Brett Mason (Queensland, Liberal Party, Parliamentary Secretary to the Minister for Health and Ageing) Share this | Link to this | Hansard source

I table a revised explanatory memorandum relating to the bill. I move:

That this bill be now read a second time.

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

Leave granted.

The speech read as follows—

FINANCIAL SECTOR LEGISLATION AMENDMENT (SIMPLIFYING REGULATION AND REVIEW) BILL 2007

This Bill introduces measures to streamline and simplify prudential regulation of the financial sector and builds on the Government’s efforts to cut red-tape.

This Bill also amends Part 23 of the Superannuation Industry (Supervision) Act 1993 (SIS Act) so that financial assistance, where the fund has suffered loss as a result of fraudulent conduct or theft, is available on a more equitable basis.  It also makes technical amendments that are consequential on the enactment of the Legislative Instruments Act 2003.

Streamlining Prudential Regulation

Schedule 1 to this Bill amends the Banking Act 1959, Insurance Act 1973, Life Insurance Act 1995 (Life Act), SIS Act (collectively known as the four prudential Acts) and the Corporations Act 2001 (Corporations Act) to implement the Government commitments relating to prudential regulation in response to Rethinking Regulation, the report of the Taskforce on Reducing Regulation Burdens on Business (Regulation Taskforce).

It also includes measures to streamline and simplify the prudential Acts in a manner that is consistent with the Regulation Taskforce’s findings.

Rethinking Regulation found that ‘Australia’s financial and corporate sectors, and the associated regulatory structures, are highly regarded internationally’ and that the ‘broad policy framework has widespread support within business and the wider community in Australia’.

However, Rethinking Regulation also noted that there is scope to improve the regulatory framework in some areas.

The Government accepted all the recommendations in Rethinking Regulation relevant to prudential regulation. Most of those recommendations which require legislative amendment have been included as measures in this Bill.

There is support within the industry for these measures. These measures have been subject to extensive consultation through the release of a proposals paper, an exposure draft of the Bill and an industry roundtable discussion on the draft Bill.

The Government has listened to industry and as a result of the consultation process, amendments requiring trustees to ensure that investment managers and custodians meet fit and proper criteria have been removed from the Bill.

Also as a result of consultation, Registrable Superannuation Entity licensees and superannuation entities now have twelve months from date of Royal Assent to display an Australian Business Number on certain documents.

The prudential Acts administered by APRA and related legislation, such as the Corporations Act, have often evolved separately and in response to industry developments, and there is scope to refine and update the four prudential Acts to make them more consistent.

Recommendation 5.8 of Rethinking Regulation highlighted breach reporting as a particular area where the Government should seek to improve consistency and reduce the compliance burden.

Consistent with this Recommendation, this Bill includes measures to streamline and improve breach reporting, including:

• that only significant breaches need to be reported under the prudential Acts;
• harmonised timing requirements under the prudential Acts and the Corporations Act for the reporting of breaches so that significant breaches will generally have to be reported to APRA as soon as practicable and, in any event, no later than 10 business days after the entity becomes aware of the breach;
• streamlined breach reporting requirements so that where an actuary or auditor identifies a breach and is required to notify APRA and the regulated entity of the breach, the entity is not required to also report the breach to APRA. The reverse also applies; and
• where a breach is currently required to be reported to APRA and ASIC, that the breach will only need to be reported to APRA.  APRA will have arrangements in place to pass the information on to ASIC.

These changes to breach reporting will reduce costs, duplication and effort for the financial sector.

Recommendation 5.4 of Rethinking Regulation stated that the Government should ensure that APRA has sufficient flexibility to tailor requirements to accommodate differing circumstances.

This Bill will provide APRA with greater flexibility to exercise discretion under prudential standards and allow APRA to exempt a person or class of persons from parts of the prudential Acts so that entities are not unnecessarily burdened by requirements not appropriate to their situations.

This Bill also includes measures to simplify legislation, remove unnecessary regulation and ensure the prudential regime is flexible, consistent and transparent. In particular, the measures relating to the Life Act will repeal around one third of the sections under the Life Act, greatly streamlining the Act.

Financial Assistance

Part 23 of the SIS Act enables the trustee of a superannuation fund to apply for a grant of financial assistance where the fund has suffered loss as a result of fraudulent conduct or theft.

Following on from a review into the operations of Part 23, a number of amendments to the SIS Act are being made in Schedule 2 of this Bill so that financial assistance is available on a more equitable basis.

The amendments include:

• removing the differences between the treatment of accumulation and defined benefit funds;
• allowing former beneficiaries to obtain financial assistance under Part 23;
• allowing funds which were eligible for Part 23 assistance at the time the loss was suffered, but which subsequently restructured into Self Managed Superannuation Funds, to obtain financial assistance; and
• streamlining the Part 23 application process.

These amendments will ensure that financial assistance under Part 23 of the SIS Act is available on a more equitable basis and will enhance the operation of the Part 23 application process.

Accounting and Reporting Obligations

As part of the streamlining prudential regulation reforms, Schedule 3 to this Bill amends the SIS Act, the Superannuation (Self Managed Superannuation Funds) Taxation Act 1987 and the Income Tax Assessment Act 1936, to:

• consolidate and rationalise the prudential reporting requirements under the SIS Act;
• distinguish between reporting requirements relating to Registrable Superannuation Entities and Self Managed Superannuation Funds; and
• remove the regulatory gap that exists in the SIS Act for the reporting of contraventions of the market conduct and disclosure provisions in the Corporations Act.

The consolidation and rationalisation of the prudential reporting requirements in the SIS Act aims to ensure ease of compliance by superannuation entities.  This assists the regulator in its prudential supervisory activities and promotes confidence that the entities providing superannuation services are prudently managed.

Technical Amendments relating to legislative instruments

Schedule 4 amends various legislation, including the prudential Acts, to make technical amendments that are consequential on the enactment of the Legislative Instruments Act 2003.

These amendments do not in any way affect the operation of the legislation.

Conclusion

The measures in this Bill address many of the concerns of the financial services sector by removing regulatory overlaps, providing greater flexibility for APRA to tailor prudential requirements to particular circumstances and removing unnecessary or outdated provisions.

Full details of the amendments are contained in the explanatory memorandum.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

In the normal course of events, I might have been a bit alarmed at the process we have just gone through and the fact that the second reading speech has only just been circulated. However, I have the benefit of having sat on the Senate Standing Committee on Economics, which has considered this bill; therefore, for me to claim ignorance of the government’s position would be stretching things a little far. So I am quite happy for it to be introduced and to proceed on this basis.

The Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007 has four schedules containing a range of measures, including proposed changes to streamline and simplify prudential regulation in the financial sector—changes intended to ensure that, where a superannuation fund has suffered loss as a result of fraudulent conduct or theft, financial assistance is made available on a more equitable basis. The bill has undergone extensive review, with a proposals paper, exposure draft, industry roundtable and a Senate inquiry. May I compliment the government on that process. That is by far the preferable process for legislation. It is not always the process with respect to legislation, but I must say that, when you have a proposals paper, an exposure draft, an industry roundtable and, finally, a Senate inquiry, you have pretty well dotted the i’s and crossed the t’s and done the right things in terms of process. So please accept my compliments.

On these four schedules, as I said, the first one covers streamlining prudential regulation. I do not intend to go through its elements. The second one covers financial assistance. The third one covers accounts, audit and reporting obligations with respect to a number of acts. The fourth one covers technical amendments. A Senate committee report noted the following key issues: firstly, that the bill introduces a consistent framework of protection for whistleblowers across the prudential acts. However, this framework is generally not consistent with the Corporations Act, nor does it adequately provide discretionary power to a whistleblower to disclose, and questions remain as to the degree of protection afforded to such individuals.

The breach-reporting provisions as drafted have the potential to result in uncertainty and confusion as to which, if any, breaches need to be separately reported to ASIC. The stakeholders that had particular viewpoints that deserve noting in this debate were IFSA and the Chartered Secretaries of Australia. IFSA supports the extension of the whistleblower provisions but considers they should be aligned with existing requirements under the Corporations Act. May I respectfully remark that I disagree with them. It may be that the Corporations Act needs to catch up with these provisions because, whilst you need to have harmonisation of whistleblower provisions, you actually need to keep advancing provisions in light of experience and, in fact, improving the nature of legislation.

The point of that remark is that it is incumbent on government to examine all these sets of whistleblower provisions in the private sector—which, as I have said, are in Corporations Law, workplace law and, indeed, in the aged-care area—and ensure that, as far as possible, public disclosures of that kind, the protections that are intended and the contributions towards uncovering wastefulness, mismanagement or fraud are properly promoted and that people get the support that is necessary in what is a very difficult situation when you blow the whistle on an organisation or about an organisation with which you have a connection.

IFSA says the bill seeks to attract the same level of protection to a person who discloses information to one of the named persons—for example, APRA, the auditor, the actuary, a director or senior manager—but that having two tests to be met introduces subjectivity into the prudential acts. These tests are: firstly, that the information concerns misconduct or an improper state of affairs or circumstance in relation to the regulated entity; and, secondly, the discloser considers that the information may assist the person to whom the disclosure is made to perform the person’s functions or duties in relation to the regulated entity. May I say again, with respect, that subjectivity is indeed a part of public disclosures of these kind. It is not necessarily a criticism that that element is within the legislation.

I note, by the way, that the Australian Bankers Association welcomed the simplification and clarification of some operational matters but said that others require clarification and further regulatory guidance. I would suggest to the government that this bill, which does intend to simplify regulation, will need monitoring. There are inevitable consequences to changing regulation, and you will inevitably get complaints from market participants. The intent of the bill is right. Its achievements are mostly in the right direction. The Australian Democrats certainly support this bill.

Brett Mason (Queensland, Liberal Party, Parliamentary Secretary to the Minister for Health and Ageing) Share this | Link to this | Hansard source

in reply—I again thank Senator Murray for his contributions to financial and corporate sector reform. I commend the bill to the Senate.

Question agreed to.

Bill read a second time.