Anne Ruston (SA, Liberal Party, Assistant Minister for Agriculture and Water Resources) Share this | Hansard source

I move:

That this bill 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 SYSTEM LEGISLATION AMENDMENT (RESILIENCE AND COLLATERAL PROTECTION) BILL 2016

Today I introduce the Financial System Legislation Amendment (Resilience and Collateral Protection) Bill 2016(the 'Bill').

This Bill will create a more resilient and stable financial system, and provide for the continuing participation of Australian entities in international capital markets.

In doing so, the Bill amends six existing pieces of legislation: the Payment Systems and Netting Act 1998 ('Netting Act'), Banking Act 1959 ('Banking Act'), Financial Sector (Business Transfer and Group Restructure) Act 1999 ('Business Transfer Act'), Insurance Act 1973 ('Insurance Act'), Life Insurance Act 1995 ('Life Insurance Act')and Private Health Insurance (Prudential Supervision) Act 2015 ('PHI Act').

In response to the global financial crisis (GFC), the Group of Twenty (G20) committed to improve transparency, mitigate systemic risk and protect against market abuse in derivatives markets. Significant progress has already been done in pursuit of these aims, in Australian and international over-the-counter derivatives markets.

However, there is still work to do. The international over-the-counter derivatives market is large, and requires further regulation. The Bank of International Settlements reports that the notional amount of outstanding over-the-counter derivative contracts was US$553 trillion (at end-June 2015).

The next significant stage in the post-GFC reform of over-the-counter derivatives is to establish margin requirements for non-centrally cleared derivatives. The Basel Committee on Banking Supervision (BCBS) and the Board of the International Organisation of Securities Commissions (IOSCO) have agreed on an international framework, to be implemented by national regulators. These margin requirements are expected to be phased in from 1 September 2016.

However, under existing law, Australian entities may not be able to comply with all of the relevant requirements. Without this Bill, they will likely face increasing costs and other barriers to participation in international markets.

This Bill creates a facilitative regime which will allow Australian entities to comply with the new requirements, and in so doing, remain globally competitive and efficient traders. The Bill does not establish the margin requirements per se, but will complement and support any margin requirements for derivatives and risk mitigation standards set by Australian Prudential Regulation Authority, in accordance with the international framework, and by international regulators.

This Bill also resolves other issues of concern to regulators and industry participants in Australian financial markets. For example, this Bill strengthens the protection of certain payment systems, settlement systems, exchanges and central counterparties. These are fundamentally important to the stability of the Australian financial system and it is critical that they benefit from robust legal protections in all market conditions.

This Bill is a result of careful and rigorous consultation with the Council of Financial Regulators (the Council, which is comprised of the Reserve Bank of Australia, the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission, and the Australian Treasury); as well as a range of industry bodies, market participants and their advisers.

The Government has consulted the public on various forms of the measures in this Bill, and made a call for submissions on the entire reform package following the release of the draft Bill. Submissions primarily came from the financial services sector, including from Australian and international industry bodies and other market participants. As a whole, they were highly supportive of the reforms.

THE LEGISLATIVE FRAMEWORK

This Bill will ensure Australian law continues to provide a strong foundation for modern, and truly international financial markets; and for the effective participation of Australian entities within them.

This Bill establishes a functional and protective framework which is flexible enough to cope with a range of sophisticated financial market structures and inevitable changes in market practice.

It contains reforms which are technically sophisticated and which are expected to provide a pragmatic and practical regime for market participants and their advisers.

This Bill does not impose onerous regulation. Rather, it allows entities which are subject to Australian law to provide and enforce rights in respect of, margin provided under derivatives transactions in accordance with internationally developed regulatory requirements. It does this by expanding the protections afforded to close-out netting, to cover the enforcement of security.

This Bill resolves an inconsistency in Australian law as to the circumstances in which a counterparty to an Australian regulated body may exercise its termination rights (i.e. when it can close-out transactions related to a contract). This brings Australian law into line with international best practice, and supports efficient resolution of Australian financial institutions in distress.

This Bill strengthens the protection of certain payment systems, settlement systems, exchanges and central counterparties. These are fundamentally important to the stability of the Australian financial system and require robust legal protections in all market conditions.

This Bill also contains a number of regulatory powers to allow the Government to move quickly to adapt to significant upheaval in financial markets and any events which could otherwise threaten systemic stability.

In addition to the reforms I have described, the Bill also contains a number of more technical and consequential amendments to certain Australian Acts related to Australian financial markets.

The new regime draws on a wealth of sources. It builds on lessons learned in other jurisdictions, including in the United Kingdom and European Union; the products of extensive consultation; and the input of technical experts.

MINCO APPROVAL

This Bill will alter the effect, scope or operation of the Corporations Law. Accordingly, as required by clause 510 of the Corporations Agreement between the Commonwealth, the States and the Northern Territory, the Commonwealth has notified the States and the Northern Territory of the Bill.

SUMMING UP

This Bill advances the Australian Government's reform agenda for financial systems, by enhancing the integrity and safety of the derivatives markets in particular, and the financial system as a whole.

Passage of this Bill will complement other important reforms to the regulation of Australian over-the-counter derivatives markets, and corresponding international efforts.

Passage of this Bill will ensure Australia maintains its position as a regional financial centre with a strong regulatory and legislative framework, and that Australian entities can continue to transact with domestic and international counterparties – supported by Australian law.

NATIONAL DISABILITY INSURANCE SCHEME AMENDMENT BILL 2016

This Bill amends the National Disability Insurance Scheme Act 2013 to increase the maximum number of members of the Board of the National Disability Insurance Scheme Launch Transition Agency (known as the NDIA).

Replacing the current provision for eight Board members, the Minister will now have capacity to appoint up to 11 members, aside from the Chair. As a minor consequence, quorum arrangements for Board meetings will also be clarified.

The National Disability Insurance Scheme (known as the NDIS) is a significant social reform, and the Government has an intense focus on its design, administration and implementation.

It is a significantly complex reform, with governance shared between the Commonwealth and state and territory governments. It requires close oversight of financial sustainability, potential risks to scheme participants and providers, and delivery of the scheme across Australia.

The NDIA will be responsible for implementing the transition from trial to the full roll-out of the NDIS across Australia, which, when fully established, is estimated to provide support to over 460,000 participants, with a full scheme budget of around $22 billion per annum.

Over the next four years, the NDIS will be moving into a rapid growth phase, where participant numbers will increase from 19,758 people across its trial sites as at 30 September 2015, to over 460,000 people across the country in 2019-20. As the NDIS enters the transition stage, the NDIA will commence increasing the size of its workforce, outsourcing arrangements for many NDIS functions and implementing its full scheme Information Communications Technology solution.

The NDIA Board is responsible for overseeing the implementation of the NDIS and its long-term sustainability. The Board manages the financial and delivery risk of the scheme, including maintaining an actuarial and insurance approach to decision making within the scheme. The Board develops the NDIA's business strategies, manages risks to the organisation and the NDIS and, through its Chief Executive Officer, handles the day-to-day management of the NDIA.

The Government, along with the states and territories, has therefore reached the view that the NDIA needs a Board with a broader range of skills and experience to manage the rapid increase in participants, and to address the emerging challenges that come with a reform of this scale.

Governments have agreed that the Board requires skills suited to the specific challenges of the transition phase, including strategy, risk, insurance, corporate governance and implementation, as well as experience in large enterprises of an equivalent national scale and complexity.

An independent review of the skills and experience required in the NDIA Board for the transition stage found that the next iteration of the Board should have strong ASX50 or large Government Business Enterprise-level experience in operation and financial systems and controls. The review identified a need for better representation of experience in change and financial management, and deep expertise in the management of insurance-based schemes.

Following this independent review and consultation with state and territory governments, the Commonwealth Government has concluded that a Board of eight members plus a Chair does not allow for the diversity and strength required of a Board that is managing the anticipated rapid increase of participants and administering a $22 billion insurance-based scheme.

A larger NDIA Board will ensure it has a balance of skills, knowledge and experience in disability services, financial management and corporate governance management of insurance or compensation schemes, to enable the Board to meet the challenges of the next phase of the NDIS effectively.

To implement this measure, a staged approach to changing the membership of the NDIA Board has been agreed with members of COAG's Disability Reform Council, to ensure continuity while also producing optimal governance outcomes during the transition to full scheme. Our view is that, until the NDIS reaches maturity, the Board should consist of 11 members and a Chair.

The size of the NDIA Board is set out in section 126 of the National Disability Insurance Scheme Act 2013. This Bill amends section 126 to change the number of members (aside from the Chair) from eight to up to 11, providing the Minister with the flexibility to decrease the size of the Board at a point when it is considered appropriate and prudent to do so.

As a minor consequence of this change, section 138, providing for a quorum for Board meetings, is also amended to ensure a quorum is constituted when a majority of the members are present.

This Government remains committed to the full roll-out of the NDIS, with its attendant benefits for people with disability, their families, their carers, and for the broader Australian community of which they are a valued part.

These changes ensure the NDIA Board overseeing this major social policy reform has the mix and diversity of skills, capabilities and leadership to bring the NDIS to full scheme within the timeframe agreed to with states and territories, and within the allocated Budget.

Debate adjourned.

Ordered that the bills be listed on the Notice Paper as separate orders of the day.