Home | Databases | WorldLII | Search | Feedback Australian Senate Standing Committee for the Scrutiny of Bills - Scrutiny Digests

You are here: 

Treasury Laws Amendment (2023 Measures No 3) Bill 2023 [2023] AUSStaCSBSD 142 (9 August 2023)

Treasury Laws Amendment (2023 Measures No. 3) Bill 2023^[68]

Significant matters in delegated legislation
Broad discretionary power^[69]

1.103 Item 1 of Schedule 1 to the bill seeks to insert proposed section 1023S into Part 7.9A of the Corporations Act 2001 (the Corporations Act) to provide for a general prohibition to prevent persons from engaging in conduct to enter into, begin to carry out, or carry out a scheme with the intention of avoiding the application of a credit product intervention order. Proposed section 1023U of the bill provides that the Australian Securities and Investments Commission (ASIC) may, by disallowable legislative instrument, exempt a scheme, or a class of schemes, from this general prohibition. The exemption is subject to any conditions imposed by ASIC.

1.104 A similar exemption power is introduced in item 8 of Schedule 3 to the bill, which seeks to insert proposed section 828R into proposed Part 7.3A of the Corporations Act. Proposed Part 7.3A seeks to regulate competition in the clearing and settlement (CS) of cash equities and seeks to introduce the power for ASIC to make rules that deal with CS services and facilities. Proposed section 828R seeks to provide ASIC with the power to, by disallowable legislative instrument, exempt a person or class of persons from all or specified provisions in proposed Part 7.3A and regulations and rules made under it.

1.105 There is no further guidance within the bill setting out how these broad exemption powers 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.

1.106 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.

1.107 In this instance, the explanatory memorandum provides the following justification for the use of delegated legislation in relation to proposed section 1023S:

This instrument making power ensures that ASIC is able to promptly provide clarity and certainty to industry and consumers where the scheme:
• does not cause harm to consumers or regulated industry participants; and
• has a legitimate (non-avoidance) purpose.
The use of delegated legislation is critical to ensure that the legislative framework can respond promptly to changing circumstances.^[70]

1.108 It is not clear to the committee from this explanation why it is necessary and appropriate to provide a broad power to include exemptions within delegated legislation. It would be preferable to clarify on the face of the bill that schemes which have a legitimate purpose, and do not cause harm to consumers or regulated industry participants, are not included within the general prohibition.

1.109 In relation to proposed section 828R, the explanatory memorandum explains:

The exemption power has been included to ensure that there is sufficient power to address, in a timely way, any unforeseen consequences of the implementation of the requirements under this Part. Given the systemic importance and evolving nature of CS services it is necessary that the rule-making power provide flexibility as to the matters CS services rules deal with, and the persons on whom requirements may be imposed. This includes the event of material changes to the operating environment or market structure for CS services, such as the emergence of a competitor in the provision of CS services.
The exemption power is also provided to deal with circumstances where the determinations, regulations or rules may operate inadvertently or in a perverse manner, contrary to the underlying intention of the regime. While the framework seeks to provide a high degree of flexibility, there may be cases where it cannot be adapted (without legislative reform) to an unanticipated scenario, or at least not adapted within a sufficiently short time frame to avoid the unintended result.^[71]

1.110 The committee acknowledges that it is sometimes appropriate to include broad exemption powers in order to ensure an appropriate level of flexibility in complex regulatory schemes. However, it is not clear to the committee why at least high-level guidance in relation to the conditions which may apply to an exemption cannot be included within the bill.

1.111 At a minimum, the committee considers that it would be beneficial if the bill included a non-exhaustive 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.^[72] 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.

1.112 The committee is concerned about the use of delegated legislation to provide for exemptions, particularly noting the limited guidance in the bill about how the exemptions framework will operate. As drafted, it appears that ASIC will have a broad discretionary power to determine, via delegated legislation, when the general prohibition in proposed section 1023S and the regulation of CS services in proposed Part 7.3A will no longer apply. In this regard, the committee notes that delegated legislation is not subject to the same level of parliamentary scrutiny as amendments to primary legislation.

1.113 In addition, the committee considers that instruments made under proposed sections 1023U and 828R should be time-limited. 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.^[73]

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

• why it is considered necessary and appropriate to provide a broad power to exempt schemes or classes of schemes from proposed sections 1023U and 828R in delegated legislation;

• whether the bill can be amended to provide that instruments made under proposed section 1023U and 828R are time-limited; and

• 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.

Availability of merits review^[74]

1.115 Item 9 of Schedule 3 to the bill seeks to insert proposed subsection 1317C(gcd) which has the effect of excluding merits review for a decision by ASIC to make CS services rules under proposed section 828A or give a direction under  subsection 828G(1).  Proposed section 828A provides that ASIC may, by legislative instrument, make rules that deal with matters including, but not limited to, the activities, conduct or governance of persons in relation to CS services and the specification of persons who are required to comply with requirements imposed by the rule. Proposed  subsection 828G(1)  provides ASIC with the power to give directions to persons not complying with obligations to comply with CS services rules.

1.116 The committee considers that, generally, administrative decisions that will, or are likely to, affect the interests of a person should be subject to independent merits review unless a sound justification is provided. The committee's usual expectation is that such justifications are provided by reference to the Administrative Review Council's guidance document, What decisions should be subject to merits review? The committee expects any justification for excluding merits review to be set out clearly within the explanatory materials to the bill.

1.117 The explanatory memorandum explains:

Decisions by ASIC to make CS services rules under section 828A and provide directions under  section 828G  to a person not complying with their obligations under the rules are exempt from merits review. The matters that would be regulated by CS services rules touch on significant aspects of financial markets. Market certainty is crucial to the efficient functioning of financial markets. A process of merits review with respect to the making of CS services rules and directions to ensure their compliance may create uncertainty around expectations with respect to provision of CS services. This would have a negative impact upon the efficient functioning of financial markets.^[75]

1.118 While the explanatory memorandum separately provides a justification for excluding merits review for other decisions with reference to the Administrative Review Council, it is not apparent to the committee from the explanation provided that it has been sufficiently justified why merits review should be excluded from decisions by ASIC to make CS services rules under section 828A and provide directions under  section 828G.  It appears to the committee that these decisions have the capacity to affect an individual's rights, liberties or obligations and the need for market certainty is not, in itself, considered sufficient justification for removing merits review from these kinds of decisions.

1.119 In light of the above, the committee requests the minister's advice as to why it is necessary and appropriate not to provide that independent merits review will be available in relation to a decision by ASIC to:

• make clearing and settlement services rules under section 828A; and

• provide directions to a person under  subsection 828G(1). 

[68] This entry can be cited as: Senate Standing Committee for the Scrutiny of Bills, Treasury Laws Amendment (2023 Measures No. 3) Bill 2023, Scrutiny Digest 9 of 2023; [2023] AUSStaCSBSD 142.

[69] Schedule 1, item 1, proposed section 1023U; Schedule 3, item 8, proposed section 828R. The committee draws senators’ attention to this provision pursuant to Senate standing order 24(1)(a)(ii) and (v).

[70] Explanatory memorandum, p. 13 of Chapter 1.

[71] Explanatory memorandum, p. 13 of Chapter 3.

[72] 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.

[73] For example, the Senate Standing Committee for the Scrutiny of Delegated Legislation requested that the exemptions specified in the Financial Sector Reform (Hayne Royal Commission Response) (Hawking of Financial Products) Regulations 2021 cease to operate three years after they commence. For further information, see Senate Standing Committee for the Scrutiny of Delegated Legislation, Delegated Legislation Monitor 9 of 2022 (30 November 2022) pp. 21–24.

[74] Schedule 3, item 9, proposed subsection 1317C(gcd). The committee draws senators’ attention to this provision pursuant to Senate standing order 24(1)(a)(iii).

[75] Explanatory memorandum, p. 16 of Chapter 3.