Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Hansard source

I table revised explanatory memoranda relating to the bills and move:

That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows—

FINANCIAL SECTOR LEGISLATION AMENDMENT (DISCRETIONARY MUTUAL FUNDS AND DIRECT OFFSHORE FOREIGN INSURERS) BILL 2007

This Bill allows consumers and businesses who purchase a general insurance product in Australia to be confident that they will be protected by Australia’s world-class prudential regime.

This Bill amends the Insurance Act 1973, to strengthen and clarify the requirement that anyone that carries on general insurance business in Australia, either directly or through the actions of another (for example, a financial intermediary) is required to become authorised and will be prudentially regulated by APRA.

At the same time, the Government is keen to continue welcoming new entrants into the Australian general insurance market as it recognises these new entrants promote strong competition and innovation. The Government will continue to welcome well capitalised and well managed foreign insurers.

To that end, APRA will adopt a more risk-focused approach to prudential standards to align prudential requirements with the risk posed by different classes of insurers, with the result that categories of insurers posing a lower risk will face a reduced regulatory burden. This approach will better protect Australian consumers and businesses from poorly regulated DOFIs and those that are likely to fail.

However, the Government does not want the proposed changes to unduly restrict market capacity.

For this reason, the Bill provides a framework that enables the Government to develop regulations to provide limited exemptions from the new regime. These exemptions will allow Australia’s largest businesses, with risks that cannot appropriately be placed with an authorised insurer in Australia, to obtain insurance offshore. It will also ensure specialised risks that cannot be written in Australia to go overseas.

It is hoped these changes will encourage domestic insurers to continue providing innovative products that meet the needs of Australian consumers and businesses.

To enforce these Insurance Act 1973 changes, APRA’s powers will be expanded so that it can investigate entities that it has a reasonable belief are carrying on insurance business in Australia without being authorised. APRA will also have the power to apply to the Federal Court for an injunction to stop an entity from acting illegally. The Government recognises that these new powers are strong but, on balance, considers these to be necessary to maintaining the integrity of the prudential regime.

To complement these prudential changes, the Corporations Act 2001 will be amended so that Australian financial service licence holders and authorised representatives will be required to deal only in authorised general insurance products (including those provided by Lloyd’s underwriters), with limited exceptions.

Licence holders will also be required by regulation to supply data on any dealing in insurance covered by the exemptions.

With regards to Discretionary Mutual Funds (DMFs), which are providers of risk management tools that are an alternative to insurance, the Government has formed the view that at this stage DMFs do not pose a significant risk to systemic integrity. Therefore it would not be appropriate to prudentially regulate DMFs at this time. However, the nature and scope of DMF activity will be monitored via information collection over the next three years and the need to prudentially regulate DMFs will be reviewed.

The Government is taking steps to ensure individual consumers are adequately informed about DMFs by an amendment to the Corporations Regulations requiring DMFs to disclose to all their clients, both retail and wholesale, the key characteristics of their product, including that the DMF has a discretion whether or not to pay out on a claim.

The Government is also amending the Financial Sector (Collection of Data) Act 2001 to subject DMFs to a rigorous and compulsory data collection regime, to better understand the nature and scope of their operations. This data, along with the data collected from Australia financial service licence holders and authorised representatives who deal in DMF products, will provide sound statistical input for future policy.

This Bill addresses an outstanding HIH Royal Commission recommendation and a regulatory gap identified by the International Monetary Fund’s Financial Sector Assessment Program. It follows extensive consultation with stakeholders on how best to regulate DOFIs and DMFs.

The Government welcomes industry’s on-going assistance in implementing and adjusting to these new arrangements.

In October 2006, the International Monetary Fund found that Australia had a robust financial sector. The changes proposed in this Bill will enhance the protection for Australians buying insurance and will encourage competition and innovation in the Australian general insurance market. They will enhance community confidence in the market and Australia’s overseas reputation as a sound, well regulated market.

CORPORATIONS (NATIONAL GUARANTEE FUND LEVIES) AMENDMENT BILL 2007

Today I introduce a Bill that will amend the Corporations (National Guarantee Fund Levies) Act 2001 to make minor reforms to the levying abilities for the benefit of the National Guarantee Fund.

This reform is also supported by a minor amendment to the Corporations Act 2001 which is included in the Financial Sector Legislation Amendment (Discretionary Mutual Funds and Direct Offshore Foreign Insurers) Bill 2007.

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 current uncapped exposure of participants.

Importantly, the changes do not affect investors’ ability to claim from the Fund. This Bill accordingly delivers on the Government’s commitment to providing simpler business arrangements whilst maintaining important investor protections.

Full details of this Bill are contained in the explanatory memorandum.

Ordered that the resumption of the debate be made an order of the day for a later hour.