Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 - Commentary on Ministerial Responses [2024] AUSStaCSBSD 160 (14 August 2024)

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Purpose	The bill seeks to amend the Corporations Act 2001 and other Acts to implement recommendations by the Council of Financial Regulators in relation to Australia’s financial market infrastructure by: introducing a crisis management and resolution regime for domestic clearing and settlement (CS) facilities; expanding the licensing, supervisory and enforcement powers of the Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia (RBA); and transferring certain powers relating to the licensing and supervision of CS facilities and financial markets to ASIC and the RBA.
Portfolio	Treasury
Introduced	House of Representatives on 27 March 2024
Bill status	Before the Senate

Standing appropriation
Instruments not subject to parliamentary oversight^[166]

2.110 This bill seeks to amend the Corporations Act 2001 (Corporations Act) by inserting proposed section 846B, which appropriates the Consolidated Revenue Fund for the purposes of making a payment under an arrangement authorised under proposed section 846A, which is for the purposes of crisis resolution.^[167] The authorisation will be provided by legislative instrument^[168] and the total maximum amount specified in an authorisation must not exceed $5 billion.

2.111 In Scrutiny Digest 7 of 2024 the committee requested the Treasurer’s advice as to:

Treasurer’s response^[170]

2.112 The Treasurer advised this provision establishes a funding mechanism for the purposes of crisis resolution, which requires rapid movement, and that it would be rare for a situation to arise which would cause the special appropriation to be drawn down. The Treasurer also advised this power is intended to be used in extenuating circumstances and is the most effective way to maintain industry and market confidence in the resolution regime.

2.113 In relation to sunsetting, the Treasurer advised it would not be appropriate for the standing appropriation to sunset as sunsetting could contribute to market instability and affect confidence that critical services will continue. In relation to the exemption from disallowance, the Treasurer advised that this is appropriate as the authorisation would only be made in exceptional circumstances and will be tabled in Parliament, which provides appropriate transparency to Parliament.

2.114 Finally, the Treasurer advised that safeguards are applicable, including a condition denoting an imminent crisis must be satisfied before a legislative instrument authorising the expenditure can be made.

Committee comment

2.115 The committee thanks the Treasurer for this response and notes the Treasurer’s advice that an authorisation will only be made in extenuating circumstances. While the committee understands the need for maintaining market stability and ensuring confidence that critical services will continue, the committee reiterates that in June 2021, the Senate acknowledged these implications and resolved that delegated legislation should be subject to disallowance unless exceptional circumstances can be shown which would justify an exemption.^[171] In addition, the Senate resolved that any claim that circumstances justify such an exemption will be subject to rigorous scrutiny, with the expectation that the claim will only be justified in rare cases.

2.116 In this instance, it is not clear to the committee how subjecting proposed sections 846A and 846B to a sunset clause creates uncertainty. Sunsetting is vital in ensuring that provisions are regularly reviewed, remain fit for purpose and are subject to a level of parliamentary oversight when the relevant provisions are remade. Additionally, in this instance, since authorisations are only made in extenuating circumstances (rather than regularly), it is unclear to the committee how sunsetting would cause market instability or affect confidence, as the sunsetting mechanism allows the appropriation to be reviewed and remade (before it sunsets) if necessary and fit for the purpose of crisis resolution.

2.117 Further, the committee notes that the requirement to table a legislative instrument in Parliament does not replace the role disallowance plays in maintaining appropriate parliamentary oversight. Tabling is a separate process to disallowance and disallowance is the key means by which Parliament is able to maintain control of the legislative power it has delegated to the executive.

2.118 The committee understands that a standing appropriation is the most effective means of ensuring confidence in this instance and that this power will be used in exceptional circumstances, but remains concerned that there will be no measures to ensure parliamentary oversight of the expenditure of funds under the standing appropriation, such as by subjecting the appropriations to a sunset clause or by subjecting the legislative instruments setting out the authorisations to disallowance.

2.119 In relation to the inclusion of a standing appropriation, the committee makes no further comment. The committee draws to the attention of senators and leaves to the Senate as a whole the appropriateness of:

Exemption from primary legislation akin to a Henry VIII clause^[172]

2.120 The bill seeks to amend existing sections 791C and 820C of the Corporations Act to broaden the Australian Securities and Investment Commission’s (ASIC) existing power to grant exemptions from all or specified provisions of Parts 7.2 and 7.3 of the Corporations Act. The amendment would allow ASIC to grant exemptions from Parts 7.2 and 7.3 to specified persons, clearing and settlement (CS) facilities or financial markets, or to a class thereof. Where an exemption is granted to a specified person, CS facility or financial market, the exemption is not a legislative instrument.^[173] Where the exemption is granted to a class of persons, CS facilities or financial markets, the exemption is a legislative instrument that is subject to disallowance.^[174]

2.121 In Scrutiny Digest 7 of 2024 the committee requested the Treasurer’s advice as to:

Treasurer’s response^[176]

2.122 The Treasurer advised that financial markets have a diversity of participants and the law may capture entities where regulation through parts 7.2 and 7.3 would not be appropriate or effective. The Treasurer also advised that ASIC, as the regulator, has the appropriate knowledge and information to determine whether it is appropriate for an entity to be regulated under Parts 7.2 or 7.3 and that it would be impractical to amend primary legislation to provide details of an exemption from specified obligations each time a situation arises where an exemption would be appropriate.

2.123 The Treasurer advised that it is also necessary and appropriate for ASIC to grant these exemptions on an ongoing basis where appropriate as time-limiting the delegated powers more generally would unduly constrain the regulatory framework and would introduce an inappropriate level of uncertainty.

Committee comment

2.125 Noting that ASIC is the relevant industry expert and regulator, and that it would be appropriate for ASIC to determine which entities are exempt from the operation of Parts 7.2 and 7.3 of the Corporations Act 2001 and for what periods, the committee makes no further comment on this matter.

2.126 The committee requests that an addendum to the explanatory memorandum containing the key information provided by the minister be tabled in the Parliament as soon as practicable, noting the importance of these explanatory materials as a point of access to understanding the law and, if needed, as extrinsic material to assist with interpretation (see section 15AB of the Acts Interpretation Act 1901).

Limitation of judicial review^[177]

2.127 This bill seeks to introduce proposed section 826M, which imposes a requirement on ASIC to consult with various affected parties prior to making the Clearing and Settlement Facility Rules (CS facility rules). Proposed paragraph 826M(1)(a) clarifies that requirement extends to consultation with the public. However, under proposed subsection 826M(3), a failure to consult as required by proposed subsection 826M(1) does not invalidate a CS facility rule. A legislative provision that indicates 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.

2.128 In Scrutiny Digest 7 of 2024 the committee requested the Treasurer’s advice as to:

Treasurer’s response^[179]

2.129 The Treasurer advised that requirement for ASIC to consult is to provide the opportunity for affected parties to comment on the CS facility rules. As a policy goal of the regime is to provide a stable and certain regulatory environment for CS facilities, the Treasurer advised that ensuring the rules are not invalidated by a failure to meet procedural requirements will not put in question the effective operation of the rules. The Treasurer also advised this is consistent with similar schemes in the Corporations Act.

Committee comment

2.131 The committee notes the need for the CS facility rules to operate effectively and the need for the regime to provide a stable and certain regulatory environment for CS facilities. However, the committee reiterates its concerns that affected persons seeking judicial review are unable to seek any effective remedy as the rules cannot be invalidated by a failure to comply with the requirement to consult under proposed paragraph 826M(1)(a).

2.132 The committee draws this matter to the attention of senators and leaves to the Senate as a whole the appropriateness of the limitation on judicial review.

Significant penalties
Significant matters in delegated legislation^[180]

2.133 A number of provisions in Schedules 2 and 4 of the bill seek to impose significant penalties for a number of offences, including maximum penalties of periods of imprisonment up to 5 years. Item 65 of Schedule 2 to the bill also seeks to introduce proposed section 826L to the Corporations Act which allows for the regulations to provide for alternatives to civil proceedings for a contravention of the Clearing and Settlement Facility Rules (CS Facility Rules), including civil penalties that are payable to the Commonwealth that may be up to 3000 penalty units for an individual and 15,000 penalty units for a body corporate.

2.134 In Scrutiny Digest 7 of 2024 the committee requested the Treasurer’s advice as to:

Treasurer’s response^[182]

2.135 The Treasurer advised in relation to proposed section 826L that the offences are equivalent to similar offences under the Corporations Act and that specifying these penalties in delegated legislation is justified on the basis that changes may need to be made with respect to rapidly changing market dynamics. The Treasurer also advised that as these offences are of a corporate and financial nature, it is appropriate for them to exceed 20 per cent of the maximum financial penalty applicable to the offence (which is the maximum suggested penalty amount for an infringement notice under the Guide to Framing Commonwealth Offences) in order to act as a sufficient deterrent. The Treasurer also advised that doing so would provide an efficient mechanism to avoid a breach going to court and ensuring payments of penalties do not simply become a cost of doing business.

2.136 Finally, the Treasurer advised that allowing ASIC to specify the penalty up to the maximum is appropriate as ASIC has the ability to make the relevant rules and could determine penalties below the maximum penalties set in the primary legislation for lower-level breaches, where appropriate.

Committee comment

2.138 The committee notes that a justification has not been provided in relation to the significant custodial penalties for various criminal offences under Schedules 2 and 4 of the bill, but rather only in relation to the civil penalties applicable as an alternative to civil proceedings under proposed section 826L of the bill. As such, it is not clear to the committee whether these offences are broadly consistent with penalties for existing offences that are of a similar seriousness.

2.139 Noting that the bill provides limits on the civil penalties that may be imposed by the regulations applicable under proposed section 826L, and that these penalties are likely to largely affect entities, the committee understands the need for significant penalties that act as a deterrent so that penalties are not treated as a cost of doing business. The committee also notes the need for delegated legislation in this context due to rapidly changing market dynamics.

2.140 Although the committee remains concerned that ASIC is enabled to specify penalties rather than the minister, the committee notes the advice that ASIC will assess the penalty amount applicable to the contravention in question (and in the context that Parliament has set a cap on the penalty that may be imposed).

2.141 Noting the existence of rapidly changing market dynamics, that these civil penalties are applicable to entities, and that there are limitations on these penalties under proposed section 826L of the bill, the committee makes no further comment on this matter.

2.142 The committee requests that an addendum to the explanatory memorandum containing the key information provided by the minister be tabled in the Parliament as soon as practicable, noting the importance of these explanatory materials as a point of access to understanding the law and, if needed, as extrinsic material to assist with interpretation (see section 15AB of the Acts Interpretation Act 1901).

2.143 Noting a justification has not been provided as to the appropriateness of the penalties under Schedules 2 and 4 of the bill, the committee draws to the attention of senators and leaves to the Senate as a whole the appropriateness of the penalties of imprisonment for the offences contained in these Schedules of the bill.

^[165] This entry can be cited as: Senate Standing Committee for the Scrutiny of Bills, Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024, Scrutiny Digest 9 of 2024; [2024] AUSStaCSBSD 160.

^[166] Schedule 1, item 14, proposed section 846B. The committee draws senators’ attention to this provision pursuant to Senate standing order 24(1)(a)(v).

^[170] The Treasurer responded to the committee’s comments in a letter dated 7 August 2024. A copy of the letter is available on the committee’s webpage (see correspondence relating to Scrutiny Digest 9 of 2024).

^[172] Schedule 2, items 53 and 57, proposed sections 791C and 820C. The committee draws senators’ attention to these provisions pursuant to Senate standing order 24(1)(a)(iv).

^[176] The Treasurer responded to the committee’s comments in a letter dated 7 August 2024. A copy of the letter is available on the committee’s webpage (see correspondence relating to Scrutiny Digest 9 of 2024).

^[177] Schedule 2, item 65, proposed subsection 826M(3). The committee draws senators’ attention to this provision pursuant to Senate standing order 24(1)(a)(iii).

^[179] The Treasurer responded to the committee’s comments in a letter dated 7 August 2024. A copy of the letter is available on the committee’s webpage (see correspondence relating to Scrutiny Digest 9 of 2024).

^[180] Schedules 1, 2 and 4. The committee draws senators’ attention to these Schedules pursuant to Senate standing order 24(1)(a)(i) and (iv).

^[182] The Treasurer responded to the committee’s comments in a letter dated 7 August 2024. A copy of the letter is available on the committee’s webpage (see correspondence relating to Scrutiny Digest 9 of 2024).

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