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Treasury Laws Amendment (2016 Measures No 1) Bill 2016 [2017] AUSStaCSBSD 22 (8 February 2017)

Treasury Laws Amendment (2016 Measures No. 1) Bill 2016

Significant penalties in delegated legislation ^[60]

1.90 Proposed section 981J will allow ASIC to make rules (delegated legislation) in relation to the reporting and reconciliation of derivative retail client money by financial services licensees. The explanatory memorandum provides the following justification for this delegation of legislative power:

It is appropriate for the detail of the client money reporting requirements to be determined by ASIC in client money reporting rules, given the complexity involved in prescribing specific reporting requirements and the need to ensure the rules keep pace with market developments. Developing and maintaining an appropriate regulatory framework for derivative client money requires close continuous monitoring of derivative markets and the ability to update the reporting requirements at short notice, which ASIC is best positioned to undertake.^[61]

1.91 The committee notes this explanation which emphasises the complexity and variability of derivative markets.

1.92 The committee also notes that contravention of the client money reporting rules may give rise to a civil penalty. Proposed subsection 981K(3) provides that the rules may include a civil penalty amount not exceeding $1 million. This represents a significant delegation of legislative power in that it allows rules (which are not subject to the same level of parliamentary scrutiny as primary legislation) to impose a very significant civil penalty. The committee's view is that significant matters, such as the imposition of penalties, should be included in primary legislation unless a sound justification for the use of delegated legislation is provided.

1.93 In this case, the explanatory memorandum notes that:

A maximum penalty of $1 million reflects that misuse of retail client money is a serious matter that can result in significant monetary losses for affected retail investors and undermine confidence in Australian financial markets...it is important that penalties for breaches of the law in this area are sufficiently severe to have a genuine deterrent effect.^[62]

1.94 The committee notes the explanation provided in the explanatory memorandum in relation to why rules can be made setting a maximum civil penalty of $1 million and the general explanation as to why the client money reporting rules are provided in delegation legislation. In light of this information, the committee leaves to the Senate as a whole the appropriateness of the proposed delegation of legislative power.

The committee draws Senators' attention to the provisions, as they may be considered to delegate legislative powers inappropriately, in breach of principle 1(a)(iv) of the committee's terms of reference.

Consultation prior to making delegated legislation^[63]

1.95 Proposed subsection 981L(1) provides that ASIC 'must not make a client money reporting rule [delegated legislation] unless ASIC has consulted the public about the proposed rule'. The explanatory memorandum notes that 'this ensures that stakeholders have the opportunity to review and comment on draft rules before they are made'.^[64] Proposed subsection 981L(2) does not limit the ways in which ASIC may comply with the consultation obligation, however it provides that ASIC is taken to comply with the obligation if ASIC makes the proposed rule available on its website and invites the public to comment on it.

1.96 Where the Parliament delegates its legislative power in relation to significant regulatory schemes the committee considers that it is appropriate that specific consultation obligations (beyond those in section 17 of the Legislation Act 2003) are included in the bill and that compliance with these obligations is a condition of the validity of the legislative instrument.

1.97 The committee therefore welcomes the inclusion of the consultation obligation in proposed subsections 981L(1)–(2). However, the committee notes that proposed subsection 981L(3) provides that a failure to comply with the consultation obligation does not invalidate the client money reporting rule. The importance of consultation in this instance is emphasised in the explanatory memorandum, which states that ASIC would be expected to consult the Office of the Australian Information Commissioner where proposed rules potentially involve the handling of personal information that could impact on the privacy of individuals.^[65]

1.98 The committee requests the Minister's advice as to why a 'no-invalidity' clause has been included in proposed section 981L of the bill so that a failure to appropriately consult prior to making a client money reporting rule will not invalidate the rule.

Pending the Minister's reply, the committee draws Senators' attention to the provision, as it may be considered to delegate legislative powers inappropriately, in breach of principle 1(a)(iv) of the committee's terms of reference.

[60] Schedule 5, items 14 and 21, proposed sections 981J–981K, 981M and subsection 1317E(1) of the Corporations Act 2001.

[61] Explanatory memorandum, pp 77–78.

[62] Explanatory memorandum, p. 81.

[63] Schedule 5, item 14, proposed  section 981L  of the Corporations Act 2001.

[64] Explanatory memorandum, p. 80.

[65] Explanatory memorandum, p. 80.