New Financial System Legislation Drafts in Commonwealth

After the Financial System Inquiry Final Report was delivered on at the end of 2014, the Government has now finished consultation on the draft Bill and Regulation to accompany the recommendations.

Financial System Legislation Amendment (Resilience and Collateral Protection) Bill 2016

The Financial System Legislation Amendment (Resilience and Collateral Protection) Bill 2016 will amend the Payment Systems and Netting Act 1998 (Cth) (PSN Act) and certain other Acts to:

• enable Australian entities to enforce rights in respect of margin provided by way of security in connection with certain derivatives in the manner required by international standards;
• clarify domestic legislation to support globally coordinated policy efforts1 and provide certainty on the operation of Australian law in relation to the exercise of termination rights (also known as close-out rights) under derivatives arrangements; and
• enhance financial system stability by protecting the operation of approved financial market infrastructure.

The Bill also makes consequential amendments to the Banking Act 1959 (CTH), Financial Sector (Business Transfer and Group Restructure) Act 1999 (CTH), Insurance Act 1973 (CTH); Life Insurance Act 1995 (CTH); and Private Health Insurance (Prudential Supervision) Act 2015 (CTH).

According to the Federal Government, this draft bill reflects its intention to amend legislation to support globally coordinated policy efforts and facilitate the ongoing participation of Australian entities in international capital markets.

The Federal Government also intends to make amendments to the client money regime under the Corporations Act 2001 (Cth) to enhance the protection provided to retail clients of financial services providers whilst maintaining efficiencies in wholesale markets. A policy paper has been released which sets out the detail of the Government’s proposed reforms to the client money regime. The Government intends to release draft legislation to implement these reforms set out in the paper in January 2016, for introduction in the 2016 sitting session.

Financial System Legislation Amendment (Resilience and Collateral Protection) Regulation 2016

The Financial System Legislation Amendment (Resilience and Collateral Protection) Regulation 2016 is intended to enable trustees of regulated superannuation entities and life companies to grant security in the manner required to access certain international capital markets and liquidity, by introducing changes to the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) and Life Insurance Regulations 1995 (Life Insurance Regulations).

The Government is also considering ways in which flexibility can be provided for the identification of “approved bodies” to which security may be given under the SIS Regulations and Life Insurance Regulations. An updated list of approved bodies is expected to be published during the consultation.

The Bill now awaits introduction when Federal Parliament begins sitting again tomorrow, Tuesday 2 February 2016.

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[Draft] Financial System Legislation Amendment (Resilience and Collateral Protection) Regulation 2016 and [Draft] Financial System Legislation Amendment (Resilience and Collateral Protection) Bill 2016: Amendments, as reproduced in TimeBase LawOne