Financial Accountability Regime Bill 2021 [2021] AUSStaCSBSD 236 (24 November 2021)

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Purpose	This bill introduces a new accountability regime for the banking, insurance and superannuation industries. The new accountability regime will provide for a strengthened accountability framework for financial entities in the banking, insurance and superannuation industries, and for related purposes.
Portfolio	Treasury
Introduced	House of Representatives on 28 October 2021

Broad discretionary power
Significant matters in delegated legislation^[17]

1.36 Clause 16 of the bill provides exemptions powers in relation to the obligations under the Financial Accountability Regime set out in Chapter 2 of the bill. Subclause 16(1) provides that the minister may, by written notice, exempt an individual accountable entity from obligations under Chapter 2 while subclause 16(2) provides that the minister may exempt a class of accountable entities by legislative instrument.

1.37 The committee notes that clause 16 would provide the minister with a broad power to provide an exemption to an accountable entity. The committee notes that insufficiently defined administrative powers, such as those granted under clause 16, may be exercised arbitrarily or inconsistently and may impact on the predictability and guidance capacity of the law, undermining fundamental rule of law principles. The committee expects that the inclusion of broad discretionary powers should be justified in the explanatory memorandum and that guidance in relation to the exercise of the power should be included within the primary legislation. In this instance, the explanatory memorandum does not provide any explanation for the broad discretionary power and no guidance is included on the face of the bill.

1.38 From a scrutiny perspective, the committee is concerned that without guidance on the face of the bill as to how the exemption power may be exercised it would be possible for broad-ranging exemptions to be made by the minister which would undermine the Financial Accountability Regime enshrined in primary legislation passed by the Parliament.

1.39 In light of the above, the committee requests the Treasurer's advice as to:

Tabling of documents in Parliament

1.40 Division 1 of Part 2 of Chapter 3 of the bill deals with administrative arrangements. Clause 37 of the bill provides that APRA and ASIC must enter into an arrangement relating to the administration of the bill within 6 months of commencement. Subclause 37(2) provides that the arrangement must include provisions relating to the matters specified in the Minister rules. Once entered into, the arrangement must be published online. If no arrangement is entered into within 6 months of commencement, the Minister may determine an arrangement by notifiable instrument. A failure to comply with clause 37 does not invalidate the performance or exercise of a function or power by either APRA or ASIC.

1.41 The bill contains no requirement that an arrangement entered into under clause 37 be tabled in the Parliament. The committee's consistent scrutiny view is that tabling documents in Parliament is important to parliamentary scrutiny, as it alerts parliamentarians to the existence of documents and provides opportunities for debate that are not available where documents are not made public or are only published online. Tabling reports on the operation of regulatory schemes promotes transparency and accountability. As such, the committee expects there to be appropriate justification within the explanatory memorandum to the bill for failing to mandate tabling requirements.

1.42 In addition, the committee's view is that significant matters, such as the arrangements for the administration of an Act of Parliament, should be included in primary legislation unless a sound justification for the use of delegated legislation is provided.

1.44 It is not clear to the committee from this explanation why a clause 37 arrangement is not required to be tabled in Parliament, nor why it is necessary and appropriate to leave details relating to provisions that must be included within such an arrangement to Minister rules.

1.45 In light of the above, the committee requests the Treasurer's advice as to:

1.46 As noted above, Division 1 of Part 2 of Chapter 3 of the bill deals with administrative arrangements. Clause 36 of the bill provides that the Financial Accountability Regime will be administered by both APRA and ASIC. Clause 37 of the bill provides that APRA and ASIC must enter into an arrangement relating to administration within 6 months of commencement. Clause 38 of the bill provides that neither APRA nor ASIC may perform a function, or exercise a power, under the bill without the agreement of the other.

1.47 Subclause 36(2) provides that ASIC is only to perform functions and powers in relation to accountable entities that hold a financial services licence, significant related entities, or accountable persons. However, a failure to do so does not invalidate the performance or exercise of the function or power by ASIC. Similarly, subclause 37(5) provides that a failure to comply with requirements relating to entering into an administrative agreement does not invalidate the performance or exercise of a function or power by either APRA or ASIC. Finally, subclause 38(4) provides that a failure by either APRA or ASIC to receive agreement prior to performing or exercising a function or power does not invalidate the performance or exercise of the function or power.

1.48 A legislative provision that provides that an act done or decision made in breach of a particular statutory requirement or other administrative law norm does not result in the invalidity of that act or decision, may be described as a 'no-invalidity' clause. There are significant scrutiny concerns with no-invalidity clauses, as these clauses may limit the practical efficacy of judicial review to provide a remedy for legal errors. For example, as the conclusion that a decision is not invalid means that the decision-maker had the power (i.e. jurisdiction) to make it, review of the decision on the grounds of jurisdictional error is unlikely to be available. The result is that some of judicial review's standard remedies will not be available. Consequently, the committee expects a sound justification for the use of a no-invalidity clause to be provided in the explanatory memorandum to the bill. In this instance, the explanatory memorandum does not contain a justification for the inclusion of any of the no-invalidity clauses in Division 1 of Part 2 of Chapter 3 of the bill.

1.49 In light of the above, the committee requests the Treasurer's advice as to why it is considered necessary and appropriate to include no-invalidity clauses in subclauses 36(2), 37(5), and 38(4) of the bill.

Reversal of evidential burden of proof^[21]

1.50 The bill seeks to establish several defences which reverse the evidential burden of proof. Clause 68 of the bill makes it an offence for an accountable entity, significant related entity or accountable person to disclose information that reveals a direction was given by the Regulator to an accountable entity under either clause 64 or 65 of the bill in circumstances where the direction is also covered by a determination made under subclause 67(2). Subclause 68(3) provides an exception to this offence whereby the offence does not apply if the disclosure was authorised by clause 69, 70, 71, 72, 73, 74, or 75 of the bill or was required by the order or direction of a court or tribunal.

1.51 Similarly, subsection 56(2) of the Australian Prudential Regulation Authority Act 1998 currently provides that it is an offence if a person discloses protected information or produces a protected document within the meaning of that Act. Subclause 72(2) seeks to provide that it is a defence to this offence if the disclosure was authorised by clause 69, 70, 71, 73, 74, or 75 of the bill.

1.52 The defendant bears an evidential burden of proof in relation to both of the defences listed above. 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, interfere with this common law right.

1.53 While in this instance 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. There is no explanation within the explanatory materials for reversing the evidential burden of proof in relation to the exception set out in subclause 68(3), with the explanatory memorandum merely re-stating the operation of the provision.^[22] In relation to the defence set out at subclause 72(2), the explanatory memorandum states:

1.54 It is not clear to the committee from this explanation why the information would be peculiarly within the knowledge and control of the defendant, noting that elements of the defence seem to relate to matters of public fact or to questions of law. For example, it would appear that whether information had already been made lawfully available to the public,^[24] whether the Regulator had allowed the disclosure,^[25] or whether the disclosure was in accordance with a provision of the Australian Prudential Regulation Authority Act 1998,^[26] or the Australian Securities and Investments Commission Act 2001,^[27] would all be matters that are readily ascertainable by the prosecution. In addition, it is not clear to the committee why the exception provided by clause 74, that the disclosure is made in circumstances prescribed by the Minister rules, can be said to be peculiarly in the knowledge of the defendant when there is no indication or guidance within the bill as to the circumstances that may be prescribed within the rules. The committee notes that the explanatory memorandum to the bill does not discuss clause 74, even to re-state the operation of the provision. It is also unclear to the committee how the fact that an order or direction has or has not been given by a court or tribunal could be said to be a matter that is peculiarly within the knowledge of the defendant.^[28]

1.55 As the explanatory materials do not address this issue, the committee requests the Treasurer's advice as to why it is proposed to use offence‑specific defences (which reverse the evidential burden of proof) in this instance. The committee's consideration of the appropriateness of a provision which reverses the burden of proof is assisted if it explicitly addresses relevant principles as set out in the Guide to Framing Commonwealth Offences.^[29]

Immunity from liability^[30]

1.56 Clause 101 of the bill provides that a person is not subject to any liability to any person in respect of the exercise or performance, in good faith, of powers, functions or duties under the bill. Similarly, clause 102 of the bill provides that a criminal or civil action, suit or proceeding does not lie against a person in relation to things done, or omitted to be done, by that person if they are complying with a direction given by the Regulator, it is reasonable for them to do the thing, and the person is an accountable entity or a member of the accountable entity's relevant group or an employee, agent, officer or senior manager of an accountable entity or relevant group.

1.57 In addition, item 12 of Schedule 1 to the Financial Sector Reform (Hayne Royal Commission Response No. 3) Bill 2021 seeks to insert proposed subsection 58(4) into the Australian Prudential Regulation Authority Act 1998 to provide that the protection from liability afforded by clauses 101 and 102 does not affect the operation of section 58 of that Act which currently applies an equivalent protection to APRA, APRA members, APRA staff members and their agents.

1.58 The immunities provided for under both clause 101 and 102 of the bill would remove any common law right to bring an action to enforce legal rights (for example, a claim of defamation), unless it can be demonstrated that lack of good faith is shown. The committee notes that in the context of judicial review, bad faith is said to imply a lack of an honest or genuine attempt to undertake the task and that it will involve personal attack on the honesty of the decision-maker. As such, the courts have taken the position that bad faith can only be shown in very limited circumstances.

1.59 The committee expects that if a bill seeks to provide immunity from civil or criminal liability, particularly where such immunity could affect individual rights, this should be soundly justified. In this instance, the explanatory memorandum provides no explanation for these provisions, merely restating the terms of the provisions.^[31] The committee's concerns are heightened in relation to clause 102 as immunity is provided for in relation to criminal as well as civil proceedings.

1.60 In light of the above, the committee requests the Treasurer's advice as to why it is considered necessary and appropriate to confer immunity from civil and criminal liability on persons under clauses 101 and 102 of the bill.

Incorporation of external materials existing from time to time^[32]

1.61 Subclause 31(5) provides that the Minister rules that prescribe the circumstances in which an accountable entity meets the enhanced notification threshold may incorporate, by reference, any matter published on a website maintained by the Regulator as in force or existing from time to time.

1.62 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:

1.63 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. While in this case incorporated material must be published on a website maintained by the Regulator there is nothing on the face of the bill to require that this material is freely and readily available.

1.65 It is not clear to the committee from this explanation whether the incorporated materials will be freely and readily available, nor why it is necessary to allow the rules to incorporate documents as in force or existing from time to time which may change the circumstances when an accountable entity meets the enhanced notification threshold without any involvement from Parliament.

1.66 In light of the above, the committee requests the Treasurer's further advice as to why it is considered necessary and appropriate to incorporate documents as in force or existing from time to time, noting that such an approach may mean that future changes to an incorporated document could operate to change the circumstances when an accountable entity meets the enhanced notification threshold without any involvement from Parliament.

[17] Clause 16. The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(ii) and (iv).

[18] Clause 37. The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(iv) and (v).

[20] Subclauses 36(2), 37(5), and 38(4). The committee draws senators’ attention to these provisions pursuant to Senate Standing Order 24(1)(a)(iii).

[21] Subclauses 68(3) and 72(2). The committee draws senators’ attention to these provisions pursuant to Senate Standing Order 24(1)(a)(i).

[29] Attorney-General's Department, A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers, September 2011, pp. 50-52.

[30] Clauses 101 and 102. The committee draws senators’ attention to these provisions pursuant to Senate Standing Order 24(1)(a)(i).

[32] Subclause 31(5). The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(v).

Australian Senate Standing Committee for the Scrutiny of Bills - Scrutiny Digests