Bernie Ripoll (Oxley, Australian Labor Party, Shadow Parliamentary Secretary for Industry and Innovation) Share this | Hansard source

I rise to speak on the Financial Sector Legislation Amendment (Discretionary Mutual Funds and Direct Offshore Foreign Insurers) Bill 2007 and the Corporations (National Guarantee Fund Levies) Amendment Bill 2007. Labor supports both these bills. The Financial Sector Legislation Amendment (Discretionary Mutual Funds and Direct Offshore Foreign Insurers) Bill 2007 implements the approach to the regulation of DMFs and DOFIs announced by the Minister for Revenue and Assistant Treasurer on 3 May 2007. Under the approach, DOFIs will be prudentially regulated under the Insurance Act. DMFs will not be prudentially regulated, but information will be collected to determine the nature and the scope of their operations. The bill addresses an outstanding HIH royal commissioner’s recommendation and a regulatory gap identified in the International Monetary Fund’s 2006 financial sector assessment program for Australia.

The bill also makes a minor amendment to support changes made by the Corporations (National Guarantee Fund Levies) Amendment Bill 2007, the NGF bill. The NGF bill will impose a cap on levies payable for the benefit of the NGF. The bill introduces a regime for the collection of information on DMFs. This will be complemented by enhanced disclosure requirements under the corporations regulations. Information will be collected on both the nature and scope of the business of DMFs. APRA will collect information on the nature and scope of the business of DMFs’ business and the role of DMFs in the Australian risk management market. This collection will occur through an amendment to FSCODA, which is the Financial Sector (Collection of Data) Act. ASIC will collect information from AFSL holders and authorised representatives who deal in DMF products on the business that they are placing with DMFs. This information will be collected under an existing provision in the Corporations Act through an amendment to the corporations regulations. Information collected by the regulators will be used to review within three years the need to prudentially regulate DMFs. Disclosure requirements will be strengthened through the corporations regulations to require DMFs to disclose the key characteristics of their product to both prospective retail and wholesale clients.

The bill strengthens and clarifies the definition of ‘insurance business’ in the Insurance Act to capture DOFIs that carry on insurance business in Australia either directly or through the actions of another—for example, an insurance agent or a broker. As a result, DOFIs that fit within this expanded definition will be required to be authorised under the Insurance Act. As authorised general insurers, they will be required to comply with Australia’s general insurance standards, including having a presence and assets here in Australia. Foreign reinsurers are not captured by the expanded definition and, hence, will not be subject to regulation under the Insurance Act unless they choose to establish a branch or subsidiary in Australia. Lloyd’s underwriters are not captured under this expanded definition but they will remain subject to regulation under part VII of the Insurance Act. The bill includes regulation making that will enable limited exemptions to be made under the insurance regulations to allow risks that cannot be placed through an authorised insurer to be placed with insurers not authorised in Australia.

The general insurance prudential standards made under the Insurance Act will be modified by APRA to take account of the risk profiles of the different categories of authorised insurers. The modifications of the general insurance prudential standards will be risk focused. To ensure that regulation of DOFIs is effective, APRA has been given additional enforcement powers in this bill. APRA will now be able to investigate persons it believes are carrying on insurance business without being authorised and those persons aiding, abetting, counselling or procuring this activity. These investigation powers include a power to access the premises of persons and a power to gather information from persons under investigation. APRA will have the power to seek an injunction from the Federal Court of Australia restricting unauthorised activity.

To complement these changes, the bill includes a prohibition in the Corporations Act on AFSL holders and authorised representatives from dealing in a general insurance product unless it is from an authorised insurer or a Lloyds’s underwriter or subject to an exemption. Under the Corporations Act, information will be collected from AFSL holders and authorised representatives on business placed with insurers that are not authorised in Australia. Basically the bill is aimed at improving regulatory protection for consumers and businesses who purchase general insurance products here in Australia.

The HIH royal commission report was tabled in parliament on 16 April 2003. Labor’s only concern is: why has it taken over four years to close the regulatory gaps identified in that report?

The Financial Sector Legislation Amendment (Discretionary Mutual Funds and Direct Offshore Foreign Insurers) Bill 2007 makes a minor amendment to support changes made by the Corporations (National Guarantee Fund Levies) Amendment Bill 2007, the NGF bill. The National Guarantee Fund is the compensation scheme for the Australian Securities Exchange. The measure caps the amount of levies payable each year, if needed, to top up the fund, thereby removing the concurrent uncapped exposure for participants. Importantly, the changes do not affect investors’ ability to claim from that fund. The NGF bill imposes a cap on levies payable for the benefit of the NGF in any financial year equal to the minimum amount of the National Guarantee Fund. The NGF provides investor protection for certain transactions on the Australian Securities Exchange and levies are payable to be collected when the fund falls below the amount required to be retained in the fund. This amount is the minimum amount of the fund, as set by the Corporations Act. The change provides greater certainty about the global liability of the Australian Securities Exchange and market participants to refill the National Guarantee Fund. It removes the potential for unlimited liability to refill the NGF. The Financial Sector Legislation Amendment (Discretionary Mutual Funds and Direct Offshore Foreign Insurers) Bill 2007 also makes a minor change to the Corporations Act to support the NGF bill. The NGF bill is therefore included with the bill as a package of reforms. Note that the capping of levies is unrelated to the reforms dealing with either the DOFIs or the DMFs.

The NGF was created to meet valid claims arising from dealings with dealers—for example, when a dealer has bought and paid for securities on a person’s behalf but has not provided the securities to the individual purchaser because an individual may make a claim. The fund was created when the six state stock markets merged to form the national ASX in 1987. The assets of the state fidelity funds were merged to form the fund. The assets as at 30 June 2006 were approximately $96.8 million, compared with $93.9 million at the end of June 2005. Labor supports the bills.

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