Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2019-2020-2021
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
FINANCIAL ACCOUNTABILITY REGIME BILL 2021
FINANCIAL SECTOR REFORM (HAYNE ROYAL COMMISSION
RESPONSE NO. 3) BILL 2021
FINANCIAL SERVICES COMPENSATION SCHEME OF LAST RESORT LEVY
BILL 2021
FINANCIAL SERVICES COMPENSATION SCHEME OF LAST RESORT LEVY
(COLLECTION) BILL 2021
EXPLANATORY MEMORANDUM
(Circulated by authority of the
Treasurer, the Hon Josh Frydenberg)
Table of contents
Glossary................................................................................................. 1
General outline and financial impact ...................................................... 3
Chapter 1 Financial Accountability Regime .................................. 7
Chapter 2 Financial services compensation scheme of last
resort ......................................................................... 59
Chapter 3 Financial services compensation scheme of last
resort levy .................................................................. 79
Chapter 4 Statement of Compatibility with Human Rights ........ 101
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
AFCA Australian Financial Complaints Authority
APRA The Australian Prudential Regulation
Authority
ASIC The Australian Securities and Investments
Commission
ASIC supervisory cost The levy framework established by the ASIC
recovery levy framework Supervisory Cost Recovery Levy Act 2017
Banking Executive The Banking Executive Accountability
Accountability Regime Regime in Part IIAA of the Banking Act 1959
the Bill Financial Sector Reform (Hayne Royal
Commission Response No. 3) Bill 2021
Corporations Act Corporations Act 2001
CSLR Compensation scheme of last resort
Financial Accountability The Financial Accountability Regime
Regime introduced in the Financial Accountability
Regime Bill 2021
Financial Services Royal Royal Commission into Misconduct in the
Commission Banking, Superannuation and Financial
Services Industry
Financial Services Royal The Final Report of the Royal Commission
Commission Final Report into Misconduct in the Banking,
Superannuation and Financial Services
Industry
Ramsay Review The Supplementary Final Report of the
Review of the financial system external
dispute resolution and complaints framework
the Regulator Generally, the Regulator is both APRA and
ASIC. However, if an accountable entity
does not hold an Australian financial services
licence or an Australian credit licence, then
the Regulator for that accountable entity and
its significant related entities and accountable
persons is only APRA.
1
General outline and financial impact
On 4 February 2019, the Government released its response to the
Financial Services Royal Commission Final Report entitled Restoring
trust in Australia's financial system.
The Government's response committed to taking action on all the
recommendations of the Financial Services Royal Commission and made
additional commitments to address the issues identified by Commissioner
Hayne.
This package implements the recommendations to establish the CSLR and
the Financial Accountability Regime of the Financial Services Royal
Commission to improve consumer protections.
Financial Accountability Regime
The Financial Accountability Regime Bill 2021 introduces a new
accountability regime for the banking, insurance and superannuation
industries.
Schedules 1 and 2 to the Bill make consequential amendments to relevant
Acts to support the Financial Accountability Regime.
Date of effect: The Financial Accountability Regime Bill 2021
commences the day after Royal Assent. The regime will apply to the
banking industry on 1 July 2022 or six months after Royal Assent,
whichever is later. The regime will apply to the insurance and
superannuation industries on 1 July 2023 or 18 months after Royal Assent,
whichever is later.
Schedule 1 Part 1 and Schedule 2 to the Bill commence the day after
Royal Assent, at the same time as the Financial Accountability Regime
Bill 2021 commences. Schedule 1 Part 2 to the Bill will commence the
date the regime applies to the banking industry. That date will be either
1 July 2022 or six months after the Financial Accountability Regime
Bill 2021 receives Royal Assent, whichever is later.
Proposal announced: The proposal was announced on 4 February 2019
as part of the Government's response to the Financial Services Royal
Commission.
Financial impact: Nil.
Human rights implications: The Financial Accountability Regime
Bill 2021 does not raise any human rights issues. See Statement of
Compatibility with Human Rights -- Chapter 4.
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Resort Levy Bill 2021 and associated Bills
Schedules 1 and 2 to the Bill do not raise any human rights issues. See
Statement of Compatibility with Human Rights -- Chapter 4.
Compliance cost impact: The Financial Services Royal Commission
Final Report has been certified as being informed by a process and
analysis equivalent to a Regulation Impact Statement for the purposes of
the Government decision to implement this reform.
The Financial Services Royal Commission Final Report can be accessed
through the Australian Parliament House website.1
Financial services compensation scheme of last resort and
levy framework
The Financial Services Compensation Scheme of Last Resort Levy
Bill 2021 and Financial Services Compensation Scheme of Last Resort
Levy (Collection) Bill 2021 and Schedule 3 to the Financial Sector
Reform (Hayne Royal Commission Response No. 3) Bill 2021 introduces
the CSLR.
The CSLR is intended to support confidence in the financial system's
external dispute resolution framework. The scheme will provide
compensation where a determination issued by AFCA remains unpaid and
the determination relates to a financial product or service within the scope
of the scheme. The Commonwealth will fund the establishment of the
scheme and its operation in the first year. A levy will be imposed on the
financial services industry to fund the scheme in future years.
Date of effect: The establishment of the scheme and the supporting levy
framework commences on the later of 1 January 2022 and the day after
Royal Assent.
The operator of the scheme can begin to make compensation payments
under the scheme from 1 July 2022.
Proposal announced: The proposal was announced on 4 February 2019
as part of the Government's response to the Financial Services Royal
Commission.
Financial impact: This measure is estimated to have the following
impact on underlying cash over the forward estimates period ($m):
2021-22 2022-23 2023-24 2024-25
-4.6 0.9 0.1 -1.6
1
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4
General outline and financial impact
Human rights implications: Schedule 3 to the Bill raises human rights
issues. See Statement of Compatibility with Human Rights -- Chapter 4.
The Financial Services Compensation Scheme of Last Resort Levy
Bill 2021 does not raise any human rights issues. See Statement of
Compatibility with Human Rights -- Chapter 4.
The Financial Services Compensation Scheme of Last Resort Levy
(Collection) Bill 2021 raises human rights issues. See Statement of
Compatibility with Human Rights -- Chapter 4.
Compliance cost impact: The Financial Services Royal Commission
Final Report has been certified as being informed by a process and
analysis equivalent to a Regulation Impact Statement for the purposes of
the Government decision to implement this reform.
The Financial Services Royal Commission Final Report can be accessed
through the Australian Parliament House website.2
2
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5
Chapter 1
Financial Accountability Regime
Outline of chapter
1.1 This chapter provides an overview of the Financial
Accountability Regime.
Context of amendments
1.2 The Australian financial system is central to the economy and
plays an essential role in promoting economic growth. Decisions taken by
directors and senior executives of financial institutions are important and
have flow on effects for the Australian economy and for consumers.
1.3 A key objective of the Financial Accountability Regime is to
improve the operating culture of entities in the banking, insurance and
superannuation industries and to increase transparency and accountability
across these industries--both in relation to prudential matters and conduct
related matters.
1.4 The Treasury Laws Amendment (Banking Executive
Accountability and Related Measures) Act 2018 enacted the Banking
Executive Accountability Regime, which commenced on 1 July 2018.
The Banking Executive Accountability Regime is an accountability
framework for directors and senior executives of authorised deposit-taking
institutions (entities that carry on banking business) and their subsidiaries.
1.5 The Financial Services Royal Commission made a number of
recommendations relating to extending the Banking Executive
Accountability Regime to other APRA regulated industries and to have
APRA and ASIC jointly administer the extended regime.
1.6 As part of the Government's response to the Financial Services
Royal Commission Final Report on 4 February 2019, the Government
announced it would implement:
• recommendation 3.9--to extend provisions modelled on the
Banking Executive Accountability Regime to registrable
superannuation entity licensees;
• recommendation 4.12--to extend provisions modelled on the
Banking Executive Accountability Regime to insurers
regulated by APRA;
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Resort Levy Bill 2021 and associated Bills
• recommendation 6.6--to have APRA and ASIC jointly
administer the Banking Executive Accountability Regime;
• recommendation 6.7--to make it clear that authorised
deposit-taking institutions and their accountable persons must
deal with both APRA and ASIC in an open, constructive and
cooperative way; and
• recommendation 6.8--to have APRA and ASIC jointly
administer the extended regime.
1.7 The Financial Accountability Regime is the Government's
implementation of those Financial Services Royal Commission
recommendations. The regime is designed to improve the risk and
governance cultures of Australia's financial institutions by imposing a
strengthened responsibility and accountability framework for those
institutions and the directors and the most senior and influential
executives (accountable persons) of those institutions.
Summary of new law
1.8 The Financial Accountability Regime imposes four core sets of
obligations:
• accountability obligations--which require entities in the
banking, insurance and superannuation industries and their
directors and most senior and influential executives to
conduct their business in a certain manner (i.e. honesty and
with care, skill and diligence);
• key personnel obligations--which require entities in the
banking, insurance and superannuation industries to
nominate senior and influential executives to be responsible
for all areas of their business operations;
• deferred remuneration obligations--which require entities in
the banking, insurance and superannuation industries to defer
at least 40 per cent of the variable remuneration (for example,
bonuses and incentive payments) of their directors and most
senior and influential executives for a minimum of 4 years,
and to reduce their variable remuneration for non-compliance
with their accountability obligations; and
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Financial Accountability Regime
• notification obligations--which require:
- entities in the banking, insurance and superannuation
industries to meet the core notification obligations by
providing the Regulator with certain information about
their business and their directors and most senior and
influential executives; and
- for entities above a certain threshold, which will be
determined rules made by the Minister, to meet the
enhanced notification obligations, by preparing and
submitting accountability statements and accountability
maps.
1.9 The Financial Accountability Regime will apply to the banking
industry from the later of 1 July 2022 or six months after the
commencement of the Financial Accountability Regime Bill 2021. The
Banking Executive Accountability Regime will be repealed as the
obligations under the Financial Accountability Regime apply to the
banking industry.
1.10 The Financial Accountability Regime will apply to the insurance
and superannuation industries from the later of 1 July 2023 or 18 months
after commencement of the Financial Accountability Regime Bill 2021.
1.11 The entities to which the Financial Accountability Regime
applies are referred to as accountable entities. These entities are:
• authorised deposit-taking institutions;
• authorised non-operating holding companies of authorised
deposit-taking institutions;
• general insurers;
• authorised non-operating holding companies of general
insurers;
• life companies;
• registered non-operating holding companies of life
companies;
• private health insurers; and
• registrable superannuation entity licensees (or RSE
licensees).
1.12 The Financial Accountability Regime also provides for the
regulation of the directors and most senior and influential executives of
accountable entities who:
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Resort Levy Bill 2021 and associated Bills
• have actual or effective senior executive responsibility for
management or control of the accountable entity or its
relevant group; or
• hold particular responsibilities and/or positions prescribed in
the rules made by the Minister.
1.13 The directors and senior executives who are regulated under the
Financial Accountability Regime are referred to as accountable persons.
1.14 The Financial Accountability Regime imposes accountability
obligations on accountable persons, requires accountable persons be
registered, and gives the Regulator power to disqualify someone from
being an accountable person of an entity or a class of entities regulated by
the regime. The Regulator may also direct an accountable entity to
reallocate the responsibilities of its accountable persons to address
prudential risks or risks of significant and systemic non-compliance.
1.15 The Financial Accountability Regime will be jointly
administered by APRA and ASIC. The Financial Accountability Regime
Bill 2021 sets out the powers the Regulators can exercise under the regime
and their shared responsibilities. However, ASIC's powers under the
regime only provides for ASIC to be able to regulate entities licensed
under financial services law or credit legislation. The Financial
Accountability Regime Bill 2021 refers to APRA and ASIC collectively
(or just to APRA, where it is the sole regulator) as the Regulator.
Detailed explanation of new law
1.16 The object of the Financial Accountability Regime is to impose
a strengthened accountability framework for certain entities in the
banking, insurance and superannuation industries, and their directors and
most senior and influential executives. [Section 3 to the Financial Accountability
Regime Bill 2021]
1.17 The Financial Accountability Regime will achieve this by
placing accountability obligations on certain entities within these
industries, referred to as accountable entities. Some corporate groups may
have multiple accountable entities. [Section 9 to the Financial Accountability
Regime Bill 2021]
1.18 Some of the legal obligations in the Financial Accountability
Regime will require an accountable entity to take reasonable steps to
ensure that its significant related entities (for most entities, its significant
subsidiaries) act in accordance with the regime. However, those
significant related entities will not generally be subject to direct legal
obligations under the regime. [Sections 12 and 20(e) to the Financial
Accountability Regime Bill 2021]
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Financial Accountability Regime
1.19 The Financial Accountability Regime also places legal
obligations on the directors and most senior and influential executives of
accountable entities, referred to as accountable persons. [Section 10 to
the Financial Accountability Regime Bill 2021]
1.20 The Financial Accountability Regime Bill 2021 provides a
number of definitions to establish the new legislative framework and
ensure that the regime interacts effectively with existing legislation.
[Section 8 to the Financial Accountability Regime Bill 2021]
Entities regulated under the Financial Accountability Regime
Accountable entities under the Financial Accountability Regime
1.21 The Financial Accountability Regime imposes obligations on
accountable entities in the banking, insurance and superannuation
industries.
1.22 An accountable entity is generally an entity which holds a
licence to carry on a banking, insurance or superannuation business.
Accountable entities are the primary entities which are regulated under the
Financial Accountability Regime.
1.23 In the banking sector, the following bodies corporate are
accountable entities:
• an authorised deposit-taking institution under the
Banking Act 1959;
• an authorised non-operating holding company under the
Banking Act 1959.
[Section 9(1) to the Financial Accountability Regime Bill 2021]
1.24 For the insurance and superannuation industries the following
bodies corporate will be accountable entities under the Financial
Accountability Regime:
• for general insurance:
- a general insurer under the Insurance Act 1973;
- an authorised non-operating holding company of a general
insurer under the Insurance Act 1973;
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Resort Levy Bill 2021 and associated Bills
• for life insurance:
- a life company registered under the Life Insurance
Act 1995;
- a registered non-operating holding company of a life
company under the Life Insurance Act 1995;
• for private health insurance--a private health insurer under
the Private Health Insurance (Prudential Supervision)
Act 2015; and
• for superannuation--a licensed trustee of a superannuation
entity (a registrable superannuation entity licensee (a RSE
licensee) under the Superannuation Industry (Supervision)
Act 1993).
[Section 9(3) and (4) to the Financial Accountability Regime Bill 2021]
1.25 To be an accountable entity, a body corporate must also be a
constitutionally covered body. A body will be a constitutionally covered
body, if:
• it is a constitutional corporation;
• it carries on a business of banking, insurance or
superannuation; or
• its conduct affects, or could affect, a constitutional
corporation or a body that carries on a business of banking,
insurance or superannuation.
[Sections 9(1)(b), 9(3)(b), and 13 to the Financial Accountability Regime
Bill 2021]
1.26 The Financial Accountability Regime will have a staggered
application to the banking, insurance and superannuation industries.
1.27 The banking industry will transition from the Banking Executive
Accountability Regime to the Financial Accountability Regime from the
later of 1 July 2022 or six months after commencement of the Financial
Accountability Regime Bill 2021. [Section 9(2) to the Financial Accountability
Regime Bill 2021]
1.28 The deferred remuneration obligations under the Financial
Accountability Regime will apply when the decision to provide
remuneration occurs in first financial year that begins six months after the
Financial Accountability Regime begins to apply to the banking industry.
[Schedule 2 item 11 to the Bill]
1.29 Once the Financial Accountability Regime starts applying to the
banking industry, the regime will apply to new entrants from the time they
become an authorised deposit-taking institution or a non-operating
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Financial Accountability Regime
holding company under the Banking Act 1959. [Section 9(2)(c) to the Financial
Accountability Regime Bill 2021]
1.30 The Financial Accountability Regime will apply to the insurance
and superannuation industries from the later of 1 July 2023 or 18 months
after commencement of the Financial Accountability Regime Bill 2021.
[Section 9(3) and (4) to the Financial Accountability Regime Bill 2021]
1.31 Once the Financial Accountability Regime starts applying to the
insurance and superannuation industries, the regime will apply to new
entrants from the time they become licensed. [Section 9(4)(c) to the Financial
Accountability Regime Bill 2021]
Obligation on accountable entities in relation to their significant related
entities
1.32 The Financial Accountability Regime imposes some obligations
on an accountable entity in relation to its significant related entities.
1.33 An accountable entity's significant related entities can include
entities that are incorporated and operate outside of Australia, as well as
entities within Australia. This approach recognises that financial services
are often provided by large international corporate businesses and the
activities of foreign entities can have a significant effect on the provision
of services in Australia.
Significant related entities of accountable entities in the banking and
insurance industries
1.34 For the banking and insurance industries, an entity will be a
significant related entity of an accountable entity if it is:
• a subsidiary of the accountable entity; and
• the effect of the subsidiary on the accountable entity is
material and substantial.
[Section 12(1) to the Financial Accountability Regime Bill 2021]
1.35 The Financial Accountability Regime Bill 2021 contains a list of
factors to assist consideration of whether the relationship between an
accountable entity and another entity is sufficiently material and
substantial to make the other entity a significant related entity.
[Section 12(4) of the Financial Accountability Regime Bill 2021]
1.36 The relationship between an accountable entity and another
entity will be sufficiently material and substantial if the other entity's
business activity has the potential if disrupted, to have a significant impact
on the accountable entity or its relevant group's business operations or its
ability to manage risks effectively.
1.37 The Financial Accountability Regime recognises that related
entities' operations may be significant to the accountable entity's
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Financial Accountability Regime Bill 2021, Financial Services Compensation Scheme of Last
Resort Levy Bill 2021 and associated Bills
business. For example, consumers often associate a wide range of
financial services and activities provided by a corporate group under the
accountable entity's brand. Poor behaviour by a significant related entity
can have a negative effect on the accountable entity's brand and public
standing and has the potential to adversely affect the prudential reputation
of the accountable entity itself.
1.38 In general, a given significant related entity can only be related
to one accountable entity, its closest parent accountable entity. This rule
provides clarity around the operation of the regime and ensures that each
significant related entity is the sole responsibility of one accountable
entity. [Section 12(2) of the Financial Accountability Regime Bill 2021]
1.39 A significant related entity must be a constitutionally covered
body. [Sections 12(1)(c) and 13 to the Financial Accountability Regime Bill 2021]
Diagram 1.1--Accountable entities and their significant related
entities
The below corporate group contains four accountable entities from the
banking, insurance and superannuation industries. Each accountable entity
has obligations in relation to the conduct of its significant related entities.
However, there are other entities in the group that are not regulated under the
Financial Accountability Regime.
Significant related entities in the superannuation industry
1.40 A significant related entity of an accountable entity that is a
registrable superannuation entity licensee can be a wider variety of entities
than a significant related entity in the banking and insurance industries.
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Financial Accountability Regime
1.41 Significant related entities of registrable superannuation entity
licensees can be:
• subsidiaries of the licensee;
• other related bodies corporate of the licensee (such as parent
and sibling entities); and
• entities with certain control relationships with the licensee.
[The definition of 'connected entity' in section 8 and section 12(3) to the
Financial Accountability Regime Bill 2021; see also section 10 to the
Superannuation Industry (Supervision) Act 1993 and section 50AAA to
the Corporations Act]
1.42 Different related entities are covered by the Financial
Accountability Regime for registrable superannuation entity licensees as
they may have a different operating structure to other types of accountable
entities. In particular, a connected entity of a registrable superannuation
entity licensee could have a material and substantial impact on the
licensee but may not be a subsidiary of the licensee. These connected
entities can be significant related entities of registrable superannuation
entity licensees.
1.43 Additionally, unlike other accountable entities, a related entity
can be a significant related entity of more than one registrable
superannuation entity licensee. [Section 12(3) to the Financial Accountability
Regime Bill 2021]
-- Significant related entities of registrable
superannuation entity licensees
The below corporate group contains three accountable entities: two registrable
superannuation entity licensees and a general insurer. Subsidiary C is a
significant related entity to both superannuation entities and the insurer. The
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Financial Accountability Regime Bill 2021, Financial Services Compensation Scheme of Last
Resort Levy Bill 2021 and associated Bills
other associated entity is a significant related entity to both superannuation
entities, as are subsidiaries A and B. More than one accountable entity will be
responsible for each of the significant related entities.
-- Significant related entities of a not-for-profit
registrable superannuation entity licensee
The below corporate group contains one accountable entity (the registrable
superannuation entity licensee) and five connected entities of the registrable
superannuation entity licensee. Entities A, B and E are significant related
entities of the registrable superannuation entity licensee.Accountable
persons under the Financial Accountability Regime
1.44 The conduct of a business is ultimately determined by its
directors and its most senior and influential executives. These directors
and executives of accountable entities are regulated by the Financial
Accountability Regime as accountable persons.
1.45 The Financial Accountability Regime places a series of
obligations on accountable persons such as requirements to act with
honesty and integrity, and with due skill, care and diligence and deal with
APRA and ASIC in an open, constructive and cooperative way. Breaches
of these obligations can result in a person becoming disqualified from
being an accountable person. [Sections 21 and 42 to the Financial Accountability
Regime Bill 2021]
1.46 A person is an accountable person if the person:
• holds a position in an accountable entity or a significant
related entity of an accountable entity; and
• has senior executive responsibility for management or
control of the accountable entity or a significant or
substantial part or aspect of the operations of the accountable
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Financial Accountability Regime
entity or the accountable entity and its group of significant
related entities.
[Section 10(1) and (6) to the Financial Accountability Regime Bill 2021]
1.47 An accountable person also includes a person who:
• holds a position in an accountable entity that is of a kind
prescribed in the rules made by the Minister; or
• has a prescribed responsibility in or in relation to an
accountable entity as specified in the rules made by the
Minister.
[Section 10(2) to (4) to the Financial Accountability Regime Bill 2021]
1.48 Accountable persons with specified responsibilities will
primarily be persons appointed or employed by an accountable entity or
its significant related entity, but could also include contractors and
independent service providers (such as a consultant in charge of human
resources for an accountable entity). [Section 10(2) to (4) to the Financial
Accountability Regime Bill 2021]
1.49 The rules made by the Minister may identify a kind of
responsibility or position by reference to the level or area of
responsibility. The rules may identify responsibilities within all or a class
of entities that are subject to the Financial Accountability Regime.
[Section 10(2) to (4) to the Financial Accountability Regime Bill 2021]
1.50 One person can be an accountable person of multiple
accountable entities and can hold multiple prescribed responsibilities or
positions listed in the rules made by the Minister. An accountable person
may also be employed by a body other than the accountable entity or one
of its significant related entities.
1.51 In practice, accountable persons will typically include the
directors and senior executives of an entity, such as the Chief Executive
Officer and officers reporting directly to the Chief Executive Officer.
Lower-level executives are generally not expected to be accountable
persons under the Financial Accountability Regime.
1.52 For a foreign accountable entity in the banking or insurance
industries, the accountable person's responsibilities will relate to the
Australian branch of the entity, rather than to the entity as a whole.
[Section 10(5) to the Financial Accountability Regime Bill 2021]
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Resort Levy Bill 2021 and associated Bills
1.53 Despite the above, the Regulator can exclude certain
responsibilities from the obligations under the Financial Accountability
Regime. This means that persons with only those excluded responsibilities
or positions will not be accountable persons. This Regulator can provide
for the exclusions:
• in relation to a particular entity - by written notice to the
entity; or
• in relation to a class of entities - by rules made by the
Regulator.
[Section 11(1) to (4) to the Financial Accountability Regime Bill 2021]
1.54 The written notice by the Regulator is not a legislative
instrument. [Section 11(5) to the Financial Accountability Regime Bill 2021]
Obligations of accountable persons under the Financial Accountability
Regime
1.55 The Financial Accountability Regime sets out accountability
obligations for accountable persons that relate to both conduct-related and
prudential matters. [Sections 18 and 21 to the Financial Accountability Regime
Bill 2021]
1.56 An accountable person is required to act with honesty and
integrity, and with due skill, care and diligence. The person must also act
in a manner that prevents actual or likely adverse impact to their
accountable entity's prudential standing, where standing is considered
within the entity's industry as well as among the general public.
[Section 21(1)(a) and (c) to the Financial Accountability Regime Bill 2021]
1.57 The accountability obligations of accountable persons extend
beyond those in the Banking Executive Accountability Regime by:
• extending the requirement for accountable persons to deal in
an open, constructive and cooperative way with both APRA
and ASIC; and [Section 21(1)(b) to the Financial Accountability
Regime Bill 2021]
• introducing a new obligation for accountable persons to take
reasonable steps to prevent matters from arising that would
(or would be likely to) result in a material contravention by
their accountable entity of certain financial sector laws.
[Section 21(1)(d) to the Financial Accountability Regime Bill 2021]
1.58 The Financial Accountability Regime Bill 2021 provides
guidance on what amounts to taking reasonable steps to support proactive
compliance by accountable persons and accountable entities. This
includes taking appropriate action both to prevent, and in response to,
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Financial Accountability Regime
non-compliance or suspected non-compliance rather than a set-and-forget
attitude. [Section 22 to the Financial Accountability Regime Bill 2021]
1.59 The new obligation for accountable persons to take reasonable
steps to prevent breaches of certain financial sector laws will only be
triggered by material and significant breaches. The focus on significant
contraventions ensures an accountable person does not face unduly
serious consequences for involvement in occasional minor or technical
contraventions.
1.60 However, a large number or repeated occurrence of minor
breaches could indicate a systemic issue of non-compliance which could
amount to a material contravention. Similarly, taking reasonable steps to
prevent a material contravention does not mean an accountable person can
operate or set up compliance systems that allow non-material breaches.
1.61 An accountable person would only be required to take
reasonable steps to ensure compliance by the accountable entity with the
certain financial sector laws that are relevant to their area of
responsibility.
1.62 An accountable person will be held accountable to the extent
they were involved in and responsible for a contravention of obligations
under the Financial Accountability Regime. If multiple accountable
persons have the same responsibility for the same accountable entity, each
person is liable for any breaches in relation to that responsibility. This
approach is to prevent accountable persons from avoiding their
obligations under the regime by shifting responsibility to other
accountable persons. [Section 21(2) to the Financial Accountability Regime
Bill 2021]
1.63 An accountable person must comply with each of their
accountability obligations. For instance, not acting with due diligence
would result in the accountable person failing to meet their accountability
obligations.
1.64 If an accountable person fails to comply with any of these
obligations, their variable remuneration will need to be reduced by the
accountable entity or significant related entity by an amount proportionate
to the failure. [Section 25(1) to the Financial Accountability Regime Bill 2021]
1.65 Failure to comply with an obligation may also result in the
Regulator taking other enforcement actions under the Financial
Accountability Regime. For example, the Regulator could seek to
disqualify someone from being an accountable person or could seek to
have an accountable person's responsibilities reallocated. [Sections 42 and 65
to the Financial Accountability Regime Bill 2021]
1.66 However, protections for whistle-blowers under Part 9.4AAA of
the Corporations Act will be available in relation to the Financial
Accountability Regime. [Schedule 1, item 31 to the Bill]
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Resort Levy Bill 2021 and associated Bills
Obligations of accountable entities under the Financial Accountability
Regime
1.67 The obligations for accountable entities under the Financial
Accountability Regime relate to both conduct and prudential matters.
[Section 20 to the Financial Accountability Regime Bill 2021]
1.68 Accountable entities must comply with each of their
accountability obligations, key personnel obligations, deferred
remuneration obligations, and notification obligations (as described
below). [Section 15(1) to the Financial Accountability Regime Bill 2021]
1.69 If an accountable entity fails to comply with an obligation, it
may be subject to a civil penalty of up to 50,000 penalty units, three times
the value of the benefit derived or detriment avoided by the entity, or
10 per cent of the entity's annual turnover up to 2.5 million penalty units
for each contravention (for more detail, see the sections below on civil
penalties). [Sections 80 to 83 to the Financial Accountability Regime Bill 2021]
1.70 Contravention may also result in other enforcement action being
taken in relation to the accountable entity. For example, the Regulator
may enter an enforceable undertaking with the entity, or issue a direction
to it, to resolve non-compliance. APRA and ASIC may also be able to
take enforcement action under other relevant legislation, such as the
Banking Act 1959. [Part 4 of Chapter 3 to the Financial Accountability Regime
Bill 2021]
Accountability obligations of accountable entities
1.71 An accountable entity must take reasonable steps to conduct its
business with honesty and integrity, with due skill, care and diligence, and
in a manner that prevents actual or likely adverse impact on its prudential
standing and reputation. [Section 20(a) and (c) to the Financial Accountability
Regime Bill 2021]
1.72 The obligation to take reasonable steps to prevent both actual
and likely impacts on the accountable entity's prudential standing is
designed to encourage proactive compliance. The entity's prudential
standing is considered within its industry as well as more broadly, among
the general public.
1.73 The Financial Accountability Regime accountability obligations
extend beyond those currently in the Banking Executive Accountability
Regime: an accountable entity must take reasonable steps to deal in an
open, constructive and cooperative way with both APRA and ASIC.
[Section 20(b) to the Financial Accountability Regime Bill 2021]
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1.74 An accountable entity is also required to take reasonable steps to
ensure that:
• its accountable persons comply with their own accountability
obligations; and [Sections 20(d) and 21 to the Financial
Accountability Regime Bill 2021]
• its significant related entities comply with the accountability
obligations of an accountable entity as if it were an
accountable entity. [Section 20(e) to the Financial Accountability
Regime Bill 2021]
1.75 An accountable entity must comply with each obligation. For
instance, not acting with due skill would result in the accountable entity
failing to meet its accountability obligations. The obligations are designed
to complement and support the obligations under other legislative
requirements (such as the general obligations under section 912A of the
Corporations Act and the obligations under section 52 of the
Superannuation (Industry Supervision) Act 1993).
Key personnel obligations of accountable entities
1.76 The Financial Accountability Regime requires an accountable
entity to ensure that the responsibilities of relevant accountable persons
collectively cover all parts or aspects of its business, including the
business of its relevant group. [Section 23(1)(a) to the Financial Accountability
Regime Bill 2021]
1.77 This obligation includes having accountable persons who are
responsible for each of the responsibilities and positions prescribed in the
rules made by the Minister. [Section 23(1)(a)(ii) and (iii) to the Financial
Accountability Regime Bill 2021]
1.78 An accountable entity must comply with any directions given by
the Regulator and take steps to ensure that its significant related entities
do the same. [Section 23(1)(c) and (d) to the Financial Accountability Regime
Bill 2021]
1.79 An accountable entity must ensure each of its accountable
persons and those of its significant related entities have not been
disqualified from being accountable persons by the Regulator.
[Sections 23(1)(b) and 24(1)(b) to the Financial Accountability Regime Bill 2021]
1.80 Accountable entities are not required to have accountable
persons for responsibilities which have been excluded by the Regulator.
[Section 23(2) to the Financial Accountability Regime Bill 2021]
1.81 Foreign accountable entities in the banking and insurance
industries are only required to comply with the key personnel obligations
in relation to the operations of their Australian branches. [Section 23(3) to the
Financial Accountability Regime Bill 2021]
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Timing of key personnel obligations
1.82 Generally, an accountable entity must ensure each of its
accountable persons and those of its significant related entities are
registered with the Regulator before the person starts occupying a role as
an accountable person. [Sections 23(1)(b) and 24 to the Financial Accountability
Regime Bill 2021]
1.83 However, to support accountable entities to comply with the key
personnel obligations, and to promote efficient practices, the Financial
Accountability Regime provides flexibility for:
• temporary and unforeseen vacancies;
• directors appointed at general meetings; and
• new entities entering the industry.
[Section 24(2) to (7) to the Financial Accountability Regime Bill 2021]
1.84 Accountable persons filling temporary vacancies or unforeseen
vacancies have up to 90 days after becoming an accountable person to be
registered. This grace period applies where the incumbent position-holder
is expected to return, or there is intention to make a permanent
appointment, within 90 days of the position becoming vacant. This can
include situations where an individual is temporarily replacing an
accountable person due to illness, or an individual fulfils a vacancy on a
temporary basis until a new permanent accountable person is appointed.
[Section 24(2 )to the Financial Accountability Regime Bill 2021]
1.85 Appointing an accountable person to fill a permanent position on
a fixed-term contract will not constitute a temporary vacancy to which this
longer period for registration will apply (the vacancy itself must be
temporary).
1.86 An accountable person who is appointed as director of an
accountable entity at a general meeting has up to 30 days to be registered.
This approach simplifies the registration process as the entity has 30 days
after the successful candidate is appointed to register them as an
accountable person, rather than having to submit applications ahead of the
meeting for all candidates, only to later retract those of the unsuccessful
candidates. [Section 24(3) to the Financial Accountability Regime Bill 2021]
1.87 An entity that becomes an accountability entity after the
application of the Financial Accountability Regime to the industry the
entity is licensed for will have 30 days to register their accountable
persons. The 30-day time period commences from the date the entity
becomes an accountable entity. This 30-day period does not apply to
entities when they are renewing a licence. [Section 24(4) of the Financial
Accountability Regime Bill 2021]
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Financial Accountability Regime
1.88 These longer periods for registration are intended to support
compliance with the obligations in the Financial Accountability Regime
and should not be used to avoid registration or notification obligations.
1.89 The Regulator can adjust these longer periods for registration:
• for an individual entity - by written notice to the entity; or
• for a class of entities - by Regulator rules.
[Section 24(2 or (5) to the Financial Accountability Regime Bill 2021]
1.90 The Regulator can adjust the period for registration to a longer
or shorter period. A decision to shorten the period by written notice is a
reviewable decision and is therefore subject to reconsideration by the
Regulator, and to review by the Administrative Appeals Tribunal (see
below for more on reviewable decisions and merits review). [Section 24(2) to
(6), and section 91, to the Financial Accountability Regime Bill 2021]
1.91 A written notice setting out the Regulator's determination of a
new period for a particular entity prevails over rules which would also
apply to the entity. [Section 24(6) tp the Financial Accountability Regime Bill 2021]
Deferred remuneration obligations of accountable entities
1.92 The Financial Accountability Regime requires accountable
entities to control payment of an accountable person's variable
remuneration, such as bonuses and incentive payments, in various ways.
1.93 Specifically, the Financial Accountability Regime obliges each
accountable entity to:
• defer payment of at least 40 per cent of each accountable
person's variable remuneration for a minimum period of four
years;
• have a remuneration policy that requires the variable
remuneration of an accountable person to be reduced if they
fail to comply with their accountability obligations;
• not pay the portion of variable remuneration that has been
reduced in accordance with the remuneration policy; and
• take reasonable steps to ensure that their significant related
entities comply with the above.
[Sections 25(1), 27, and 28 to the Financial Accountability Regime
Bill 2021]
1.94 The requirement to defer variable remuneration ensures that
accountable persons have clear incentives to promote effective risk
management when making decisions which have longer-term impacts. It
also ensures that accountable persons are properly held to account for
decisions that have negative future consequences.
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1.95 In the event of contravention, the amount an accountable
person's variable remuneration is reduced by is determined by the relevant
accountable entity or significant related entity. The amount of the
reduction must be proportionate to the accountable person's failure to
comply with the person's obligations. The reduction does not need to
relate to the period in which the failure occurred, and the accountable
person may not have any variable remuneration left after the reduction.
[Section 25(2) to the Financial Accountability Regime Bill 2021]
1.96 The deferred remuneration obligations under the Financial
Accountability Regime apply to variable remuneration, which is
remuneration conditional on the accountable person achieving particular
objectives such as performance metrics and service requirements.
[Section 26(1)(a) to the Financial Accountability Regime Bill 2021]
1.97 The deferred remuneration obligations apply to variable
remuneration paid in cash and also other forms of remuneration such as
shares and options. The obligations also apply to remuneration paid
directly by the accountable entity and other entities in the corporate group
to which the accountable entity belongs. [Section 25(3) to the Financial
Accountability Regime Bill 2021]
1.98 The deferred remuneration obligations will apply in relation to
variable remuneration paid by other entities in a corporate group only if it
is wholly or partly related to the person's work performing the role of an
accountable person. [Section 25(3) to the Financial Accountability Regime
Bill 2021]
1.99 The Regulator can also determine certain types of remuneration
to be included or excluded from the deferred remuneration obligations.
The Regulator is able to do this:
• for an individual entity - by written notice to the entity and
each accountable person who is impacted; or
• for a class of entities - by making Regulator rules.
[Section 26(1)(b) and (2) to (4) and (7) to the Financial Accountability
Regime Bill 2021]
1.100 A person who becomes an accountable person after the
Regulator makes a determination to include or exclude certain types of
renumeration from the deferred remuneration obligations must be notified
of the determination if the person is impacted by it. [Section 26(5) to the
Financial Accountability Regime Bill 2021]
1.101 Written notice of a determination that particular remuneration is
or is not variable remuneration is not a legislative instrument. [Section 26(6)
to the Financial Accountability Regime Bill 2021]
1.102 Decisions of the Regulator relating to a determination of
variable remuneration by written notice are subject to reconsideration by
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the Regulator, and to review by the Administrative Appeals Tribunal.
[Sections 26(3) and 91 to the Financial Accountability Regime Bill 2021]
Minimum amount of variable remuneration to be deferred
1.103 Generally, the deferred remuneration obligations under the
Financial Accountability Regime requires at least 40 per cent of an
accountable person's variable remuneration for the relevant financial year
to be deferred. The meaning of financial year is specific to each
accountable entity. [Section 27(1) and (7), and the definition of 'financial year' in
section 8 to the Financial Accountability Regime Bill 2021]
1.104 The value of a person's variable remuneration that is deferred
will generally be the value of the remuneration if it had been paid to the
person at the start of the deferral period. However, the Regulator will have
power to determine or prescribe an alternative way to work out that value.
[Section 27(2) to the Financial Accountability Regime Bill 2021]
1.105 The Regulator's power to make determinations and rules can be
used for particular forms of remuneration such as shares and options. If
the Regulator exercises such power, the value of a person's variable
remuneration that is deferred is worked out on the basis of the written
determination from the Regulator (if applicable in relation to a specific
entity) or on the basis of rules made by the Regulator in relation to a class
of entities (if applicable). [Section 27(2) to (5) to the Financial Accountability
Regime Bill 2021]
1.106 The Regulator must provide a copy of a determination to each
accountable person who is impacted by it at the time of the determination.
A person who becomes an accountable person after the determination is
made and is impacted by it must be notified of the determination by the
relevant accountable entity or significant related entity. [Section 27(4) and (5)
to the Financial Accountability Regime Bill 2021]
1.107 Written notice of a determination of how to calculate the
minimum amount of variable remuneration to be deferred is not a
legislative instrument. [Section 27(6) to the Financial Accountability Regime
Bill 2021]
1.108 Decisions of the Regulator relating to variable remuneration are
subject to reconsideration by the Regulator, and to review by the
Administrative Appeals Tribunal. [Sections 27(3) and 91 to the Financial
Accountability Regime Bill 2021]
Minimum period of deferral
1.109 Generally, the deferred remuneration obligation under the
Financial Accountability Regime requires an accountable person's
variable remuneration to be deferred for at least four years. [Section 28(1)
to (4) to the Financial Accountability Regime Bill 2021]
1.110 The minimum deferral period may be shorter than four years:
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• if a person stops being an accountable person due to death, or
serious illness, disability or incapacity; or [Section 28(4) of the
Financial Accountability Regime Bill 2021]
• if the Regulator determines other circumstances allowing for
a shorter deferral period, either:
- by written notice for a particular entity; or
- by Regulator rules for a class of entity.
[Section 28(4) to (6) to the Financial Accountability Regime
Bill 2021]
1.111 An accountable person may have a shorter minimum deferral
period on the occurrence of one of the listed circumstances without
approval from the Regulator. However, the shorter minimum deferral
period will not end until the accountable entity is reasonably satisfied that
the person has complied with their accountability obligations, based on
information available at the time. If the accountable entity is never so
satisfied, the default approach of four years applies, and the amount of
deferred remuneration may be reduced by an amount proportionate to the
failure to meet the accountability obligations. [Section 28(4) to the Financial
Accountability Regime Bill 2021]
1.112 The deferral period will start on the later of:
• the day after the day on which the decision was first made for
the accountable person to be able to earn the amount of
variable remuneration; or
• the first day of the performance period, if the variable
remuneration is measured by reference to that period.
[Section 28(2) to the Financial Accountability Regime Bill 2021]
1.113 If the variable remuneration is remuneration of a kind
determined by the Regulator or prescribed by rules made by the
Regulator, then the deferral period may start on the day determined by the
Regulator. [Section 28(3) to the Financial Accountability Regime Bill 2021]
1.114 The deferral period is intended to be consistent with provisions
of APRA's prudential standard to regulate remuneration in regulated
industries (Prudential Standard CPS 511 Remuneration), that also
requires deferral of variable remuneration for an overlapping class of
persons in those industries. This approach will provide for consistent
compliance requirements under the two frameworks.
1.115 If an accountable entity discovers that an accountable person is
likely to have breached their accountability obligations during the deferral
period, then the deferral period will be extended until such time as the
entity completes its investigation of the breach. [Section 28(4) to the Financial
Accountability Regime Bill 2021]
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Circumstances where the deferred remuneration obligations do not apply
1.116 The deferred remuneration obligations do not apply to an
accountable person whose deferred variable remuneration in a particular
financial year for the accountable person's entity would be less than a
certain threshold. The threshold is set at $50,000 with a power for the
Minister to make rules determining a different amount. [Section 29 to the
Financial Accountability Regime Bill 2021]
1.117 The deferred remuneration obligations do not apply to an
accountable person while the person is filling a temporary or an
unforeseen vacancy, who is not registered or required to be registered
under the Financial Accountability Regime because they only hold the
position for 90 days or less. [Section 30 to the Financial Accountability Regime
Bill 2021]
1.118 The deferred remuneration requirements do not apply to
ordinary salary and wages, to an accountable person whose total
remuneration does not include any variable remuneration, nor to variable
remuneration which relates to other work an accountable person may have
performed outside their role as an accountable person.
Notification obligations of accountable entities
1.119 The Financial Accountability Regime requires an accountable
entity to provide the Regulator with particular information about the entity
and its accountable persons.
1.120 All accountable entities are required to comply with the core
notification obligations, while a subset of entities are required to comply
with the enhanced notification obligations. These obligations are
important to ensure the Regulator has up to date information about the
nature and influence of entities and persons who are subject to the
Financial Accountability Regime. [Section 31 to the Financial Accountability
Regime Bill 2021]
Core notification obligations that apply to all accountable entities
1.121 Each accountable entity must notify the Regulator of certain
events relating to the accountable persons of the entity, as well as to
certain breaches of obligations under the Financial Accountability Regime
by the entity or its accountable persons. [Sections 31(1)(a) and 32 to the
Financial Accountability Regime Bill 2021]
1.122 There are two new events that must be notified to the Regulator
beyond the events requiring notification under the Banking Executive
Accountability Regime. They are when:
• the accountable entity has reasonable grounds to believe that
it has breached its key personnel obligations; and
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• a material change occurs to information about an accountable
person on the register of accountable persons. [Section 32(d)(i)
and (e) to the Financial Accountability Regime Bill 2021]
1.123 The Financial Accountability Regime also requires accountable
entities to take reasonable steps to ensure their significant related entities
comply with these requirements as if they were accountable entities.
[Section 31(1)(b) to the Financial Accountability Regime Bill 2021]
1.124 Generally, the notification must be provided within 30 days of
the event occurring. The notice must be provided using the form approved
by the Regulator. [Section 31(6) and (7) to the Financial Accountability Regime
Bill 2021]
1.125 The Regulator can extend this compliance period in the
Regulator rules. [Section 31(6)(b) of the Financial Accountability Regime Bill 2021]
Enhanced notification obligations - accountability statements and maps
1.126 In addition to the core notification obligations, accountable
entities that meet an enhanced notification threshold are required to
provide the Regulator with an accountability statement for each of the
entity's accountable persons and an accountability map. [Section 31(2) to the
Financial Accountability Regime Bill 2021]
1.127 An accountability statement is a document that contains:
• a comprehensive statement of the accountable person's
responsibilities, and any other matters determined in the
Regulator rules; and
• a declaration by the accountable person that the content of
the statement is accurate, and that the person understands
their accountability obligations.
[Section 33 to the Financial Accountability Regime Bill 2021]
1.128 An accountability map is a document outlining all the
accountable persons in a group comprised of the accountable entity and its
significant related entities, the responsibilities of each accountable person
and the lines of reporting and responsibility between those accountable
persons, and any other matters determined in the Regulator rules.
[Section 34 to the Financial Accountability Regime Bill 2021]
1.129 The Minister can make rules to prescribe the threshold for
determining which accountable entities will need to comply with the
enhanced notification requirements. These rules can incorporate material
from non-legislative instruments if that material is published by APRA
and ASIC on their websites. This approach ensures consistency among
materials produced by the Regulators. [Section 31(3) to (5) to the Financial
Accountability Regime Bill 2021]
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1.130 The accountability statement of an accountable person must
accompany the person's application for registration. [Section 41(2)(d) to the
Financial Accountability Regime Bill 2021]
1.131 An accountability map must be provided to the Regulator within
30 days of an entity becoming subject to the Financial Accountability
Regime, or within the period set in the Regulator rules. [Section 31(2)(c)
and (5) to the Financial Accountability Regime Bill 2021]
1.132 Generally, an accountable entity must ensure the Regulator is
notified of any material change to the accountability map and
accountability statement(s) within 30 days of the change occurring. The
Regulator rules can prescribe a different period for compliance.
[Section 31(2)(b) and (d) to the Financial Accountability Regime Bill 2021]
1.133 The Financial Accountability Regime also requires accountable
entities to take reasonable steps to ensure their significant related entities
provide accountability statements and update the Regulator of material
changes as if they were accountable entities. [Section 31(2)(e) to the Financial
Accountability Regime Bill 2021]
1.134 The Banking Executive Accountability Regime required all
authorised deposit-taking institutions to provide accountability maps and
statements to APRA, and to notify APRA of all changes to accountability
maps and statements. The Financial Accountability Regime reduces the
regulatory burden and compliance costs by only requiring accountable
entities that meet the enhanced notification threshold to prepare and
submit accountability maps and statements and to notify the Regulator of
material changes to these documents. The Regulator may provide
guidance on what constitutes material changes.
Circumstances where accountable entities and accountable persons are
not subject to the obligations of the Financial Accountability Regime
1.135 The Minister has the power to exempt a particular accountable
entity or a class of entities from the obligations of the Financial
Accountability Regime. Where this is done, those obligations will not
apply to the accountable entity, to any of its significant related entities, or
to an accountable person of the entity. [Sections 15(2)(a), 16 and 18(2) to the
Financial Accountability Regime Bill 2021]
1.136 The obligations of the Financial Accountability Regime apply to
a foreign accountable entity (in the banking or insurance industries), but
only to the operations of the entity's branch in Australia. The obligations
apply to the same extent to an accountable person of such an entity or any
of its significant related entities. [Sections 15(2)(b) and 18(2) to the Financial
Accountability Regime Bill 2021]
1.137 An accountable entity or an accountable person can be exempted
from a particular obligation of the Financial Accountability Regime if the
Regulator is satisfied that complying with the obligation would breach a
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foreign law. The Regulator must provide written notice to the accountable
person or entity to exempt them from that obligation. [Sections 15(3), 17,
18(4), and 19 to the Financial Accountability Regime Bill 2021]
1.138 Certain decisions of the Regulator relating to these exemptions
are subject to reconsideration by the Regulator, and to review by the
Administrative Appeals Tribunal (see below for more on reviewable
decisions and merits review). [Sections 17, 19, and 91 to the Financial
Accountability Regime Bill 2021]
Administration of the Financial Accountability Regime
General administration
1.139 The Financial Accountability Regime will be administered and
enforced by both APRA and ASIC. This will ensure the regime is
regulated from both a prudential perspective as well as a conduct and
consumer outcomes-based perspective. [Section 36 to the Financial
Accountability Regime Bill 2021; Schedule 1 items 1 and 16 to the Bill, section 3 to the
Australian Prudential Regulation Authority Act 1998 and section 12A to the Australian
Securities and Investments Commission Act 2001]
1.140 ASIC will only exercise regulatory and enforcement powers
under the Financial Accountability Regime in relation to an accountable
entity that has either an Australian financial services licence or an
Australian credit licence, its significant related entities, and accountable
persons of these entities. The Financial Accountability Regime Bill 2021
identifies which provisions this limitation applies to. However, ASIC will
be able to maintain the register of accountable persons, share information,
and make legislative instruments (Regulator rules) with APRA in relation
to all accountable entities and persons. [Section 36 to the Financial
Accountability Regime Bill 2021]
1.141 To ensure a cohesive approach, APRA and ASIC must enter into
an arrangement outlining their general approach to administering and
enforcing the Financial Accountability Regime within 6 months of the
commencement of the Financial Accountability Regime Bill 2021. If this
does not occur, the Minister may determine an arrangement for this
purpose. [Section 37 to the Financial Accountability Regime Bill 2021]
1.142 APRA and ASIC are required to reach agreement before
exercising certain powers or performing certain functions under the
Financial Accountability Regime except in administering the Register of
accountable persons, sharing information, and for certain compliance and
enforcement decisions. [Section 38 to the Financial Accountability Regime
Bill 2021]
1.143 To provide certainty and to avoid compromising the regulation
and enforcement of the regime, a failure by the Regulators to reach an
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Financial Accountability Regime
agreement, or by ASIC to adhere to the scope of its enforcement powers
towards certain entities, does not invalidate the performance or exercise of
the relevant function or power. [Sections 36(2) and 38 to the Financial
Accountability Regime Bill 2021]
Information sharing and protections
1.144 APRA and ASIC may share information that is obtained,
produced, or disclosed for the purposes of the Financial Accountability
Regime Bill 2021. APRA and ASIC are also required to share certain
information necessary to enable the joint administration and enforcement
of the regime. These arrangements are in addition to information-sharing
frameworks available to APRA and ASIC under other legislation.
[Section 39 to the Financial Accountability Regime Bill 2021]
1.145 One regulator does not need to notify any person that it plans to,
or has, shared information with the other regulator. This will enable
APRA and ASIC to efficiently perform their functions as joint regulators
for the Financial Accountability Regime. While the natural justice hearing
rule will not apply to the act of information sharing between the
regulators, this is a limited restriction as procedural fairness will still be
afforded in relation to uses of the shared information. This approach
ensures the interests of affected persons are taken into account in making
substantive decisions. [Section 39(5) to the Financial Accountability Regime
Bill 2021]
1.146 Disclosure of information under this information sharing power
constitutes an authorisation by an Australian law for the purpose of
Australian Privacy Principle 6 of the Privacy Act 1988. [Section 39(6) to the
Financial Accountability Regime Bill 2021; Schedule 1 item 11 to the Bill]
1.147 Most information obtained or disclosed under the Financial
Accountability Regime will be 'protected information' within the meaning
of each regulator's enabling legislation. This means that the information
will be subject to APRA's and ASIC's standard secrecy and
confidentiality obligations. This approach protects confidential
information of financial services businesses, and encourages entities to be
open and honest in their dealings with APRA and ASIC.
1.148 The Bill achieves this by amending relevant definitions of
protected information, protected document, and prudential regulation
framework law to include information obtained or disclosed under the
Financial Accountability Regime. The Bill also introduces a prohibition
into the Australian Securities and Investments Commission Act 2001 to
protect against the disclosure of information that is protected information
because of the Financial Accountability Regime. [Schedule 1 items 1, 5 to 11,
16 and 17 to the Bill; sections 3 and 56 to the Australian Prudential Regulation
Authority Act 1998; sections 12A and 127 to the Australian Securities and Investments
Commission Act 2001]
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1.149 Exemptions to the secrecy provisions will allow for the
appropriate sharing of information by APRA and ASIC. A defendant
bears an evidential burden in relation to sharing of information on the
reliance of these exemptions. Shifting the evidential burden to the person
who disclosed the information is justified and not unduly onerous as the
information subject to the new provisions would be peculiarly within the
knowledge and control of the defendant. [Schedule 1 items 1, 5 to 11, 16 and 17
to the Bill; sections 3 and 56 to the Australian Prudential Regulation Authority
Act 1998; sections 12A and 127 to the Australian Securities and Investments
Commission Act 2001]
1.150 The amendments to the secrecy obligations will apply regardless
of whether the information was obtained before or after the
commencement of the Financial Accountability Regime. [Schedule 1 item 20
and Schedule 2 item 31 to the Bill; section 337 to the Australian Securities and
Investments Commission Act 2001]
1.151 Information obtained or disclosed under the Financial
Accountability Regime that is protected information (as defined by the
enabling legislation for APRA and ASIC) will be exempt from the
Freedom of Information Act 1982. Protected information held by APRA
already has such an exemption. This exemption already exists for
protected information held by APRA. The Bill extends the exemption to
also cover information obtained or disclosed under the Financial
Accountability Regime that is held by ASIC. [Schedule 1 item 17 to the Bill,
section 127 to the Australian Securities and Investments Commission Act 2001;
Schedule 1 items 1 and 5-9 to the Bill, section 56(11) to the Australian Prudential
Regulation Authority Act 1998]
Registration of accountable persons
1.152 APRA and ASIC must jointly establish and maintain a register
of accountable persons covered by the Financial Accountability Regime.
The register will enable clear oversight of the accountable persons of each
accountable entity and its significant related entities. The register will
include details in relation to each accountable person's role, for example,
name and date of registration. [Section 40 to the Financial Accountability Regime
Bill 2021]
1.153 Information from the register may be made public at the
discretion of APRA and ASIC. This allows the regulators to balance the
need for confidentiality of sensitive information about financial services
businesses with the need for public accountability and transparency.
[Section 40(5) to the Financial Accountability Regime Bill 2021]
1.154 To register an accountable person, their accountable entity must:
• submit a complete application in the approved form to the
Regulator;
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Financial Accountability Regime
• give a signed declaration the accountable entity is satisfied
the person is suitable to be an accountable person; and
• if the accountable entity meets the enhanced notification
threshold - provide an accountability statement for the
accountable person.
[Section 41(2) to the Financial Accountability Regime Bill 2021]
1.155 The Regulator can request further information in relation to an
application from the accountable entity. The accountable entity must
comply with the request. [Sections 20(b) and 41(3) to the Financial Accountability
Regime Bill 2021]
1.156 Where a person is an accountable person of multiple accountable
entities, the person must be registered by each accountable entity.
[Sections 24(1)(a) and 41(1) to the Financial Accountability Regime Bill 2021]
1.157 The Regulator is required to register an accountable person
within the later of 21 days after an application is made, or 21 days after
the day that any further requested information is given to the Regulator by
the accountable entity. [Section 41(4) and (5) to the Financial Accountability
Regime Bill 2021]
Ensuring compliance of the obligations imposed under the Financial
Accountability Regime
Information-gathering powers
1.158 The Regulator may request information from accountable
entities, significant related entities or accountable persons, for the purpose
of administering or enforcing the Financial Accountability Regime. The
information requested may relate to any entity or person that may be
regulated under the regime, or to the related body corporate or connected
entity of a regulated entity. [Section 62(1) to (3) to the Financial Accountability
Regime Bill 2021]
1.159 The request must be made in accordance with certain
requirements as to its purpose and content. It may be fulfilled in hard copy
or electronic form, consistent with standard practice. [Section 62(4) to (6) to
the Financial Accountability Regime Bill 2021]
1.160 This provision is similar to APRA's existing
information-gathering powers in section 62 of the Banking Act 1959, with
necessary changes to tailor the provision to the Financial Accountability
Regime.
1.161 Failing to comply with a request for information is an offence
subject to a maximum penalty of 200 penalty units (see below for more on
the offence provisions under the Financial Accountability Regime).
[Section 63 to the Financial Accountability Regime Bill 2021]
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Investigation powers
1.162 The Regulator has powers to investigate an accountable entity or
its significant related entity if the Regulator has reason to believe the
entity or an accountable person of the entity may have contravened
obligations under the Financial Accountability Regime. These powers are
similar to those in Part VIII of the Banking Act 1959, with necessary
changes to ensure the provisions are tailored to the regime.
1.163 The Regulator commences an investigation by appointing an
investigator. The investigator can delegate any or all of their powers and
functions to APRA or ASIC staff members, to assist with the
investigation. [Section 45 to the Financial Accountability Regime Bill 2021]
1.164 The standard requirements for appointments made by APRA to
be made by certain people (such as a chair of APRA) do not apply to the
appointment of investigators or other appointments under the Financial
Accountability Regime. [Schedule 1 items 2 and 3 to the Bill, section 48 of the
Australian Prudential Regulation Authority Act 1998]
1.165 The Regulators may act cooperatively as the investigation is
carried out. However, the single investigator will lead the conduct of the
investigation.
1.166 The investigated entity is required to assist the investigation by
providing access to information including books, accounts and documents,
that are relevant to the investigation. The investigator may also require
any person to produce such materials if they have reasonable grounds to
believe that the person has knowledge of or access to the information.
Materials may be provided in hard copy or electronic form. [Sections 46 and
47(1) to the Financial Accountability Regime Bill 2021]
1.167 An investigator may, by written notice, require the person to
produce any or all relevant documents within a certain time period, but
must provide at least 14 days' notice. [Section 47(2) to the Financial
Accountability Regime Bill 2021]
1.168 It is an offence not to provide information or access to materials
relevant to an investigation when required to do so by the investigator.
The maximum penalty for such non-compliance is
50 penalty units for the entity being investigated, and 30 penalty units for
other persons. The different penalties are appropriate as entities regulated
under the Financial Accountability Regime should be more familiar with
its operation and hence their contraventions attract a higher penalty.
[Sections 46(2) and 47(3) to the Financial Accountability Regime Bill 2021]
1.169 If the entity fails to provide information or access to materials
when required to do so by the investigator, it commits an offence on the
first day and a continuing offence for each subsequent day of non-
compliance. [Section 46(3) to the Financial Accountability Regime Bill 2021]
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Financial Accountability Regime
1.170 It also an offence to alter, destroy or conceal materials known to
be relevant to an investigation, with a maximum penalty of two years'
imprisonment. [Section 48 to the Financial Accountability Regime Bill 2021]
1.171 The penalties and offences for non-compliance with an
investigation are consistent with equivalents in the Banking Executive
Accountability Regime, on which they were modelled. For more
information on penalties and offences, see the dedicated sections below.
1.172 The Regulator's power to appoint an investigator, and the
requirements to assist the investigator, do not affect the operation of other
provisions in the Financial Accountability Regime. [Section 46(4) to the
Financial Accountability Regime Bill 2021]
Examinations
1.173 To assist an investigation, the investigator may give notice in
writing requiring a person to appear for an examination. This power
ensures an investigator can undertake in person procedures as well as
operating remotely, and can consider matters within the examinee's
knowledge which are not written down or capable of production under the
investigatory powers. [Section 49 to the Financial Accountability Regime Bill 2021]
1.174 The investigator must provide 14 days prior notice of an
examination. The person attending the examination may be required to
answer questions from the investigator under oath or affirmation. The
examination may be recorded and conducted in the presence of persons
such as lawyers, and an officer of both APRA and ASIC (irrespective of
which regulator appointed the investigator). To reinforce privacy and
accountability considerations, it is an offence to be present at an
investigation without authorisation, subject to a maximum penalty of
30 penalty units. [Sections 49 to 51 to the Financial Accountability Regime Bill 2021]
1.175 A written record may be produced from the statements made by
the person at the examination. The person must be given a copy of the
written record but it may be subject to any conditions imposed by the
investigator. It is an offence to fail to comply with these conditions,
subject to a maximum penalty of 6 months' imprisonment. [Section 52 to the
Financial Accountability Regime Bill 2021]
1.176 It is also an offence not to comply with any other requirement
relating to examinations, subject to a maximum penalty of
30 penalty units. [Section 53 to the Financial Accountability Regime Bill 2021]
1.177 The penalties relating to examinations are consistent with
penalties in the Banking Executive Accountability Regime (for more see
the below section on penalties).
Evidentiary use of certain material
1.178 Any of the statements made by a person at an examination may
be used as evidence against the person in a proceeding or in other
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proceedings, subject to certain rules and exceptions. These provisions are
based on Part VIII of the Banking Act 1959. [Sections 54 to 61 to the Financial
Accountability Regime Bill 2021]
Auditors and actuaries under the Financial Accountability Regime
1.179 To support enforcement of the Financial Accountability Regime,
obligations imposed on auditors and actuaries of certain entities under the
Banking Act 1959 and other industry Acts administered by APRA will be
extended to cover the Financial Accountability Regime (once the regime
starts to apply).
1.180 In particular, the Bill requires auditors and actuaries to assist
APRA with investigations into breaches of the Financial Accountability
Regime. The Bill requires:
• an auditor of an authorised deposit-taking institution, an
authorised non-operating holding company or a subsidiary to
provide information that will assist APRA in performing its
functions under the Financial Accountability Regime;
[Schedule 1 items 25 to 27 to the Bill; sections 16B, 16BA and 16C to the
Banking Act 1959]
• an auditor or actuary of a general insurer, an authorised non-
operating holding company or a subsidiary to provide
information to APRA that will assist APRA in performing its
duties under the Financial Accountability Regime; [Schedule 1
items 42 to 44 to the Bill, sections 49 to 49B to the Insurance Act 1973]
• an auditor or actuary of a life company, a registered non-
operating holding company or a subsidiary to provide
information that will assist APRA in performing its functions
under the Financial Accountability Regime; [Schedule 1
items 53 to 57 and 59 to 63 to the Bill, sections 88 to 89 and 98 to 99 to
the Life Insurance Act 1995]
• an actuary of a private health insurer to provide information
that would assist APRA performing its functions under the
Financial Accountability Regime; and [Schedule 1 items 78 to 81
to the Bill, sections 110 to 113 to the Private Health Insurance
(Prudential Supervision) Act 2015]
• an auditor or actuary of a superannuation entity to provide
information when there is likely to have been a breach of the
Financial Accountability Regime, by amending the definition
of regulatory provision. [Schedule 1 items 85, 87 and 88 to the Bill,
sections 38A, 129 and 130A to the Superannuation Industry
(Supervision) Act 1993]
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Financial Accountability Regime
1.181 Consequences for failing to comply with these or other
obligations of the Financial Accountability Regime include termination of
the auditor or actuary's appointment. The Bill requires:
• an authorised deposit-taking institution to remove an auditor
from their appointment for failing to properly perform
functions and duties under the Financial Accountability
Regime; [Schedule 1 item 28 to the Bill, section 17(2)(a) to the Banking
Act 1959]
• a general insurer to end an auditor or actuary's appointment
if the general insurer is satisfied that the auditor or actuary
has failed to provide APRA with relevant information in
relation to breaches of the Financial Accountability Regime;
[Schedule 1 item 38 to the Bill, section 43 to the Insurance Act 1973]
• a life company to end the appointment of an auditor or
actuary if the life company is satisfied that the auditor or
actuary has failed to provide APRA with relevant
information in relation to breaches of the Financial
Accountability Regime; and [Schedule 1 items 52 and 58 to the Bill,
sections 85 and 94 to the Life Insurance Act 1995]
• a private health insurer to terminate an actuary's appointment
if the private health insurer reasonably believes that the
actuary has failed to provide APRA with relevant
information in relation to breaches of the Financial
Accountability Regime. [Schedule 1 items 76 to 77 to the Bill,
section 107 to the Private Health Insurance (Prudential Supervision)
Act 2015]
1.182 The Financial Accountability Regime also provides APRA
additional powers to direct auditors and actuaries in relation to breaches of
the regime. The Bill allows APRA to:
• refer an auditor or actuary to a professional association, or
apply to a court to disqualify an auditor or actuary if APRA
considers that the auditor or actuary has failed to perform
their duties under the Financial Accountability Regime;
[Schedule 1 items 39 to 41 to the Bill, sections 44 and 48 to the Insurance
Act 1973]
• direct a life company to remove an auditor or actuary if they
have failed to perform their duties under the Financial
Accountability Regime; and [Schedule 1 item 64 to the Bill,
section 125A to the Life Insurance Act 1995]
• direct the removal of an auditor or actuary for a
superannuation entity, or direct a matter to an auditor or
actuary's professional organisation for breaches of the
regime. [Schedule 1 items 90 and 91 to the Bill, sections 131AA and
131A to the Superannuation Industry (Supervision) Act 1993]
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Enforcement and penalties
1.183 The Financial Accountability Regime has a variety of
mechanisms for enforcement, once a contravention or likely contravention
has been established. These mechanisms align with those in existing
financial services law, and in particular are drawn from the Banking
Executive Accountability Regime to ensure continuity and consistency of
approach.
1.184 Enforcement mechanisms under the Financial Accountability
Regime include:
• directions powers;
• disqualification;
• enforceable undertakings;
• injunctions;
• civil penalties; and
• some limited criminal offences.
1.185 Consistent with standard practice, the enforcement mechanism
used will reflect the circumstances of the case. Contravention of the core
obligations of the Financial Accountability Regime could trigger many
enforcement mechanisms and civil penalties (i.e. disqualification of an
accountable person, or directions to an accountable entity to comply with
the regime or reallocate responsibilities of an accountable person).
Non-compliance with an investigation or request for information from the
Regulator could constitute an offence. The Regulator may also seek court
orders for compliance or an injunction, or enter an enforceable
undertaking with the relevant entity.
Directions
Compliance directions
1.186 The Regulator can direct an accountable entity to take action to
address actual or likely non-compliance with obligations under the
Financial Accountability Regime. A similar power exists under the
Banking Act 1959 and other legislation regulating APRA-regulated
institutions.
1.187 The Regulator can give an accountable entity a direction if the
Regulator believes the accountable entity, an accountable person of the
entity, or of one of its significant related entities:
• contravened obligations under the Financial Accountability
Regime; or
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Financial Accountability Regime
• is likely to contravene obligations under the Financial
Accountability Regime, and the direction is necessary to
prevent that non-compliance.
[Section 64(1) to the Financial Accountability Regime Bill 2021]
1.188 The directions can include directions to cause the accountable
entity or any of its significant related entities to:
• take a specific action;
• undertake an audit;
• make changes to internal systems and practices;
• reconstruct, amalgamate or otherwise alter part of the entity's
structure or that of its relevant group; and
• not take a specific action.
[Section 64(2) to the Financial Accountability Regime Bill 2021]
1.189 The direction must:
• be given to the accountable entity in writing;
• identify the grounds on which it is given (i.e. the breach or
likely breach which forms the basis of the order);
• specify a period for compliance; and
• state that the accountable entity could commit an offence if it
fails to comply with the direction.
[Section 64(3) to the Financial Accountability Regime Bill 2021]
1.190 An accountable entity or significant related entity may comply
with a direction despite anything in the entity's constitution or any
contract to which the entity is a party. A direction does not, except in
limited cases, affect the obligations of parties under such contracts. The
Federal Court may make an order on how such contracts operate.
[Sections 64(5) - (7) and 77 to the Financial Accountability Regime Bill 2021]
1.191 Notice of a decision to give, vary or revoke a direction must be
provided to the accountable entity and to any relevant accountable person
and significant related entity. Decisions by the Regulator to give, vary, or
revoke directions, or to refuse to do so, are subject to reconsideration by
the Regulator, and to review by the Administrative Appeals Tribunal.
[Sections 64(4) and 91 - 95 to the Financial Accountability Regime Bill 2021]
1.192 Non-compliance with a direction may attract a civil penalty and
may also be an offence. The maximum penalty for an accountable entity
or an officer of an accountable entity which commits an offence by not
complying with a direction is 50 penalty units (see more on penalty and
offence provisions below). [Sections 66 and 80 to the Financial Accountability
Regime Bill 2021]
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Directions to reallocate responsibilities
1.193 The Regulator can direct an accountable entity to reallocate the
responsibilities of an accountable person of the entity or of its relevant
group (including of a significant related entity). [Section 65 to the Financial
Accountability Regime Bill 2021]
1.194 The power is designed to be used in exceptional circumstances
to direct an accountable entity to reallocate the responsibilities of
accountable persons of its relevant group in order to minimise prudential
risk or risks of serious non-compliance. A similar power exists under the
Banking Executive Accountability Regime, with the power in the
Financial Accountability Regime expanded to cover serious
non-compliance risks.
1.195 In order to make a reallocation direction the Regulator must be
satisfied that the current allocation of responsibilities has given or is likely
to give rise to:
• a prudential risk; or
• a risk of significant and systemic non-compliance with
financial laws.
[Section 65(1) to the Financial Accountability Regime Bill 2021]
1.196 The Regulator must have regard to the responsibilities set out in
the accountability statement, where a statement for the accountable person
has been given. [Section 65(2) to the Financial Accountability Regime Bill 2021]
1.197 A direction to reallocate responsibilities must be given in
writing, specify a period by which the direction must be complied with,
and state that the accountable entity could commit an offence or be liable
to a civil penalty if it fails to comply with the direction. [Section 65(3) to the
Financial Accountability Regime Bill 2021]
1.198 Notice of a decision to give, vary or revoke a direction must be
provided to the accountable entity, the person whose responsibility is to be
reallocated, the person to whom the responsibility is reallocated, and - if
applicable - to the significant related entity of the accountable persons.
[Section 65(4) to the Financial Accountability Regime Bill 2021]
1.199 Decisions by the Regulator to give, vary, or revoke directions -
or to refuse to do so - are subject to reconsideration by the Regulator, and
to review by the Administrative Appeals Tribunal. The direction is not a
legislative instrument. [Sections 65 and 91 - 95 to the Financial Accountability
Regime Bill 2021]
Other provisions relating to directions
40
Financial Accountability Regime
1.200 Information about directions may be provided by the Regulator
to the Minister, on the Regulator's own initiative or on request by the
Minister. [Section 78 to the Financial Accountability Regime Bill 2021]
1.201 If a direction relating to non-compliance or a direction to
relocate responsibilities is inconsistent with rules made by the Minister or
the Regulator rules, the direction prevails over the rules, to the extent of
the inconsistency. [Section 79 to the Financial Accountability Regime Bill 2021]
Offences for failing to comply with directions
1.202 An accountable entity commits an offence if it does not comply
with a direction from the Regulator. The maximum penalty is 50 penalty
units. Failure to comply with a direction to reallocate responsibilities may
also contravene civil penalty provisions of the Financial Accountability
Regime Bill 2021. [Sections 66(1) and (2), and 80 to the Financial Accountability
Regime Bill 2021]
1.203 A director, senior executive, or other senior employee of an
accountable entity commits an offence if they fail to take reasonable steps
to ensure that the accountable entity complies with a direction from the
Regulator. The maximum penalty is 50 penalty units. The offence applies
more broadly than just accountable persons because of the importance of
ensuring compliance with the Regulator's directions to the administration
and enforcement of the Financial Accountability Regime. [Section 66(3)
and (4) to the Financial Accountability Regime Bill 2021]
1.204 The Bill amends the Financial Regulator Assessment Authority
Act 2021 to allow individuals working for the Financial Regulator
Assessment Authority to disclose the fact that directions have been given
under the Financial Accountability Regime. [Schedule 1, items 32 and 33 to the
Bill, section 40 to the Financial Regulator Assessment Authority Act 2021]
1.205 The Bill amends the Payment Systems and Netting Act 1998 to
ensure the directions given under the Financial Accountability Regime
operate consistently with the legal framework governing payment systems
in Australia. [Schedule 1, items 71 to 73 to the Bill, section 5 to the Payment Systems
and Netting Act 1998]
Secrecy provisions relating to directions under the Financial
Accountability Regime
1.206 The Regulator may determine that secrecy arrangements apply
to a direction given under the Financial Accountability Regime. This can
be done if the Regulator considers it is necessary to protect certain
customers of accountable entities, or to promote financial system stability
in Australia. [Section 67 to the Financial Accountability Regime Bill 2021]
1.207 Where secrecy arrangements apply to a direction, a directed
accountable entity or another person (such as an employee or contractor of
the entity) commits an offence for disclosing information revealing the
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fact that the direction was given, except in limited circumstances. The
maximum penalty for contravening the secrecy arrangements is two years
imprisonment. [Section 68 to the Financial Accountability Regime Bill 2021]
1.208 The secrecy arrangements do not apply where the information:
• has already been lawfully made available to the public;
• is disclosed to a legal representative to seek legal advice;
• is disclosed in a manner that is authorised under law or by a
legislative instrument made under the Financial
Accountability Regime; or
• is disclosed to another person who is subject to the secrecy
arrangements for the purposes of one of the other
exemptions.
[Sections 69 to 76 to the Financial Accountability Regime Bill 2021]
Disqualification of accountable persons
1.209 The Regulator can disqualify a person from being an
accountable person for a period if the Regulator is satisfied that the
accountable person has breached their accountability obligations under the
Financial Accountability Regime.
1.210 The power to disqualify an accountable person is required as
accountable persons have significant power in accountable entities (which
themselves are central to the Australian financial system) and should
exercise due skill, care and diligence in relation to their roles. In some
cases, the appropriate remedy for contravention of the Financial
Accountability Regime will be that the current or former accountable
person will not be able to hold such a role in future.
1.211 The Regulator can disqualify a person if they have breached
their accountability obligations and their disqualification is justified,
having regard to the seriousness of the breach. [Section 42 to the Financial
Accountability Regime Bill 2021]
1.212 A person can be disqualified from being an accountable person
from an accountable entity, a significant related entity, or a class of such
entities. The Regulator must give written notice to the accountable person
and the accountable entity, and if relevant to the significant related entity,
to give them an opportunity to make submissions. The disqualification
takes effect from the date specified in the notice. [Section 42(2) to (7) to the
Financial Accountability Regime Bill 2021]
1.213 The Regulator may vary or revoke a disqualification if the
Regulator considers it appropriate, or on application of the disqualified
person. To do so, the Regulator must give written notice of the variation
or revocation to the affected accountable person and to relevant
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Financial Accountability Regime
accountable entities or significant related entities. The variation or
revocation takes effect from the day the determination was made.
[Section 43 to the Financial Accountability Regime Bill 2021]
1.214 A written notice making, varying or revoking disqualification is
not a legislative instrument. [Sections 42(8) and 43(4) to the Financial
Accountability Regime Bill 2021]
1.215 An accountable entity breaches its key personnel obligations if it
appoints an accountable person who has been disqualified. [Section 23(1)(b)
to the Financial Accountability Regime Bill 2021]
1.216 In addition to a contravention of key personnel obligations, an
accountable entity or significant related entity commits an offence if it
appoints an accountable person who has been disqualified under the
Financial Accountability Regime. Allowing a disqualified person to act as
an accountable person of the entity also constitutes an offence. There are
two possible offences: a strict liability offence with a penalty of
60 penalty units, and a fault-based offence with a penalty of
250 penalty units. While there is no ambiguity as to whether a person is
disqualified or not, if it can be established that an accountable entity or
significant related entity intentionally appointed or allowed a disqualified
person to act as its accountable person, a higher penalty would be
imposed. These penalties and offences are consistent with the penalties in
the Banking Executive Accountability Regime, on which they were
modelled for continuity. The offences and penalties also comply with the
Guide to Framing Commonwealth Offences, Infringement Notices and
Enforcement Powers. [Section 44 to the Financial Accountability Regime Bill 2021]
1.217 Decisions by the Regulator to disqualify a person, to vary or
revoke a disqualification, or to refuse to vary or revoke a disqualification,
are subject to reconsideration by the Regulator, and to review by the
Administrative Appeals Tribunal. [Section 91 to the Financial Accountability
Regime Bill 2021]
Enforceable undertakings
1.218 The Regulator can accept enforceable undertakings in relation to
the Financial Accountability Regime, including from any accountable
entity. Undertakings may relate to any matter in relation to which the
Regulator has a power or function under the regime. For example, an
undertaking may relate to compliance with the regime by an accountable
entity or by an accountable person.
1.219 The Regulator can enforce enforceable undertakings in the
Federal Court.
1.220 Enforceable undertakings will be accepted and enforced under
Part 6 of the Regulatory Powers (Standard Provisions) Act 2014, with
modifications set out in the Financial Accountability Regime Bill 2021 to
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ensure all relevant kinds of undertakings can be accepted. [Section 84 to the
Financial Accountability Regime Bill 2021]
Injunctions
1.221 The Regulator may apply for an injunction in the Federal Court
to uphold the requirements of the Financial Accountability Regime. The
Court may grant an injunction requiring or restraining conduct, for
instance to restrain a person from engaging in conduct that contravenes a
direction given by the Regulator. The Court may also grant an injunction
by consent of all parties to the relevant proceedings.
1.222 Injunctions will be enforced under Part 7 of the Regulatory
Powers (Standard Provisions) Act 2014, with modifications set out in the
Financial Accountability Regime Bill 2021 to ensure it works under the
regime. [Section 85 to the Financial Accountability Regime Bill 2021]
Civil penalties for contravention of the Financial Accountability Regime
1.223 Civil penalties apply in relation to contravention of obligations
under the Financial Accountability Regime. The civil penalties are
designed to deter and punish malfeasance and non-compliance with the
obligations of the regime, and are part of the standard suite of
enforcement tools. Strong penalties are warranted given the importance of
the regulated industries to the broader economy, and to ensure that
incurring a civil penalty is not considered a mere cost of doing business.
1.224 A civil penalty may be incurred for each contravention. To
determine the amount of each penalty, the Financial Accountability
Regime provides a flexible method modelled on that used in corporations
and consumer legislation.
1.225 An accountable entity that contravenes its obligations under the
Financial Accountability Regime may be subject to a civil penalty.
[Section 80 to the Financial Accountability Regime Bill 2021]
1.226 The maximum penalty for a body corporate, including an
accountable entity, is calculated using a formula where the maximum
penalty is at least 50,000 penalty units. The maximum penalty may be
greater depending on the benefit derived or detriment avoided by the
entity, and the entity's annual turnover. [Section 83(1) and (2) to the Financial
Accountability Regime Bill 2021]
1.227 The maximum penalty for a person other than a body corporate,
including an accountable person, is calculated using a formula where the
maximum penalty is at least 5,000 penalty units. The maximum penalty
may be greater depending on the benefit derived or detriment avoided by
the person. [Section 83(1) and (3) to the Financial Accountability Regime Bill 2021]
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Financial Accountability Regime
1.228 A person can face a civil penalty if they assist another person to
contravene a civil penalty provision under the Financial Accountability
Regime. An example of such an ancillary contravention is an accountable
person aiding an accountable entity to contravene its accountability
obligations. [Section 81 to the Financial Accountability Regime Bill 2021]
1.229 The civil penalties in the Financial Accountability Regime are
consistent with some of the existing relevant legislative regimes, including
the Corporations Act, Insurance Contracts Act 1984, Australian Securities
and Investments Commission Act 2001, and National Consumer Credit
Protection Act 2009, and are comparable to those in the Banking
Executive Accountability Regime.
1.230 The Regulator has the power to commence civil penalty
proceedings in the Federal Court. Civil penalty provisions will be
enforced under Part 4 of the Regulatory Powers (Standard Provisions)
Act 2014, with modifications to provide for the maximum penalties set out
above, and to ensure that additional matters relevant to the Financial
Accountability Regime are taken into account by a court in determining
the appropriate penalty. [Sections 82 and 83 to the Financial Accountability Regime
Bill 2021]
Offences
1.231 The Financial Accountability Regime also provides for offences
relating to non-compliance with an investigation, request for information,
or directions made by the Regulator, the appointment of disqualified
accountable persons, and legal professional privilege.
1.232 Most of the offence provisions in the Financial Accountability
Regime Bill 2021 replicate existing offences in the Banking Act 1959 that
apply in relation to the Banking Executive Accountability Regime. It is
appropriate to maintain the treatment of this conduct as a criminal offence
to provide continuity between the regimes, and due to the serious nature
of the wrongdoing involved (see Chapter 2 of the Government's Guide to
Framing Commonwealth Offences, Infringement Notices and Enforcement
Powers). The strong deterrent effect of a criminal sanction is necessary for
the Financial Accountability Regime because of the central role that
directors and senior executives of entities operating in the Australian
financial system play in the Australian economy. [Sections 44 to 53, 63, 66,
and 68 to the Financial Accountability Regime Bill 2021]
1.233 This rationale also applies to offences for failure to comply with
a condition of a notice which relates to disclosure of information. These
offences and their maximum penalties accord with the treatment of failing
to comply with a condition of a notice issued by a Regulator under the
Banking Act 1959. For consistency, these offence penalties also align with
penalties for disclosure of information about a direction that is covered by
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a secrecy determination of the Regulator. [Sections 68, 92(2) and 94(5) to the
Financial Accountability Regime Bill 2021]
1.234 For clarity, the Financial Accountability Regime Bill 2021
applies Chapter 2 of the Criminal Code such that the physical elements of
the offence are set out in the conduct provision. [Section 86 to the Financial
Accountability Regime Bill 2021]
1.235 Any contravention of an offence provision or a civil penalty
provision includes a reference to a contravention of the conduct provision.
[Section 87 to the Financial Accountability Regime Bill 2021].
1.236 Five offences include a custodial sentence as the maximum
penalty. These penalties are justified either because of the serious nature
of the offence, involving dishonesty or an attempt to compromise
regulation of the Financial Accountability Regime, or because of the
serious consequences that committing the offence may have on the
economy where the offence involves secrecy relating to directions.
[Sections 48, 52, 68, 92, and 94 to the Financial Accountability Regime Bill 2021]
1.237 Pecuniary penalties relating to offences in the Financial
Accountability Regime Bill 2021 are generally not large, and are suitably
proportioned when applied to corporations and individual persons
consistent with the Government's Guide to Framing Commonwealth
Offences, Infringement Notices and Enforcement Powers. A court has its
usual discretion to order a penalty up to the maximum amount prescribed
by the legislation to suit the circumstances of the case. [Sections 44 to 53, 63,
66, and 68 to the Financial Accountability Regime Bill 2021]
1.238 In practice, it is intended that a court would determine which
method provides the greatest penalty, and then use discretion to impose an
appropriate penalty up to that amount.
Court orders for compliance
1.239 If the Regulator certifies that a person has failed to comply with
a requirement of the Financial Accountability Regime, the Federal Court
may order that person to comply. [Section 90 to the Financial Accountability
Regime Bill 2021]
Impact of non-compliance with obligations under the Financial
Accountability Regime in relation to other laws
Disqualification under other regimes
1.240 Non-compliance with the Financial Accountability Regime may
result in consequences under other regimes.
1.241 The Bill makes amendments which disqualify a person from:
• being a director, senior manager or auditor of an authorised
deposit-taking institution or an authorised non-operating
46
Financial Accountability Regime
holding company if they have been convicted of an offence
under the Financial Accountability Regime; [Schedule 1 item 29
to the Bill, section 20 to the Banking Act 1959]
• being a director or senior manager of a general insurer, an
authorised non-operating holding company or a corporate
agent if the person has committed an offence under the
Financial Accountability Regime; [Schedule 1 item 37 to the Bill,
section 25 to the Insurance Act 1973]
• being a director, principal executive officer or otherwise act
for a life company if the person has committed an offence
under the Financial Accountability Regime; and [Schedule 1
item 67 to the Bill, section 245 to the Life Insurance Act 1995]
• acting as an officer or an appointed actuary of a private
health insurer if the person has committed an offence under
the Financial Accountability Regime; and [Schedule 1 item 82 to
the Bill, sections 119 and 120 to the Private Health Insurance
(Prudential Supervision) Act 2015]
• being a trustee, actuary or auditor of a superannuation entity
if the person has contravened obligations under the Financial
Accountability Regime. [Schedule 1 items 86 and 89 to the Bill,
sections 126H and 130D to the Superannuation Industry (Supervision)
Act 1993]
1.242 A breach of an obligation under the Financial Accountability
Regime can also inform decisions of the Regulator under other laws. This
includes where the Regulator decides to revoke or refuse to grant a
licence, or in relation to winding up companies.
1.243 For instance, the Bill makes necessary amendments to other
Acts so that a breach of the Financial Accountability Regime can be used
by APRA as the basis to:
• revoke the authorisation of an authorised deposit-taking
institution or its authorised non-operating holding company;
[Schedule 1 items 21 and 22 to the Bill, sections 9A and 11AB, to the
Banking Act 1959]
• revoke a general insurer's authorisation or the authorisation
of a non-operating holding company of a general insurer;
[Schedule 1 items 35 and 36 to the Bill, sections 15 and 21 to the
Insurance Act 1973]
• refuse to register a life company, or vary or revoke a life
company's registration or the registration of a life company's
non-operating holding company; and [Schedule 1 items 49 to 51 to
the Bill, sections 21, 26 and 28C to the Life Insurance Act 1995]
• cancel a private health insurer's registration. [Schedule 1 items
74 and 83 to the Bill, sections 21 and 168 to the Private Health
Insurance (Prudential Supervision) Act 2015]
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1.244 A breach of the Financial Accountability Regime can also be
considered by APRA when:
• granting and imposing conditions on RSE licenses, by
including the Financial Accountability Regime in the
definition of RSE licensee law; and [Schedule 1 item 84 to the
Bill, section 10 to the Superannuation Industry (Supervision) Act 1993]
• a general insurer is being put under judicial management for
failing to comply with certain laws. [Schedule 1 items 45 to 47 to
the Bill, sections 62M, 62W and 62ZOY to the Insurance Act 1973]
1.245 The amendments to provisions which allow for the revocations
of licences of insurers and superannuation entities apply regardless of
whether the relevant breaches occur prior to the commencement of the
Bill. [Schedule 2 items 24 and 26 to 28 to the Bill]
Entities in financial distress
1.246 The Bill also makes amendments to other Acts to ensure the
Financial Accountability Regime interacts appropriately with legislative
schemes that govern entities in financial distress.
1.247 Specifically, the Bill:
• ensures proceedings against a body corporate for an offence
against the Financial Accountability Regime will not prevent
the winding-up of the body corporate and that the regime will
still apply while a statutory manager has been appointed
under the Banking Act 1959; [Schedule 1 items 23, 24 and 30 to the
Bill, sections 15D and 69BA to the Banking Act 1959]
• ensures proceedings against a body corporate for an offence
against the Financial Accountability Regime will not prevent
statutory or judicial management and that the regime will still
apply while a statutory or judicial manager has been
appointed under the Life Insurance Act 1975; [Schedule 1 items
65, 66 and 68 to the Bill, sections 166, 179AY and 248 to the Life
Insurance Act 1995]
• ensures that the institution of proceedings against a body
corporate under the Financial Accountability Regime does
not prevent judicial management or winding-up under the
Insurance Act 1973; [Schedule 1 item 48 to the Bill, section 129AA to
the Insurance Act 1973]
• ensures the appointment of an external or terminating
manager of a health benefits fund, does not affect the
operation of the Financial Accountability Regime; and
[Schedule 1 item 75 to the Bill, section 84 to the Private Health
Insurance (Prudential Supervision) Act 2015]
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Financial Accountability Regime
• expands the ability of a court to stop the payment of money
to protect certain creditors for certain breaches of legislation
to include breaches of the Financial Accountability Regime;
[Schedule 1 item 92 to the Bill, section 313 to the Superannuation
Industry (Supervision) Act 1993]
1.248 The Bill amends the Financial Sector (Transfer and
Restructure) Act 1999 to allow businesses undertaking a restructure
because of an order under the Financial Accountability Regime to take
advantage of the regulatory relief under that Act. [Schedule 1, item 34 to the
Bill, section 36B to the Financial Sector (Transfer and Restructure) Act 1999]
Miscellaneous provisions
Indemnification and insurance for accountable entities
1.249 A significant related entity must not indemnify an accountable
entity against the consequences of breaching the Financial Accountability
Regime, or pay insurance premiums insuring the entity against those
consequences. This prohibition also applies to a body corporate in the
same corporate group as the accountable entity. [Section 97(1) and (4) to the
Financial Accountability Regime Bill 2021]
1.250 Any arrangement that purports to indemnify or insure an
accountable entity against liability, or to exempt them from liability,
contrary to that prohibition is void. [Section 97(3) to the Financial Accountability
Regime Bill 2021]
1.251 This prohibition does not apply to legal costs. [Section 97(2) to the
Financial Accountability Regime Bill 2021]
1.252 There is no prohibition under the Financial Accountability
Regime relating to indemnification of, or payment of insurance premiums
relating to, accountable persons.
Privilege against self-incrimination and legal professional privilege
1.253 A person cannot refuse to give information or to provide
documents on the basis of the privileges against self-incrimination or
exposure to a penalty. However, if an individual makes a valid claim to
privilege before producing the information, that information is not
admissible as evidence against the individual in criminal proceedings,
other than proceedings in respect of the falsity of the information.
[Section 88 to the Financial Accountability Regime Bill 2021]
1.254 A lawyer can refuse to comply with the requirement to provide
information or to produce a document if doing so would breach legal
professional privilege. However, this exception does not apply if the
person to whom the information relates consents to the lawyer releasing
the information. If the lawyer refuses to comply, the lawyer must instead
disclose the name of the person to whom (or on whose behalf) the
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Financial Accountability Regime Bill 2021, Financial Services Compensation Scheme of Last
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privileged communication was made. If a lawyer fails to comply with
these requirements, the lawyer commits an offence subject to a maximum
penalty of 30 penalty units. [Section 89 to the Financial Accountability Regime Bill
2021]
1.255 These provisions are necessary for the efficient regulation of the
Financial Accountability Regime, ensuring that access to information
relevant to an investigation is not denied. The approach taken balances the
public interest in accountability among vital financial services with
protection of individual privileges. To strike the right balance, the
abrogation of the privilege against self-incrimination is limited, such that
information produced after making a valid claim is not admissible in
evidence against the individual in criminal proceedings, and the sharing of
such information is limited by the information sharing provisions in the
regime and each Regulator's information protection regimes.
1.256 Protections for whistle-blowers under Part 9.4AAA of the
Corporations Act will be available in relation to the Financial
Accountability Regime. [Schedule 1, item 31 to the Bill; Section 1317AA to the
Corporations Act]
Liability provisions
Conduct of directors, employees and agents
1.257 It may be necessary to establish the state of mind of an
individual in proceedings for offences under the Financial Accountability
Regime Bill 2021. In these circumstances, it is sufficient to show that an
employee or agent of the individual engaged in the relevant conduct and
had the relevant state of mind. State of mind includes knowledge,
intention, opinion, belief or purpose. [Section 100 to the Financial Accountability
Regime Bill 2021]
1.258 The relevant conduct is limited to conduct by an individual's
employee or agent within the scope of actual or apparent authority, and
will not be attributed to the individual where that individual can establish
that they exercised due diligence to avoid the conduct. [Section 100 to the
Financial Accountability Regime Bill 2021]
1.259 An individual will not be imprisoned if they are convicted of an
offence as a result of conduct or a state of mind being attributed to them
under section 100(1)-(2) of the Financial Accountability Regime
Bill 2021. [Section 100(3) to the Financial Accountability Regime Bill 2021]
Protection from liability
1.260 A person is not liable for the performance of powers, functions
or duties under the Financial Accountability Regime Bill 2021, if done in
good faith and without negligence. This protection from liability does not
affect the operation of section 58 of the Australian Prudential Regulation
50
Financial Accountability Regime
Authority Act 1998, which applies an equivalent protection to APRA,
APRA members, APRA staff members and their agents. [Section 101 to the
Financial Accountability Regime Bill 2021; Schedule 1 item 12 to the Bill; section 58 to
the Australian Prudential Regulation Authority Act 1998]
1.261 Actions and omissions for the purpose of complying with a
direction or a secrecy requirement of the Financial Accountability Regime
do not attract liability, if it was reasonable for the person to have acted or
omitted to act. This protection applies to a person who is an employee,
agent, officer or senior manager of an accountable entity, or a member of
an accountable entity's group, or accountable entity or member of an
accountable entity's group. [Section 102 to the Financial Accountability Regime
Bill 2021]
1.262 The prescribed protections from liability in the Financial
Accountability Regime are intended to work alongside each other and not
to limit the operation of each other, or that of section 58 of the
Australian Prudential Regulation Authority Act 1998 or section 246 of the
Australian Securities and Investments Commission Act 2001. [Section 103 to
the Financial Accountability Regime Bill 2021]
Merits review of decisions made by the Regulator
1.263 Certain decisions of the Regulator are subject to merits review.
Reviewable decisions, and the persons affected by each type of decision,
are listed in the table in section 91 of the Financial Accountability Regime
Bill 2021. Such decisions are described throughout this explanatory
memorandum where the substantive provisions are explained. [Section 91 to
the Financial Accountability Regime Bill 2021]
1.264 Where a decision is reviewable, the Regulator must give all
persons affected by the decision the reasons for the decision and
information about the person's review rights. [Section 92(1) to the Financial
Accountability Regime Bill 2021]
1.265 To seek review, a person affected by a reviewable decision may
first apply for the Regulator that made the original decision to reconsider
the decision. The Regulator must reconsider the decision within 60 days
and notify the applicant of the outcome by written notice. If the Regulator
does not notify the applicant in that time, the decision is taken to be
affirmed. [Sections 93 and 94 to the Financial Accountability Regime Bill 2021]
1.266 A notice to an affected person of a reviewable decision, or of a
reconsideration decision, may contain conditions relating to disclosure of
information about the reasons for the decision. For example, the Regulator
may include a non-disclosure condition in a notice relating to a decision
about a direction.
1.267 It is an offence to not comply with a condition in a notice that
relates to disclosure. The maximum penalty for not complying with a
notice condition is two years imprisonment, aligning with the penalty for
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Financial Accountability Regime Bill 2021, Financial Services Compensation Scheme of Last
Resort Levy Bill 2021 and associated Bills
disclosure of information about a direction that is subject to secrecy
arrangements in section 68 of the Financial Accountability Regime
Bill 2021, and accords with the treatment of failing to comply with a
condition of a notice issued by APRA in the Banking Act 1959.
[Sections 92(2) and 94(5) to the Financial Accountability Regime Bill 2021]
1.268 However, a person may disclose information for the purpose of
seeking administrative review of, or obtaining legal advice about, a
direction covered by a secrecy provision without committing an offence.
[Sections 96 to the Financial Accountability Regime Bill 2021]
1.269 Following internal reconsideration of the decision, a person
affected by the decision may seek review of the reconsidered decision by
the Administrative Appeals Tribunal. A review by the Tribunal is
conducted in accordance with the Administrative Appeals Tribunal
Act 1975. [Section 95 to the Financial Accountability Regime Bill 2021]
1.270 Certain decisions of the Minister and of the Regulator are not
subject to merits review, consistent with the Administrative Review
Council's publication "What Decisions Should be Subject to Merits
Review?".
1.271 Decisions which are legislation-like in character, and decisions
which are procedural or preliminary as they precede a substantive
decision, are not suitable for administrative review.
1.272 Likewise, other decisions are not reviewable where the benefits
of not providing administrative review outweigh the objectives of
providing it. This applies to decisions of the Regulator and the Minister
that are made in favour of the affected person by reducing the scope of
their responsibilities or by providing flexibility or an exemption from
compliance with the Financial Accountability Regime. In addition,
challenges to the Minister's decision not to exempt an accountable entity
may undermine public and industry confidence in the prudential and
financial system and create financial uncertainty. If requested, the
Minister must provide reasons for the decision, as required by section 13
of the Administrative Decisions (Judicial Review) Act 1977. [Sections 11(2)
and 16(2) to the Financial Accountability Regime Bill 2021]
Rule-making powers
1.273 The Minister may make rules, known as the Minister rules,
prescribing matters under the Financial Accountability Regime Bill 2021.
The Minister rules may cover matters required or permitted by that Bill to
be prescribed by the Minister rules, as well as anything necessary or
convenient for carrying out or giving effect to that Bill. [Section 104 to the
Financial Accountability Regime Bill 2021]
1.274 The Regulator may also make rules, known as the Regulator
rules, prescribing matters that are required, permitted, necessary or
52
Financial Accountability Regime
convenient to prescribe by such rules under the Financial Accountability
Regime Bill 2021. [Section 105 to the Financial Accountability Regime Bill 2021]
1.275 The Minister rules and the Regulator rules may not create an
offence or civil penalty, provide certain enforcement powers, impose a
tax, or directly amend the primary law. The rules are legislative
instruments and will therefore be subject to disallowance and appropriate
parliamentary scrutiny. [Section 104(2) and 105(2) to the Financial Accountability
Regime Bill 2021]
Application of the Financial Accountability Regime
1.276 The Financial Accountability Regime applies within Australia
and its external territories, capturing conduct (including that of the
Crown) that occurs or has an impact within Australia's jurisdiction. This
means the Regulator's powers can be applied to entities and persons
within Australia in relation to conduct which occurs within Australia, as
well as conduct which occurs offshore and has impacts within Australia.
[Sections 5 to 7 to the Financial Accountability Regime Bill 2021]
1.277 For example, in relation to offshore conduct, the Regulator could
register or disqualify an accountable person who is a foreign citizen based
overseas. The Regulator could also take enforcement action towards an
Australian accountable entity in relation to the conduct of its offshore
accountable person or significant related entity, in order to establish and
address a contravention of that accountable entity's obligations or a risk to
its prudential standing or prudential reputation - such as investigating the
accountable entity and giving it a direction to comply with the Financial
Accountability Regime or reallocate responsibilities of an accountable
person.
1.278 The Regulator can administer and enforce the Financial
Accountability Regime within Australia. While the regime binds the
Crown, it does not render the Crown liable for an offence. [Sections 5 to 7 to
the Financial Accountability Regime Bill 2021]
Other miscellaneous provisions
1.279 APRA and ASIC must include information about investigations
conducted under the Financial Accountability Regime in their respective
annual reports from the 2022-23 financial year onwards. The information
each regulator provides should deal with its own investigations and joint
investigations, but need not cover investigations conducted solely by the
other regulator. [Schedule 1, item 13 and Schedule 2, item 32 to the Bill, section 59 to
the Australian Prudential Regulations Authority Act 1998; Schedule 1, items 18 and 20
to the Bill, sections 136, 337 and 338 to the Australian Securities and Investments
Commission Act 2001]
1.280 However, APRA and ASIC are not authorised to disclose
information about the affairs of a particular person as part of the
information included in their annual reports. [Schedule 1, item 14 to the Bill,
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Financial Accountability Regime Bill 2021, Financial Services Compensation Scheme of Last
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section 59 of the Australian Prudential Regulation Authority Act 1998; Schedule 1, item
19 to the Bill, section 136 to the Australian Securities and Investments Commission
Act 2001]
1.281 The Financial Accountability Regime Bill 2021 does not have
the effect of creating a cause of action that would not have existed without
it being enacted. [Section 98 to the Financial Accountability Regime Bill 2021]
1.282 The Commonwealth is liable to pay compensation if the
operation of the Financial Accountability Regime results in an acquisition
of property otherwise than on just terms, including the transition from the
Banking Executive Accountability Regime. [Section 99 to the Financial
Accountability Regime Bill 2021 and Schedule 2 item 3 to the Bill]
1.283 The Bill creates a series of definitions to aid in the transitional
arrangements and clarifies it does not limit the application of the Acts
Interpretations Act 1901. [Schedule 2, items 1 and 2 to the Bill]
1.284 Fees, charges or penalties paid to APRA under the Financial
Accountability Regime are not credited to APRA's Special Account.
[Schedule 1 item 4 to the Bill, section 53 of the Australian Prudential Regulation
Authority Act 1998]
1.285 Simplified outlines of the key aspects of the Financial
Accountability Regime are provided throughout the Financial
Accountability Regime Bill 2021 to assist readers. [Section 4, 14 and 35 to the
Financial Accountability Regime Bill 2021]
Application and transitional provisions
1.286 The Financial Accountability Regime Bill 2021 commences on
the day after Royal Assent. [Section 2(1) to the Financial Accountability Regime
Bill 2021]
1.287 Part 1 of Schedule 1 and Schedule 2 to the Financial Sector
Reform (Hayne Royal Commission No. 3) Bill 2021 commence at the
same time as the Financial Accountability Regime Bill 2021. Part 2 of
Schedule 1 to the Financial Sector Reform (Hayne Royal Commission
No. 3) Bill 2021 commences on the later of 1 July 2022 and six months
after the commencement of the Financial Accountability Regime
Bill 2021. [Section 2 to the Bill]
1.288 However the obligations under the Financial Accountability
Regime will not apply to accountable entities immediately after that date
of commencement. Instead, the Bill provides for a staggered application
of the obligations under the Financial Accountability Regime to the
different industries in the financial system.
1.289 The Financial Accountability Regime will first apply to the
banking industry (authorised deposit-taking institutions and their
54
Financial Accountability Regime
authorised non-operating holding companies). Entities in the banking
industry are currently subject to the obligations under the Banking
Executive Accountability Regime. The Bill therefore provides for specific
transitional arrangements so that these entities can be transitioned from
the Banking Executive Accountability Regime to the Financial
Accountability Regime.
1.290 The Financial Accountability Regime Bill 2021 provides for a
deferred application of the Financial Accountability Regime to the
insurance and superannuation industries so that they have sufficient time
to adjust their systems and processes before they are subject to the
obligations under the regime.
Transitional arrangements for the banking industry
1.291 The majority of the obligations under the Financial
Accountability Regime will apply to the banking industry on the later of:
• 1 July 2022; or
• six months after the Financial Accountability Regime
Bill 2021 receives Royal Assent.
[Section 9(2) to the Financial Accountability Regime Bill 2021]
1.292 Once the Financial Accountability Regime starts applying to the
banking industry, authorised deposit-taking institutions and their
authorised non-operating holding companies will become accountable
entities and the Banking Executive Accountability Regime will be
repealed. [Schedule 1, Part 2 to the Bill, items 93 - 106]
1.293 Accountability statements provided to APRA under the Banking
Executive Accountability Regime will automatically transition to become
accountability statements under the Financial Accountability Regime.
[Schedule 2, item 13 to the Bill]
1.294 APRA and ASIC may jointly make rules prescribing transitional
arrangements under the Bill. [Schedule 2, item 34 to the Bill]
Transitioning of accountable persons
1.295 Accountable persons of entities in the banking industry will
automatically have their registration transitioned from the Banking
Executive Accountability Regime to the Financial Accountability Regime.
This only applies where the person will continue to be an accountable
person under the Financial Accountability Regime. While re-registration
of accountable persons is not necessary, the transition from the Banking
Executive Accountability Regime to the Financial Accountability Regime
would most likely result in material changes to the details of the
responsibilities of those accountable persons and the Regulator must be
notified of any such changes. [Schedule 2, items 4 and 13 to the Bill]
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Financial Accountability Regime Bill 2021, Financial Services Compensation Scheme of Last
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1.296 Any applications to register accountable persons under the
Banking Executive Accountability Regime that are pending at the time the
Financial Accountability Regime commences, will be considered to be
applications for registration under the Financial Accountability Regime.
[Schedule 2, item 6 to the Bill]
1.297 A person who became an accountable person under the Banking
Executive Accountability Regime on a temporary basis (i.e. due to an
unexpected vacancy or acting for a short period) will be taken to be a new
temporary accountable person when the Financial Accountability Regime
starts to apply to the banking industry. [Schedule 2, item 7 to the Bill]
1.298 Entities can register new accountable persons in the 30 days
prior to the Financial Accountability Regime applying to the banking
industry. [Schedule 2, item 8 to the Bill]
Deferred remuneration
1.299 The Financial Accountability Regime deferred remuneration
obligations for the banking industry will apply when the decision to
provide remuneration occurs in first financial year that begins six months
after the Financial Accountability Regime applies to the banking industry.
[Schedule 2, item 11 to the Bill]
1.300 Remuneration that was decided to be provided to an accountable
person before the first financial year starting six months after the
Financial Accountability Regime applies to the banking industry will still
be subject to the deferred remuneration rules under the Banking Executive
Accountability Regime. [Schedule 2, item 10 to the Bill]
1.301 The deferred remuneration obligations under the Banking
Executive Accountability Regime will also continue to apply despite the
repeal of the Banking Executive Accountability Regime to accountable
persons who do not transition to Financial Accountability Regime until
the period for the deferral finishes. [Schedule 2, item 12 to the Bill]
Continuing application of the Banking Executive Accountability Regime
1.302 The Banking Executive Accountability Regime will apply to the
banking industry before the application of the Financial Accountability
Regime. [Schedule 2, item 18 to the Bill]
1.303 The Banking Executive Accountability Regime will be repealed
once the Financial Accountability Regime starts applying to the Banking
industry. [Schedule 1, Part 2 to the Bill]
1.304 However, some obligations under the Banking Executive
Accountability Regime will continue to apply to the banking industry after
the application of the Financial Accountability Regime to enable the
effective transition from the Banking Executive Accountability Regime.
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Financial Accountability Regime
1.305 This means that:
• APRA must still be notified of relevant changes in an
accountability statement or an accountability map, or of a
notification event, under the Banking Executive
Accountability Regime; [Schedule 2, item 14 to the Bill]
• directions to reallocate responsibilities given under the
Banking Executive Accountability Regime will continue to
have force as directions under the Financial Accountability
Regime; [Schedule 2, item 15 to the Bill]
• directions for non-compliance given under the Banking
Executive Accountability Regime will continue to have
force, despite the repeal of the Banking Executive
Accountability Regime; [Schedule 2, item 19 to the Bill]
• enforceable undertakings and injunctions under the Banking
Executive Accountability Regime will continue to have
force, despite the repeal of the Banking Executive
Accountability Regime; and [Schedule 2, item 21 to the Bill]
• APRA will continue to be able to exercise its powers under
the Banking Executive Accountability Regime to investigate
non-compliance in the same manner and subject to the same
obligations as before the application of the Financial
Accountability Regime (including secrecy obligations).
[Schedule 2, item 29 to the Bill]
1.306 The Financial Accountability Regime can be used to take action
in relation to breaches of the Banking Executive Accountability Regime.
Specifically, under the Financial Accountability Regime:
• a non-compliance direction may be made in relation to
breaches of the Banking Executive Accountability Regime;
[Schedule 2, item 16 to the Bill]
• an accountable person may be disqualified in relation to
breaches under the Banking Executive Accountability
Regime; [Schedule 2, item 9 to the Bill]
• any accountable person disqualified under the Banking
Executive Accountability Regime will continue to be
disqualified under the Financial Accountability Regime on
similar terms; and [Schedule 2, item 5 to the Bill]
• the authority of an authorised deposit-taking institution may
be revoked in relation to breaches of the Banking Executive
Accountability Regime, regardless of whether the breach was
before or after the application of the Financial Accountability
Regime to the authorised deposit-taking institutions.
[Schedule 2, item 17 to the Bill]
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Financial Accountability Regime Bill 2021, Financial Services Compensation Scheme of Last
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1.307 Information collected under the Banking Executive
Accountability Regime can be used to investigate breaches under the
Financial Accountability Regime. This can occur regardless of whether
the relevant breach occurred before or after the commencement of the
Financial Accountability Regime. However, the restrictions on sharing
information between APRA and ASIC in relation to such information
brought in as part of the Financial Accountability Regime will apply to
that information. [Schedule 2, items 29, 30, 31 and 33 to the Bill]
1.308 Decisions made under the Banking Executive Accountability
Regime can continue to be reviewed under the Banking Executive
Accountability Regime, according to the existing review procedures.
[Schedule 2, item 20 to the Bill]
1.309 The Bill makes a consequential amendment to the National
Consumer Credit Protection Act 2009. Currently the National Consumer
Credit Protection Act 2009 relies on the definition of large ADI under the
Banking Act 1959. As this definition is repealed along with the Banking
Executive Accountability Regime, the Bill introduces an instrument
making power into the National Consumer Credit Protection Act 2009
which allows a Minister to define a large ADI for the purpose of that Act.
[Schedule 1, items 69 and 70 to the Bill, section 5 to the National Consumer Protection
Act 2009]
Transitional arrangements for insurance and superannuation industries
1.310 The Financial Accountability Regime will apply to the insurance
and superannuation industries from the later of 1 July 2023 or 18 months
after commencement of the Financial Accountability Regime Bill 2021.
The Financial Accountability Regime will apply in full to the accountable
entities in the insurance and superannuation industries from that date.
[section 9(4) to the Financial Accountability Regime Bill 2021]
1.311 This will include the deferred remuneration obligations, which
will apply to remuneration that was determined after the start of the first
financial year after the Financial Accountability Regime applies to the
insurance and superannuation industries. [Schedule 2, item 23 to the Bill]
1.312 Accountable entities in the insurance and superannuation
industries can apply to register accountable persons under the Financial
Accountability Regime 30 days before the Financial Accountability
Regime applies to them. [Schedule 2, item 22 to the Bill]
1.313 The amendments to the Life Insurance Act 1995 apply in
relation to pending applications of life companies to be registered under
that Act, when the Financial Accountability Regime applies. [Schedule 2,
item 25 to the Bill]
58
Chapter 2
Financial services compensation scheme
of last resort
Outline of chapter
2.1 This Chapter describes the establishment and operation of the
CSLR. All legislative references in this Chapter are to the Corporations
Act, unless otherwise stated.
Context of amendments
2.2 The Australian financial system is central to the Australian
economy and plays an essential role in promoting economic growth and
stability. A well-functioning framework for resolving disputes within the
financial system is necessary to safeguard consumer trust and confidence,
and to ensure the system continues to meet the needs of its users.
2.3 In April 2016, the Government commissioned the first
comprehensive review of the financial system external dispute resolution
framework. The review was undertaken by an expert panel chaired by
Professor Ian Ramsay and recommended a new financial system dispute
resolution framework. In response, the Government announced the
establishment of AFCA, which commenced operations on
1 November 2018.
2.4 AFCA provides independent external dispute resolution and
deals with consumer and small business complaints against financial
firms. AFCA is a one-stop shop for most complaints concerning
insurance, banking, credit provision and superannuation; and provides an
alternative to going to court. AFCA is empowered by the law to make
binding determinations requiring financial firms to compensate
consumers.
2.5 In February 2017, the Government amended the Ramsay Review
Terms of Reference to ask the expert panel to make recommendations on
the establishment, merits and possible design of a financial services
CSLR. A Supplementary Final Report was provided to the Government
on 6 September 2017.
2.6 The Supplementary Final Report to the Ramsay Review
observed that existing arrangements were not adequate to ensure that users
of the financial system were compensated for losses where an external
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Financial Accountability Regime Bill 2021, Financial Services Compensation Scheme of Last
Resort Levy Bill 2021 and associated Bills
dispute resolution scheme, tribunal or court makes a finding of
misconduct and a subsequent award in favour of the consumer. This issue
is compounded in situations of insolvency as consumers who are awarded
damages by a court, or who are entitled to a payment following a
determination from AFCA, are ranked as unsecured creditors.
2.7 As such, the Supplementary Final Report to the Ramsay Review
recommended that a CSLR is established in Australia.
2.8 The Financial Services Royal Commission Final Report later
recommended that the three principal recommendations made in the
Supplementary Final Report should be carried into effect. In its response
to the Royal Commission, the Government committed to improving
consumer and small business access to redress, including by implementing
an industry-funded, forward-looking CSLR that extends beyond personal
financial advice failures.
Summary of new law
2.9 The objective of the CSLR is to provide compensation to
eligible consumers where they have an AFCA determination in their
favour and where the relevant financial firm has not paid the consumer in
accordance with the determination.
2.10 The Minister may authorise a person to be the operator of the
CSLR if the Minister is satisfied the mandatory requirements will be met.
This includes that the operator is a company limited by guarantee and not
operated for profit.
2.11 Where AFCA has made a determination under which a
complainant is owed an amount from a financial firm and the financial
firm has failed to pay the complainant, the complainant may apply to the
operator of the CSLR for payment. If the eligibility criteria are met, the
operator of the CSLR must compensate the complainant, up to $150,000.
Detailed explanation of new law
Establishment of the CSLR operator
2.12 Division 1 of new Part 7.10B of the Corporations Act establishes
the CSLR [Schedule 3, item 3, section 1059 to the Bill]
2.13 Like the arrangements for the establishment and conduct of
AFCA, the operator of the CSLR must be a not-for-profit company
limited by guarantee that is authorised by the Minister to operate the
scheme.
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Minister may authorise the CSLR operator
2.14 The Minister may authorise a person, which must be a company,
to operate the CSLR. Once authorised, the operator of the CSLR will be
known as the CSLR operator. The Minister may also vary or revoke the
authorisation and impose conditions on the authorisation.
2.15 It is appropriate for the Minister to be empowered to authorise
the operator of the CSLR as it will enable the Minister to consider the
specific needs of the scheme and authorise an operator that is best placed
to administer the scheme effectively and responsibly.
2.16 Importantly, the Minister's power is limited by mandatory
requirements provided in the Corporations Act. The Minister must be
satisfied that the company to be authorised will meet the mandatory
requirements. [Schedule 3, item 3, section 1060 to the Bill]
2.17 The Minister's authorisation, including a variation or revocation
to an authorisation, must be made by notifiable instrument. The use of a
notifiable instrument as the Minister's authorisation (including a variation
or revocation of such authorisation) is administrative in character and does
not amend the operation of the legislation. The authorisation may include
conditions on the authorisation of the company. The requirement that the
authorisation is made by notifiable instrument enables public notification
and transparency in relation to the Minister's decisions. [Schedule 3, item 33,
section 1060 to the Bill]
Mandatory requirements for the CSLR operator
2.18 The mandatory requirements are grouped into four categories:
organisational, operator, operational, and compliance. [Schedule 3, item 3,
section 1062 to the Bill]
Organisational requirement
2.19 The organisational requirement is that the CSLR operator must
not charge a fee to any applicant seeking compensation, nor require the
applicant to pay a fee or charge to any other entity if it is in relation to
their application. This reflects the policy intention that the scheme is free
for consumers. [Schedule 3, item 3, section 1062 to the Bill]
Operator requirements
2.20 The operator requirements are aimed at ensuring that the CSLR
operator is a company limited by guarantee, operates as a not-for-profit,
and maintains amounts paid to it for the purposes of the scheme.
2.21 The operator requirements also impose requirements for the
operator's board. Particularly, the operator's constitution must provide
that the Chair of the board is an independent member appointed to the
board by the Minister. [Schedule 3, item 3, section 1062 to the Bill]
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2.22 The operator's constitution must also provide that, within six
months after the Minister authorises the company as the operator, the
board must include as a member:
• the Chair of the board of AFCA; and
• a person who is a fellow of the Institute of Actuaries of
Australia and has at least five years' experience in actuarial
analysis.
[Schedule 3, item 3, section 1062 to the Bill]
2.23 The Minister's appointment of an independent member must be
made by written instrument. Consistent with the Legislation (Exemptions
and Other Matters) Regulation 2015 the instrument of appointment is not
a legislative instrument. [Schedule 3, item 3, section 1061 to the Bill]
2.24 The requirement for the AFCA Chair to be a board member
reflects the necessity that the CSLR operator has a close and effective
working relationship with AFCA. The requirement for an actuarial expert
to also be a board member recognises the importance of this discipline to
the operator in relation to its calculation of amounts to be levied against
financial services entities (see Chapter 2).
Operational requirements
2.25 The operational requirements include that the CSLR operator
operates in accordance with its constitution and the law. The operator
must manage its money in a manner that is efficient, effective,
economical. The operator is also required to have the appropriate
expertise to carry out its central functions of assessing claims for
compensation and estimating scheme costs. [Schedule 3, item 3, section 1062 to
the Bill]
Compliance requirements
2.26 The compliance requirements are that any conditions specified
by the Minister in the authorisation, as well as any other requirements
provided for in regulations, are complied with by the CSLR operator.
[Schedule 3, item 3, section 1062 to the Bill]
Compensation payments under the scheme
2.27 Division 2 of new Part 7.10B of the Corporations Act provides
for payment of compensation under the scheme, including provision for
making an application, eligibility for compensation, and the amount of
compensation to be paid.
2.28 The operator of the CSLR cannot consider the merits or facts
of a dispute between a consumer and an AFCA member underlying an
AFCA determination. Rather, the CSLR operator is required to make a
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compensation payment to the consumer if conditions prescribed in the
Corporations Act are met. Generally, the CSLR operator must make a
payment of compensation to a consumer if:
• the consumer is eligible for compensation, including that a
relevant AFCA determination has been made in respect of
the consumer;
• the consumer makes an application under the CSLR; and
• the consumer has accepted the offer of compensation.
2.29 The process for the payment of compensation, including
eligibility and the amount of compensation to be paid, is discussed below.
Eligibility for a compensation payment
2.30 Broadly, a consumer is eligible for compensation under the
CSLR if:
• a relevant AFCA determination requires an amount to be
paid to the consumer;
• the consumer notifies AFCA that the amount has not been
paid within 12 months after the day the determination was
made, or any such longer period as AFCA agrees;
• AFCA has taken appropriate steps to require the amount to
be paid and, after these steps are taken, the consumer remains
unpaid;
• the consumer is not eligible to receive payment under another
statutory scheme; and
• the CSLR operator reasonably believes that the AFCA
member is, having regard to the AFCA member's financial
position, unlikely to fully pay the amount.
[Schedule 3, item 3, section 1064 to the Bill]
2.31 The discretion for AFCA to allow a longer period ensures that
where the person was unable to notify AFCA within 12 months of the day
the determination was made, AFCA has the discretion to extend the
period. For example, it would be reasonable for AFCA to provide a longer
period for relevant AFCA determinations that were made before the
CSLR commences.
Appropriate steps by AFCA
2.32 Compensation under the CSLR is intended to be a last resort
only. To reflect this, compensation is only payable after AFCA takes steps
to require the amount determined by AFCA to be paid by an AFCA
member to the consumer. The amendments set out a number of steps
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which AFCA might consider appropriate in the circumstances to bring
about payment from the financial services entity.
2.33 These steps involve:
• seeking an explanation from the AFCA member;
• explaining to the AFCA member the consequences of failing
to comply with the determination, including cancellation of
an Australian Financial Services Licence or Australian Credit
Licence;
• discussing with the AFCA member a reasonable payment
plan; and
• if the entity has entered into a form of external
administration, a step may be for AFCA to assess whether
the entity will pay the consumer.
[Schedule 3, item 3, section 1064 to the Bill]
Relevant AFCA determination
2.34 Compensation under the CSLR is limited to compensation for a
relevant AFCA determination made in respect of a consumer. A relevant
AFCA determination:
• relates to a complaint made by the consumer against a
financial services entity which, at the time the complaint was
made, was an AFCA member;
• requires the entity to pay an amount to the consumer and the
determination is accepted by the person; and
• is about a particular kind of product or service (see below).
[Schedule 3, item 3, section 1065 to the Bill]
2.35 To be a relevant AFCA determination, the determination must
relate to one or more of the following products or services:
• engaging in credit activity (within the meaning of the
National Consumer Credit Protection Act 2009) as a credit
provider or other than as a credit provider.
• providing financial product advice that is personal advice
provided to a person as a retail client about one or more
products that include at least one relevant financial product;
• dealing in securities for a person as a retail client, other than
issuing securities.
[Schedule 3, item 3, section 1065 to the Bill]
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2.36 The term credit provider has the same meaning as in any part of
the National Consumer Credit Protection Act 2009 other than
Part 3-2CA). [Schedule 3, item 3, section 1065 to the Bill]
2.37 A relevant AFCA determination may relate to an unpaid
determination made before or after the commencement of the CSLR. This
means that compensation under the CSLR is available in relation to
relevant AFCA determinations since the beginning of the AFCA scheme
on 1 November 2018.
Applying for a compensation payment
2.38 The CSLR operator does not monitor relevant AFCA
determinations to ascertain whether payments are made by the AFCA
member to the consumer and, consequently, whether compensation is
available under the CSLR. Instead, for compensation to be provided, the
consumer must make an application to the CSLR operator.
2.39 A consumer may make an application, in the approved form, to
the CSLR operator for compensation for a relevant AFCA determination.
[Schedule 3, item 3, section 1066 to the Bill]
2.40 An application for compensation under the CSLR must contain
the information required by the approved form. Where relevant, the
consumer must declare any amounts they received in relation to their
claim - for example, as an unsecured creditor in an insolvency process.
[Schedule 3, item 3, section 1066 to the Bill]
2.41 The application must be made within 12 months from the day
the determination was made or such longer period as AFCA agrees with
the person. The discretion to provide a longer period is beneficial to
consumers and will allow the CSLR operator to provide consumers with a
longer period to claim where doing so is reasonable (for example where
health or other extenuating circumstances prevented the consumer from
lodging an application within 12 months).
2.42 A consumer may amend their application at any time before the
CSLR operator makes an offer of compensation, and may withdraw their
application at any time before the person accepts an offer of
compensation. [Schedule 3, item 3, section 1066(4) to the Bill]
2.43 A consumer may amend their application at any time before the
CSLR operator makes an offer of compensation, and may withdraw their
application at any time before the person accepts an offer of
compensation. [Schedule 3, item 3, section 1066 to the Bill]
Amount of compensation payments
2.44 The maximum amount of compensation that may be offered to
the consumer under the CSLR is limited to the compensation cap of
$150,000. [Schedule 3, item 3, section 1067 to the Bill]
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2.45 If the AFCA determination is for a greater amount, the amount
in excess of $150,000 is not compensable under the CSLR but remains a
debt owed to the consumer which can be pursued outside of the CSLR.
2.46 The amount offered to the consumer under the CSLR must
reflect any amounts received by the consumer as a creditor in an external
administration process where the payment relates to the matters covered
by the determination. This is intended to include scenarios where, for
example, the AFCA member company is being liquidated and the
liquidator pays the consumer a portion of the amount they were owed by
the company under the relevant AFCA determination. [Schedule 3, item 3,
section 1067 to the Bill]
2.47 Similarly, the amount offered to the consumer under the CSLR
must reflect any amounts to which the consumer is eligible under a
statutory compensation scheme where the eligibility for compensation
relates to the matters covered by the determination. [Schedule 3, item 3,
section 1067 to the Bill]
2.48 Also, the amount offered to the consumer under the CSLR must
reflect any amounts that have already been paid to the consumer, if the
payments are of a kind prescribed by the regulations.
2.49 The regulation power is necessary and appropriate because it is
not possible to prescribe all amounts that should be taken into account
when determining the amount payable in primary law. Rather it is
essential that the regulations can prescribe additional criteria to allow the
scheme to adapt to changing circumstances to ensure the scheme operates
as a CSLR. The regulations are subject to disallowance and therefore
subject to additional parliamentary scrutiny.
Offer, acceptance, notification and payment
2.50 If a person is eligible for compensation for a relevant AFCA
determination, the CSLR operator must make a written offer to the person.
[Schedule 3, item 3, section 1068 to the Bill]
2.51 The offer must include an explanation of the CSLR operator's
right of subrogation if compensation is paid (see "Subrogation of rights"
below). [Schedule 3, item 3, section 1068 to the Bill]
2.52 At any time before the consumer accepts the offer, the operator
may vary or revoke the offer. This is limited to circumstances where the
operator reasonably believes that:
• there is an error relating to the offer;
• there is fraud relating to the offer;
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• there is a change in circumstances affecting the person's
eligibility for the amount of compensation in the offer or the
amount of compensation in the offer; or
• other exceptional circumstances exist that justify the
variation or revocation.
[Schedule 3, item 3, section 1068 to the Bill]
2.53 Merits review is not available in relation to the operator's
decision to vary or revoke an offer. While the decision involves the
operator exercising some form of discretion, the discretion is limited to
situations that relate to integrity and proper administration of the scheme.
2.54 The discretion is appropriately limited and does not allow the
operator to vary or revoke an offer of compensation for reasons other than
those provided in the legislation.
2.55 Exceptional circumstances may include circumstances where the
CSLR operator receives additional information that affects the legality of
arrangements. For example, for revocation of an offer, an exceptional
circumstance might be where an Enduring Power of Attorney arrangement
is purported to be in place and the CSLR operator receives information
indicating that the applicant does not have the necessary authority to seek
the compensation on behalf of the person to whom the compensation is
due. This could be due to purported fraud by the applicant or due to the
lack of finality of purported arrangements.
2.56 Another circumstance may be where, following an offer of
compensation to the consumer, the consumer receives an amount of
compensation relating to the determination through another avenue, for
example as an unsecured creditor to an insolvency process. In this
circumstance, the consumer is no longer eligible for the full amount
offered. The CSLR operator may vary the offer, reducing the amount
offered to reflect the amount received in the insolvency process.
2.57 Where an offer is varied, the consumer may choose to not accept
the offer and may make another application if they are not satisfied with
the CSLR operator's decision.
2.58 After the offer is made, the person has 90 days to notify the
operator whether they accept the offer. If the consumer does not provide
this notification, the person is taken to have withdrawn their application
for compensation. If this happens, and the consumer still seeks
compensation under the scheme, they will need to make another
application. [Schedule 3, item 3, section 1069 to the Bill]
2.59 Where a consumer is not eligible for compensation under the
scheme, the operator must notify the consumer and provide reasons why
the consumer is not eligible for compensation. [Schedule 3, item 3, section 1068
to the Bill]
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Subrogation of rights
2.60 When a consumer is paid compensation under the scheme, their
rights and remedies against the financial firm that is in external
administration are assigned to the CSLR operator to pursue against the
firm. The subrogation is limited to the amount of compensation paid by
the operator. [Schedule 3, item 3, section 1069A to the Bill]
2.61 This allows the CSLR operator to take the place of the consumer
in relation to any legal rights and remedies the applicant may have against
the firm stemming from the AFCA determination. This is intended to
allow the CSLR operator to recover, in the external administration of the
financial firm, amounts that would otherwise have been payable to the
consumer as a creditor of the firm.
2.62 Subrogating rights to the CSLR operator to the extent of the
amount compensated under the scheme is also intended to prevent the
consumer from receiving both compensation under the scheme and an
amount as a creditor of the firm in liquidation, for example.
2.63 Where the compensation paid to the consumer under the CSLR
is less than the amount owed to the consumer (for example because the
amount owed exceeds the compensation cap of $150,000) the right to the
amount in excess of the amount compensated under the CSLR remains
with the consumer to pursue against the firm or the external administrator
of the firm. [Schedule 3, item 3, section 1069A to the Bill]
AFCA Fees
2.64 AFCA incurs costs in assessing complaints and making
determinations. Generally, these are paid for by the financial firm against
which a complaint has been made. These fees are central to the ongoing
operation of AFCA.
2.65 There are instances where the firm does not or is unable to pay
AFCA fees, for example where a firm becomes insolvent. For these cases,
the CSLR is designed to reimburse AFCA's fees. The reimbursement
occurs in relation to fees associated with eligible complaints - regardless
of whether the complaint is determined in favour of the complainant or the
financial firm.
2.66 The reimbursement of AFCA fees is funded by a levy. Who
pays the levy depends on whether the fee is an AFCA accumulated unpaid
fee or an AFCA unpaid fee, and whether the AFCA unpaid fee relates to a
pre-CSLR complaint. The CSLR levy framework is explained in Chapter
2. [Schedule 3, items 1 and 3, sections 761A, 1069B and 1069C to the Bill]
2.67 These fees are the sum of fees that were charged to--but never
paid by--firms that were subject to a complaint that AFCA has finalised.
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Financial services compensation scheme of last resort
The fee must relate to a complaint that is within the scope of the CSLR.
Similar to enforcing a determination (see "Appropriate steps by AFCA"
above), AFCA is also required to take reasonable steps to recover its fees.
2.68 AFCA's accumulated unpaid fees relate to costs incurred by
AFCA in relation to relevant AFCA determinations between the
commencement of AFCA and the day the Bill is introduced into the
House of Representatives. The cost of these fees is met by a one-off levy
on the top ten banking and insurance groups in Australia (see Chapter 2
for more details on this one-off levy). [Schedule 3, item 3, section 1069C to the
Bill]
2.69 AFCA's unpaid fees apply to in-scope fees incurred by AFCA
following introduction of the Bill and are be funded as part of the annual
levy process as outlined in Chapter 2 below. [Schedule 3, item 3, section 1069B
to the Bill]
Notification and reimbursement of fees
2.70 The recovery of AFCA fees requires AFCA to notify the
operator of the CSLR of the relevant sum of AFCA's fees. For
accumulated unpaid fees, this is a one-off notification of fees that have
accumulated from the commencement of the AFCA scheme up to the day
the Bill is introduced into the House of Representatives. For the ongoing
payment of AFCA's unpaid fees, AFCA must notify the CSLR operator
on a monthly basis. [Schedule 3, item 2, section 1058B to the Bill]
2.71 As soon as practicable after notification, the CSLR operator
must pay to AFCA an amount equal to the fees notified. However, this
reimbursement can only commence after the start of the first levy period
or a later day prescribed in the regulations.
2.72 It is appropriate for the legislation to allow the regulations to
prescribe a later day to ensure that sufficient amounts have been levied
under the CSLR levy framework before the operator of the CSLR is
obliged to pay amounts to AFCA for unpaid fees. [Schedule 3, items 1 and 3,
sections 761A, 1069B and 1069C to the Bill]
Powers of the CSLR operator
Obtaining information
2.73 The CSLR operator has the power to obtain information that is
relevant to an application for compensation. If the operator has a
reasonable belief that a person is capable of giving information to the
operator that is relevant to a compensation claim, the operator may require
the person to give the information by writing or produce any documents.
[Schedule 3 item 3, section 1069D to the Bill]
2.74 The Corporations Act provides the manner in which information
is to be produced, including detail on notice requirements and deadlines,
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as well as how information gathered in this way may be used by the
operator.
2.75 ASIC is not subject to the operator's power to obtain
information in this way (though ASIC may share information with the
CSLR operator (see "Information sharing").
2.76 Except for when there is a reasonable excuse, it is an offence for
a person to not comply with a notice to provide information given by the
CSLR operator. The maximum penalty for failing to provide information
is 30 penalty units. [Schedule 3, item 3, section 1069D to the Bill]
2.77 Failing to comply with a notice to provide information given by
the CSLR operator is a strict liability offence. [Schedule 3, item 3,
section 1069D to the Bill]
2.78 Failing to comply with a notice to provide information given by
the CSLR operator is a strict liability offence. [Schedule 3, item 3,
section 1069D(5) to the Bill]
2.79 A strict liability offence is appropriate in this circumstance as it
is necessary to ensure the integrity of a regulatory regime. Where a party
fails to comply with a notice, it can prevent the CSLR from being able to
assess claims and provide accurate offers of compensation. This could
have a serious detriment for consumers applying for compensation.
Further, the failure to provide information could undermine the
effectiveness of the CSLR.
2.80 The strict liability offence is intended to reduce non-compliance
with the operator's notification and is necessary to bolster the integrity of
the CSLR. Strict liability is particularly beneficial to regulators such as
ASIC as they need to deal with offences expeditiously to maintain public
confidence in the CSLR.
2.81 The strict liability offences in Schedule 3 to the Bill meet all the
conditions listed in the Attorney-General's Department's Guide to
Framing Commonwealth Offences, Infringement Notices and Enforcement
Powers, September 2011 edition. The fines for the offences do not exceed
30 penalty units. The application of strict liability, as opposed to absolute
liability, preserves the defence of honest and reasonable mistake of fact to
be proved by the accused on the balance of probabilities. This defence
maintains adequate checks and balances for persons who may be accused
of such offences.
2.82 The defence of 'reasonable excuse' is available for someone
who has not complied with a notice to provide information given by the
operator. This defence is justified as the various types of legal entities and
the complex business arrangements of financial entities make it difficult to
predict what valid reasons may exist for being unable to provide the
information. By including the defence of reasonable excuse, the court can
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assess the reason for non-compliance against the circumstances that exist
in a particular case and determine whether the failure to comply with the
notice to produce information was justified.
2.83 For these reasons, it is appropriate for a person to be penalised if
they fail to comply and for the offence to be a strict liability offence.
2.84 If a person who is, or was, a member of the AFCA scheme does
not comply, the CSLR operator must notify ASIC and AFCA. This
notification requirement enables these organisations to take action as
appropriate. [Schedule 3, item 3, section 1069D to the Bill]
Information Sharing
2.85 The CSLR operator's powers include a framework for sharing
information between the operator and AFCA. Staff of these entities are
authorised for the purposes of the Privacy Act 1988 to use or disclose
information for the purposes of the enabling the operation and application
of the CSLR. Staff of the CSLR operator are also authorised to share
information with ASIC, the Information Commissioner, and the
Commissioner of Taxation if the disclosure would assist these entities to
perform their functions or exercise their powers.
2.86 Use or disclosure for the purposes of this framework includes,
making a record of, disclosing the information, producing the relevant
document or permitting access to the document. [Schedule 3, items 2 and 3,
sections 1058A and 1069E to the Bill]
Reporting by CSLR operator
2.87 If a compensation payment is made, the operator is required to
notify ASIC of the details of the financial firm that was the subject of the
AFCA determination and details of its failure to pay the determined
amount to the consumer. [Schedule 3, item 3, section 1069F to the Bill]
2.88 Also, if the operator becomes aware that the financial firm has
entered into external administration, the operator must notify the relevant
external administrator the amount of compensation paid. This is intended
to allow the administrator to take into account the receipt of compensation
by a consumer who might be a creditor in the administration of the firm.
[Schedule 3, item 3, section 1069F to the Bill]
Publishing reports
2.89 In addition to any reports that the CSLR operator must prepare
under the Corporations Act, the operator must prepare a report for each
levy period. The report must contain the information prescribed by
regulations and must be published on the operator's website.
[Schedule 3, item 3, section 1069G to the Bill]
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2.90 It is necessary and appropriate for the regulations to prescribe
particular information to be included in the operator's report as this will
ensure that the report contains relevant information and allow the
reporting requirements for the scheme to adjust to the operating
environment. The regulations will be disallowable and subject to
Parliamentary scrutiny.
Powers of the Minister
2.91 The CSLR is funded by an industry levy framework, described
in detail in Chapter 2. Generally, the framework involves an annual levy
which is subject to a cap on the amount that may be levied against a
particular sub-sector.
2.92 If required, a further levy may be imposed which, again, is
subject to the sub-sector levy cap.
2.93 However, where the CSLR operator determines that the value of
claims in a financial year is set to exceed one or more of the sub-sector
levy caps, the operator must notify the Minister. The notification to the
Minister must include any information prescribed by the regulations.
[Schedule 3, item 3, section 1069F to the Bill]
2.94 This regulation-making power is appropriate in the circumstance
as the notification to the Minister might include any other relevant
information (e.g. information about the sub-sector with the estimated
shortfall, size and number of expected claims, any impact of the revised
estimate on the financial system) to assist the Minister in making the
determination.
2.95 The notification triggers the Minister's power to make a
determination specifying one or more actions to address the estimated
shortfall. [Schedule 3, item 3, section 1069H to the Bill]
2.96 First, the Minister may determine that particular compensation
payments are paid over a number of periods, rather than in a lump sum.
This is intended to have the effect of spreading the costs to the CSLR over
a longer period, allowing the levy in subsequent levy periods to catch up
on the shortfall while still providing the consumer with the amount
determined by AFCA in the relevant AFCA determination (up to the
compensation cap). [Schedule 3, item 3, section 1069H to the Bill]
2.97 The second and third options relate to imposing a special levy.
This is discussed in Chapter 2. [Schedule 3, item 3, section 1069H to the Bill]
2.98 The purpose of the determination is to ensure that the scheme
can respond to unexpected events that cause the value of claims made, or
estimated to be made, to exceed the amounts levied.
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2.99 This mechanism enables compensation payments to continue to
be made, and not delayed until further amounts can be levied through a
subsequent annual levy cycle.
2.100 The Minister's determination must be made by legislative
instrument. As a legislative instrument, the determination is subject to
disallowance and subject to additional parliamentary scrutiny.
2.101 This also ensures that the CSLR is able to operate with
sufficient safeguards within an evolving and dynamic financial system
while maintaining its ability to be responsive and tailored to particular
unforeseen events. It is not possible to provide such safeguards in primary
legislation because it may involve detailed specifications, calculations and
formulas based on unexpected events occurring in the financial system.
2.102 Further, the Minister's power to exercise their discretion has
been sufficiently constrained with reference to the principles outlined in
the Ramsay Review which ensures the scheme is designed to limit
reliance on ad-hoc funding through a carefully calibrated levy calculation
methodology, and by clearly specifying the circumstances where a
Ministerial determination is warranted.
Regulating the CSLR operator
2.103 The CSLR operator is regulated by ASIC. ASIC may, by
legislative instrument, issue to the CSLR operator regulatory requirements
relating to its compliance with the mandatory requirements.
[Schedule 3, item 3, section 1069K to the Bill]
General Directions to CSLR operator
2.104 ASIC may issue a written notice to the CSLR operator if the
operator does not comply with the mandatory requirements that apply to
the operator, conditions set by the Minister at the time of authorisation, or
other regulatory requirements set by ASIC. [Schedule 3, item 3, section 1069L
to the Bill]
2.105 This first notice - a notice of intention to issue a direction - gives
the operator a chance to resolve issues before a more formal direction is
issued. The notice gives the operator notice of the specific measures that
ASIC may require if ASIC subsequently issues a direction.
2.106 If, after a notice of intention to issue a direction, ASIC makes an
assessment that the CSLR operator has still not complied with the
requirements, ASIC can issue a direction. A direction must be made in
writing and specify when the operator needs to take action. ASIC may
subsequently choose to vary or revoke a direction in writing.
2.107 An ASIC direction is not a legislative instrument. This
clarification is merely declaratory of the law as such a direction would not
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be a legislative instrument within the meaning of section 8 of the
Legislation Act 2003. The clarification is intended to assist readers and
does not operate as an exemption from the Legislation Act 2003.
[Schedule 3, item 3, section 1069L to the Bill]
2.108 It is an offence for the CSLR operator to not comply with an
ASIC direction. The maximum penalty for not complying with an ASIC
direction is 100 penalty units for an individual and 1,000 penalty units for
a company, with penalties applying for each day or part of a day that the
offence is committed. Failure to comply may also result in ASIC seeking
a court order to compel the operator to comply. [Schedule 3, item 3,
sections 1069J, 1069K and 1069L to the Bill]
Financial matters
Estimate of costs for first levy period
2.109 For the scheme's first levy period, the Commonwealth will
provide funding to the CSLR operator to meet the initial estimate of
claims, fees, and costs.
2.110 Commonwealth funding of the first year of the scheme does not
include AFCA's accumulated unpaid claims and fees. These costs will be
met by a one-off levy on the ten largest financial firms during the first
levy period.
2.111 To ensure the funding provided by the Commonwealth in the
first levy period is consistent with funding requirements in subsequent
levy periods, the CSLR operator is required to undertake the standard
estimate process having regard to actuarial principles that will apply in
later years and notify the Commonwealth of the estimate by way of a
notifiable instrument.
2.112 The estimate made separately for each eligible sub-sector must
include:
• an amount that the operator reasonably believes will be
payable as compensation under the scheme for the levy
period for the sub-sector (excluding amounts relating to
pre-CSLR complaints made before the commencement of the
CSLR--amounts related to these complaints are obtained by
a one-off levy against the ten largest financial firms which is
described in "Levy for unpaid claims, and AFCA's unpaid
fees for complaints made to AFCA before accumulation
recovery day" in Chapter 2);
• the sum of AFCA's unpaid fees expected for each of the
months in the first levy period that the operator reasonably
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Financial services compensation scheme of last resort
believes will be attributable to the sub-sector (other than fees
relating to pre-CSLR complaints);
• the sum of AFCA's unpaid fees expected for each of the
months ending on or after the accumulation recovery day but
before the first levy period that the operator reasonably
believes will be attributable to the sub-sector (other than fees
relating to pre-CSLR complaints);
• the capital reserve establishment cost for the first levy period
that the operator reasonably believes is attributable to the
sub-sector (see "Initial estimate of claims, fees, and costs" in
Chapter 2); and
• the operator's expected administrative costs for the first levy
period that the operator reasonably believes is attributable to
the subsector. [Schedule 3, item 3, section 1069M to the Bill]
2.113 Once the operator determines the initial estimates of claims, fees
and costs for the first levy period, the amendments provide that the
Commonwealth must pay the CSLR operator an amount equal to the total
of these estimates. The payment is expected to be authorised and made as
part of the annual appropriations process.
2.114 To ensure transparency and good governance, the amendments
further provide for a reconciliation process to occur as soon as practicable
after the end of the first levy period. The reconciliation process provides
the operator with an opportunity to adjust future estimates regardless of
whether a surplus or a deficit is returned. [Schedule 3, item 3, sections 1069N
and 1069M to the Bill]
2.115 The operator's role as the estimator of claims, fees and costs is
central to the design of the levy framework. It is appropriate for the CSLR
operator to make the estimate of the first levy period costs by notifiable
instrument as the information in the instrument is an estimation based on
actual flows of complaints to AFCA and applications to the CSLR and
other fees and costs that have been incurred or are estimated to be
incurred. The estimate is derived from the criteria set out in the primary
law and is administrative in character.
2.116 The instrument being a notifiable instrument, rather than a
legislative instrument, does not constitute an exemption from the
requirements of the Legislation Act 2003. As a notifiable instrument, the
estimate must be published on the Federal Register of Legislation - this
provides public access to the authoritative form of the instrument.
Payment to the CSLR operator
2.117 For the second and subsequent levy periods, the amounts
collected by ASIC under the levy framework enter the Consolidated
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Resort Levy Bill 2021 and associated Bills
Revenue Fund and, by standing appropriation, are paid to the CSLR
operator. The amount appropriated is equal to the amount levied.
2.118 A standing appropriation is justified because the timely
administration of payments is central to the operation of any
compensation scheme, including the CSLR. To ensure accountability, the
appropriation is constrained to a fund that consists of levies collected
solely for the purposes of the levy framework explained in Chapter 2.
2.119 Other safeguards include a requirement for the operator to use
the funds only for the types of payment described in the amendments.
[Schedule 3, item 3, sections 1069P and 1069Q to the Bill]
Application of money
2.120 Money held by the CSLR operator must only be applied for the
purpose of operating the scheme. [Schedule 3, item 3, section 1069Q to the Bill]
2.121 Where the CSLR operator holds money that is not immediately
required for the purposes of operating the scheme, it may invest that
money on deposit with an authorised deposit-taking institution (ADI)
(generally, a bank) or in Commonwealth, State or Territory securities.
2.122 For money the operator holds for establishing and restoring the
capital reserve, the CSLR operator may invest the money with an ADI or
in Commonwealth, State or Territory securities.
2.123 The limitation on investing money is not intended to prevent the
CSLR operator from purchasing capital assets or expending on capital
activities required to effectively administer the scheme. [Schedule 3, item 3,
section 1069R to the Bill]
Recovery of overpayments
2.124 The CSLR operator may recover amounts from a person if the
amount paid exceeds the amount properly payable to the person. This
includes taking action against the person in the Federal Court or the
Federal Circuit and Family Court of Australia (Division 2)
[Schedule 3, item 3, section 1069S to the Bill]
Other Amendments
Power to cancel licences
2.125 Where the CSLR operator has paid an amount to a consumer in
accordance with an AFCA determination (in place of the person, body
corporate, partnership, or trustee against which the determination was
made), the operator is required to report the fact of the payment to ASIC.
2.126 Where this occurs, ASIC must cancel an Australian financial
services licence held by the relevant person, body corporate, partnership,
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Financial services compensation scheme of last resort
or trustee. This must occur by written notice. [Schedule 3, items 9, 11, 13
and 15, sections 915B to the Bill]
2.127 Likewise, where the relevant person, body corporate, partnership
or trustee, is the holder of an Australian credit licence, ASIC must cancel
the licensee's licence. This must occur by written notice.
[Schedule 3, item 20, section 54 to the Bill]
2.128 The cancellation of an Australian financial services licence or an
Australian credit licence is not subject to merits review. AFCA
determinations involve a thorough examination of the relevant issues.
AFCA members are often sophisticated, experienced and well-resourced
participants. In these matters, parties with an Australian financial services
licence or an Australian credit licence have the opportunity to articulate
their case, and provide all relevant information, regarding the facts of the
matter before AFCA.
2.129 The unavailability of merits review is justified because
cancelling of the Australia financial services licence or Australian credit
licence comes as a result of a process where the licensee had an
opportunity to argue their case in an AFCA hearing and has subsequently
failed to pay the consumer the amount determined. As an industry body,
AFCA provides an appropriate review process, and further merits review
is not necessary. [Schedule 3, item 17, section 1317C to the Bill]
2.130 ASIC may also suspend or cancel an Australian financial
services licence or an Australian credit licence if the licensee is liable to
pay the annual CSLR levy, any late penalty in relation to the levy or any
shortfall penalty payable in relation to the levy. ASIC may suspend or
cancel the relevant license if any one of these levies or penalties have not
been paid in full in the 12 months following when they were due.
Administrative review is available for this decision. [Schedule 3, items 8, 10,
12 and 14, sections 915B, 915B, 915B, 915B; and item 19, section 54 to the Bill]
Banning orders
2.131 ASIC may make a banning order preventing a relevant
individual, body corporate, partner, or trustee from holding an Australian
financial services licence where that person is required to pay an amount
in accordance with a relevant AFCA determination and the CSLR
operator has paid that compensation in their place. The banning order
power enables ASIC to ban a person if at the time the payment is made by
the CSLR operator, they are the individual licensee, an officer in the body
corporate, a partner in the partnership or the trustee of the trust. This
power is subject to administrative review. [Schedule 3, item 16, section 920A(1)
to the Bill]
2.132 ASIC may also make a banning order, preventing a relevant
individual, body corporate, partner, or trustee from holding an Australian
credit licence where that person is required to pay an amount in
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Resort Levy Bill 2021 and associated Bills
accordance with a relevant AFCA determination and the CSLR operator
has paid that compensation in their place. The banning order power
enables ASIC to ban a person if at the time the payment is made by the
CSLR operator, they are the individual licensee, an officer in the body
corporate, a partner in the partnership or the trustee of the trust. This
power is subject to administrative review. Schedule 3, item 21, section 80 to the
Bill]
Deregistration and reinstation of registration
2.133 ASIC may also deregister a company where the company is
liable to pay the annual CSLR levy, any late penalty in relation to the levy
or any shortfall penalty payable in relation to the levy. ASIC may
deregister a company if any one of these levies or penalties have not been
paid in full in the 12 months following when they were due. The effect of
deregistration is that the company ceases to exist (see section 601AD).
[Schedule 3, item 6, section 601AB to the Bill]
2.134 As Australia's corporate regulator, and because it is responsible
for issuing levy notices and collecting levies under the CSLR levy
framework (as explained in further detail in Chapter 2), ASIC is well
positioned to assess the levy liability of companies and make
deregistration decisions as needed.
2.135 As provided by the levy framework, companies also have an
opportunity to apply for a waiver of the levy to ASIC where exceptional
circumstances may justify such a waiver, and this decision is subject to
administrative review. As a result, the failure to pay a levy or related levy
penalty amount and be subject to ASIC to deregister a company is a final
step in a long reviewable process. [Section 17 of the Financial Services
Compensation Scheme of Last Resort Levy (Collection) Bill 2021]
2.136 ASIC may reinstate the registration of a deregistered company if
ASIC receives an application to the reinstatement of the company's
registration and the levy and any associated penalty as outlined above are
paid in full. [Schedule 3, item 7, section 601AH to the Bill]
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Chapter 3
Financial services compensation scheme
of last resort levy
Outline of chapter
3.1 This chapter provides an overview of the Financial Services
Compensation Scheme of Last Resort Levy Bill 2021 and the Financial
Services Compensation Scheme of Last Resort Levy (Collection)
Bill 2021, which together create the levy framework that underpins the
industry funding model for the CSLR.
Context of amendments
3.2 The Supplementary Final Report to the Ramsay Review
recommended that a CSLR is established in Australia. The Financial
Services Royal Commission Final Report later recommended that the
three principal recommendations made in the Supplementary Final Report
should be carried into effect.
3.3 In its response to the Royal Commission, the Government
committed to improving consumer and small business access to redress,
including by implementing a forward-looking CSLR that extends beyond
personal financial advice failures.
3.4 Part of the Government's commitment to the scheme was that it
would be funded by the financial services industry.
Summary of new law
3.5 The levy framework creates a tax to be levied against relevant
industry entities to fund the CSLR.
3.6 An annual levy is payable by persons who are members of a
sub-sector within the meaning of the levy framework established by the
ASIC Supervisory Cost Recovery Levy Act 2017. The annual levy covers
amounts that the CSLR operator estimates will be payable to applicants
under the compensation scheme and to AFCA as unpaid complaints
handling fees, as well as amounts to build and maintain a capital reserve,
and to cover the CSLR operator's and ASIC's administrative costs.
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3.7 The total amount of annual levy payable is determined by the
CSLR operator in a legislative instrument. Amounts payable by individual
firms in a sub-sector will be worked out in accordance with a method to
be prescribed in the regulations - drawing on concepts in place for the
similar calculations for ASIC supervisory cost recovery levy framework.
3.8 Amounts to be paid under the levy framework will be subject to
caps. The overall scheme levy cap is $250 million - this is the total
amount that can be levied in a levy period on all persons across all sub-
sectors. A sub-sector levy cap of $10 million will also apply - this is the
amount of levy that may be imposed for any levy period on all persons in
a particular sub-sector. The sub-sector levy cap may be increased in the
regulations and may also be exceeded where a relevant Ministerial
determination is made.
3.9 In some circumstances, the flow of expected compensation
claims may cause the CSLR operator to revise its estimate of the amounts
needed in a levy period. Where a revised estimate exceeds a sub-sector
levy cap, the Minister may determine to levy amounts against a sub-sector
in excess of a sub-sector levy cap or levy amounts against a sub-sector
that was not liable for the initial annual levy. The Minister is not required
to exercise either of these options (or the option described in Chapter 1
regarding paying compensation in instalments).
3.10 Australia's ten largest banking and insurance groups (excluding
health insurers and superannuation groups) pay a one-off levy to fund a
backlog of accumulated unpaid claims (and associated AFCA unpaid fees)
relating to complaints given to AFCA between 1 November 2018 up to
the day the Financial Sector Reform (Hayne Royal Commission
Response No. 3) Bill 2021 was introduced into the House of
Representatives.
Detailed explanation of new law
3.11 The CSLR's levy framework contains a primary funding
mechanism ('annual levies'), and if needed, a secondary funding
mechanism ('further levies') if the annual levy collected is insufficient or
likely to be insufficient to meet the initial estimate of costs, fees, and
claims.
3.12 The levy framework also contains a special funding mechanism
('special levy') that involves a Ministerial determination where the
revised estimate of costs, fees, and claims exceeds the sub-sector levy cap.
3.13 ASIC, on behalf of the Commonwealth, is responsible for
issuing levy notices and collecting all levies imposed under the scheme.
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[Sections 13 and 16 to the Financial Services Compensation Scheme of Last Resort
Levy (Collection) Bill 2021]
Annual levy - first levy period
3.14 For the first levy period, the sum reflecting the costs for the first
levy period--the equivalent of which for later levy periods is paid by
members of relevant sub-sectors--is paid by the Commonwealth.
3.15 The funding arrangement, including the CSLR operator's
estimate of first year costs, is described in "Estimate of costs for first levy
period" in Chapter 1.
Annual levy - second levy period and each later levy period
3.16 The annual levy is payable by a person if the person is a member
of a sub-sector and, if any conditions are prescribed in the regulations, the
conditions are met in relation to the person. Levy will be imposed on a
person if the person meets the criteria at any time during the qualifying
period, that is the 12-month period starting 24 months before the start of
the levy period. [Definitions of 'sub-sector' and qualifying period' in sections 7 and 8
to the Financial Services Compensation Scheme of Last Resort Levy Bill 2021]
3.17 The definition of sub-sector aligns with its meaning in the ASIC
Supervisory Cost Recovery Levy Act 2017. The regulations made under
that Act group together similar entity types, which are regulated by ASIC,
into industry sub-sectors. The sub-sectors that will be in scope for the
annual levy will be derived from those industry sub-sectors and will be
prescribed in the regulations. [Sections 7 and 8 to the Financial Services
Compensation Scheme of Last Resort Levy Bill 2021]
3.18 As a sub-sector will be one of the industry sub-sectors
prescribed in the regulations made for the ASIC Supervisory Cost
Recovery Levy Act 2017, allowing the regulations to prescribe the sub-
sectors that are in-scope for the annual levy is necessary and appropriate
to allow for sub-sectors that are liable to the annual levy to adjust and
adapt to any changes made to the regulations of that Act.
3.19 If a person is a member of more than one sub-sector for the same
levy period (and meets the other conditions prescribed, if any), they are
subject to the annual levy in relation to each of those sub-sectors for the
levy period.
3.20 For the purposes of the levy framework, a levy period is a
financial year starting on or after the 1 July 2022. [Definition of 'levy period'
in section 7 to the Financial Services Compensation Scheme of Last Resort Levy
Bill 2021]
3.21 The amount of annual levy imposed on a person and a sub-sector
for a levy period is worked out in accordance with a method to be
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Financial Accountability Regime Bill 2021, Financial Services Compensation Scheme of Last
Resort Levy Bill 2021 and associated Bills
prescribed in the regulations. [Section 12 to the Financial Services Compensation
Scheme of Last Resort Levy Bill 2021]
3.22 It is appropriate to empower the Government to make
regulations to set the method for calculating the levy amount as the
process of determining the amounts of levy payable by each sub-sector
will involve mathematical formulas and will involve technical detail that
is most appropriately included in delegated legislation. The flexibility to
prescribe these formulas in regulations is required as different sub-sectors
will require different methods, formulas and/or metrics that are
appropriate for each of them.
3.23 The Minister must be satisfied that the proposed regulations
would be consistent with the objectives that the total amount of annual
levy imposed all persons for a levy period and a sub-sector:
• does not exceed the initial claims, fees and costs estimate;
• does not cause the sub-sector levy cap to be exceeded; and
• does not cause the scheme levy cap to be exceeded.
[Section 12 to the Financial Services Compensation Scheme of Last Resort Levy
Bill 2021]
3.24 These objectives ensure the Commonwealth does not levy more
than the amount that is required to meet the total amount of claims, fees
and costs for a levy period and a sub-sector. Further, the objectives
provide persons liable to pay the annual levy with commercial certainty
that the amount of annual levy will not exceed the sub-sector levy cap or
scheme levy cap.
3.25 The total amount of annual levy for a sub-sector, for a levy
period, cannot exceed the annual sub-sector levy cap of $10 million (or an
amount otherwise prescribed for the sub-sector in the regulations). The
sub-sector cap levy is intended to provide assurance to relevant industries
about the maximum amount expected to be levied against each sub-sector
in a levy period. [Section 17 to the Financial Services Compensation Scheme of Last
Resort Levy Bill 2021]
3.26 As the scheme matures, additional data will be collected to
inform the estimates of the amount of claims, fees, and costs to be paid for
each levy period and a sub-sector. The regulation making power to
prescribe the sub-sector levy cap is necessary to have a degree of
flexibility in the scheme to adapt to and cater for changing conditions in a
timely manner.
Initial estimate of claims, fees, and costs
3.27 A central feature of the levy framework is the CSLR operator's
role in determining amounts to be levied.
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3.28 Under the levy framework, the CSLR operator determines, in a
legislative instrument, the initial estimate of the claims, fees and costs for
an upcoming levy period and a sub-sector. As explained in Chapter 1, the
Commonwealth will provide funding to the CSLR operator to fund the
first year of the scheme's operation (first levy period). The CSLR operator
will determine the initial estimate within 12 months before the start of the
second levy period (and each levy period thereafter). [Section 9 to the
Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2021]
3.29 The CSLR operator's determination takes the form of a
legislative instrument to ensure that the initial estimate of claims, fees and
costs is subject to disallowance and appropriate parliamentary scrutiny.
3.30 The initial estimate of claims, fees and costs includes the
following:
• claims payable - the amount that is expected to be payable as
compensation in relation to relevant AFCA determinations
for a sub-sector in the upcoming levy period. To assist in
informing this amount, AFCA will provide the CSLR
operator with relevant information to inform its estimate
(including complaints made to AFCA, AFCA determinations
etc.). The CSLR operator uses this information to undertake
actuarial analysis to determine the amount of claims expected
to be payable as compensation for a sub-sector in the
upcoming levy period;
• AFCA's unpaid fees - the amount that is expected to be
AFCA's unpaid fees for each month for a sub-sector in the
upcoming levy period. To assist in informing this amount,
AFCA will provide the CSLR operator with relevant
information related to its expected unpaid fees for the levy
period;
• administration costs - the CSLR operator's expected
operational costs for the upcoming levy period - for example,
staff, purchase of equipment and IT costs;
• capital reserve establishment contributions - the amount to
establish a capital reserve of $5 million over the first three
levy periods. In the first levy period, approximately one third
of the capital reserve amount will be paid by the
Commonwealth. In the second and third levy periods, the
annual levy includes amounts to establish the balance of the
capital reserve. Thereafter, the CSLR operator continues to
include capital reserve contribution in the annual levy to
maintain the capital reserve. Any surplus levy amounts that
are collected for pre-CSLR complaints in the first levy period
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Resort Levy Bill 2021 and associated Bills
commensurately reduce the capital reserve establishment
contributions in the second and third levy periods;
• ASIC's administrative costs - the costs ASIC expects to incur
for a levy period in performing its responsibilities and
functions related to the CSLR and the levy framework. ASIC
must notify the CSLR operator of these administrative costs
before a levy period; and
• reconciliation for earlier levy periods - this allows amounts
to be added to or removed from the initial estimate of costs,
fees and claims for a levy period where the CSLR operator
identifies an excess or shortfall from an earlier period. For
the second levy period, this also includes reconciliation of
unpaid accumulated claims (and associated AFCA unpaid
fees) in the first levy period.
[Section 9 to the Financial Compensation Scheme of Last Resort Levy
(Collection) Bill 2021]
Revised estimate of the annual levy
3.31 If at any time during a levy period, the annual levy collected for
a sub-sector is insufficient or is likely to be insufficient to meet the actual
or estimated claims payable for the sub-sector, the CSLR operator may
recalculate the amounts included in the initial estimate of claims, fees and
costs and determine a revised estimate of claims, fees and costs for the
levy period and a sub-sector. [Section 10 to the Financial Compensation Scheme
of Last Resort Levy (Collection) Bill 2021]
3.32 Where a revised estimate of claims, fees and costs would not
exceed the sub-sector cap for a particular sub-sector for the relevant levy
period, the CSLR operator may determine a further levy needs to be
imposed on the sub-sector with the estimated shortfall. The CSLR
operator's determination takes the form of a legislative instrument to
ensure that the initial estimate of claims, fees and costs is subject to
disallowance and appropriate parliamentary scrutiny. [Section 8 to the
Financial Compensation Scheme of Last Resort Levy Bill 2021; and section 10 to the
Financial Compensation Scheme of Last Resort Levy (Collection) Bill 2021]
3.33 The total amount of further levy imposed on the sub-sector must
be equal to the difference between the revised and the initial estimate of
claims, fees, and costs for that levy period. As with the annual levy
imposed by the initial estimate, the amount of further levy payable by
each entity in the sub-sector is calculated in accordance with the method
prescribed in the regulations. [Section 13 to the Financial Services Compensation
Scheme of Last Resort Levy Bill 2021]
3.34 As with the annual levy, empowering the Government to make
regulations to prescribe the method is appropriate as the process to
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Financial services compensation scheme of last resort levy
determine the amount of further levy payable will involve the use of
mathematical formulas, and will involve technical detail that is most
appropriately included in delegated legislation. The formula for each sub-
sector will differ depending on the sizing metric and the business activity
of the entity in that sub-sector.
3.35 If the revised estimate of claims and costs does not exceed the
prescribed annual sub-sector levy cap for that sub-sector for the levy
period, the CSLR operator is not required to notify the Minister before
making a determination that a further levy needs to be imposed on a sub-
sector.
3.36 The availability of a further levy in a levy period is aimed at
ensuring that the funds needed to pay compensation under the CSLR are
available within a levy period. The availability of further levy (up to the
sub-sector levy cap) reduces the need for a special levy under a
Ministerial determination or the need to wait for expected claims and
costs to be incorporated in the annual levy process in a later levy period
(which will consequentially delay the payment of compensation to
claimants).
3.37 The CSLR operator may determine a revised estimate of claims,
fees, and costs more than once for a sub-sector in a levy period.
Ministerial determination - special levy
3.38 The amount of annual levy payable in an upcoming levy period
depends largely on the CSLR operator's estimate of the compensation
claims, fees, and costs for the levy period. While the CSLR operator
utilises information it receives from AFCA to make this estimation, the
forward-looking nature of the levy framework limits the operator's ability
to cater for events that cannot be forecasted or accurately estimated ahead
of time. For example, the sudden failure of a large financial firm could
lead to a significant increase in the number of complaints to AFCA, and
consequently an increase in the number relevant AFCA determinations
that result in applications for compensation under the CSLR.
3.39 The revised estimate of annual levy deals with revised amounts
to be levied up to the relevant sub-sector cap. However, where this revised
estimate of claims, fees, and costs exceeds the sub-sector cap for the sub-
sector for the levy period, the CSLR operator must notify the Minister in
writing as soon as practicable. This notification empowers the Minister to
make a determination to impose a special levy (or exercise the option
described in Chapter 1 regarding paying compensation payments in
instalments). [Schedule 3, item 3, section 1069H to the Bill]
3.40 While empowered to exercise one or a combination of these
options (set out below), the Minister is not required to make a
determination. Where the Minister does not make a determination the
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Financial Accountability Regime Bill 2021, Financial Services Compensation Scheme of Last
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CSLR operator will need to deal with the claims, fees, and costs in excess
of levied amounts in another way. For example, the operator could wait
for the next opportunity to make an initial estimate of claims, fees and
costs for the next levy period and levy the necessary amounts as part of
the regular annual levy. Another option would be for the CSLR operator
to draw on the capital reserve or access the pool of funds collected
through the annual levy, to cover excess amounts.
Special levy for the primary sub-sector
3.41 The Minister may decide to impose a special levy on the
relevant sub-sector with the estimated shortfall for the levy period in
which the revised estimate of claims, fees, and costs exceeds the sub-
sector levy cap (the primary sub-sector). [Schedule 3, item 3, section 1069H;
and section 8 to the Financial Services Compensation Scheme of Last Resort Levy
Bill 2021].
3.42 The Minister may determine to impose a special levy for the
primary sub-sector for more than once in a levy period.
3.43 As explained in Chapter 1, given the forward-looking nature of
the levy framework, it is appropriate for the Minister to intervene in
circumstances where additional funding is required to meet the higher
than the initial estimated claims, fees, and costs.
3.44 Additional funding may be needed where, for example, a large
financial firm becomes insolvent, or where a "black swan event" occurs in
the financial services industry. These circumstances may lead to a
significant increase in the number of complaints made to AFCA and,
consequently, applications for compensation under the CSLR.
3.45 As these circumstances cannot be predicted, the Ministerial
determination is necessary to ensure that the CSLR operator has the funds
needed to provide consumers with compensation as quickly as possible.
3.46 The Minister's determination takes the form of a legislative
instrument to ensure that the revised estimate of claims, fees and costs can
be addressed quickly to support the collection of levies and payment of
compensation in a timely manner. As a legislative instrument, the
determination is subject to disallowance and appropriate parliamentary
scrutiny.
3.47 While the amount of special levy will cause the relevant
sub-sector levy cap to be exceeded, features of the special levy ensure that
it does not constitute a form of arbitrary taxation. In particular, any special
levy imposed must not be an amount that is more than the difference
between the amount specified in the revised estimate, and the total levy
collected in that levy period. In this way, the imposition of a special levy
or multiple such levies, ensures that the revised estimate is not exceeded.
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Additionally, special levy remains subject to the scheme levy cap of
$250 million. [Schedule 3, item 3, section 1069H; and section 17 to the Financial
Services Compensation Scheme of Last Resort Levy Bill 2021]
3.48 As with the regular annual levy, the amount of special levy
payable by each firm in the sub-sector will be calculated in accordance
with a method prescribed in the regulations. Empowering the Government
to make regulations to prescribe the method is appropriate as the process
to determine the amount of further levy payable will involve the use of
mathematical formulas and will involve technical detail that is most
appropriately included in delegated legislation. [Section 14 to the Financial
Services Compensation Scheme of Last Resort Levy Bill 2021]
Special levy for another sub-sector not just the primary sub-sector
3.49 In addition to imposing a special levy on the primary sub-sector
with the estimated shortfall, the Minister may determine that a special
levy be imposed on another sub-sector, including a sub-sector that is not
liable to pay the initial annual levy. [Schedule 3, item 3, section 1069H; and
section 9 to the Financial Services Compensation Scheme of Last Resort Levy Bill 2021]
3.50 As with the special levy for the primary sub-sector, the special
levy for another sub-sector include features that ensure that it does not
constitute a form of arbitrary taxation. Before making a determination to
impose a special levy, the Minister must be satisfied that the special levy
is:
• necessary to meet the number of claimants that will accept
compensation payments in that levy period and for the
relevant sub-sector with the expected shortfall, and is
necessary to meet the size of the sum of those compensation
payment amounts; and
• the most effective way of enabling payment of those
compensation amounts to the claimants in a timely manner.
[Schedule 3, item 3, section 1069H to the Bill]
3.51 If the Minister is satisfied that the special levy is required (after
having regard to the principles above), the Minister must determine the
total amount of special levy that needs to be imposed across all members
of one or more sub-sectors specified in the determination.
[Schedule 3, item 3, section 1069H to the Bill]
3.52 As with the annual levy, the sub-sectors that are potentially in
scope for the special levy will be derived from the industry sub-sectors
specified in the regulations made under the ASIC Supervisory Cost
Recovery Levy Act 2017 and will be prescribed in the regulations. The
Minister's power to specify sub-sectors that are liable to pay a special levy
in this way is limited to those industry sub-sectors. [Schedule 3, item 3,
section 1069H; and section 9 to the Financial Services Compensation Scheme of Last
Resort Levy Bill 2021]
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3.53 Before determining the amount of special levy payable by each
of one or more specified sub-sectors, the Minister must have regard to the
impact that the special levy might have on the financial sustainability and
viability of the specified one sub-sector or more specified sub-sectors, and
the impact that the special levy on those sub-sectors may have financial
system more broadly. [Schedule 3, item 3, section 1069H to the Bill]
3.54 These guiding principles ensure that the Minister's power to
impose special levy on one or more specified sub-sectors is only exercised
where there is a genuine need for the special levy, and where the decision
to impose the special levy takes into account the impact the levy may have
on the financial sustainability and viability of the sub-sector subject to the
special levy or the adverse impacts the levy may have on the Australian
financial system more broadly.
3.55 In this way, the Minister's power to impose a special levy is an
appropriate form of intervention when dealing with circumstances where
due to an unforeseen event or otherwise, the annual levy collected is
insufficient or likely to be insufficient to meet the revised claims, fees,
and costs.
3.56 Any special levy imposed must not be an amount that is more
than the difference between the amount specified in the revised estimate,
and the total levy collected in that levy period. In this way, the imposition
of a special levy or multiple such levies, ensures that the revised estimate
is not exceeded. [Schedule 3, item 3, section 1069H to the Bill]
3.57 The Minister may determine to impose a special levy on another
sub-sector more than once in a levy period. However, the total amounts of
special levies imposed through a Ministerial determination must not
exceed the scheme levy cap of $250 million. [Section 17 to the Financial
Services Compensation Scheme of Last Resort Levy Bill 2021]
Levy for unpaid claims, and AFCA's unpaid fees for complaints made to
AFCA before accumulation recovery day
3.58 In addition to the ongoing annual levy, the CSLR levy
framework provides for a one-off levy to be imposed to fund:
• compensation expected to be payable for pre-CSLR
complaints;
• AFCA's unpaid fees that relate to pre-CSLR complaints; and
• AFCA's accumulated unpaid fees.
3.59 For the one-off levy, a pre-CSLR complaint is one that is:
• for AFCA to finalise;
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• was given to AFCA before the day the Financial Sector
Reform (Hayne Royal Commission Response No. 3) Bill 2021
was introduced into the House of Representatives;
• made against another person who was an AFCA member at
the time the complaint was made; and
• about a product or service of a kind that is within the scope
of the CSLR (see "Relevant AFCA determination" in
Chapter 1).
[Definition of 'pre-CSLR complaint' in sections 7 and 11 to the Financial
Compensation Scheme of Last Resort Levy (Collection) Bill 2021; and
Schedule 3, item 3, section 1065 to the Bill]
3.60 For the one-off levy, AFCA's unpaid fees are the fees that relate
to pre-CSLR complaints for which AFCA has completed steps to recover
on or after the day the Financial Sector Reform (Hayne Royal
Commission Response No. 3) Bill 2021 was introduced into the House of
Representatives. [Definition of 'accumulation recovery day' and 'pre-CSLR
complaint' in sections 7 and 11 to the Financial Compensation Scheme of Last Resort
Levy (Collection) Bill 2021; and Schedule 3, item 2, section 1058B to the Bill]
3.61 For the one-off levy, AFCA's accumulated unpaid fees are the
fees that relate to finalised complaints for which AFCA has completed
steps to recover before the day the Financial Sector Reform (Hayne Royal
Commission Response No. 3) Bill 2021 was introduced into the House of
Representatives. [Definition of 'accumulation recovery day' and 'pre-CSLR
complaint' in sections 7 and 11 to the Financial Compensation Scheme of Last Resort
Levy (Collection) Bill 2021; and Schedule 3, item 2, section 1058B to the Bill]
3.62 The levy for both the accumulated unpaid claims and AFCA
accumulated unpaid fees and AFCA's unpaid fees that relate to pre-CSLR
complaints is collected as a one-off levy in the first levy period only.
3.63 The levy is imposed on the ten largest financial sector entities. A
person is an entity is in the group liable for the one-off levy if each of the
following are met:
• at any time during the 12 months before the start of the first
levy period, the person is a body regulated by APRA;
• section 3C of the Taxation Administration Act 1953 applies
to the person for the 2018-2019 income year (which requires
corporate tax entities with a total income of $100 million or
more to report particular information to the Commissioner of
Taxation); and
• for the 2018-2019 income year, the person's total income
exceeds $4.5 billion according to information reported to the
Commissioner in the person's income tax return for that
income year.
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3.64 However, an entity is not in the group liable for the one-off levy
if it is a private health insurer, within the meaning of the Private Health
Insurance (Prudential Supervision) Act 2015 or the trustee of a
superannuation entity, within the meaning of the Superannuation Industry
(Supervision) Act 1993. [Sections 11 and 12 to the Financial Services
Compensation Scheme of Last Resort Levy (Collection) Bill 2021; and section 10 to the
Financial Services Compensation Scheme of Last Resort Levy Bill 2021]
Initial estimate
3.65 The CSLR operator must, by legislative instrument, determine
the initial estimate of the amounts described above. The determination can
be made at any time after the commencement of this Act. The CSLR
operator's determination takes the form of a legislative instrument to
ensure that the initial estimate of claims, fees and costs is subject to
disallowance and appropriate parliamentary scrutiny. [Section 11 to the
Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2021] .
3.66 The amount payable by each entity under the one-off levy will
be worked out in accordance with a method to be prescribed in the
regulations. The regulation making power to set the method is necessary
as the process of determining the amount of one-off levy that is payable
by each person will involve mathematical formulas, that is most
appropriately dealt with in delegated legislation.
3.67 Before regulations are made, the Minister must be satisfied that
the proposed regulations would be consistent with the objectives that the
total amount of one-off levy imposed on all persons for a levy period and
a sub sector:
• does not exceed the CSLR operator's initial estimate; and
• does not cause the scheme levy cap to be exceeded.
[Section 16 to the Financial Services Compensation Scheme of Last Resort
Levy Bill 2021]
Revised estimate
3.68 The CSLR operator may recalculate the amounts included in the
initial estimate for the one-off levy and determine a revised estimate.
3.69 The CSLR operator's revised estimate of unpaid claims and fees
must be made by notifiable instrument. The making of this instrument
does not have the immediate effect of imposing further levy. Instead, any
shortfall identified in the revised estimate can only be recovered as annual
levy for a later levy period (which involves the making of a legislative
instrument). Therefore, any shortfall identified in the revised estimate is
not recovered against the same group of the ten largest financial sector
entities (though an entity in that group may also be liable for the annual
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levy). Similarly, any surplus identified in the revised estimate is not repaid
to the ten largest financial sector entities but will reduce the capital
amount to be collected in the annual levy in the second and third levy
periods, or the annual levy for a later levy period. [Section 12 to the Financial
Services Compensation Scheme of Last Resort Levy (Collection) Bill 2021]
When levy is due for payment and late payment
3.70 After the levy amounts have been determined for the levy
period, ASIC must issue notices to persons in a sub-sector setting out the
amount of levy that is payable in relation to the levy period.
3.71 The ASIC notice must specify the business day on which the
levy becomes due and payable. Firms will be given at least 30 days to pay
the levy amounts specified in the notice. [Section 13 to the Financial Services
Compensation Scheme of Last Resort Levy (Collection) Bill 2021]
3.72 Unless ASIC provides an extension, a failure to pay the levy by
the date specified in the ASIC notice will attract a late payment penalty at
the rate of 20 per cent per annum calculated monthly. The late payment
penalty for a month is due and payable at the end of the levy month.
[Section 14 to the Financial Services Compensation Scheme of Last Resort Levy
(Collection) Bill 2021]
Other features of the levy framework
3.73 The levy framework includes a number administrative features
that are closely based on the levy framework established under the ASIC
supervisory cost recovery levy framework.
Collection of information and substantiation of that information
3.74 Before a levy period, ASIC may require a person subject to the
levy to provide information relating in an approved form. The approved
form will be prescribed in regulations and may require information
relating to the person or information relating to one or more other persons
that are subject to the levy. [Section 8 to the Financial Services Compensation
Scheme of Last Resort Levy (Collection) Bill 2021].
3.75 The information collected would be relevant for the purposes of
calculating the levy that is payable by the person in accordance with the
levy framework. In practice, the information that is required for the
purposes of CSLR levy framework significant overlaps with the
information that is collected under the ASIC supervisory cost recovery
levy framework. As such, ASIC may utilise information that it collects
under the ASIC Supervisory Cost Recovery Levy (Collection) Act 2017 for
the purposes of CSLR levy framework. [Section 8 to the Financial Services
Compensation Scheme of Last Resort Levy (Collection) Bill 2021]
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3.76 Related to above, the levy framework provides ASIC can, by
issuing a written notice, require that person to substantiate the information
it has provided to ASIC under the Financial Services Compensation
Scheme of Last Resort Levy (Collection) Bill 2021. The firm must
comply with this notice. [Sections 19, 20, 21 and 29 to the Financial Services
Compensation Scheme of Last Resort Levy (Collection) Bill 2021]
3.77 Where a person has failed to provide information to ASIC, or
failed to substantiate this information, they will be subject to a strict
liability offence. The maximum penalty for both of these offences is
10 penalty units. [Sections 8 and 21 to the Financial Services Compensation Scheme
of Last Resort Levy (Collection) Bill 2021]
3.78 The information collected under the levy framework is an
integral aspect of calculating the levy that is payable by each person in the
sub-sector. As such, the use of strict liability offences are appropriate in
the circumstances to strongly deter misconduct that can have a serious
detriment for aggrieved parties. The use of strict liability offences reduces
non-compliance and bolster the integrity of the levy framework to ensure
persons that are subject to pay the levy provide the required information to
ASIC.
3.79 If a person fails to provide this information or substantiate
information, or provides false or inaccurate information, this could have
implications for all the other persons in that sub-sector as they may be
liable to pay a different amount of levy that they otherwise would. The
strict liability offences reduce non-compliance, which bolsters the
integrity and enforceability of the levy framework.
3.80 The penalty for failing to provide this information if
10 penalty units. This is consistent with the Attorney-General's
Department's A Guide to Framing Commonwealth Offences, Infringement
Notices and Enforcement Powers, September 2011 edition (the Guide).
For example, the maximum penalty for this offence is 10 penalty units and
does not exceed 60 penalty units for persons other than a body corporate
or 300 penalty units for a body corporate as noted in the Guide.
3.81 Further, the application of strict liability, as opposed to absolute
liability, preserves the defence of honest and reasonable mistake of fact to
be proved by the accused on the balance of probabilities. This defence
maintains adequate checks and balances for persons who may be accused
of such offences.
3.82 The defence of 'reasonable excuse' is also available for someone
who has not complied with a notice to provide information or substantiate
information given by ASIC. Under subsection 13.3(3) of the Criminal
Code, a defendant bears an evidential burden in relation to providing that
they have a reasonable excuse. Whether a person has a reasonable excuse,
is a matter that is peculiarly within the knowledge of the defendant,
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particularly given the broad nature of matters that may be considered to be
a 'reasonable excuse'. It would be unreasonably time consuming and
costly for the prosecution to disprove in each case any possible reasonable
excuse for not complying with a substantiation notice. This stands in
contrast to a defendant, who would be able to establish more easily
whether there exists such an excuse. [Sections 8 and 21 to the Financial Services
Compensation Scheme of Last Resort Levy (Collection) Bill 2021].
3.83 Further, this defence is justified as the various types of legal
entities and the complex business arrangements of financial entities make
it difficult to predict what valid reasons may exist for being unable to
provide the information. By including the defence of reasonable excuse,
the court has the flexibility to assess the reason for non-compliance
against the circumstances that exist in a particular case and determine
whether the failure to comply with the notice to produce information was
justified. It is a reasonable excuse for an individual to refuse or fail to
answer a question or produce a document on the ground that to do so
might tend to incriminate the individual or expose the individual to a
penalty. [Section 21 to the Financial Services Compensation Scheme of Last Resort
Levy (Collection) Bill 2021].
3.84 In addition, for non-compliance with a substantiation notice, a
person is not liable if they comply with the notice to the extent that they
are able to comply. [Section 21 to the Financial Services Compensation Scheme of
Last Resort Levy (Collection) Bill 2021]
Payment to ASIC on behalf of the Commonwealth
3.85 Each of the following are payable to ASIC on behalf of the
Commonwealth:
• levy;
• late payment penalty; and
• shortfall penalty.
[Section 16 to the Financial Services Compensation Scheme of Last
Resort Levy (Collection) Bill 2021]
3.86 ASIC is authorised, as an agent of the Commonwealth, to bring
proceedings in the name of the Commonwealth to recover the above
amounts when they are due and payable by the person as a debt due to the
Commonwealth. [Section 18 to the Financial Services Compensation Scheme of Last
Resort Levy (Collection) Bill 2021]
3.87 ASIC may also, on behalf of the Commonwealth, waive the
payment of the whole or a part of any of those amounts, if they are
satisfied that there are exceptional circumstances justifying the waiver.
They may do this on their own initiative or on written application by a
person. [Section 15 to the Financial Services Compensation Scheme of Last Resort
Levy (Collection) Bill 2021]
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3.88 The written application by a person must be in the approved
form. [Section 15 to the Financial Services Compensation Scheme of Last Resort Levy
(Collection) Bill 2021]
Review of Decision
3.89 A person who is affected by a decision of ASIC to waive a levy
may, if dissatisfied with the decision, request that ASIC reconsider the
decision. [Sections 23 and 24 to the Financial Services Compensation Scheme of Last
Resort Levy (Collection) Bill 2021]
3.90 A request to review the decision must be made by notice given
to ASIC in the approved form within 21 days from the day on which the
person first received notice of the decision, or any further period that
ASIC allows. The notice given to ASIC must also set out the reasons for
making the request. [Section 23 to the Financial Services Compensation Scheme of
Last Resort Levy (Collection) Bill 2021]
3.91 After receiving the request, ASIC must review the decision or
cause the decision to be reviewed by a person:
• to whom ASIC's power to review the decision is delegated;
and
• who was not involved in the making of the original decision.
[Section 23 to the Financial Services Compensation Scheme of Last
Resort Levy (Collection) Bill 2021]
3.92 Within 30 business days after receiving the request, the person
reviewing the decision must reconsider the decision and either confirm,
revoke or vary the decision, as they think fit. [Section 23 to the Financial
Services Compensation Scheme of Last Resort Levy (Collection) Bill 2021]
3.93 In the event that a person reviewing the decision has not made a
decision after the period of 30 business days, they are taken to have
confirmed the earlier decision. [Section 23 to the Financial Services Compensation
Scheme of Last Resort Levy (Collection) Bill 2021]
3.94 A person reviewing the decision must give a notice in writing to
the person that made the request that sets out the result of the
reconsideration of the decision and the reasons for their decision.
[Section 23 to the Financial Services Compensation Scheme of Last Resort Levy
(Collection) Bill 2021]
3.95 A decision of ASIC that has been confirmed, varied or revoked,
or a decision that has been taken to have been confirmed, may be appealed
to the Administrative Appeals Tribunal on application for a review of that
decision, or a decision that is taken to have been made. [Section 24 to the
Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2021]
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Financial services compensation scheme of last resort levy
Late payment penalty
3.96 If any levy payable by a person remains unpaid at the start of a
levy month after the levy became due for payment, the person is liable to
pay to the Commonwealth, for that levy month, a penalty of 20 per cent
simple interest on the outstanding amount, calculated monthly. This is
worked out using the following formula:
Amount of the levy remaining 0.2
unpaid at the start of the levy month 12
[Section 14 to the Financial Services Compensation Scheme of Last Resort Levy
(Collection) Bill 2021]
3.97 Late payment penalty for a levy month is due and payable at the
end of the levy month. [Section 14 to the Financial Services Compensation Scheme
of Last Resort Levy (Collection) Bill 2021]
3.98 ASIC may, by written notice given to the person before, on or
after the day on which late payment penalty would be due and payable,
specify a later day as the day on which the late payment penalty is due and
payable. The notice has effect, and is taken always to have had effect,
according to its terms. [Section 14 to the Financial Services Compensation Scheme
of Last Resort Levy (Collection) Bill 2021]
Shortfall penalty
3.99 Where a person makes a false or misleading statement to ASIC
and that statement has resulted in a person having paid a lesser levy than
that person would have been liable for if the statement was not false or
misleading, then that person is liable to a shortfall penalty.
3.100 A shortfall penalty only applies where the statement maker and
the shortfall entity are the same entity. Where an entity provides a false or
misleading statement on behalf of another entity, the second entity will
not be liable to any shortfall penalty as a result of the statement. [Section 15
to the Financial Services Compensation Scheme of Last Resort Levy (Collection)
Bill 2021]
3.101 The amount of penalty that the person is liable to pay is twice
the amount of shortfall that results from the statement being false or
misleading. [Section 15 to the Financial Services Compensation Scheme of Last
Resort Levy (Collection) Bill 2021]
3.102 However, a person is not liable to a shortfall penalty if they
took reasonable steps to ensure that the statement, when made, was
correct. If a person is unable to point to reasonable steps taken, then a
shortfall penalty will continue to apply. [Section 15 to the Financial Services
Compensation Scheme of Last Resort Levy (Collection) Bill 2021]
3.103 A shortfall penalty is due and payable on a day specified in a
notice given by ASIC to the person. The date specified cannot be less than
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30 days after the day on which the notice was given. However, ASIC may,
by written notice given to the person before, on or after the day on which
the shortfall penalty would be due and payable specify a later day as the
day on which the shortfall penalty is due and payable. The notice has
effect, and is taken always to have had effect, according to its terms.
[Section 15 to the Financial Services Compensation Scheme of Last Resort Levy
(Collection) Bill 2021]
Entity types liable to pay levy
3.104 Because some of the entity types that make up the definition of a
regulated entity are not legal persons, section 18 of the Levy Bill extends
the meaning of person so that the levy is imposed on those leviable
entities as if they were a legal person. The levy is, however, applied with
certain modifications so that it applies similarly to how it would if those
leviable entities were legal persons. This is achieved by imposing the
liability on each member of the various collectives that are treated as a
legal person but allowing the obligation to pay the levy to be discharged
by any natural person member of the collective on behalf of all of them.
3.105 The Financial Services Compensation Scheme of Last Resort
Levy Bill 2021 imposes levy on the following persons that are part of a
collective:
• each partner in a partnership;
• each member in an unincorporated association;
• each trustee that is part of a group of individual trustees that
hold an RSE licence;
• multiple natural person trustees of a trust treated as a single
'notional entity' for the purposes of the Financial Services
Compensation Scheme of Last Resort Levy Bill 2021.
[Definition of 'person' in sections 7 and 18 of the Financial Services
Compensation Scheme of Last Resort Levy Bill 2021]
3.106 In the case of a partner, member, or trustee that is part of a group
of individual trustees that holds an RSE licence, the levy is imposed on
each partner, member, or trustee. However, the obligation may be
discharged by any of the partners, members, or trustees on behalf of all of
them. [Section 18 ttothe Financial Services Compensation Scheme of Last Resort Levy
Bill 2021; and sections 25 and 28 to the Financial Services Compensation Scheme of
Last Resort Levy (Collection) Bill 2021]
3.107 The treatment of a 'notional entity' is different to the treatment
of the other three cases because the notional entity may only exist for a
period of time. Under the Corporations Act and the National Consumer
Credit Protection Act 2009 a reference to a person can include a reference
to where there are multiple trustees of a trust for a period of time. During
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the period where there are multiple trustees, the Financial Services
Compensation Scheme of Last Resort Levy Bill 2021 treats the multiple
trustees as a 'notional entity' for the purpose of imposing the levy and
imposes the levy on each of those trustees separately. Any of the trustees
may discharge the liability on behalf of the other trustees. However, if
during the period, or a part of the period, the trust has only one trustee, an
obligation that would otherwise be imposed on the notional entity is
imposed on that single trustee. This means that where there ceases to be
multiple trustees of the trust, the obligation does not remain on the
persons that cease to be trustees. [[Section 18 to the Financial Services
Compensation Scheme of Last Resort Levy Bill 2021]
Approved forms
3.108 The various documents required under the Financial Services
Compensation Scheme of Last Resort Levy (Collection) Bill 2021 will be
in the approved form where they are in the form prescribed by the
regulations and are provided in the manner prescribed by the regulations.
[Sections 8 and 29 to the Financial Services Compensation Scheme of Last Resort Levy
(Collection) Bill 2021]
3.109 However, if the regulations do not prescribe a form or manner
for providing the information, then both the form and manner may be
approved by ASIC in writing. This is consistent with the treatment of
approved forms in the Financial Sector Reform (Hayne Royal
Commission Response No. 3) Bill 2021 and provides ASIC with
administrative flexibility to specify the form in which it requires
information, the information to be provided, and the manner of it being
provided. [Sections 8 and 29 to the Financial Services Compensation Scheme of Last
Resort Levy (Collection) Bill 2021]
3.110 Different approved forms may be prescribed or approved for
different classes of persons. [Section 29 to the Financial Services Compensation
Scheme of Last Resort Levy (Collection) Bill 2021]
Exempting laws ineffective
3.111 For the purposes of clarity, the levy framework provides that the
no law passed prior to the commencement of the Financial Services
Compensation Scheme of Last Resort Levy (Collection) Bill 2021 is
intended to exempt a person from being liable to levy under the CSLR
levy framework. [Section 22 to the Financial Services Compensation Scheme of Last
Resort Levy (Collection) Bill 2021]
3.112 In the event a law is passed after the commencement of the
Financial Services Compensation Scheme of Last Resort Levy
(Collection) Bill that purports to exempt a person from the levy, the law
must expressly confer an exemption from the levy under both Financial
Services Compensation Scheme of Last Resort Levy Bill 2021 and
Financial Services Compensation Scheme of Last Resort Levy
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Resort Levy Bill 2021 and associated Bills
(Collection) Bill 2021. [Section 22 to the Financial Services Compensation Scheme
of Last Resort Levy (Collection) Bill 2021]
3.113 However, this does not apply to an exemption of levy that is
granted under Financial Services Compensation Scheme of Last Resort
Levy Bill 2021 and Financial Services Compensation Scheme of Last
Resort Levy (Collection) Bill 2021. [Section 22 to the Financial Services
Compensation Scheme of Last Resort Levy (Collection) Bill 2021]
Commencement, application, and machinery provisions
3.114 The Financial Services Compensation Scheme of Last Resort
Levy Bill 2021 commences on the later of 1 January 2022 and the date
after Royal Assent. The Financial Services Compensation Scheme of Last
Resort Levy (Collection) Bill 2021 commences at the same time as the
Levy Bill to ensure that all aspects of the levy framework start on the
same day. If the Financial Services Compensation Scheme of Last Resort
Levy Bill 2021 does not commence, the Financial Services Compensation
Scheme of Last Resort Levy (Collection) Bill 2021 does not commence.
[Section 2 to the Financial Services Compensation Scheme of Last Resort Levy
Bill 2021; and section 2 to the Financial Services Compensation Scheme of Last Resort
Levy (Collection) Bill 2021]
3.115 The Financial Services Compensation Scheme of Last Resort
Levy Bill 2021 and the Financial Services Compensation Scheme of Last
Resort Levy (Collection) Bill 2021 bind the Crown in right of each of the
States, of the Australian Capital Territory, of the Northern Territory and
of Norfolk Island. However, they do not bind the Crown in right of the
Commonwealth. [Section 3 to the Financial Services Compensation Scheme of Last
Resort Levy Bill 2021; and section 4 of the Financial Services Compensation Scheme of
Last Resort Levy (Collection) Bill 2021]
3.116 This means that entities that are considered to be the
Commonwealth, such as a 'Commonwealth entity' (within the meaning of
the Public Governance, Performance and Accountability Act 2013) cannot
be made liable to levy even where it would otherwise apply to them. Other
entities that are not considered to be the Commonwealth may, however,
be liable to levy, such as a Commonwealth company (within the meaning
of the Public Governance, Performance and Accountability Act 2013).
3.117 The Financial Services Compensation Scheme of Last Resort
Levy (Collection) Bill 2021 further provides that it does not make the
Crown liable to a pecuniary penalty or to be prosecuted for an offence
under this regime. [Section 4 to the Financial Services Compensation Scheme of
Last Resort Levy (Collection) Bill 2021]
3.118 The Financial Services Compensation Scheme of Last Resort
Levy Bill 2021 and the Financial Services Compensation Scheme of Last
Resort Levy (Collection) Bill 2021 extend to acts, omissions, matters and
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things outside Australia. They also extend to every external Territory.
[Sections 4 and 5 to the Financial Services Compensation Scheme of Last Resort Levy
Bill 2021; and sections 5 and 6 to the Financial Services Compensation Scheme of Last
Resort Levy (Collection) Bill 2021]
3.119 The Financial Services Compensation Scheme of Last Resort
Levy Bill 2021 does not impose a tax on property of any kind belonging
to a State within the meaning of section 114 of the Constitution. [Section 6
to the Financial Services Compensation Scheme of Last Resort Levy Bill 2021]
3.120 The Financial Services Compensation Scheme of Last Resort
Levy (Collection) Bill 2021 also contains a simplified outline to assist
readers in understanding the substantive provisions. However, the outline
is not intended to be a comprehensive explanation of the substantive
provisions, so readers should instead rely on the substantive provisions.
[Section 3 to the Financial Services Compensation Scheme of Last Resort Levy
(Collection) Bill 2021]
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Chapter 4
Statement of Compatibility with Human
Rights
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
Financial Accountability Regime Bill 2021
4.1 The Financial Accountability Regime Bill 2021 is compatible
with the human rights and freedoms recognised or declared in the
international instruments listed in section 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011.
Overview
4.2 The Financial Accountability Regime Bill 2021 creates a new
accountability regime for the banking, insurance and superannuation
industries.
Human rights implications
4.3 The Financial Accountability Regime Bill 2021 does not engage
any of the applicable rights and freedoms.
Conclusion
4.4 The Financial Accountability Regime Bill 2021 is compatible
with human rights obligations as it does not raise any human rights issues.
Financial Sector Reform (Hayne Royal Commission Response
No. 3) Bill 2021 - Schedules 1 and 2
4.5 Schedules 1 and 2 to the Bill are compatible with the human
rights and freedoms recognised or declared in the international
instruments listed in section 3 of the Human Rights (Parliamentary
Scrutiny) Act 2011.
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Overview
4.6 Schedules 1 and 2 to the Bill make consequential amendments to
support the Financial Accountability Regime.
Human rights implications
4.7 Schedules 1 and 2 to the Bill do not engage any of the applicable
rights and freedoms.
Conclusion
4.8 Schedules 1 and 2 to the Bill are compatible with human rights
obligations as they do not raise any human rights issues.
Financial Sector Reform (Hayne Royal Commission Response
No. 3) Bill 2021 - Schedule 3
4.9 Schedule 3 to the Bill is compatible with the human rights and
freedoms recognised or declared in the international instruments listed in
section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
4.10 Schedule 3 to the Bill amends the Corporations Act and other
Commonwealth Acts to establish a CSLR.
4.11 The objective of the CSLR is to provide compensation to
eligible consumers where they have an AFCA determination in their
favour and where the relevant financial firm has not paid the consumer in
accordance with the determination.
4.12 The Minister may authorise a person to be the operator of the
CSLR once the Minister is satisfied the mandatory requirements can be
met. This includes that the operator is a company limited by guarantee and
not operated for profit.
4.13 Under the scheme, where AFCA has made a determination
under which a complainant is owed an amount from a financial firm and
the financial firm has failed to pay the complainant, the complainant may
apply to the operator of the CSLR for payment. If the eligibility criteria is
met, the operator of the CSLR must compensate the complainant, up to
$150,000.
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Statement of Compatibility with Human Rights
Human rights implications
4.14 Schedule 3 to the Bill engages the following human rights and
freedoms:
• the right to protection from arbitrary or unlawful interference
with privacy;
• the right to a fair trial; and
• the imposition of strict liability for an offence
Right to protection from arbitrary or unlawful interference with privacy
4.15 A number of provisions in the Bill engage article 17 of the
International Covenant on Civil and Political Rights, which prohibits the
unlawful or arbitrary interferences with a person's privacy. These rights
are engaged where:
• a person is required to provide information to the CSLR
operator to enable the operation of the CSLR; and
• the CSLR operator is authorised to share personal and
protected information certain other entities.
4.16 The right in Article 17 may be subject to permissible limitations,
where these limitations are authorised by law and are not arbitrary. In
order for an interference with the right to privacy to be permissible, the
interference must be authorised by law, be for reason consistent with the
ICCPR, and be reasonable in the particular circumstances. The United
Nations Human Rights Committee has interpreted the requirements of
'reasonableness' to imply that any interference with privacy must be
proportional to end sought and be necessary in the circumstances of any
given situation.
4.17 The requirement to provide information involves the collections,
storage and use of information for the purpose of enabling the operation of
the CSLR. This power to gather information extends to giving information
and producing documents including specifying the manner in which
information is to be produced, including detail on notice requirements and
deadlines.
4.18 The collection and storage of this information is necessary
because it is used to ensure that applicants who have received an AFCA
determination are able to be compensated for losses they have suffered.
Where a party chooses not to comply with such a notice, it can prevent the
CSLR from being able to assess claims and provide accurate offers of
compensation, this can have serious detriment for aggrieved parties who
are seeking compensation. This prevents the entire operation of the
scheme.
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4.19 While this information is collected by CSLR operator, its use is
limited to enabling the operation of the CSLR, or where its disclosure to
ASIC, AFCA, the Information Commissioner or the Taxation
Commissioner would assist those entities to perform their functions or
powers.
4.20 A more general disclosure of personal or protected information
to the public is not permitted under the Financial Services Compensation
Scheme of Last Resort Levy (Collection) Bill 2021.
4.21 As such, to the extent the Schedule 3 to the Financial Sector
Reform (Hayne Royal Commission Response No. 3) Bill 2021 engages
Article 17, it does so in a manner that is appropriate and consistent with
the Bill's objective.
4.22 This is because the collection of the information is necessary to
enable the carrying out of the functions of the CSLR operator and the
maintained of the CSLR, and to the extent that personal information is
collected and stored, its disclosure and use is limited to enabling the
performance of functions or powers under law.
Right to a fair trial and imposition of strict liability.
4.23 Schedule 3 to the Bill creates a new strict liability criminal
offence where a person has failed to provide the CSLR operator with
information as detailed in a notice to provide information.
4.24 This offence is subject to a maximum penalty of
30 penalty units. The offence engages, but does limit, the article 14 of the
International Covenant on Civil and Political Rights.
4.25 Article 14.2 states that a person shall have the right to be
presumed innocent until proven guilty according to law. To prove the
ordinary offence, the prosecution must prove that the accused engaged in
the prohibited conduct (the physical elements) and that the accused did so
with a criminal mind (the fault elements). To prove the strict liability
offence, the prosecution must only prove that the accused engaged in the
prohibited conduct; there is no requirement to prove the accused's
criminal intentions.
4.26 Strict liability offences are appropriate in the circumstances to
strongly deter misconduct that can have a serious detriment for aggrieved
consumers. The information gathered by the CSLR operator using these
notices enable CSLR to determine appropriate compensation and assess
claims brought as a result of an AFCA determination. If a person fails to
provide this information, or provides false or inaccurate information, this
could have implications for the ability of the CSLR to provide
compensation or to ensure that it is not subject to fraudulent claims. Strict
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liability offences reduce non-compliance, which bolsters the integrity of
the scheme and in particular its last resort nature.
4.27 The strict liability offences in Schedule 3 to the Bill meet all the
conditions listed in the Attorney-General's Department's A Guide to
Framing Commonwealth Offences, Infringement Notices and Enforcement
Powers, September 2011 edition (the Guide). For example, the fines for
the offences do not exceed 30 penalty units. Furthermore, the application
of strict liability as opposed to absolute liability, preserves the defence of
honest and reasonable mistake of fact to be proved by the accused on the
balance of probabilities. This defence maintains adequate checks and
balances for persons who may be accused of such offences.
4.28 For this offence, there also exists the offence-specific defence of
a reasonable excuse, so that a person will not be liable where they have
such an excuse. In addition, for non-compliance with a substantiation
notice, a person is not liable if they comply with the notice to the extent
that they are able to comply.
4.29 These offence-specific defences also engage article 14(2) of the
International Covenant on Civil and Political Rights because they displace
the assumption that the prosecution must prove every element of the
offence. However, whether a person has a reasonable excuse, or has
complied with a notice to the extent that they are able to are matters that
are peculiarly within the knowledge of the defendant, particularly given
the wide nature of the defences. It would be unreasonably time consuming
and costly to ask the prosecution to disprove in each case any possible
reasonable excuse for complying with a notice to produce information.
This stands in contrast to a defendant, who would be able to establish
more easily whether there exists such an excuse, or they have complied to
the extent that they are able to.
4.30 To establish these defences, a person bears the burden of
adducing or pointing to evidence that suggests a reasonable possibility
that the matter exists or does not exist. If the defendant discharges this
burden, the prosecution must prove those matters beyond a reasonable
doubt. This is easier for a defendant to discharge and does not completely
displace the prosecutor's burden; it merely defers that burden until after
the evidential burden is discharged.
4.31 To the extent the Bill engages Article 14, it does so
appropriately and is consistent with the Bill's objectives.
4.32 This is because of the need to protect the operation and ensure
the integrity of the CSLR. Accordingly, a strict liability criminal offence
is justified for both matters. As there is only a penalty of 30 penalty units,
and there exists wide offence-specific defences, the imposition of strict
liability is proportional. The offence-specific defences are also appropriate
and adapted because the matters that establish those defences are
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peculiarly within a defendant's knowledge, so can be discharged more
easily than by the prosecution disproving the matter.
Conclusion
4.33 Schedule 3 to the Bill is compatible with human rights they
engage and do not unnecessarily, unreasonably, or disproportionately limit
the rights to unlawful or arbitrary interference with privacy, or the
presumption of innocence.
Financial Services Compensation Scheme of Last Resort Levy
Bill 2021
4.34 The Financial Services Compensation Scheme of Last Resort
Levy Bill 2021 is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3
of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
4.35 The Financial Services Compensation Scheme of Last Resort
Levy Bill 2021 implements the levy framework through which levies will
be collected to fund the CSLR and associated AFCA fees.
4.36 The levy framework contains a primary funding mechanism
('annual levies'), and if needed, a secondary funding mechanism ('further
levies') if the annual levy collected is insufficient or likely to be
insufficient to meet the initial estimate of costs and claims.
4.37 The levy framework also provides for a special funding
mechanism ('special levy') that involves a Ministerial determination
where the revised estimate of costs and claims exceeds the sub-sector levy
cap.
4.38 The levies are payable by a person who are members of a sub-
sectors within the meaning of the levy framework established by the ASIC
Supervisory Cost Recovery Levy Act 2017.
4.39 The Financial Services Compensation Scheme of Last Resort
Levy Bill 2021 does not engage any of the applicable rights or freedoms.
Conclusion
4.40 The Financial Services Compensation Scheme of Last Resort
Levy Bill 2021 is compatible with human rights as it does not raise any
human rights issues.
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Statement of Compatibility with Human Rights
Financial Services Compensation Scheme of Last Resort Levy
(Collection) Bill 2021
4.41 The Financial Services Compensation Scheme of Last Resort
Levy (Collection) Bill 2021 is compatible with the human rights and
freedoms recognised or declared in the international instruments listed in
section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
4.42 The Financial Services Compensation Scheme of Last Resort
Levy (Collection) Bill 2021 implements the levy framework through
which levies will be collected to fund the CSLR and associated AFCA
fees.
4.43 A person subject to the levy is required to provide ASIC with
information relevant for the purposes for calculating the levy. Where a
person has failed to provide this information to ASIC, they will be subject
to a strict liability criminal offence.
4.44 If ASIC is not satisfied with the information provided, it may
issue a written notice requiting the person to substantiate the information.
Non-compliance with such a notice will be a strict liability offence.
4.45 After the levy amounts have been determined for the levy
period, ASIC will issue notices to persona in a sub-sector setting out the
amount of levy that is payable in relation to the levy period.
4.46 Unless ASIC provides an extension, a failure to pay the levy by
the date specified in the ASIC notice will attract a late payment penalty.
Similarly, a shortfall payment penalty applies where, on the basis of false
or misleading information provided to ASIC the amount of levy paid by
the person fell short of the levy which it should have been liable for.
4.47 Where a levy, shortfall penalty or late payment penalty remains
unpaid for a period of 12 months, ASIC may cancel or suspend the
person's licence.
Human rights implications
4.48 The Financial Services Compensation Scheme of Last Resort
Levy (Collection) Bill 2021 engages the following human rights and
freedoms:
• the right to protection from arbitrary or unlawful
interference with privacy
• the right to a fair trial; and
• the imposition of strict liability for an offence
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Right to protection from arbitrary or unlawful interference with privacy
4.49 A number of provisions in the Financial Services Compensation
Scheme of Last Resort Levy (Collection) Bill 2021 engage article 17 of
the International Covenant on Civil and Political Rights, which prohibits
the unlawful or arbitrary interferences with a person's privacy. These
rights are engaged where:
• a person subject to the levy is required to provide
information to ASIC relevant for the purposes of
calculating the amount of levy payable by the person; and
• a person subject to the levy must comply with ASIC's
substantiation notice, requiring information to be provided
4.50 The right in Article 17 may be subject to permissible limitations,
where these limitations are authorised by law and are not arbitrary. In
order for an interference with the right to privacy to be permissible, the
interference must be authorised by law, be for reason consistent with the
ICCPR, and be reasonable in the particular circumstances. The United
Nations Human Rights Committee has interpreted the requirements of
'reasonableness' to imply that any interference with privacy must be
proportional to end sought and be necessary in the circumstances of any
give.
4.51 The requirement to provide information involves the collections,
storage and use of information for the purpose of calculate the levy that
will be payable by a person in a sub-sector. The collection and storage of
this information is necessary because it is used to apportion
4.52 While this information is collected by ASIC, its use is limited to
calculation of levies.
4.53 As such, to the extent the Financial Services Compensation
Scheme of Last Resort Levy (Collection) Bill 2021 engages Article 17, it
does so in an appropriate manner and is consistent with the Bill's
objective.
Right to a fair trial
4.54 The Financial Services Compensation Scheme of Last Resort
Levy (Collection) Bill 2021 creates two new strict liability criminal
offences where:
• a person has failed to provide ASIC with information for
the purposes of calculating the levy; or
• a person has failed to comply with a substation notice
from ASIC.
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Statement of Compatibility with Human Rights
4.55 Both of these offences are subject to a maximum penalty of
10 penalty units. The offences engage, but do not limit, the article 14 of
the International Covenant on Civil and Political Rights.
4.56 Article 14.2 states that a person shall have the right to be
presumed innocent until proven guilty according to law. To prove the
ordinary offence, the prosecution must prove that the accused engaged in
the prohibited conduct (the physical elements) and that the accused did so
with a criminal mind (the fault elements). To prove the strict liability
offence, the prosecution must only prove that the accused engaged in the
prohibited conduct; there is no requirement to prove the accused's
criminal intentions.
4.57 These offences therefore also engage article 14(2) of the
International Covenant on Civil and Political Rights as they reverse the
principle that the prosecution must prove every element of the offence.
4.58 Strict liability offences are appropriate in the circumstances to
strongly deter misconduct that can have a serious detriment for aggrieved
parties. The use of strict liability offences reduces non-compliance and
bolster the integrity of the levy framework to ensure persons that are
subject to pay the levy provide the required information to ASIC, and
when required are able to substantiate this information. The information
collected are an integral aspect of calculating the levy that is payable by
each person in the sub-sector.
4.59 If a person fails to provide this information or substantiate
information, or provides false or inaccurate information, this could have
implications for all the other persons in that sub-sector as they may be
liable to pay a different amount of levy that they otherwise would. The
strict liability offences reduce non-compliance, which bolsters the
integrity and enforceability of the levy framework
4.60 The strict liability offences in this Bill meet all the conditions
listed in the Attorney-General's Department's A Guide to Framing
Commonwealth Offences, Infringement Notices and Enforcement Powers,
September 2011 edition (the Guide). For example, as noted above the
maximum penalty for both of the offences are 10 penalty units each and
do not exceed 60 penalty units for persons other than a body corporate or
300 penalty units for a body corporate as noted in the Guide. The
application of strict liability, as opposed to absolute liability, preserves the
defence of honest and reasonable mistake of fact to be proved by the
accused on the balance of probabilities. This defence maintains adequate
checks and balances for persons who may be accused of such offences.
4.61 For these offences, there also exists the offence-specific
defences of reasonable excuse, so that a person will not be liable where
they have such an excuse. In addition, for non-compliance with a
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substantiation notice, a person is not liable if they comply with the notice
to the extent that they are able to comply.
4.62 These offence-specific defences also engage article 14(2) of the
International Covenant on Civil and Political Rights because they displace
the assumption that the prosecution must prove every element of the
offence. However, whether a person has a reasonable excuse, or has
complied with a notice to the extent that they are able to are matters that
are peculiarly within the knowledge of the defendant, particularly given
the broad nature of the defences. It would be unreasonably time
consuming and costly to ask the prosecution to disprove in each case any
possible reasonable excuse for complying with a notice to produce
information. This stands in contrast to a defendant, who would be able to
establish more easily whether there exists such an excuse, or they have
complied to the extent that they are able to.
4.63 To establish these defences, a person bears the burden of
adducing or pointing to evidence that suggests a reasonable possibility
that the matter exists or does not exist. If the defendant discharges this
burden, the prosecution must prove those matters beyond a reasonable
doubt. This is easier for a defendant to discharge and does not completely
displace the prosecutor's burden; it merely defers that burden until after
the evidential burden is discharged.
4.64 To the extent The Financial Services Compensation Scheme of
Last Resort Levy (Collection) Bill 2021 engages Article 14, it does so
appropriately and is consistent with the Bill's objectives.
4.65 This is because of the need to protect the operation and ensure
the accuracy of the levy collection framework that exists under The
Financial Services Compensation Scheme of Last Resort Levy
(Collection) Bill 2021. Accordingly, a strict liability criminal offence is
justified for both matters. As there is only a penalty of 10 penalty units,
and there exists wide offence-specific defences, the imposition of strict
liability is proportional. The offence-specific defences are also appropriate
and adapted because the matters that establish those defences are
peculiarly within a defendant's knowledge, so can be discharged more
easily than by the prosecution disproving the matter.
Conclusion
4.66 The Financial Services Compensation Scheme of Last Resort
Levy (Collection) Bill 2021 is compatible with the human rights they
engage and do not unnecessarily, unreasonably, or disproportionately limit
the rights to unlawful or arbitrary interference with privacy, or the
presumption of innocence.
110