treasury, Options for improving the unclaimed bank account and life insurance money provisions—Discussion paper, July 2014, p. 1, accessed 24 August 2015. 28. Ibid., pp. 1-2. 29. National Seniors Australia, Submission to Treasury, Options for improving the unclaimed bank account and life insurance money provisions—

Discussion paper, July 2014, p. 1, accessed 24 August 2015. 30. T Pilgrim (Privacy Commissioner), Submission to Treasury, Options for improving the unclaimed bank account and life insurance money provisions—Discussion paper, 18 July 2014, p. 1, accessed 24 August 2015.

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Financial implications The measures included in the Bill were announced in the 2015-16 Budget, with a fiscal cost of $158 million over the four years, as set out in Table 1 below. The Budget papers and the Explanatory Memorandum also note that the measure will have a negative cash impact of $285.1 million over four years from 2015-16, but do not comment on the difference between the cash and fiscal measures; this presumably reflects timing differences.31

Table 1 Financial impact of measures in the Bill

2015-16 2016-17 2017-18 2018-19

Reduced expenses (a) 78.9 83.0 86.1 89.2

Reduced revenue (b) -119.2 -122.2 -125.3 -128.4

Net impact -40.3 -39.2 -39.2 -39.2

Sources and Notes: Australian Government, Budget measures: budget paper no. 2: 2015-16, p. 177; Explanatory Memorandum, Banking Laws Amendment (Unclaimed Money) Bill 2015, p.3, accessed 13 August 2015, (a) The reduced expenses reflect the lower claims as fewer amounts are reclaimed. (b) The reduced revenue reflects the reduction in unclaimed moneys transferred to the Commonwealth.

Statement of Compatibility with Human Rights As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act.

The Explanatory Memorandum notes that the Bill engages three human rights:

the right of the child to have their best interests be a primary consideration under Article 3(1) of the Convention on the Rights of the Child

the right to the protection from arbitrary or unlawful interference with privacy under Article 17 of the International Covenant on Civil and Political Rights (ICCPR) and

the right to seek information under Article 19(2) of the ICCPR. 32

The Government considers that the Bill is compatible. The Parliamentary Joint Committee on Human Rights had no comment on the Bill.33

Key issues and provisions The Bill includes three substantive changes:

• increasing from three years to seven years the period of inactivity before money is ‘unclaimed’ (and therefore transferred to the Commonwealth)

• exempting foreign currency and children’s accounts from becoming unclaimed and

• changes to the handling of personal information.

Changing the period of inactivity from three years to seven years Item 1 of the Bill amends the Banking Act to increase the period of inactivity required before money becomes ‘unclaimed money’ from three years to seven years. Item 8 makes a matching change to the Life Insurance Act.

The Explanatory Memorandum notes that currently around 50 per cent of bank accounts and life insurance funds transferred to the Commonwealth are reclaimed within two years, suggesting that they are ‘effectively active’.34

31. Australian Government, Budget measures: budget paper no. 2: 2015-16, p. 177; Explanatory Memorandum, Banking Laws Amendment (Unclaimed Money) Bill 2015, p.3, accessed 13 August 2015. 32. The Statement of Compatibility with Human Rights can be found at page 55 of the Explanatory Memorandum to the Bill. 33. Parliamentary Joint Committee on Human Rights, Twenty-sixth report of the 44th Parliament, 18 August 2015, p. 1. 34. Explanatory Memorandum, Banking Laws Amendment (Unclaimed Money) Bill 2015, pp. 5, 11.

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Regulatory impacts The Explanatory Memorandum includes a detailed Regulation Impact Statement (RIS), examining the impact of the change. The RIS estimates that a change to a seven year period of inactivity will result in:

• a $28 million one-off cost to industry in updating ‘IT infrastructure and processes’

• a $36 million ongoing saving for industry associated with extending the threshold and

• a $1.7 million ongoing benefit for account holders associated with extending the threshold.35

While the cost component for small ADIs is expected to be $7 million, the RIS does not estimate that they will receive an ongoing benefit from the change, which is expected to flow to large ADIs and life insurance companies.

Exemptions for foreign currency and children’s accounts Currently, subsection 69(1A) of the Banking Act specifies that farm management deposits are not subject to the unclaimed moneys regime. Item 2 of the Bill repeals and replaces subsection 69(1A), to specify three categories as exempt from being unclaimed moneys:

• money denominated in a foreign currency

• money in a children’s account and

• farm management deposits (matching the exemption in the current legislation).

Item 5 inserts a new definition into the Banking Act of a ‘children’s account’. This definition matches the one currently in the Banking Regulations 1966 (which specifies that children’s accounts are exempt from the three year requirement, and instead only become unclaimed moneys after seven years of inactivity).36

Foreign currency accounts The Treasury discussion paper noted some of the complications that occur where foreign currency accounts are held at Australian ADIs. The paper noted that:

Foreign Currency Accounts (FCAs) are bank accounts held in a denomination other than Australian Dollars (AUD). When they are declared unclaimed they are converted to AUD before being transferred to ASIC, and when claimed are also returned to the account holder in AUD. As a result account holders are exposed to the risk that the exchange rate will appreciate or depreciate over the relevant period …

The … option … to exempt FCAs from the unclaimed moneys provisions entirely … would likely deliver a reduction in the compliance burden for ADIs and account holders, but if the accounts are genuinely unclaimed they will never be captured and therefore could have their value eroded by fees and charges. 37

The Australian Bankers Association has previously criticised the current application of the system to foreign currency accounts. Its submission to the discussion paper supported removing foreign currency accounts from the unclaimed moneys regime entirely:

The ABA believes that all foreign currency accounts should be exempt entirely from the unclaimed moneys regime to streamline the operation of the provisions …

It should be noted that customers with foreign currency accounts are typically sophisticated users of financial services and include commercial entities and high-net worth customers residing in Australia or overseas. Previous changes to the provisions elicited a large number of complaints and significant dissatisfaction from these customers due to their moneys being reported/transferred to ASIC and consequent changes in the amount due to changes in foreign exchange rates between the period of the transfer and return of the moneys from ASIC. In some cases,

35. Ibid., pp. 27-30. 36. Subregulation 20(10), Banking Regulations 1966 (Cth), accessed 24 August 2015. 37. Treasury, Options for improving the unclaimed bank account and life insurance money provisions, op. cit., p. 9.

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banks have covered the adverse movement in foreign exchange rates to maintain good customer relations. We do not believe this is a satisfactory situation. 38

Changes to handling of personal information There are two changes in the Bill that affect how personal information is dealt with. Under the current legislation, information on the unclaimed moneys transferred to the Commonwealth is published in a Gazette, both electronically and in print.39 In addition, information on unclaimed moneys is also available under the Commonwealth Freedom of Information Act 1982 (FOI Act).40

Item 4 replaces subsection 69(9) of the Banking Act so that the Treasurer can determine how the information on unclaimed moneys is published, without explicitly listing publication in a Gazette as an option. This broadly matches a recommendation made by the Australian Privacy Commissioner, who wrote in a submission to the Treasury:

… the OAIC [Office of the Australian Information Commissioner] suggests that the personal information is made publicly available, and searchable, through the MoneySmart database alone. This would enable the information to be permanently removed once the money is returned to the account or policy holder. 41

Item 6 of the Bill inserts proposed section 69A into the Banking Act, which specifies that information relating to unclaimed moneys must not be disclosed to ‘to a person other than the payee or an agent of the payee’. Item 9 makes a similar change to the Life Insurance Act by inserting proposed section 216A. In both cases there is an exemption to allow disclosure of the details where authorised through the unclaimed moneys regime.

Item 10 inserts references to these sections into the FOI Act, with the effect that information in relation to unclaimed moneys is no longer available through the FOI process, except to the ‘person to whom the information relates (or their agent)’.42

Other provisions Currently, ADIs are required to notify the Treasurer within three months, of all the unclaimed money they hold at the end of a calendar year.43 If a deposit or credit is made in relation to an account between 31 December and when the statement is provided to the Treasurer, then the account is not included in the statement.

Under the current legislation, where an account holder notifies the ADI that they do not wish the account to be treated as active, but does not make a deposit or withdrawal, then the unclaimed moneys are still transferred to the Commonwealth. Item 3 inserts proposed subsection 69(3) into the Banking Act to specify that where an account holder or agent notifies the ADI, before the day the statement is delivered to the Treasurer, that they want the account to be treated as active, then the account is not treated as unclaimed moneys.

38. ABA, Submission to Treasury, Options for improving the unclaimed bank account and life insurance money provisions—Discussion paper, op. cit., p. 5. 39. T Pilgrim (Privacy Commissioner), Submission to Treasury, Options for improving the unclaimed bank account and life insurance money provisions—Discussion paper, op. cit., p. 4. 40. Explanatory Memorandum, Banking Laws Amendment (Unclaimed Money) Bill 2015, p. 6, accessed 24 August 2015. 41. T Pilgrim (Privacy Commissioner), Submission to Treasury, Options for improving the unclaimed bank account and life insurance money

provisions—Discussion paper, op. cit., p. 5. 42. Explanatory Memorandum, Banking Laws Amendment (Unclaimed Money) Bill 2015, p. 13, accessed 13 August 2015. 43. Subsection 69(3) of the Banking Act.

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