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Australian Senate Standing Committee for the Scrutiny of Bills - Scrutiny Digests |
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Purpose
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This bill seeks to implement a number of recommendations of the Financial
Services Royal Commission and additional commitments made
by the Government to
improve consumer protections and strengthen financial regulators
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Portfolio
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Treasury
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Introduced
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House of Representatives on 12 November 2020
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1.34 Item 2 of Schedule 5 seeks to repeal and substitute section 992A of the Corporations Act 2001. Proposed subsection 992A(1) provides that a person must not offer a financial product for issue or sale to a consumer, or request or invite the consumer to ask for, apply for, or purchase a financial product if the consumer is a retail client and the offer, request or invitation is unsolicited.
1.35 Proposed subsection 992A(2) provides that the offence in proposed subsection 992A(1) does not apply to an offer, request or invitation of a kind prescribed by the regulations.
1.36 The committee's view is that significant matters, such as exceptions to anti-hawking provisions, should be included in primary legislation, unless a sound justification for the use of delegated legislation is provided. In this regard, a legislative instrument made by the executive is not subject to the full range of parliamentary scrutiny inherent in bringing proposed changes in the form of an amending bill.
1.37 In this instance, the explanatory memorandum contains no justification regarding why it is necessary to allow exceptions to be set out in delegated legislation. However, the explanatory memorandum explains that 'a further exception is also expected to be introduced through the regulations to allow product issuers to contact customers about renewals of contracts that involve the creation of a new financial product, including the renewal of an expired contract'.[2]
1.38 It therefore appears that the government has already formulated, at least in general terms, a further exception from the anti-hawking provisions that it wishes to set out in regulations. In light of this, the committee considers that it would be appropriate for this exception to be set out on the face of the bill.
1.39 The committee therefore requests the Treasurer's detailed advice as to:
• why it is considered necessary and appropriate to leave exceptions to anti-hawking offences to delegated legislation, especially in light of the fact that it appears the government has already formulated one additional exception; and
• whether the bill can be amended to include this additional exception on the face of the primary legislation.
1.40 Item 5 of Schedule 6 seeks to insert proposed section 114 into the Insurance Act 1973. Proposed subsection 114(1) provides that a person commits an offence if:
• the person carries on or is proposing to carry on a business;[4]
• the person uses the word 'insurance' to expressly or impliedly describe a product or service the person supplies or proposes to supply while carrying out the business;[5]
• the product or service is not insurance;[6] and
• it is likely in all the circumstances that the product or service could be mistakenly believed to be insurance.[7]
1.41 Proposed subsection 114(2) provides for a similar offence in relation to the use of the term 'insurer', where the product or service offered is not insurance or would breach specified requirements in proposed subsection 114(3) of the bill. The offences in proposed subsections 114(1) and (2) carry maximum penalties of 50 penalty units for an individual and 500 penalty units for a corporation[8] and are strict liability offences.[9]
1.42 Proposed subsection 114(4) provide offence-specific defences to proposed subsections 114(1) and (2). This subsection provides that a person does not commit an offence if the person is a government entity or is covered by a determination made by legislative instrument by ASIC under proposed subsection 114(6). A product or service of a kind specified by the regulations, or that is State insurance within the meaning of paragraph 51(xiv) of the Constitution not extending beyond the limits of the State, are also exempt from the offences in proposed subsections 114(1) and (2).
1.43 In raising these offence-specific defences the defendant will bear the evidential burden of proof.[10] At common law, it is ordinarily the duty of the prosecution to prove all elements of an offence. This is an important aspect of the right to be presumed innocent until proven guilty. Provisions that reverse the burden of proof and require a defendant to disprove, or raise evidence to disprove, one or more elements of an offence, interferes with this common law right.
1.44 While in these instances the defendant bears an evidential burden (requiring the defendant to raise evidence about the matter), rather than a legal burden (requiring the defendant to positively prove the matter), the committee expects any such reversal of the evidential burden of proof to be justified.
1.45 The committee notes that the Guide to Framing Commonwealth Offences[11] provides that a matter should only be included in an offence-specific defence (as opposed to being specified as an element of the offence), where:
• it is peculiarly within the knowledge of the defendant; and
• it would be significantly more difficult and costly for the prosecution to disprove than for the defendant to establish the matter.[12]
1.46 In this regard the explanatory memorandum states:
A reversal of the evidential burden is justified where the matters are peculiarly within the knowledge of the defendant, and it would be significantly more difficult and costly for the prosecution to disprove than for the defendant to establish the matter.
The reversal of the evidential burden in this instance is limited to reliance on an exception.
In respect of coverage by a determination and a product or service being of a kind in the regulations, key information about a product or service a person provides and whether it is covered by a determination or the regulations, would reside with the person and would be peculiarly within the knowledge of the person.
While it is not expected that the prosecution would commence proceedings against a person covered by a determination or the regulations, it would not be burdensome for the person to produce information about the person’s organisation and the products or services they provide.
In contrast, obtaining information about an organisation’s ownership structure or its products or services, and whether they are covered by an exception, may require the prosecution to undertake difficult and costly investigative exercises to obtain evidence or review a large volume of information which would be readily accessible to the organisation itself. Overall, it would be significantly more difficult, costly and (often) redundant for the prosecution to have to disprove each of the matters in proposed section 114(4) of the Insurance Act 1973 than it would be for the defendant to provide or point to evidence that suggests a reasonable possibility that a matter exists.[13]
1.47 In light of the information provided in the explanatory memorandum, the committee draws its scrutiny concerns to the attention of Senators and leaves to the Senate as a whole the appropriateness of using offence-specific defences (which reverse the evidential burden of proof) in this instance.
1.48 Item 1 of Schedule 9 seeks to insert proposed section 5 into the Superannuation Industry (Supervision) Act 1993 (the Act) in relation to the functions, powers and duties of the Australian Prudential Regulation Authority (APRA) or the Australian Securities and Investments Commission (ASIC). Proposed subsection 5(9) provides that the minister may give ASIC or APRA directions about the performance or exercise of their functions or powers under the Act by legislative instrument.
1.49 The committee's view is that significant matters such as measures relating to the performance of APRA and ASIC powers and functions should be included in primary legislation, unless a sound justification for the use of delegated legislation is provided. In this instance, the explanatory memorandum states:
Currently, in section 6(3) of the SIS Act, the Minister may give APRA or ASIC directions about the performance or exercise of its functions or powers under the SIS Act. Schedule 9 amends this direction rule so that the Minister must use a legislative instrument to direct APRA or ASIC.
This change updates the existing requirement that the Minister publish such directions in the Gazette, and is consistent with other amendments in respect of directions to APRA under the APRA Act introduced through miscellaneous amendments in items 155 and 156 of Schedule 3 to the Treasury Laws Amendment (2019 Measures No. 3) Act 2020. Legislative instruments that are directions to agencies (as well as instruments relating to superannuation) are exempt from disallowance and do not sunset under the Legislation (Exemption and Other Matters) Regulation 2015.
1.50 The committee notes this explanation and welcomes that the directions are being included in legislative instruments which, from a scrutiny perspective, is an improvement from the directions being published in the Gazette. However, while the directions will now be subject to tabling in the Parliament, the committee is nonetheless concerned that the directions will be exempt from disallowance and sunsetting.
1.51 The committee expects that any exemption of delegated legislation from the usual disallowance process should be fully justified in the explanatory memorandum. The fact that a certain matter has previously been within executive control or continues current arrangements does not, of itself, provide an adequate justification.
1.52 In light of the above, the committee requests the Treasurer's detailed advice as to:
• why it is considered necessary and appropriate to leave directions about the performance or exercise of APRA or ASIC's powers or functions to delegated legislation which is exempt from disallowance and sunsetting; and
• whether the bill can be amended to:
• provide that these directions are subject to disallowance and sunsetting; and
• provide at least high-level guidance regarding what may be included in the directions on the face of the primary legislation.
1.53 Item 43 of Schedule 9 seeks to insert proposed section 766H into the Corporations Act 2001. Proposed subsection 766H(1) provides that a person provides a 'superannuation trustee service' if they operate a registrable superannuation entity as trustee. Proposed paragraph 766H(2)(b) provides that regulations made for the purposes of that paragraph may prescribe conduct of a kind that does not constitute the provision of a superannuation trustee service. Schedule 9 to the bill specifies that a person who provides a superannuation trustee service is providing a financial service for the purpose of the consumer protection provisions of the Australian Securities and Investment Commission Act 2001 (the ASIC Act).[16]
1.54 The committee's view is that significant matters, such as the conduct which is not considered to provide a superannuation trustee service and is therefore not covered by the consumer protection provisions of the ASIC Act, should be included in primary legislation unless a sound justification for the use of delegated legislation is provided. In this instance, the explanatory memorandum provides little justification as to why it is necessary to allow such significant matters to be set out in delegated legislation, except to explain the operation of the provision.
1.55 In this regard, the committee notes that a legislative instrument, made by the executive, is not subject to the full range of parliamentary scrutiny inherent in bringing proposed changes in the form of an amending bill.
1.56 In light of the above, the committee requests the Treasurer's detailed advice as to:
• why it is considered necessary and appropriate to leave the kinds of conduct which do not constitute the provision of a superannuation trustee service to delegated legislation; and
• whether the bill can be amended to include at least high-level guidance regarding this matter on the face of the primary legislation.
1.57 Item 5 of Schedule 11 seeks to insert proposed section 912DAD into the Corporations Act 2001. This provision specifies information that ASIC must publish each financial year in relation to self-reported breaches and likely breaches of core obligations of licensees under paragraphs 912D(1)(a) and (b). Proposed subsection 912DAD(2) provides that the information published by ASIC must include any information prescribed by the regulations, including personal information within the meaning of the Privacy Act 1988 in relation to a financial services licensee who is an individual.
1.58 In addition, proposed subsection 50D(2) provides for a similar power to publish personal information in relation to significant breaches and potential breaches of proposed paragraphs 50A(1)(a) and (b).
1.59 The committee's view is that significant matters, such as the type of personal information that may be published online by ASIC, should be in the primary legislation, unless a sound justification for the use of delegated legislation is provided. In this regard, the explanatory memorandum states:
The information published by ASIC must include any information prescribed by the regulations, which may include personal information under the Privacy Act 1988 about a credit licensee who is an individual. This regulation-making power may be exercised to allow ASIC to publish the names of credit licensees where the licence is held in the name of an individual, as this would constitute personal information under the Privacy Act 1988. This will allow ASIC to publish breach report data at the licensee-level consistently and ensures licensees who hold a licence in the name of an individual are not excluded from ASIC’s publication.[18]
1.60 The explanatory memorandum explains that the personal information in the breach report data ASIC must publish is limited to the name of an individual who holds a credit license in their name. While acknowledging this explanation, the committee notes that there is nothing on the face of the bill which would prevent further sensitive or personal information about persons being prescribed and then published by ASIC under this provision. As a result, the potential disclosure of personal information regarding such credit licensees will not be subject to the full range of parliamentary scrutiny inherent in bringing proposed changes in the form of an amending bill.
1.61 The committee therefore requests the Treasurer's advice as to:
• why it is considered necessary and appropriate to leave significant matters, such as what personal information can be published by ASIC online, to delegated legislation, noting the potential impact on a person’s privacy; and
• whether the bill can be amended to set out the information that can be published by ASIC online on the face of the primary legislation.
[1] Schedule 5, item 2, proposed subsections 992A(1) and (2). The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(iv).
[2] Explanatory memorandum, p. 107.
[3] Schedule 6, item 5, proposed section 114. The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(i).
[4] Proposed paragraph 114(1)(a).
[5] Proposed paragraph 114(1)(b).
[6] Proposed paragraph 114(1)(c).
[7] Proposed paragraph 114(1)(d).
[8] Proposed subsections 114(1) and (2).
[9] Proposed subsection 114(8).
[10] Subsection 13.3(3) of the Criminal Code Act 1995 provides that a defendant who wishes to rely on any exception, exemption, excuse, qualification or justification bears an evidential burden in relation to that matter.
[11] Attorney-General's Department, A Guide to Framing Commonwealth Offences, Infringement
Notices and Enforcement Powers, September 2011, pp 50-52.
[12] Attorney-General's Department, A Guide to Framing Commonwealth Offences, Infringement
Notices and Enforcement Powers, September 2011, p. 50.
[13] Explanatory memorandum pp. 127-8, paragraphs 6.32 – 6.36.
[14] Schedule 9, item 1, proposed subsection 5(9). The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(iv).
[15] Schedule 9, item 43, proposed subsection 766H(2). The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(iv).
[16] Explanatory memorandum, p. 189.
[17] Schedule 11, item 5, proposed subsection 912DAD(2) and item 15 proposed subsection 50D(2). The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(i) and (iv).
[18] Explanatory memorandum p. 258.
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