Financial Accountability Regime Bill 2022 [2022] AUSStaCSBSD 70 (28 September 2022)

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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 8 September 2022

Broad discretionary powers
Significant matters in delegated legislation^[26]

1.25 The Financial Accountability Regime Bill 2021 (the 2021 bill) was introduced in the House of Representatives on 28 October 2021 and lapsed at the dissolution of the previous Parliament. The Financial Accountability Regime Bill 2022 (the 2022 bill) has now been introduced in identical form in the House of Representatives. The committee raised scrutiny concerns in relation to the earlier bill in Scrutiny Digest 17 of 2021 and Scrutiny Digest 2 of 2022.^[27]

1.26 Chapter 2 of the bill sets out the obligations that will apply to accountable persons^[28] and accountable entities^[29] under the new Financial Accountability Regime. Broadly speaking, the obligations imposed by Chapter 2 relate to the following areas:

1.27 Clause 16 of the bill allows exemptions to be granted in relation to any of the obligations set out in Chapter 2. Subclause 16(1) provides that the minister may, by written notice, exempt an individual accountable entity from their Chapter 2 obligations, while subclause 16(2) provides that the minister may exempt a class of accountable entities by legislative instrument.

1.28 There is very little guidance, either within the bill or the explanatory memorandum, setting out how this broad exemption power will be used. For example, the bill does not set out any relevant criteria or considerations that may, or must, be considered prior to granting an exemption. Further, the bill does not contain any limits on the exercise of the power. Clause 16 would therefore provide the minister with a broad power to provide an exemption to an accountable entity.

1.29 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. In addition, the committee's view is that significant matters should be included in primary legislation unless a sound justification for the use of delegated legislation is provided. Broad powers allowing exemptions to be granted to significant regulatory requirements are one such matter.

1.30 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 appear to justify the broad discretionary power or the use of delegated legislation and, as noted above, no guidance is included on the face of the bill as to the exercise of the power.

1.31 In response to the committee's concerns in relation to the 2021 bill, the then Treasurer advised that providing the minister with a broad power to provide exemptions to the Financial Accountability Regime was required to ensure the regime applies appropriately to regulated industries and to avoid any potential unintended consequences from the application of the regime. The former Treasurer advised that there may be instances where the regime could pose a barrier to entry for some small new entrants into the market and that a broad exemptions power may therefore be needed to facilitate competition in the market. Finally, the then Treasurer advised that it was preferable to provide a broad exemption power due to the diversity of industries regulated by the Financial Accountability Regime, and the complexity and unforeseen nature of the issues the exemption power is seeking to address.^[34]

1.32 It is unclear to the committee why this advice has not been included in the explanatory memorandum for the 2022 bill and whether it still applies to the broad exemption power set out in clause 16. In any case, the committee considers that while the former Treasurer's advice explains why exemptions are needed, it does not provide an adequate justification for including exemptions within delegated legislation and non-legislative instruments with very little guidance on the face of the bill as to the exercise of the exemption power.

1.33 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 could undermine the Financial Accountability Regime as enshrined in primary legislation passed by the Parliament.

1.34 At a minimum, the committee considers that it would be beneficial if the bill included an inclusive list of criteria specifying circumstances in which an exemption may be granted and general guidance in relation to the conditions which may apply to an exemption.^[35] For example, the bill could provide that an exemption is no longer in force if the circumstances under which it was originally granted no longer exist.

1.35 In addition, the committee considers that instruments made under subclause 16(2) should be time-limited to ensure an appropriate level of parliamentary oversight. In this regard, the committee notes that the Senate Standing Committee for the Scrutiny of Delegated Legislation has routinely expressed concerns when instruments granting exemptions to requirements in primary legislation are not time‑limited in this way. It considers that in such cases either the instrument, or the exemptions themselves, should sunset after a period of three years to facilitate appropriate parliamentary oversight.^[36] This committee shares these concerns and further notes that recent government amendments made to the Aged Care Amendment (Implementing Care Reform) Bill 2022 amended a previously broad exemption power to instead provide that exemptions lapse after a period of 12 months.^[37]

1.36 In light of the above, the committee requests the minister's detailed advice as to:

• whether the bill can be amended to include at least high-level guidance on the face of the primary legislation as to the circumstances in which an exemption may be granted and general guidance in relation to the conditions which may apply to an exemption.

Tabling of documents in Parliament
Significant matters in delegated legislation^[38]

1.37 Division 1 of Part 2 of Chapter 3 of the bill deals with administrative arrangements. Clause 37 of the bill provides that the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) must enter into an arrangement relating to the administration of the bill within six months of commencement. Subclause 37(2) provides that the arrangement must include provisions relating to the matters specified in the Minister rules, a disallowable legislative instrument. 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.^[39]

1.38 The bill does not require arrangements entered into under clause 37 to 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.

1.39 In addition, the committee considers that significant matters should be included in primary legislation unless a sound justification for the use of delegated legislation is provided. Arrangements for the administration of an Act of Parliament are one such matter. The committee therefore expects the explanatory memorandum to the bill to justify leaving details relating to provisions that must be included within a clause 37 arrangement to delegated legislation.

1.41 It is not clear to the committee from this explanation why a clause 37 arrangement is not required to be tabled in Parliament and why it is necessary and appropriate to leave details relating to provisions that must be included within such an arrangement to Minister rules.

1.42 In response to the committee's concerns in relation to the 2021 bill, the then Treasurer advised that requiring the Minister rules to set out matters relating to the administration of the bill provided certainty and visibility of regulatory approach. The former Treasurer also advised that the use of delegated legislation provided the necessary flexibility needed to ensure administration of the Financial Accountability Regime was efficient and fit for purpose, and to ensure that the regulators could adapt their enforcement approach to different industries over time. Finally, the former Treasurer disagreed that a clause 37 arrangement should be tabled in Parliament given that the arrangement was required to be published on both APRA's and ASIC's websites.^[41]

1.43 In response, the committee noted that administrative flexibility was not a sufficient justification for leaving significant matters to delegated legislation and reiterated that tabling documents in Parliament provides opportunities for debate that are not available where documents are only published online.

1.44 In light of the above, the committee requests the minister's advice as to:

Reversal of the evidential burden of proof^[42]

1.45 The bill seeks to establish several defences which reverse the evidential burden of proof. These defences are set out in subclauses 68(3) and 72(2) of the bill. The committee previously commented on subclauses 68(3) and 72(2) in its Scrutiny Digest 17 of 2021 and Scrutiny Digest 2 of 2022.^[43]

1.46 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.

1.47 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.

1.48 The defendant bears an evidential burden of proof in relation to the defences listed above.

1.49 At common law, it is ordinarily the duty of the prosecution to prove all elements of an offence.^[44] 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.

1.50 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.^[45]

1.51 In Scrutiny Digest 2 of 2022, the committee noted the then Treasurer's advice that reversing the evidential burden of proof in relation to subclause 68(3) is justified as the relevant information would be within the knowledge and control of the defendant. The then Treasurer advised that both the prosecution and the defendant could be expected to have ready access to information and records to establish the exceptions for publicly available information or disclosure authorised by a law or instrument of the Financial Accountability Regime. The former Treasurer also advised that it would be peculiarly within the defendant’s knowledge and control, and could be difficult or costly for the prosecution to establish, whether the disclosure was for the purpose of seeking legal advice, or whether the disclosure was to another person for the purpose of one of the exceptions.

1.52 As mentioned in the former Treasurer's advice, the relevant test is 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.^[46] In this instance, it does not appear that several of the matters relevant to a subclause 68(3) defence would be peculiarly within the knowledge of the defendant.

1.53 In particular, it appears that whether information had already been made lawfully available to the public,^[47] whether the Regulator had allowed the disclosure,^[48] or whether the disclosure was in accordance with a provision of the Australian Prudential Regulation Authority Act 1998^[49] or the Australian Securities and Investments Commission Act 2001^[50] would be matters that are readily ascertainable by the prosecution.

1.54 In relation to the defence set out at subclause 72(2), the explanatory memorandum states:

1.55 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 is 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.^[52] 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.

1.56 The committee considers that the content of any exception, exemption, excuse, qualification or justification to a criminal offence should be included within primary legislation unless a sound justification for the use of delegated legislation is provided.

1.57 In this instance, the explanatory memorandum to the bill does not provide a justification for the use of delegated legislation or for reversing the evidential burden of proof in relation to the matters set out in clause 74. Indeed, the explanatory memorandum does not appear to discuss clause 74, even to re-state the operation of the provision.

1.58 The committee considers it is not appropriate to reverse the evidential burden of proof in relation to matters that are not peculiarly within the knowledge of the defendant. The committee therefore requests the Treasurer's advice as to whether proposed clauses 68 and 72 can be amended to include the matters set out in subsections 68(3) and 72(2) as elements of the offence.

Incorporation of documents as in force from time to time^[53]

1.60 Subclause 31(5) of the bill provides that the Minister rules may provide for a matter by applying, adopting or incorporating any matter contained in any other instrument or writing as in force or existing from time to time. The committee raised scrutiny concerns in relation to this matter in Scrutiny Digest 17 of 2021 and Scrutiny Digest 2 of 2022.^[54]

1.61 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. 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. In addition to the implications for parliamentary scrutiny, such provisions can create uncertainty in the law and may mean that those obliged to obey the law 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.

1.62 As a matter of general principle, the committee considers that 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 stated within the explanatory memorandum or within the bill that the material will be freely available and how it may be accessed. The committee also expects the explanatory memorandum to the bill to explain why it is necessary and appropriate to incorporate documents as in force from time to time.

1.64 It is not clear from this explanation whether the incorporated materials will be freely and readily available. Nor is it clear why it is necessary to allow the rules to incorporate documents as in force or existing from time to time. The committee notes that this incorporation power may allow changes to be made to the circumstances in which an accountable entity can be said to have met the enhanced notification threshold without any involvement from Parliament.

1.65 In Scrutiny Digest 2 of 2022, the committee noted the advice of the then Treasurer that:

1.66 It is unclear to the committee why this advice has not been included in the explanatory memorandum for the 2022 bill and whether it still applies to the incorporation power set out in subclause 31(5). In addition, it is not clear from this advice whether all material incorporated into the law under subclause 31(5) will be free and available online.

1.67 Noting the above comments, the committee requests the minister's advice as to:

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

[35] See, for example, Part 2 of Chapter 2 of the Export Control Act 2020 which provides high-level guidance as to the circumstances in which an exemption may be granted alongside a general rulemaking power, including setting out high-level circumstances in which an exemption may be granted and a requirement that an application for a new exemption must be made where changes to the exemption are required.

[36] For example, in Delegated Legislation Monitor 5 of 2022 the Senate Standing Committee for the Scrutiny of Delegated Legislation requested that the Financial Sector Reform (Hayne Royal Commission Response) (Hawking of Financial Products) Regulations 2021 be amended to provide that the exemptions specified in that instrument cease to operate three years after they commence. For further information, see Senate Standing Committee for the Scrutiny of Delegated Legislation, Delegated Legislation Monitor 5 of 2022, 7 September 2022, pp. 50–53.

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

[42] Subclauses 68(3) and 72(2). The committee draws senators' attention to this provision pursuant to Senate Standing Order 24(1)(a)(i).

[43] Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest 17 of 2021, 24 November 2021, pp. 18–19; Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest 2 of 2022, 18 March 2022, pp. 72–74.

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

[54] Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest 17 of 2021, 24 November 2021, pp. 20–21; Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest 2 of 2022, 18 March 2022, pp. 76–78.

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