Treasury Laws Amendment (Financial Sector Regulation) Bill 2018 [2018] AUSStaCSBSD 186 (15 August 2018)

• Treasury Laws Amendment (Financial Sector Regulation) Bill 2018
• Significant matters in delegated legislation
• Consultation prior to making delegated legislation 88

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Treasury Laws Amendment (Financial Sector Regulation) Bill 2018

Purpose	This bill seeks to amend Financial Sector (Shareholdings) Act 1998 and the Banking Act 1959 to: • increase from 15 per cent to 20 per cent the ownership restriction applying to life insurance and general insurance companies, authorised deposit-taking institutions and relevant holding companies; • create a streamlined path for owners of qualifying domestically incorporated companies with assets less than the relevant threshold applying to become a financial sector company; and • enable the Australian Prudential Regulation Authority to grant a new entrant to the banking sector a time limited ADI licence
Portfolio	Treasury
Introduced	House of Representatives on 28 June 2018

Significant matters in delegated legislation
Consultation prior to making delegated legislation ^[88]

1.98 Item 12 of Schedule 1 seeks to insert a new subsection 14(1) in the Financial Sector (Shareholdings) Act 1998 (the Act) which would allow the Treasurer to grant an application for a person to hold a stake in a financial sector company greater than 20 per cent if the applicant satisfies the Treasurer this would be in the national interest or that criteria set out under proposed subsection 14A(1) are met in relation to the applicant and the company. The relevant criteria are that the applicant is a fit and proper person to hold a stake in the company greater than 20 per cent and that the company meets the criteria set out under proposed subsection 14A(3) or (4). Proposed subsection 14A(2) states that the rules may prescribe matters that must be considered in determining whether a person is a fit and proper person for the purposes of granting or revoking an approval to hold a stake greater than 20 per cent.^[89] No guidance as to who will be considered a fit and proper person is provided in the primary legislation.

1.99 The committee's view is that significant matters, such as the matters to be considered under a fit and proper person test, should be included in primary legislation unless a sound justification for the use of delegated legislation is provided. In this instance, the explanatory memorandum contains no justification for leaving all of the content of the fit and proper person test to be prescribed in the rules, rather than set out in primary legislation.

1.100 In addition, where the Parliament delegates its legislative power in relation to significant regulatory schemes the committee considers that 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.

1.101 In this instance, the explanatory memorandum states that the government expects that the Australian Prudential Regulatory Authority (APRA) will consult with industry prior to finalising a legislative instrument relating to the fit and proper person test.^[90] The explanatory memorandum also notes that ministerial consent would be required prior to APRA making any legislative instruments under the Act, in accordance with the general rule-making powers proposed under item 45.^[91]

1.102 While the committee notes that the government expects APRA to undertake consultation with industry prior to making a legislative instrument with respect to the fit and proper person test, the bill does not contain a positive requirement that such consultation must take place. The committee also does not consider that the requirement that the minister's consent be gained prior to a rule being made amounts to an adequate consultation obligation as it does not require consultation with those who are likely to be affected by the test.

1.103 Finally, the committee also notes that the fit and proper person test is to be included in 'rules' rather than in 'regulations'. The issue of the appropriateness of providing for significant matters in legislative rules (as distinct from regulations) is discussed in the committee's First Report of 2015.^[92] In relation to this matter, the committee has noted that regulations are subject to a higher level of executive scrutiny than other instruments as regulations must be approved by the Federal Executive Council and must also be drafted by the Office of Parliamentary Counsel (OPC). Therefore, if significant matters are to be provided for in delegated legislation (rather than primary legislation) the committee considers they should at least be provided for in regulations, rather than other forms of delegated legislation which are subject to a lower level of executive scrutiny.^[93]

1.104 The committee seeks the Treasurer's advice as to:

• why it is considered necessary and appropriate to leave all of the content of the fit and proper person test to be prescribed in delegated legislation; and

• whether specific consultation obligations (beyond those in section 17 of the Legislation Act 2003) can be included in the legislation (with compliance with such obligations a condition of the validity of the legislative instrument).

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[88] Schedule 1, item 16, proposed subsection 14A(2). The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(iv).

[89] See item 27 in relation to decisions to revoke an approval.

[90] Explanatory memorandum, p. 9.

[91] Explanatory memorandum, p. 9.

[92] Senate Standing Committee for the Scrutiny of Bills, First Report of 2015, 11 February 2015, pp. 21-35.

[93] See also Senate Standing Committee on Regulations and Ordinances, Delegated Legislation Monitor No. 17 of 2014, 3 December 2014, pp. 6–24.