Chapter 2 - The bill
Provisions of the bill
2.1
This bill will amend the Corporations Act 2001 to:
- establish a mutual recognition regime for the issue of securities
and interests in managed investment schemes (Schedule 1); and
- provide for the mutual recognition of companies (Schedule 2).
2.2
The bill will also amend the Trade Practices Act 1974 (TPA) and Radiocommunications
Act 1992 to:
- enhance the Australian Competition and Consumer Commission's
(ACCC's) ability to share information with others; and
- protect certain information given to, or obtained by, the ACCC
from unauthorised use or disclosure (Schedule 3).
2.3
The measures included in the bill are intended to support closer
economic relations and reduce duplication in regulatory compliance between Australia
and New Zealand. They are consistent with the Australia–New Zealand Closer
Economic Relations Trade Agreement and also formalise the work program attached
to the Memorandum of Understanding on the Coordination of Business Law between Australia
and New Zealand.[1]
2.4
The amendments in relation to the ACCC follow recommendations made by
the Productivity Commission in its Research Report, Australian and New
Zealand Competition and Consumer Protection Regimes, of 16 December 2004.[2]
Schedule 1: Mutual recognition of securities offers
2.5
The mutual recognition regime implements a Treaty signed between Australia
and New Zealand on 22 February 2006 titled Agreement between the Government
of Australia and the Government of New Zealand in
relation to the Mutual Recognition of Securities Offerings.[3]
2.6
Under current regulatory requirements, entities from one country wanting
to offer securities to investors in the other country must usually comply with
two sets of requirements, leading to significant compliance costs. The aim of
the mutual recognition arrangement is to reduce complexity for issuers offering
securities across the Tasman, on the basis of compliance with a single
substantive regulatory framework.
2.7
Mutual recognition is intended to facilitate investment between the two
countries, enhance competition in capital markets, reduce costs for business
and increase choice for investors. Issuers from New Zealand will be able to
offer securities to investors in Australia on the basis of compliance with New
Zealand fundraising requirements. Similarly, Australian issuers will be able
to offer securities in New Zealand by complying with Australian requirements.[4]
2.8
The mutual recognition regime applies to offers of securities and
interests in managed investment schemes, but does not include financial advice.
The EM notes that this is because the requirements under Australian and New
Zealand law in relation to the provision of financial advice are not
sufficiently similar at present.[5]
2.9
Currently, the regime relates only to New Zealand. However, the bill is
drafted in general terms so that it can be extended to other countries if a
comparable agreement is reached with them in future, possibly by amending only
the regulations.[6]
Schedule 2: Mutual recognition of companies
2.10
Schedule 2 of the bill provides for the mutual recognition of companies.
It will exempt companies, incorporated in a country specified in the regulations,
from having to lodge information or a document with the Australian Securities
and Investments Commission (ASIC) that is already lodged with an equivalent
authority in that country. The bill will not remove the requirement for companies
to register with ASIC to operate in Australia, but aims to reduce the
administration burden of registration and ongoing lodging requirements.[7]
2.11
Initially, the bill will allow companies in New Zealand to do business
in Australia without complying with the filing requirements applicable to other
foreign companies.
2.12
New Zealand recently enacted reciprocal arrangements to give the New
Zealand regulator the power to make similar exemptions in relation to
Australian companies operating in New Zealand.[8]
2.13
It is possible that other countries could be prescribed in the
Regulations in future.[9]
Schedule 3: Protection of information obtained by the ACCC
2.14
Schedule 3 of the bill contains two initiatives. Firstly, it will enhance
the ACCC's ability to share information with governments and other agencies,
including the New Zealand Commerce Commission. Secondly, it will provide for
the protection of certain information given, or obtained, by the ACCC,
including from a foreign government body.
2.15
Treasury officers explained that the schedule is derived from the
Productivity Commission's (PC) report of December 2004, Australian and New
Zealand competition and consumer protection regimes.[10]
In its report, the Commission recommended that the TPA and the Commerce Act
1986 (NZ) should be amended to allow the ACCC and the New Zealand Commerce
Commission to exchange information that has been obtained through their
information gathering powers. The PC also recommended that safeguards should be
built into both Acts to ensure against the unauthorised use and disclosure of
confidential or protected information.[11]
2.16
According to the EM, the ACCC's enhanced ability to share information
which will follow passage of the schedule will place it in a similar position
to ASIC. Section 127 of the ASIC Act 2001 provides for the appropriate
disclosure of information by ASIC to Australian, and foreign, governments and
agencies, including regulators. Similarly, the ACCC will be able to share certain
information with other persons, bodies or agencies, including the New Zealand
Commerce Commission. The ACCC is currently limited in its ability to share
information with others, including its counterpart regulators.[12]
Treasury consultation process
2.17
A joint Australian and New Zealand discussion paper, Trans-Tasman
Mutual Recognition of Offers of Securities and Managed Investment Scheme
Interests, was issued in May 2004. It outlined three possible models and identified
a preferred option. The Treasury and the New Zealand Ministry of Economic
Development received a total of 29 submissions on the discussion paper. Subject
to certain refinements, nearly all respondents strongly supported the
introduction of a mutual recognition regime based on the preferred option.[13]
2.18
An exposure draft of the bill, covering Schedules 1 and 2, was released
for public comment on 11 September 2006. Treasury received five
submissions which were broadly supportive of the preferred Option 3.[14]
Committee inquiries
2.19
As mentioned above, the mutual recognition scheme implements a Treaty
agreed between Australia and New Zealand. The Joint
Standing Committee on Treaties examined the Agreement between the
Government of Australia and the Government of New Zealand in relation to the
Mutual Recognition of Securities Offerings in its Report 75 of 14 August 2006. The committee recommended that binding treaty action be taken.[15]
Evidence received by the committee
2.20
Submissions and correspondence received prior to the public hearing focused
on Schedule 1 of the bill. Committee members also sought further information
from Treasury officers in relation to Schedule 3.
2.21
ASIC advised the committee that it was consulted by the Treasury in the
course of the preparation of the amendments to the Corporations Act 2001
set out in the bill. ASIC supports these amendments which are generally aimed
at enhancing the development of a single Australia/New Zealand economic market.[16]
2.22
In its submission to the committee's inquiry, the Securities
and Derivatives Industry Association (SDIA) supported the preferred Option
3 outlined in the Regulatory Impact Statement and contained in the bill:
...as it offers some regulatory "teeth" to the host
jurisdiction with respect to investor protection whilst the primary
responsibility remains with the home jurisdiction regulator.[17]
2.23
The SDIA said that it is important that communication between the home
and host regulators is of a very high standard for the credibility of their
roles to be maintained. In its view, proper analysis of 'relevant exchange of
information' is crucial to the protection of investors in both jurisdictions.[18]
2.24
The Law Council of Australia made a brief written submission to the
committee, forwarding a submission made by the Corporations Committee of the
Business Law section of the Council to the Treasury in November 2006. The
Council advised the committee that this submission 'still continues to
represent the views of the [Corporations] Committee'.[19]
2.25
In its submission to the Treasury, the Council supported the enactment
of legislation consistent with Option 3 (ie: the option adopted in this bill) for
the reasons set out in the EM. It considers this creates a less complex
framework than the current regime.
2.26
The Law Council also raised concerns with the Treasury that the mutual
recognition regime not lead to regulatory arbitrage between recognised
jurisdictions:
When a decision is being made to proceed with an offering in one
of two jurisdictions, it will be open to the promoters of the offering to establish
an incorporated entity in either jurisdiction and therefore choose between the
regulatory regime in each jurisdiction with which it will comply. This will be
particularly so for structured financial products.
For the long term integrity of these regimes to be supported it
is important that there be clearly understood symmetry between jurisdictions
both in the policy basis for particular structures of regulation and in the
enforcement regimes that are created.[20]
2.27
The Law Council expressed concern about whether the underlying work on
the Australian and New Zealand regulatory regimes and enforcement mechanisms
has been carried out to sustain the long term integrity of the arrangement. In
its view, the Australian and New Zealand offering regimes can differ quite
fundamentally in their workings and policy. The Law Council points to the work
of the European Union in developing mutual recognition principles as a good
example of how this should be done.[21]
2.28
The Law Council also raised concerns about the lack of time allowed for
industry consultation in relation to this bill.
2.29
Questioned by committee members about the Law Council's concerns about
the consultation process, Treasury officers pointed out that there had been six
weeks of public consultation in 2006, and there had also been a two month
consultation process in 2004 on the principles of the scheme. Officers said
that the consultation process had been adequate:
...we felt that six weeks consultation was adequate with regard to
the fact we had already set the principles of the scheme. We had a treaty that
was reviewed by a committee and, furthermore, six weeks consultation was
considered adequate given the issues that were flagged in the bill.[22]
2.30
Officers also assured the committee that the Law Council's submission had
received consideration.[23]
2.31
The committee sought information from the Treasury about how the
amendments in schedule 3 would ensure that the ACCC protects company
information. Officers told the committee that the proposed amendments in
Schedule 3 of the bill ensure that ACCC officials must not disclose any
protected information except in the performance of their duties or as required by
relevant law. Mr Matthew Bowd, an Analyst in the Competition Policy
Framework Unit, said that proposed subsection 15AAA(12) only allows the ACCC to
share protected information with other Australian and foreign governments and
agencies where the information would enable them to perform one of their
functions or powers. In addition, the Chairman of the ACCC can impose conditions
on the recipients of restricted information. Mr Bowd noted that these
information sharing amendments are consistent with those currently applicable
to other regulators, such as ASIC.[24]
(see paragraph 2.16)
2.32
Mr Scott Rogers, also an analyst in the Competition Policy Framework
Unit, told the committee that under the new provisions, a company claiming that
the ACCC has unlawfully disclosed protected information can pursue the matter
through the relevant provision of the Crimes Act. Mr Rogers noted that the complainant
can, in the first instance, go through the ACCC's general complaints handling
mechanism. Thereafter, the complainant may refer the matter to the police or
the DPP.[25]
Recommendation
The Committee recommends that the bill be passed.
Senator the Hon
Michael Ronaldson
Chair
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