MINORITY REPORT – AUSTRALIAN LABOR PARTY
Financial Sector Reform (Amendments and Transitional Provisions)
Bill (No. 1) 1999
Financial Sector (Transfers of Business) Bill 1999
Income Tax Rates Amendment (RSAs Provided by Registered Organizations)
Bill 1999
The Labor members of the Senate Economics Legislation Committee examining
the Financial Sector Reform (Amendments and Transitional Provisions)
Bill 1999, the Financial Sector (Transfers of Business) Bill 1999,
and the Income Tax Rates Amendment (RSAs Provided by Registered Organizations)
Bill 1999 dissent from the majority report.
Labor members are broadly supportive of the bills, which continue the
implementation of the Wallis reforms. The transfer of regulatory responsibility
for building societies, credit unions and friendly societies from the
states and territories to the Commonwealth is a sensible move. A single
prudential regulator promotes consistency in regulation across the sector,
adding certainty to the industry and encouraging development.
Labor members acknowledge the widespread support for the bills throughout
the financial sector, including credit unions and bank groups.
However, Labor members consider that there are several serious flaws
in the bills, particularly in relation to the transfers of business mechanism
proposed in the Financial Sector (Transfers of Business) Bill 1999.
The transfers mechanism will apply for transfers between small institutions
such as building societies and credit unions, preserving the transfers
of engagement mechanism currently at the State level. However, the mechanism
also extends to larger institutions including the four major banks.
Currently, there is a stringent process to be followed before mergers
can occur between the major four banks. This bill (and sections in the
Financial Sector Reform (Amendments and Transitional Provisions) Bill
(No. 1) 1999) provides a new mechanism with which it may be easier
to comply.
Labor members are concerned that it is technically possible for the bills
to operate to erode the four pillars policy. This policy is an important
safeguard against reduced competition in the sector. A merger between
two of the major four banks would be likely to result in reduced services,
job losses in the sector, a lesser range of products and increased fees
and charges. Evidence given at the hearing and in submissions and answers
to questions on notice has not satisfied Labor members' concerns.
Labor members consider that the bills should be amended to address the
following concerns:
Amendments to the Financial Sector (Transfers of Business) Bill 1999
- Minister's consent: The Bill currently provides that the Minister
can determine that his or her consent is not required to transfers.
That consent is critical to the four pillars policy preventing further
unfettered bank mergers. Treasury has advised that the Minister “will
not waive the requirement for his consent for large financial institutions
such as the four major banks”. However, there is no section in
the Bill that so limits the Minister's discretion.
- Sections 15 and 29 should be deleted and sections 11(1)(e) and 25(2)(f)
should be amended accordingly, to compel the Minister to consent or
refuse to consent to a transfer under the Bill. Sections 11(1)(e) and
25(2)(f) should also be amended to ensure that the Treasurer gives (or
refuses to give) consent prior to the transfer (mirroring the current
provision in section 63 of the Banking Act 1959).
- Consultation: The Bill currently states that APRA may consult with
certain bodies, including the ACCC and ASIC.
- However, APRA's role is as a prudential regulator. The competitive
and corporate regulatory functions in the financial sector are performed,
in accordance with the Wallis recommendations, by the ACCC and ASIC
respectively. APRA is not the body best equipped to carry out those
functions, but the competitive and corporate effects of transfers need
to be assessed. Consideration should be given to amending sections 12
and 26 to compel APRA to consult with the ACCC and ASIC.
- Exclusion of other legislation: Section 43(2)(b)(i) of the Bill would
mean that the bill as it currently stands would operate to the exclusion
of all other Acts (save those prescribed by regulation). Labor members
are concerned at a potential loss of legislative safeguards that currently
exist for mergers, acquisitions, etc. For example, unless the Trade
Practices Act 1974 is prescribed, the mergers provision of that
Act (section 50) will not be examined in the context of a transfer.
The current State transfers of engagement mechanism do not operate to
the exclusion of other State laws.
- The Minister for Financial Services and Regulation indicated during
the second reading debate in the House that the government intends to
prescribe the following Acts as a minimum under the bill – the
Trade Practices Act 1974, the Financial Sector (Shareholdings)
Act 1998, the Insurance Acquisitions and Takeovers Act 1991 and
the Foreign Acquisition and Takeovers Act 1995. However, there
is nothing in the bills before the Committee that would compel this
prescription to be done.
- Given that the Minister has indicated that the Government intends
to bring these Acts into operation with respect to the Bill, why not
amend the Bill itself to make it subject to these Acts? However, these
are not the only Acts with application to the transfers process. For
example, the Banking Act and the Workplace Relations Act,
as highlighted by the Financial Sector Union in its submission, interact
with the Bill. And there are undoubtedly other Acts with application,
such as the Corporations Law.
- While there is a need to provide flexibility for the transfers mechanism
- particularly the compulsory mechanism - for prudential reasons, Labor
members consider that this flexibility should not be at the expense
of the legislative safeguards built into other legislation for shareholders,
deposit-holders, policy-holders, creditors and the wider community.
- The Bill should be amended so that it does not override other legislation.
- Deemed consent and advice: Treasury advised that section 43 “is
designed to ensure that the need to obtain a third party's advice or
consent does not unnecessarily delay a transfer of business”. However,
the section operates to remove the need for any consent or advice to
be obtained, including, presumably, the Treasurer's consent and advice
of the ACCC and ASIC (by “deeming” that it has been obtained).
Consideration should be given to amending section 43 to ensure that
any advice or consent that has to be given is given.
Amendments to the Financial Sector Reform (Amendments and Transitional
Provisions) Bill 1999
- Treasurer's consent: Section 63 of the Banking Act 1959 currently
requires the Treasurer's consent before an ADI can amalgamate or enter
a partnership with another ADI or enter a reconstruction. This is an
important legislative aspect of the “four pillars” policy.
- However, item 51 of schedule 2 amends the section so that the Treasurer's
consent is not required if APRA makes an order to that effect. This
item should be amended so that APRA does not have that power. The item
should also be amended to ensure that the Treasurer must consent prior
to an ADI entering an agreement or arrangement for sale or disposal
of its business or to enter a partnership (mirroring the current section
63).
- Public access to information: Schedule 2 items 12 and 14 should be
amended and items 13 and 15 should be deleted, to require APRA to publish
in the Gazette and in daily newspaper(s) variations in or revocations
of standards applicable to one or more specified ADIs or authorised
non-operating holding companies (rather than simply notifying the relevant
ADI or authorised non-operating holding company).
- Schedule 8 item 7 should be amended to require publication in the
Gazette of authorities and conditions granted to the new ADIs
(building societies, etc), so that information of which bodies have
come under APRA's regulation is in the public domain.
- Statements to APRA: Schedule 2 item 65 should be amended to strengthen
the compliance requirements for statements to APRA, by including a requirement
that the statements comply with any regulations under section 69(3A)
of the Banking Act as well as section 69(4).
- Payments to APRA: It is not clear whether Schedule 2 item 68 operates
to make it an offence to pay the required amount to APRA but not at
the time of delivery of the statement. Is it intended that payment must
be made at the time of delivery of the statement? If so, Schedule 2
item 68 should be amended to clarify the manner and timing in which
payments to APRA should be made, by inserting “at the time of the
delivery of the statement” after “statement” in the proposed
subsection (5A)(a).
- Employment issues: The joint submission by the CPSU and the Reserve
Bank section of the FSU raised a number of serious concerns over the
treatment of existing and new APRA employees.
- The unions' submission asks the Committee to consider whether section
45 of the APRA Act, by itself or in conjunction with item 3 of Schedule
8 of the proposed Amendments and Transitional Provisions Bill, gives
APRA the power to override the Workplace Relations Act 1996.
Treasury said its view was that the Workplace Relations Act 1996
applies to APRA. The Explanatory Memorandum to the APRA Act states that
section 45(1) will be “subject to applicable laws”. The Explanatory
Memorandum is silent, however, on the interrelationship of section 45(2)
and other laws. It would be useful for the government to clarify its
intent in relation to that subsection.
- The unions' submission also points to a possible weakening of item
3(1) by item 3(4) such that APRA may be able to set terms and conditions
with respect to remuneration that are less favourable than at the time
of transfer. Treasury stated in response that:
- “The purpose of item 3(4) is to allow the terms and conditions
of an employment contract to be varied subject to the stated conditions.
Any such changes, however, are subject to the no disadvantage test
of the Workplace Relation Act 1996.”
- However, item 3(4) permits changes by “a law, award, determination
or agreement”. The no disadvantage test under the Workplace
Relations Act 1996 applies only for changes made by agreement –
Certified Agreements or Australian Workplace Agreements.
- Labor members are surprised by the inclusion by the Government of
item 3(4) as it seems to suggest that the Government's own Workplace
Relations Act 1996 does not provide adequate flexibility for workplace
relations. Consideration should be given to deleting item 3(4).
- Labor members express concern over the issue of the commitment of
APRA to the determination made by the APRA Board on 1 July 1998, particularly
APRA's response on notice to the questions by Senator Campbell where
it stated that the determination was “always intended that
this determination would be of an interim nature”. This
does not appear to accord with the extract from a letter from APRA's
Chief Executive Officer to the CPSU National Secretary, that APRA has
“consistently stated [its] aim of moving as soon as practicable
to the harmonisation of workplace terms and conditions across APRA and
their adoption by Certified Agreement”.
- The then Minister for Industrial Relations, the Hon Peter Reith MP,
said in his second reading speech on the Workplace Relations and
Other Legislation Amendment Bill 1996 on 23 May 1996 that:
- “[T]his bill is about providing employers and employees with
much greater choice about how to regulate their relationships …
- …
- “The bill does not discriminate in favour of one form of
agreement over another – collective or individual.”
- Labor members are concerned that APRA appears to be flouting the intention
of the government's own legislation. Consideration should be given to
directing the APRA Board to meet its 1 July 1998 commitment and negotiate
a certified agreement with at least the 65% of employees who have indicated
that as their preference.
- Labor members agree with the suggestion by Ms Margaret Gillespie of
the Community and Public Sector Union that:
- “[APRA reflect] on the issues raised by the unions, immediately
rejects the sharp practices it now seeks to utilise, and simply
complies with the spirit and intent of legislation already in place”.
- Friendly Societies: The Australian Friendly Societies Association
gave evidence that a building society without shares on issue and a
credit union without shares on issue can choose to become a company
limited by shares, while a Friendly Society without shares on issue
cannot. They cannot understand this apparent discrimination, and have
a number of Friendly Societies who would prefer to be a company limited
by shares than by guarantee or by shares and guarantee.
- Treasury's explanation as to the reasons for this distinction is not
satisfactory. Treasury argues that there are a number of complexities
involved in permitting a limited by shares structure as an option on
transfer for friendly societies as opposed to other transferring entities,
but goes on to say that despite this, any friendly society wishing to
convert to limited by shares form will have that option after transfer
under existing procedures in the Corporations Law. In other words,
on the transfer day the limited by shares option is not available, but
after the transfer it will be. Labor members consider that the Government
has not justified why friendly societies will not have the same structural
opportunities as building societies and credit unions upon transfer.
Consideration should be given to removing the distinction from the bill.
- Non-callable deposits: The Financial Sector Reform (Amendments
and Transitional Provisions) Act 1998 included a provision to repeal
the Non Callable Deposit part of the Banking Act, but that provision
has not yet been proclaimed. Treasury has indicated that it will be
proclaimed to come into effect at the same time as the proclamation
that sets the transfer date. Schedule 2 item 35 of the current bill
will give APRA the power to order that an ADI is not required to maintain
a Non Callable Deposit. APRA has indicated that it will not use that
power. Labor members are therefore curious as to why this apparently
redundant provision has been included.
Conclusion
Labor members of the Committee support the overall thrust of the bills,
which bring building societies and credit unions under one regulatory
regime and regulator. However, as outlined above, there are elements in
the bills that may be open to potential misuse and are therefore of concern.
These elements could technically allow banks to short circuit the four
pillars policy. These provisions may be unintended consequences of drafting.
Nevertheless, under the current environment of community concern over
access to affordable banking products and services, as well as job losses
from potential rationalisation in the industry, it is important that competition
in retail banking not be eroded. With these concerns in mind, the bills
will require amendment.
Senator Shayne Murphy Senator George Campbell
Deputy Chairman
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