Treasury Laws Amendment (Financial Sector Regulation) Bill 2018 - Commentary on Ministerial Responses [2018] AUSStaCSBSD 213 (12 September 2018)

• Treasury Laws Amendment (Financial Sector Regulation) Bill 2018
• Significant matters in delegated legislation
• Consultation prior to making delegated legislation 34

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Treasury Laws Amendment (Financial Sector Regulation) Bill 2018

Purpose	This bill seeks to amend Financial Sector (Shareholdings) Act 1998 and the Banking Act 1959 to: • increase from 15 per cent to 20 per cent the ownership restriction applying to life insurance and general insurance companies, authorised deposit-taking institutions and relevant holding companies; • create a streamlined path for owners of qualifying domestically incorporated companies with assets less than the relevant threshold applying to become a financial sector company; and • enable the Australian Prudential Regulation Authority to grant a new entrant to the banking sector a time limited ADI licence
Portfolio	Treasury
Introduced	House of Representatives on 28 June 2018
Bill status	Before the Senate

Significant matters in delegated legislation
Consultation prior to making delegated legislation ^[34]

2.63 In Scrutiny Digest 8 of 2018^[35] the committee requested the Treasurer's advice as to:

• why it is considered necessary and appropriate to leave all of the content of the fit and proper person test to be prescribed in delegated legislation; and

• whether specific consultation obligations (beyond those in section 17 of the Legislation Act 2003) can be included in the legislation (with compliance with such obligations a condition of the validity of the legislative instrument).

Treasurer's response^[36]

2.64 The Treasurer advised:

The amendments contained in the Treasury Laws Amendment (Financial Sector Regulation) Bill 2018 are intended to encourage innovation and greater participation and competition in the financial system by reducing barriers faced by new entrants.
However, it is necessary that appropriate safeguards to protect consumers and financial system stability against risks associated with concentrated ownership of financial sector companies are maintained including a fit and proper test.
As the Committee notes, the 'fit and proper' test will be prescribed in delegated legislation made by APRA. The nature of fit and proper in the context of the owners of a prudentially regulated institution has broad considerations which necessitate a test that can be readily adapted or articulated more fully as needed.
The need for flexibility and adaptability is the reason the test is contained in delegated legislation. It is also consistent with APRA's other powers which allow it to draft delegated legislation in a similar space.
The legislative instrument setting out the fit and proper test will be subject to parliamentary disallowance and ministerial approval. In this way the instrument will be largely subject to the same parliamentary scrutiny as primary legislation. They are capable of being debated, referred to committees and being voted down (disallowed). In this way there would not appear to be much difference had the test been included in primary legislation or regulations.
I note the Committee's suggestion that specific consultation requirements be included in the Bill. Given APRA's record for undertaking timely and substantive consultation of generally three months it does not seem necessary to include a requirement to consult in the legislation. APRA has noted that consultation in this complex space will be particularly advantageous to get the right balance in its considerations.

Committee comment

2.65 The committee thanks the Treasurer for this response. The committee notes the Treasurer's advice that it is considered necessary that the fit and proper person test with respect to ownership of a prudentially regulated institution be capable of being readily adapted or articulated more fully and that, for this reason, the test has been included in delegated legislation.

2.66 While the committee appreciates that there may be some need to adapt or further articulate aspects of the fit and proper person test, it is not clear that all elements of the test would need to be continually altered. It is therefore unclear to the committee why at least the core elements of the test could not be set out in primary legislation.

2.67 The committee also notes the Treasurer's advice that, as the instrument will be subject to disallowance and ministerial approval, it will be largely subject to 'the same parliamentary scrutiny as primary legislation', and that legislative instruments are capable of 'being debated, referred to committees and voted down (disallowed).' However, the committee notes that legislative instruments are made by the executive government without parliamentary enactment and come into immediate effect. By contrast, primary legislation must be agreed to by both Houses of the Parliament before becoming law. Furthermore, although a legislative instrument may be debated in the chamber if it is the subject of a disallowance motion, this only occurs where a particular instrument among the 1,500 to 2,000 disallowable instruments made each year comes to the attention of a Senator or member.^[37] Finally, although it is possible for a committee to inquire into a legislative instrument, this would only occur after the instrument has come into effect. In contrast, where a bill is referred to a Senate legislation committee via the Selection of Bills Committee, further consideration of the bill is deferred until the committee tables its report.^[38] The committee therefore emphasises that a legislative instrument, made by the executive, is not subject to the full range of parliamentary scrutiny inherent in bringing proposed legislation in the form of a bill.

2.68 Finally, the committee notes the Treasurer's advice that it is considered unnecessary to include specific consultation requirements in the bill with respect to the legislative instrument containing the fit and proper person test because of APRA's record of undertaking timely and substantive consultation and because APRA has noted that consultation in this instance will be advantageous to get the right balance in its considerations.

2.69 While the committee notes that it is expected that APRA will undertake appropriate consultation prior to finalising the legislative instrument relating to the fit and proper person test, it remains the case that the bill does not contain a positive requirement that such consultation take place. The committee therefore reiterates its view that where the Parliament delegates its legislative power in relation to significant regulatory schemes 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 instrument.

2.70 The committee draws its scrutiny concerns to the attention of senators and leaves to the Senate as a whole the appropriateness of:

• leaving all of the content of a fit and proper person test to be prescribed in delegated legislation; and

• not including specific consultation obligations (beyond those in section 17 of the Legislation Act 2003) in the legislation (with compliance with such obligations a condition of the validity of the legislative instrument).

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[34] Schedule 1, item 16, proposed subsection 14A(2). The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(iv).

[35] Senate Scrutiny of Bills Committee, Scrutiny Digest 8 of 2018, at pp. 33 to 35.

[36] The minister responded to the committee's comments in a letter 4 September 2018. A copy of the letter is available on the committee's website: see correspondence relating to Scrutiny Digest No. 10 of 2018 available at: www.aph.gov.au/senate_scrutiny_digest

[37] See statistics at Rosemary Laing (ed), Odgers' Australian Senate Practice: As Revised by Harry Evans, Department of the Senate, 14th Edition, 2016, pp. 431-432.

[38] See Senate standing order 24A(8).