Two Financial Services Reform Bills
The Crisis Powers Bill: Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017 (Crisis Powers Bill) which will strengthen APRA's powers in times of financial crisis and a second Bill, Treasury Laws Amendment (Banking Measures No 1) Bill 2017 (ADI Bill)) which will strengthen APRA's ability to respond to developments in non-ADI lending that pose a risk to financial stability and enact credit card reform, have passed both houses and will become law. In welcoming the passage of the Bills through Parliament, the Treasurer stated that in combination with the Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2017 (BEAR Bill) which passed the senate on 7 February,the changes 'will help to ensure that Australia's financial system is competitive, accountable and unquestionably strong'.
Crisis Powers Bill: Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017 (Crisis Powers Bill)
The Bill passed both houses without amendment. The Bill appears to be similar to the draft legislation on which the government consulted in August 2017 (see: Governance News 21/08/2017).
The Treasurer stated that the Bill provides:
- APRA with powers to 'set requirements on resolution planning and ensure banks and insurers are better prepared for a crisis'; and
- An expanded set of crisis resolution powers 'that equip APRA to act decisively to facilitate the orderly resolution of a distressed bank or insurer'.
More specifically, the Bill will:
- Provide APRA with an 'enhanced suite of crisis resolution powers' applicable to prudentially regulated authorised deposit taking institutions (ADIs), general insurers and life insurance companies (insurers), and certain group entities.
- In addition, the Bill proposes enhancements to APRA's powers relevant to the resolution of a regulated entity in distress. More specifically, the expansion of APRA's powers in relation to: statutory and judicial management (Chapter 2); directions powers (Chapter 3); transfer powers (Chapter 4); conversion and write-off of capital instruments (Chapter 5); stay provisions (Chapter 6); foreign branches (Chapter 7); Financial Claims Scheme (Chapter 8); and wind-up and other matters (Chapter 9). Chapter 10 deals with amendments that relate to crisis resolution planning, to provide APRA with clear powers to ensure that regulated entities are better prepared for a resolution prior to such an event arising.
The Treasurer commented that the Bill implements a recommendation from the 2014 Financial System Inquiry (Murray Inquiry) and represents 'a significant leap in APRA's capability'.
Treasury Laws Amendment (Banking Measures No. 1) Bill 2017 (ADI Bill)
The Bill passed both houses without amendment on 15 February. The Bill proposes to (among other things):
Provide APRA with a reserve power to make rules in respect of the lending activities of non-ADI lenders should these activities be determined to be materially contributing to risks of instability in the Australian financial system. The Treasurer has stated in relation to the proposed 'reserve power' that 'While the Government is of the view that non-bank lenders are not materially contributing to risks at the moment, this APRA power is a new 'tool on the shelf' that APRA can use to manage risks should they emerge in future'.
Impose a requirement on non-ADI lenders to register with, and provide data to, APRA to enable APRA monitor non-ADI lending activity and determine when to use the reserve power. The Explanatory Memorandum states that these measures are intended to: 'Promote financial stability through strengthening APRA's ability to respond to developments in non-ADI lending that pose a risk to financial stability'.
Remove restrictions on the use of the term 'bank' by enabling any ADI (ie any banking business with an ADI licence) to use the word 'bank' in relation their business. The Explanatory Memorandum states that this measure is intended to reduce barriers to new entrants to the banking sector and 'provide a more level playing field amongst ADIs' as well as 'align community expectations in respect of the use of the term bank with the fact that ADIs are prudentially supervised by APRA and deposits are covered by the FCS guarantee.
Consumer credit reforms: Amend the Credit Act to introduce a number of reforms aimed at improving consumer outcomes under credit card contracts including:
Clarify APRA's role by inserting an objects provision into the Banking Act 1959 to make clear APRA's roles and responsibilities under the Act, aligning it with other acts such as the Life Insurance Act 1995. According to the Treasurer's announcement, 'This will make clear that APRA can, and will, act to address varying economic circumstances and stresses as they arise across different parts of Australia'.
Treasurer's comments
Credit card reform: In his statement announcing the passage of the Bill the Treasurer said 'This legislation will protect vulnerable Australians from predatory behaviour which seeks to make a quick buck from people's misfortune, and compound their financial hardship. This is the first phase of reforms outlined in the Government's response to the Senate Inquiry into the credit card market, which seeks to put more power in the hands of consumers. The Bill will also materially boost competition in the banking sector by allowing small lenders to call themselves banks; a significant change that will entice new lenders and challenger banks to enter the market. This will provide greater choice for Australians and put downward pressure on the cost of banking products and loans'.
Promote financial stability: 'The Bill…strengthens financial stability by providing the Australian Prudential Regulation Authority (APRA) a new reserve power over the lending activities of non-banks. It modernises APRA's legislative framework by making clear APRA's roles and responsibilities under the Banking Act 1959' the Treasurer stated.
Complements the BEAR regime: The Treasurer stated that the Bill 'accompanies the Turnbull Government's Banking Executive Accountability Regime, which brings greater accountability to our banks by introducing tough new rules for banks and their executives, and the Crisis Management Bill, which strengthens APRA's crisis management powers. Together, this suite of legislation will help to ensure that Australia's financial system is competitive, accountable and unquestionably strong'.
[Note: Both Bills were introduced by the government as part of a broader package of legislative changes to 'enact landmark financial services reform' including the introduction of a Bill to enact the BEAR Regime. Treasury Laws Amendment (Banking Executive Accountability and Related Measures) Bill 2017 (BEAR Bill) was passed by the senate on 7 February.]
[Sources: Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017 Governance News 21/08/2017; Treasury Laws Amendment (Banking Measures No. 1) Bill 2017]
