Treasury Laws Amendment (Banking Measures No 1) Bill 2017 - Commentary on Ministerial Responses [2017] AUSStaCSBSD 419 (6 December 2017)

• Treasury Laws Amendment (Banking Measures No. 1) Bill 2017
• Incorporation of material as in force from time to time112
• Consultation prior to making delegated legislation114

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Treasury Laws Amendment (Banking Measures No. 1) Bill 2017

Purpose	This bill seeks to amend various Acts relating to banking, insurance, credit, registrable corporations and financial system regulation Schedule 1 amends the application of the provisions relating to non-Authorised Deposit-taking Institution (ADI) lenders Schedule 2 provides for consequential amendments to the Banking Act 1959 (Banking Act) in relation to non-ADI lenders Schedule 3 enables an ADI to assume or use the word 'bank' in its business name, unless the Australian Prudential Regulation Authority (APRA) has issued a determination preventing this Schedule 4 inserts an objects provision in the Banking Act Schedule 5 amends the National Consumer Credit Protection Act 2009 in relation to credit card contracts
Portfolio	Treasury
Introduced	House of Representatives on 19 October 2917
Bill status	Before House of Representatives
Scrutiny principle	Standing Order 24(1)(a)(iv) and (v)

2.268 The committee dealt with this bill in Scrutiny Digest No. 13 of 2017. The Minister responded to the committee's comments in a letter dated 5 December 2017. Set out below are extracts from the committee's initial scrutiny of the bill and the Treasurer's response followed by the committee's comments on the response. A copy of the letter is available on the committee's website.^[111]

Incorporation of material as in force from time to time^[112]

Initial scrutiny – extract

2.269 Proposed subsection 38C(7) provides that a rule may provide for a matter by applying, adopting or incorporating, with or without modification, any matter contained in any other instrument or other writing as in force or existing from time to time. The explanatory memorandum provides no explanation as to what type of instruments or documents may need to be applied, adopted or incorporated and does not explain why it would be necessary for the material to apply as in force or existing from time to time.

2.270 At a general level, the committee will have scrutiny concerns where provisions in a bill allow the incorporation of legislative provisions by reference to other documents because such an approach:

• raises the prospect of changes being made to the law in the absence of Parliamentary scrutiny, (for example, where an external document is incorporated as in force 'from time to time' this would mean that any future changes to that document would operate to change the law without any involvement from Parliament);

• can create uncertainty in the law; and

• means that those obliged to obey the law may have inadequate access to its terms (in particular, the committee will be concerned where relevant information, including standards, accounting principles or industry databases, is not publicly available or is available only if a fee is paid).

2.271 As a matter of general principle, any member of the public should be able to freely and readily access the terms of the law. Therefore, the committee's consistent scrutiny view is that where material is incorporated by reference into the law it should be freely and readily available to all those who may be interested in the law.

2.272 The issue of access to material incorporated into the law by reference to external documents such as Australian and international standards has been an issue of ongoing concern to Australian parliamentary scrutiny committees. Most recently, the Joint Standing Committee on Delegated Legislation of the Western Australian Parliament has published a detailed report on this issue.^[113] This report comprehensively outlines the significant scrutiny concerns associated with the incorporation of material by reference, particularly where the incorporated material is not freely available.

2.273 Noting the above comments, the committee requests the Treasurer's advice as to the type of documents that it is envisaged may be applied, adopted or incorporated by reference under subsection 38C(7), whether these documents will be made freely available to all persons interested in the law and why it is necessary to apply the documents as in force or existing from time to time, rather than when the instrument is first made.

Treasurer's response

2.274 The Treasurer advised:

The ability for APRA to incorporate extrinsic material into a non-ADI lender rule as permitted under proposed section 38C(7) of the Banking Act is essential to ensuring the effectiveness of the rules and minimising their associated compliance burden.
If APRA determines to make a non-ADI lender rule, it is possible that the rule will need to refer to complex concepts that are already defined in existing commercial standards. In these circumstances, it is clearer to incorporate the source material detailing these concepts rather than seeking to duplicate the concepts in the rule. Referring to extrinsic materials in rules – rather than attempting to replicate the terms in
rules – would avoid APRA's rules becoming out of step with commercial practice.
Examples of extrinsic material that might be used are Prudential Practice Guides published by APRA or documents published by the Australian Bureau of Statistics (ABS), such as the Household Expenditure Measure (HEM) devised by the ABS to calculate living expenses of borrowers.
Examples of extrinsic material that might be used are Prudential Practice Guides published by APRA or documents published by the Australian Bureau of Statistics (ABS), such as the 'HEM' (Household Expenditure Measure) devised by the ABS to calculate living expenses of borrowers.
Persons likely to be interested in the non-ADI lender rules would be familiar with the publishers or entities responsible for such extrinsic material (e.g. APRA or the ABS) and, as these documents are freely available on the internet to all, should be able to locate such material. This said, when incorporating such extrinsic material into a rule, APRA would also take efforts to provide information as to where that material could be found (for example, the URL of the appropriate document) to assist readers and remove doubt.
It is necessary to apply these documents as in force or existing from time to time due to the fact that the financial markets can alter relatively quickly; reference to static documents would not provide responsiveness in the same manner and could also necessitate frequent changes being made to non-ADI lender rules.
Rules made under proposed paragraphs 38C(2)(a) and (b) (the most likely form of rules to be issued) are legislative instruments and the process for making and commencing takes time. Given that non-ADI lender rules are likely to be most needed in times of financial instability, rules that are slow in responding to market changes are unlikely to be as effective as rules that are responsive.

Committee comment

2.275 The committee thanks the Treasurer for this response. The committee notes the Treasurer's advice that allowing the incorporation of extrinsic material under proposed subsection 38C(7) is essential to ensuring the effectiveness of rules and minimising their associated compliance burden, and that it is clearer in some cases to incorporate source material rather than attempting to duplicate complex concepts in the rules. The committee also notes the Treasurer's advice that APRA's Prudential Practice Guides or the Australian Bureau of Statistics' Household Expenditure Measure are examples of material that may be incorporated, and that these documents are freely available on the internet.

2.276 The committee finally notes the Treasurer's advice that it is necessary to apply these documents as in force from time to time as financial markets can change relatively quickly and reference to static documents would necessitate frequent changes to the rules.

2.277 The committee requests that the key information provided by the Minister be included in the explanatory memorandum, noting the importance of this document as a point of access to understanding the law and, if needed, as extrinsic material to assist with interpretation (see section 15AB of the Acts Interpretation Act 1901).

2.278 In light of the information provided, the committee makes no further comment on this matter.

Consultation prior to making delegated legislation^[114]

Initial scrutiny – extract

2.279 Proposed subsection 38F(4) states that APRA must consult with ASIC before making a non-ADI lender rule, or varying or revoking a non-ADI lender rule. The committee welcomes the inclusion of this specific consultation obligation, however, the committee notes that proposed subsection 38F(5) provides that a failure to comply with the consultation obligation does not invalidate the client money reporting rule. The explanatory memorandum provides no explanation as to why this clause, which appears to nullify the effect of imposing a requirement on APRA to consult with ASIC, has been included in the bill.

2.280 The committee therefore requests the Treasurer's advice as to the rationale for including a no-invalidity clause in this provision, which has the effect that a failure to appropriately consult prior to making a non-ADI lender rule will not invalidate the rule.

Treasurer's response

2.281 The Treasurer advised:

It is expected that APRA will, in all but extreme or time-critical circumstances, make efforts to consult not only ASIC under proposed subsection 38F(4) of the Banking Act, but also the non-ADI lenders subject to be subject to the rule (via a regulation impact statement-like process). This is consistent with the Government's position as put forward in the explanatory memorandum, and statements made in the regulation impact statement.
Nevertheless, there are three rationales that underpin the no-invalidity clause in proposed subsection 38F(5), which provides that failure to comply with the consultation obligation in proposed subsection 38F(4) does not invalidate the making, varying, or revoking of a non-ADI lender rule.
Firstly, the no-invalidity clause reflects Parliament's intention to vest the jurisdiction to make, vary, or revoke non-ADI lender rules exclusively with APRA.
Secondly, the no-invalidity clause acknowledges the safeguards against the arbitrary use of non-ADI lender rules. The availability of avenues of review and potential for Parliamentary scrutiny will ensure public confidence in decisions made by APRA relating to non-ADI lender rules. For example:

• Proposed section 38H provides for merits review of decisions relating to non-ADI lender rules. There is also the usual recourse to judicial review afforded under the Administrative Decisions (Judicial Review) Act 1977 and the Constitution.

• Additionally, should a rule be made by APRA to be complied by non-ADI lenders, or a class of non-ADI lenders, these rules will be legislative instruments under proposed section 38G.

– As a legislative instrument, the rule will therefore be subject to the scrutiny of, and potential disallowance by, the Parliament.
Thirdly, the no-invalidity clause recognises that the desirability of consultation with ASIC is outweighed by the public inconvenience that would arise if a failure to consult deprived the making, varying, or revoking of a non-ADI lender rule of legal validity.

• Members of the public, particularly those affected by non-ADI lender rules (such as non-ADI lenders), should be able to organise their affairs on the basis of apparently valid decisions.

• To invalidate a decision relating to non-ADI lender rules as a result of a failure by APRA to consult with ASIC would invariably cause undue expense, inconvenience and loss of public confidence.

– This is particularly the case where, in these circumstances, such non-compliance would be extremely difficult for members of the public to detect, given the confidentiality and secrecy protections that attach to consultation between APRA and ASIC.

– Such an outcome would also be directly at odds with the rationale of enabling APRA to make non-ADI lender rules which, as outlined at proposed subsection 38C(1), is to empower APRA with the ability to address material risks of financial instability in the Australian financial system.

Committee comment

2.282 The committee thanks the Treasurer for this response. The committee notes the Treasurer's advice that, prior to making a rule, APRA will seek to consult both ASIC and affected non-ADI lenders in all but extreme or time-critical circumstances. The committee also notes the Treasurer's advice that it is nevertheless appropriate to include a no-invalidity clause in proposed subsection 38F(5) because this clause:

• reflects Parliament's intention to vest the jurisdiction to make, vary or revoke non-ADI lender rules exclusively with APRA;

• acknowledges that decisions to make or vary certain rules are subject to both merits review and judicial review and will be subject to disallowance by Parliament; and

• recognises that the desirability of consultation with ASIC is outweighed by the public inconvenience that would arise if a non-ADI lender rule were deprived of validity due to a lack of consultation.

2.283 The committee finally notes the Treasurer's advice that members of the public should be able to organise their affairs on the basis of apparently valid decisions and that any invalidation due to a lack of consultation would cause undue expense, inconvenience and loss of public confidence.

2.284 The committee takes this opportunity to reiterate its general view that where the Parliament delegates its legislative power in relation to significant regulatory schemes it is appropriate that specific consultation obligations (beyond those in section 17 of the Legislation Act 2003) are included in the bill and that compliance with these obligations is a condition of the validity of the legislative instrument. Providing that the instrument remains valid and enforceable even if ASIC fails to comply with the consultation requirements undermines including such requirements in the legislation.

2.285 The committee requests that the key information provided by the Minister be included in the explanatory memorandum, noting the importance of this document as a point of access to understanding the law and, if needed, as extrinsic material to assist with interpretation (see section 15AB of the Acts Interpretation Act 1901).

2.286 In light of the information provided and the fact that a decision to make or vary the rules is subject to merits review, the committee makes no further comment on this matter.

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[111] See correspondence relating to Scrutiny Digest No. 15 of 2017 available at: www.aph.gov.au/senate_scrutiny_digest

[112] Schedule 1, item 2, proposed subsection 38C(7). The committee draws Senators’ attention to this provision pursuant to principle 1(a)(iv) and (v) of the committee’s terms of reference.

[113] Joint Standing Committee on Delegated Legislation, Parliament of Western Australia, Access to Australian Standards Adopted in Delegated Legislation, June 2016.

[114] Schedule 1, item 2, proposed subsections 38F(4) and (5). The committee draws Senators’ attention to these provisions pursuant to principle 1(a)(iv) of the committee’s terms of reference.