Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019 - Commentary on Ministerial Responses [2019] AUSStaCSBSD 122 (16 October 2019)

• Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019
• Significant matters in delegated legislation 42

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Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019

Purpose	This bill seeks to amend Corporations Act 2001 to remove grandfathering arrangements for conflicted remuneration and other banned remuneration from 1 January 2021
Portfolio	Treasury
Introduced	House of Representatives on 1 August 2019
Bill status	Passed both Houses on 14 October 2019

Significant matters in delegated legislation ^[42]

2.122 In Scrutiny Digest 5 of 2019 the committee requested the Treasurer's advice as to:

• why it is considered necessary and appropriate to leave the scheme for the rebate of conflicted remuneration to regulations; and

• whether specific consultation obligations (beyond those in section 17 of the Legislation Act 2003 (Legislation Act)) can be included in the legislation (with compliance with such obligations a condition of the validity of the regulations).^[43]

Treasurer's response^[44]

2.123 The Treasurer advised:

Issue 1: Use of Regulations
The regulation-making power, which provides the rules around how grandfathered benefits are to be passed through to retail clients is justified in recognition of the need to account for the variety of financial products and arrangements in relation to which rebates may need to be paid, and the variety of potential recipients of those rebates. It is designed to ensure the application of primary legislation remains flexible to adapt to market developments and applies in a way consistent with the intended policy and the enabling provisions in the Bill, specifically, to ensure that the benefits of ending grandfathered conflicted remuneration go to customers. Specifying these requirements in regulations is the most appropriate approach as it provides the flexibility to make more detailed rules on how benefits must be passed through and to respond to changing industry circumstances in a timely manner.
While the rebating scheme must be sufficiently adaptable to cover the wide variety of situations in which conflicted remuneration may be provided, it will only be applicable to a limited class of persons. The rebating scheme would only apply to those covered persons, within the meaning of proposed section 963M of the Corporations Act 2001 (the Act) where the person would be legally obliged (disregarding the ban on conflicted remuneration in Subdivision C of Division 4 of Part 7.7A of the Act) to give conflicted remuneration to another person, on or after 1 January 2021.
That is, the obligations to make payments in accordance with the regulations would only apply to those covered persons who still had obligations to pay conflicted remuneration as at 1 January 2021 under an arrangement that had been in place prior to the application date of Division 4 of Part 7.7A of the Act (generally 1 July 2013).
Given the limited class of persons who would be required to pay rebates in accordance with the regulations, it is appropriate that these matters are dealt with in subordinate laws, rather than in the primary law. If matters in relation to rebating were to be inserted into the Act, they would insert, into an already complex statutory framework, a set of specific provisions that would apply only to a relatively small group of persons. This would result in additional cost and unnecessary complexity for other users of the Act.
Issue 2: Specific consultation obligations included in the legislation
The Committee's concerns about the lack of a specific consultation requirement before making regulations for the purposes of proposed section 963N of the Act are noted. Consistent with standard practice, consultation is expected to occur before making regulations for the purposes of this proposed section, especially where this would impact businesses and consumers, as required under section 17 of the Legislation Act 2003. In addition, if the Government were to proceed with regulations that were subject to less than four weeks public consultation, the Government is obligated under the Corporations Agreement 2002 to provide a statement of reasons for the shorter consultation period to States and Territories.
In this case, on 28 March 2019, the Government released exposure draft regulations proposed to be made pursuant to proposed section 963N of the Act for four weeks of public consultation. The Government received feedback from consumer groups, industry and the Australian Securities and Investments Commission. Since then, Treasury has undertaken further targeted consultation on the draft regulations.
Given the already existing standard legislative consultation requirements and the other existing safeguards, making the validity of regulations made for the purposes of section 963N of the Act contingent on further legislated consultation obligations appears unnecessary and inconsistent with other regulation making powers within the Act.

Committee comment

2.124 The committee thanks the Treasurer for this response. In relation to the proposal to leave significant elements of the scheme for the rebate of conflicted remuneration to regulations, the committee notes the Treasurer's advice that this approach is justified by the need to account for the variety of financial products and arrangements in relation to which rebates may need to be paid, and by the variety of potential recipients of those rebates. The committee also notes the advice that this approach is designed to ensure that primary legislation remains flexible to adapt to market developments, provides the flexibility to respond to changing industry circumstances, and applies in a way consistent with the policy objectives of the bill—specifically, to ensure the benefits of ending grandfathered conflicted remuneration are passed on to customers.

2.125 The committee further notes the Treasurer's advice that the rebate scheme will only apply to a limited class of persons, and the advice that enacting the scheme by in the primary Act would result in additional costs and unnecessary complexity for other users of the primary legislation.

2.126 As to the inclusion of specific consultation obligations in the bill, the committee notes the Treasurer's advice that consultation is expected to occur before the regulations are made, in accordance with the requirements of the Legislation Act. The committee also notes the advice regarding the consultation that has occurred in relation to draft regulations proposed to be made for the purposes of the scheme. The committee further notes the Treasurer's view that, in light of the requirements in the Legislation Act and other existing safeguards, making the validity of the regulations contingent on additional consultation obligations is unnecessary, and would be inconsistent with other regulation-making powers in the Act.

2.127 The committee acknowledges that consultation is expected to occur before regulations are made for the purposes of proposed section 963N, and that this is supported by the consultation that has already occurred on the draft regulations. Nevertheless, the committee remains concerned that the bill does not contain any positive requirement that consultation take place before the regulations are made.

2.128 The committee notes that it would have been useful had the key information provided by the Treasurer been included in the explanatory memorandum, noting the importance of that document as a point of access to understanding the law and, if necessary, as extrinsic material to assist with interpretation (see section 15AB of the Acts Interpretation Act 1901).

2.129 In light of the fact that this bill has already passed both Houses of Parliament the committee makes no further comment on this matter.

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[42] Schedule 1, item 9, section 963N. The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(iv).

[43] Senate Scrutiny of Bills Committee, Scrutiny Digest 5 of 2019, pp. 26-27.

[44] The minister responded to the committee's comments in a letter dated 27 September 2019. A copy of the letter is available on the committee's website: see correspondence relating to Scrutiny Digest 7 of 2019 available at: www.aph.gov.au/senate_scrutiny_digest