Tuesday, 21 August 2018
Treasury Laws Amendment (Financial Sector Regulation) Bill 2018; Second Reading
I'd like to thank all members who have contributed to this debate. The Treasury Laws Amendment (Financial Sector Regulation) Bill 2018 demonstrates our government's utmost commitment to building a financial sector that is accountable to the Australian people, resilient to developments both domestically and globally, and highly competitive. It helps to ensure that the benefits of financial sector innovation flow to all Australians.
This bill will contribute to the development of a robustly competitive domestic financial sector in two complementary ways: firstly, by making it easier for new financial sector companies, banks and life and general insurance providers to operate with the types of concentrated ownership structures that are a natural part of that stage of the business life cycle; and, secondly, by facilitating a new restricted authorised deposit institution licensing regime that will allow start-ups to test their business model for up to two years before having to comply with the full suite of the Australian Prudential Regulation Authority's regulatory requirements.
Schedule 1 to this bill, which amends the Financial Sector (Shareholdings) Act 1998, relaxes ownership restrictions by, first, lifting from 15 per cent to 20 per cent the ownership threshold for all financial sector companies beyond which ministerial approval is required. This will align the Financial Sector (Shareholdings) Act thresholds with those existing in the Foreign Acquisitions and Takeovers Act 1975, thereby simplifying financial sector investments. Second, it will create a new streamlined Financial Sector (Shareholdings) Act approval path for the owners of new and recently established financial sector companies that are incorporated domestically and have less than $200 million in assets or, in the case of general insurance providers, $50 million in assets.
Under this streamlined approval path, firms will be approved to have a concentrated ownership structure as long as the owners are fit and proper and the firm agrees to have its ownership structure reviewed regularly and to provide relevant prudential information to APRA on a regular basis. This overcomes a significant unintended consequence of the Financial Sector (Shareholdings) Act. The existing national interest test, which is intentionally broad to provide a comprehensive assessment of owners of our most significant institutions, is unnecessarily complex for start-ups which pose little risk to consumers and the financial stability of the system. As a result, start-ups can struggle to secure the financing they need to grow, given investors' concerns that approval under the test may not be granted.
By removing uncertainty around the Financial Sector (Shareholdings) Act approvals, this reform encourages investment in Australian start-ups and makes our financial sector more contestable, generating better quality and lower priced products for consumers. Further, given the requirement for owners that receive approval in this way to either divest their stake or obtain Financial Sector (Shareholdings) Act approval in the usual way, once their companies grow beyond the relevant asset thresholds, these reforms maintain the necessary protections against the risks associated with concentrated ownership structures within larger institutions that the Financial Sector (Shareholdings) Act currently provides.
Schedule 2 to the bill delivers on the second objective, supporting the operation of APRA's new restricted authorised deposit institution licensing regime. Similar to a model that has been in place in the United Kingdom since 2014, resulting in 14 new banks, APRA has announced the establishment of a new restricted authorised deposit institute licence as a transitional step towards a full licence. This will give start-up banks up to two years to test their business model, access to the finance they need to grow and a lighter-touch regulatory environment—opportunities that do not exist given that today banks must comply with all regulations on day 1.
To facilitate, this bill empowers APRA to impose a time-limited condition on banking licences where institutions are seeking a restricted authorised deposit institute licence and remove such licences without merits review when the licence holder is found to be non-compliant with their regulatory requirements or not able to develop sufficient resources to acquire a full unrestricted banking licence.
While the revocation of a licence without the possibility of a merits review is a significant step, it is a necessary protection for Australian consumers and a reasonable trade-off for the opportunities granted by holding a restricted licence. Under this approach, natural justice would still be provided to time-limited licensees, with APRA required to provide notice of its intent to revoke a licence in writing and allow the licensee to make submissions in its defence. It will also have no impact on banks with a full banking licence.
To conclude, this bill is yet another step on the government's well-laid path to improve financial sector competition and deliver better outcomes for all Australians. I commend the bill to the House.
Question agreed to.
Bill read a second time.