Chris Pearce (Aston, Liberal Party, Shadow Minister for Financial Services, Superannuation and Corporate Law) Share this | Hansard source

I rise in the House today to offer some remarks in relation to the Financial Sector Legislation Amendment (Enhancing Supervision and Enforcement) Bill 2009. This bill has two purposes—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 APRA’s 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 that emerged from the HIH Royal Commission. It was also identified in the Wallis report that the former, coalition government commissioned in 1997. APRA currently regulates the non-operating holding companies of general insurers and authorised deposit-taking institutions, otherwise known as ADIs. These powers are granted, respectively, under the Insurance Act 1973—at least, that has been the case since 2002—and under the Banking Act of 1959 since 1998. Under this bill, APRA will have the power to register and supervise the non-operating holding companies of life insurance companies and enforce their compliance with prudential requirements. 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 on prudential matters, and this power will apply to 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 policyholders, 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 systematically important financial institutions. Following the Wallis inquiry and the HIH Royal Commission, the coalition granted APRA regulatory oversight of ADIs and of general insurers, and this bill continues the former government’s work by bringing the non-operating holding companies of life insurers within APRA’s bailiwick.

I want to turn to a very important matter that was raised during the consultation phase of the Senate economics committee’s inquiry into this bill. It centres on the decisions that APRA makes. Many APRA directions are not subject to a merits review process. In fact, six out of the 10 directions issued by APRA are not. These powers are granted in the Life Insurance Act 1995, and similar powers exist in the banking and general insurance acts. APRA’s power to issue directions without merits reviews is used to prevent borrowings, prevent the payment of dividends and remove directors and senior managers. All of these are very significant measures, of course, for listed companies—areas in and around borrowings, the payment of dividends and, obviously, the removal of senior people within these organisations. It seems to me—and, as I said, this is something that came to light during the Senate committee inquiry into this bill—that there really is a call for us to consider having a universal merits review process for all of APRA’s directions, not just for four out of 10 but indeed for all 10 of the directions that APRA has the capacity to make.

I think that, if there were processes for merits review available on all of the directions, it would enhance natural justice, improve prudential regulation in our country and instil greater confidence in stakeholders across industries in our country and indeed across the world that Australia has a stronger and more robust prudential regulatory framework than any other country in the world. I think that all of APRA’s decisions and directions ought to at least be open to a merits review process so that all players can have that level of confidence that the decisions that APRA takes are fair, are just and are right.

I understand that this procedure—that is, making all of APRA’s decisions subject to a merits review—could be achieved quite easily. It could be done through a very quick legislative amendment process. I also understand that it would in no way lessen APRA’s ability to act swiftly, which we all support, of course: the ability of our regulators to be able to act swiftly and protect Australians from all walks of life. I think that a universal merits review process should apply to the whole of the general insurance sector, to the life insurance sector and indeed across the whole banking sector as well.

So the coalition support this bill, but we call on the government to work with us and to work with industry stakeholders across the whole of the Australian financial services landscape to enhance transparency and create an even stronger and more robust prudential regulatory framework by considering making all of APRA’s decisions merits-reviewable, which I think can only enhance our standing as a global financial services hub. But, as I said, the coalition support this bill.

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