Craig Emerson (Rankin, Australian Labor Party, Minister Assisting the Finance Minister on Deregulation) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

The Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2008 introduces measures to improve the accountability, transparency and consistency of decisions made by the Australian Prudential Regulation Authority (APRA). The measures respond to recommendations of the HIH Royal Commission, the Taskforce on Reducing Regulatory Burdens on Business and the IMF’s 2006 Financial Sector Assessment of Australia.

This government is committed to ensuring that the financial system in Australia has a prudential regulator that has the appropriate regulatory tools to manage the entities under its supervision whilst balancing the need for entities to seek a review of the regulator’s decisions where appropriate.

By ensuring that this package of measures is passed by parliament, the government acknowledges the importance of a strong, robust and independent APRA operating within a prudential framework that allows it to take proper and timely action to ensure the stability of the financial system. This bill contains measures which will further align aspects of prudential legislation with the Corporations Act 2001 so that the regulatory burden on entities is reduced and a more consistent approach adopted.

The amendments in schedule 1 of the bill repeal the existing process by which APRA disqualifies individuals from roles of responsibility within an entity under the Banking Act 1959, Insurance Act 1973, Life Insurance Act 1995, Retirement Savings Account Act 1997 and Superannuation Industry (Supervision) Act 1993 and puts in place a court based disqualification process which is broadly consistent with the court disqualification regime under the Corporations Act 2001.

Currently, under the prudential acts, the power to disqualify an individual from being or acting as a responsible person, such as a director, senior manager, auditor or actuary, for an APRA regulated entity on ‘fit and proper’ grounds rests with APRA. While APRA has the power to disqualify an individual under most prudential acts, this power is not consistent across the prudentially regulated industries and across responsible positions.

This measure will ensure that the Federal Court will be able to disqualify an individual from being or acting as a responsible person for an APRA regulated entity on ‘fit and proper’ grounds on application by APRA. The disqualification regime will apply to all responsible persons across APRA regulated industries. The new disqualification regime will not apply to responsible persons relating to self managed superannuation funds (SMSFs), regulated by the Australian Taxation Office (ATO), due to the different regulatory environment for SMSFs.

This measure will introduce a more consistent and flexible court based disqualification regime into the prudential acts by enabling the court to disqualify an individual from a position or positions in a specific entity, a class of entities or all entities for a period that the court considers appropriate across APRA regulated industries. This measure responds to recommendation 5.4 of Rethinking regulation and will enhance the flexibility in the application of the enforcement tools to accommodate differing circumstances.

The amendments in schedule 2 of the bill will replace APRA’s specific powers for issuing directions concerning entity-level activities under the Banking Act, Insurance Act and Life Insurance Act with harmonised general directions powers.

While APRA currently has a wide range of direction powers under the Banking Act, Insurance Act and Life Insurance Act, these powers are spread throughout each act and, in some cases, are fragmented and inconsistent, making the directions powers under these acts unnecessarily complex and creating uncertainty as to their scope and application.

Effective directions powers ensure that rapid and decisive action can be taken to deal with emerging prudential concerns, protect beneficiaries, promote confidence in the effectiveness of prudential supervision and increase the safety of financial sector entities.

However, directions powers are strong intervention tools, which could have a significant impact on affected entities or individuals. Accordingly, directions should be subject to appropriate review. Currently, the majority of APRA’s directions powers are not subject to merits review.

The measure will harmonise APRA’s directions powers under each of the acts, reduce complexity and provide greater certainty in respect of APRA’s powers. The amendments will also make it clear which of APRA’s directions are subject to review while ensuring that APRA is able to take proper and timely action to address risks in the financial system.

Schedule 3 to this bill removes from the prudential acts the requirement for the Treasurer’s prior agreement for administrative decisions made by APRA or the ATO that do not involve broader policy considerations. These include decisions in relation to licensing and authorisation, exemption, compliance with minimum standards and certain directions. Certain ministerial powers are to be retained, including those that relate to national interest matters and where broader policy considerations are involved.

These measures respond to recommendation 22 of the HIH Royal Commission report.

The removal of the Treasurer’s agreement from operational decisions will enhance the regulators’ operational independence and improve the timeliness and effectiveness of the supervisory process. It ensures accountabilities are clearly allocated to the responsible decision maker, allowing the regulators to perform their duties and functions without giving rise to the perception that they are subject to external interference.

Schedule 4 to this bill amends the prudential acts to expand the availability of merits review by the Administrative Appeals Tribunal for appropriate administrative decisions made by APRA or the ATO, consistent with the guidelines regarding merits review developed by the Administrative Review Council (ARC).

These measures respond to recommendation 5.7 of Rethinking regulation and recommendation 23 of the HIH Royal Commission report with regard to ensuring that APRA administrative decisions are subject to merits review. The measures also ensure that merits review does not unintentionally constrain the regulator from taking prompt and decisive action to deal with prudential concerns. This is consistent with a recommendation by the IMF in its 2006 Financial system stability assessment of Australia.

Merits review by the Administrative Appeals Tribunal (AAT) is currently available for most decisions made by APRA or the ATO under the prudential acts which affect individuals. However, there is inconsistent application of merits review for decisions which may impact substantially on entities. Such inconsistency may reduce the regulators’ accountability for administrative decisions.

These measures will ensure that merits review is available for all decisions which affect natural persons and for administrative decisions which affect a particular person. The effect of these measures is to improve the consistency, transparency and accountability of APRA and the ATO in respect of their decision making.

The government is bringing these measures forward because they improve APRA’s decision making processes and remove unnecessary complexity in the prudential acts.

The measures respond to recommendations of the HIH Royal Commission, the Taskforce on Reducing Regulatory Burdens on Business and the IMF’s 2006 Financial Sector Assessment Program. They are strongly supported by industry stakeholders, APRA and the ARC.

The effect of the amendments would be to ensure that APRA is able to take proper and timely action to address risks in the financial system, while ensuring that individuals and entities are able to have those decisions reviewed.

Full details of the amendments are contained in the explanatory memorandum. I commend the bill to the House.

Michael Keenan (Stirling, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

The opposition supports the Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2008, and we do so for reasons similar to those that we supported the previous bill—because it was a bill introduced by the former government. This bill has not been changed in any substantial way. It has only been changed to take into account some other transitional issues in relation to legislation that has already passed through the House. It is an important piece of legislation. Recent events in the United States and the United Kingdom emphasise the crucial importance of an effective prudential regime to provide efficient stability as well as efficiency in the financial system.

This bill has its origins in the work undertaken by the coalition government with the aim of reducing the regulatory burden on business. We hear a lot from the government at the moment about reducing regulation. We find that, like a lot of things about the new government, it seems to be more about striking a pose than doing anything effective. I am sure the minister, as an economist, would support measures to reduce regulation, but what I say to him is, if he is a fan of Elvis: ‘a little less conversation, a little more action’. If the government do come up with sensible measures to reduce regulation then they will certainly get the support of the opposition. What he will find is that it is easier to talk about than actually do.

The hallmark of that work has been the effectiveness and thoroughness of consultation with the peak industry bodies. There is some speculation on this side of the House about the ability, or the inclination, on the part of those opposite to genuinely engage with stakeholders. But, again, I am very happy to reserve my judgement. There have certainly been some criticisms about the make-up of the first home saver account, so it will be interesting to see whether the government is prepared to take these criticisms on board and maybe amend some of the design features of that proposed account.

The coalition encourages and welcomes an open and two-way interaction with industry and other representative bodies, as we did when we were in government. In 2005 a task force was established to assess the nature of the compliance burden. The task force’s report Rethinking regulation identified a number of areas where changes could lead to efficiency gains. The coalition accepted all of the task force’s recommendations in relation to prudential regulation affecting authorised deposit-taking institutions, superannuation funds, and life and general insurers. These industries provided more specific input through their responses to the coalition government’s December 2006 discussion paper in Streamlining prudential regulation. That input then informed a follow-up discussion paper in May 2007 which marked a high point in prudential policy and regulation.

The opposition supports this bill and welcomes the introduction of its main features. They are as follows. A power is given to the Federal Court to disqualify responsible officers working in entities governed by the Banking Act, the Insurance Act, the Life Insurance Act, the Retirement Savings Account Act and the Superannuation Industry (Supervision) Act. In broad terms this power is modelled on a similar power contained in the Corporations Act. It will allow APRA to apply to the Federal Court for a person to be disqualified from acting as a ‘responsible person’. The measure, which introduces flexibility into APRA’s enforcement tools, has the support of key stakeholders.

This bill also harmonises the directions powers of APRA. The measure replaces various specific powers for APRA to issue directions concerning entity level activities under the Banking Act, Insurance Act and Life Insurance Act. In addition, there will now be a materiality test included in the trigger for APRA or the ATO to issue a direction to freeze a superannuation entity’s assets under section 264 of the Superannuation Industry (Supervision) Act. While this measure reduces the complexity of APRA’s administering directions powers, which are presently spread throughout a number of different pieces of legislation, it also clarifies which of those directions is subject to merits review.

This bill also allows for expanded availability of merits review of specified decisions taken by APRA. Merits review is currently available for most decisions made by APRA or the ATO under prudential legislation affecting individuals. There is, however, inconsistent application of merits review for decisions which may impact substantially on entities. Further, there was also the possibility of a perception arising that such inconsistency may reduce the regulator’s accountability for administrative decisions. In determining which decisions are appropriate for merits review, the approach in this bill is to take into account the guidelines of the Administrative Review Council.

Finally, this bill provides for the removal of the requirement that the Treasurer agree to administrative decisions not involving wider policy issues to be taken by APRA or the ATO. This measure will mean that the Treasurer is no longer required to be involved in operational prudential decisions made by either APRA or the ATO. Such involvement could blur the lines of accountability for those administrative decisions. Removing the need for the Treasurer’s involvement should enhance the regulators’ operational independence and improve the timeliness of the process of supervision. In addition, it will ensure that accountabilities are clearly allocated to the responsible decision maker. It should remove any perception that the regulators are influenced by external interference in the exercise of their prudential powers. Finally, I note that, where a decision concerns licensing and authorisation, removal of a responsible person will be subject to merits review. This is a sensible piece of legislation and the opposition supports this bill.

Craig Emerson (Rankin, Australian Labor Party, Minister Assisting the Finance Minister on Deregulation) Share this | Link to this | Hansard source

in reply—I thank the member for Stirling for his contribution. I must say I was bemused by his critique of the Rudd government for what he asserts to be a lack of action on regulatory reform, this coming from a coalition member who himself was a member of the House of Representatives Standing Committee on Economics and observed—day after day, week after week, year after year—the inaction of the previous government in deregulating the Australian economy. We do recall that it was the Hawke and Keating governments that opened up the Australian economy, creating the open and competitive economy, and we are very proud of that record. In 1996 in came a coalition government, which is supposed to be the government for free enterprise, for openness, for competitiveness. One of the first acts of that incoming government in 1996 was to commission a report from the late Charlie Bell, who was then CEO of McDonald’s, and that report came down in 1997. Then followed a decade of the government being in slumber land. Finally, it succumbed to pressure from business organisations such as the Business Council of Australia and decided to commission a second report—this one from a group chaired by Gary Banks, the Chairman of the Productivity Commission. If you held up those two reports you would find almost identical recommendations in numerous places, and the reason those recommendations were identical was that there had been a decade of squandered opportunity.

The previous government said it was the party of free enterprise and said it supported the open, competitive economy fashioned by the Labor government before it, but it did nothing; it squandered the opportunity. Now we have the incredible sight of a coalition member coming into the chamber and saying, after about 120 days of the new government: ‘What’s the Rudd government doing about business regulation?’ The indictment of the Business Council of Australia was delivered in a report last year when it talked about the ‘creeping re-regulation’ of Australian business over the previous decade. Katie Lahey, the Chair of the Business Council of Australia, was compelled to observe late last year: ‘So much for the 10 regulatory hot spots that the previous government agreed to pursue with the states.’ She said they must have been ‘so hot they burnt a hole through the paper, fell to the floor and have not been found since’. When we came into government we had a look at those regulatory hot spots, and Katie Lahey was right—inaction and squandered opportunity everywhere. Just this week the BCA brought down another report saying that there has been review after review, report after report, and it was now looking for progress on regulatory reform. It will be a Rudd government, a Labor government—as a Labor government did before, between 1983 and 1996—that reforms business regulation in this country, reduces compliance costs and lifts productivity as the basis and platform for future prosperity.

This particular bill, the Financial Sector Legislation Amendment (Review of Prudential Decisions) Bill 2008, introduces measures to improve the accountability, transparency and consistency of APRA’s decision-making processes and removes unnecessary complexity from the prudential regulation. Schedule 1 of the bill amends the prudential acts to introduce a court based process for disqualifying an individual from a responsible position in an entity regulated by APRA. The new regime is broadly consistent with the court disqualification regime under the Corporations Act 2001. This measure will ensure that there is a more consistent and flexible court based disqualification regime across the prudential acts. Schedule 2 of the bill introduces harmonised general directions powers which will replace APRA-specific powers for issuing directions concerning entity level activities under the Banking Act 1959, the Insurance Act 1973 and the Life Insurance Act 1995. This measure will reduce complexity and provide greater certainty as to the scope of APRA’s directions powers. It will also clarify the reviewability of APRA directions while ensuring that APRA is able to act decisively where financial interests or the stability of the financial system are at risk.

Schedule 3 of the bill removes from the prudential acts the requirement for the Treasurer’s prior agreement for administrative decisions made by APRA or the Taxation Office in relation to self-managed superannuation funds that do not involve broader policy considerations. These include decisions in relation to licensing and authorisation, exemptions from provisions in the prudential acts, compliance with minimum standards and certain directions. The removal of the Treasurer’s agreement for operational decisions will result in greater operational independence for the regulators as well as improving the timeliness and effectiveness of the supervisory process. Schedule 4 of the bill expands the availability of merits review by the Administrative Appeals Tribunal for appropriate administrative decisions made by APRA or the ATO consistent with the guidelines regarding meritory review developed by the Administrative Review Council or ARC. This measure will improve the consistency, transparency and accountability of decision making by APRA and the ATO.

In conclusion, the measures in this bill respond to recommendations of the HIH Royal Commission, the IMF 2006 financial systems stability assessment of Australia and the Task Force on Reducing Regulatory Burdens on Business, to which I referred earlier in my remarks—the task force which was chaired by Gary Banks. It produced, I think, 172 recommendations: the previous government said it had agreed to almost all of them. If you have a look at the so-called agreements, about one-third of those were in fact an agreement to conduct a further review.

We have been struck by the lack of activity on the part of the previous government. Businesses in Australia are being strangled by red tape. This piece of legislation is one modest effort to overcome that regulatory burden and reduce it while at the same time ensuring that there are adequate prudential arrangements in place. The measures are strongly supported by industry stakeholders, APRA and the ARC. This bill demonstrates the government’s commitment to reducing regulation for the financial services sector. I commend the bill to the house.

Question agreed to.

Bill read a second time.

Ordered that this bill be reported to the House without amendment.