repeal unnecessary sections in the Insurance and Life Insurance Acts relating to judicial management. Comparison of key features of new law and current law New law Current law Statutory management of group entities APRA may, in certain circumstances, appoint a statutory manager to take control of an authorised NOHC of a regulated entity, or a subsidiary of an authorised NOHC or regulated entity. APRA will continue to have to appointment a statutory manager to an ADI. APRA may, in certain circumstances, appoint a statutory manager to an ADI. APRA does not have the power to appoint a statutory manager to an authorised NOHC of a regulated entity, or a subsidiary of an authorised NOHC or regulated entity, unless that subsidiary is also an ADI. Statutory management of insurers APRA may, in certain circumstances, appoint a statutory manager to an insurer, and to certain related group entities of an insurer (as noted above). APRA may, in certain circumstances, appoint a statutory manager to an ADI. APRA does not have the power to appoint a statutory manager to an insurer. External administration of holding company as a trigger for statutory or judicial management A statutory manager may take control of a regulated entity where an external administrator has been appointed to a holding company of the entity. APRA may apply for a judicial manager to be appointed to an insurer where an external administrator has been appointed to a holding company of the insurer. The appointment of an external administrator to a holding company is not a ground for a statutory manager to take control of a subsidiary ADI. It is also not a ground for APRA to apply for a judicial manager to be appointed to a subsidiary insurer. Application for appointment of an external administrator to a foreign ADI or foreign insurer as a trigger for statutory or judicial management The fact that an appointment of, or an application to appoint, an external administrator to a foreign ADI (or similar procedure) has been undertaken in a foreign country will be a potential trigger for the appointment of a judicial manager to an insurer or a statutory manager to an ADI or insurer. The fact that an appointment of, or application to appoint, an external administrator to a foreign ADI (or similar procedure) has been undertaken in a foreign country is not a specific ground for appointment of an ADI statutory manager or a judicial manager.
holds more than 50 per cent of the issued share capital of the company. issued share capital of the company. In contrast, under the Banking Act and Life Insurance Act, the threshold percentage is 50 per cent. Insurance and Life Insurance Acts to have effect despite the Corporations Act The Insurance and Life Insurance Acts have effect despite the Corporations Act there is a conflict between the provisions of those Acts. It is unclear whether the Insurance Act or Life Insurance Act have priority over the Corporations Act there is a conflict between the provisions of those Acts. By contrast, the Banking Act states that in the event of an inconsistency between the Banking Act and Corporations Act, the provisions in the Banking Act will prevail to the extent of the inconsistency. Detailed explanation of new law General provisions The Bill expands the existing statutory management regime for ADIs to apply to related bodies corporate of the regulated entity in certain circumstances. This expanded statutory management regime under the Banking Act is then adapted into the Insurance and Life Insurance Act (see 2.41 to 2.43) so that a statutory manager can now be appointed to a regulated entity, its authorised NOHC, and a subsidiary of the authorised NOHC or a subsidiary of the regulated entity. For ease of reading, the Explanatory Memorandum will first address the amendments applying the statutory management regime to related bodies corporate in the Banking Act, followed by an explanation of how the newly expanded Banking Act statutory management regime is transposed into the Insurance and Life Insurance Acts. Cross-references to the equivalent new provisions of the Insurance and Life Insurance Acts in the Schedules to the Bill are included below for ease of reference. Statutory management of group entities Definitions – related body corporate The Bill inserts a new definition of ‘related body corporate’. It is defined as a body corporate that is related to the first-mentioned body corporate. For the purposes of the Banking Act, this is determined in the same way as the Corporations Act. [Schedule 1, item 10, Schedule 2, item 9, Schedule 3, item 99, subsection 5(1) of the Banking Act, subsection 3(1) of the Insurance Act, and the Schedule Dictionary of the Life Insurance Act]
Transfer powers Outline of chapter Schedule 4 to this Bill amends the Transfer Act to enhance the operation and scope of APRA’s compulsory transfer powers. Context of amendments The Transfer Act (Part 4) provides for compulsory transfers of business between regulated entities. Following amendments to the Act in 2008 and 2010, the compulsory transfer of business provisions now extend to ADIs (and related parties of ADIs), general insurers, and life companies. Compulsory transfer of business powers are an important tool in the package of resolution options available to APRA. The Transfer Act enables some or all of the business of a regulated entity (including assets, liabilities, legal rights and obligations, data and systems) to be transferred to another regulated entity in the same category, which could include transfers to a newly established bridge entity or asset management vehicle. APRA may effect a compulsory transfer without the need for the approval of owners, shareholders, creditors, or the separate novation (by private contractual of liabilities. The power to implement transfers in this way could be used, in the course of resolution, to facilitate the sale of all or part of the business of a distressed entity to one or multiple buyers, depending on the situation. This may be particularly relevant in ensuring the continuity of an entity’s critical functions in resolution, where part or all of the regulated business of a regulated entity might be transferred to another existing regulated entity or a newly established bridge entity for this purpose. By international standards, the existing Transfer Act provides a comprehensive framework for compulsory transfers of business in resolution. However, there are certain areas in which the provisions could be enhanced to provide APRA with greater flexibility and certainty when arranging a compulsory transfer in a resolution. For example, in some situations, rather than transferring all of the assets and liabilities comprising the business of a failed regulated entity, it would be more expedient for APRA to be able to transfer ownership of the shares in the entity. Allowing for this, as well as other
requirement for the conversion or write-off of a capital instrument. Comparison of key features of new law and current law New law Current law It is clarified that the terms of capital instruments that provide for the instrument to absorb losses by converting or being written off are effective despite potential legal impediments. In some situations it is unclear that certain capital instruments will absorb losses – either by conversion or write off – due to potential legal impediments. Detailed explanation of new law Conversion and write-off of capital instruments Definitions The Bill amends the Industry Acts to incorporate several new definitions for the purpose of the amendments to provide certainty for the conversion and of capital instruments. The new term ‘conversion and write-off provisions’ refers to the provisions in APRA’s prudential standards that require certain capital instruments to be converted into ordinary shares or mutual equity interests, or to be written off, in certain circumstances described in the prudential standards. [Schedule 1, item 27, Schedule 2, item 19, Schedule 3, item 61, section 11CAA of the Banking Act, section 36Aof the Insurance Act, and section 230AAB of the Life Insurance Act] Presently, the provisions in the prudential standards that set these requirements are referred to as the ‘loss absorption requirements’ and requirements for ‘loss absorption at the point of non-viability’. The concept of ‘conversion and write-off provisions’ is intended to refer to these, while also leaving room for future changes to APRA’s prudential standards, including changes that might refer to instruments that are not currently considered capital under the prudential standards. The new term ‘converts’ describes any process by which capital instruments may be converted into ordinary shares or mutual equity interests. This term is broadly defined in order to accommodate current and future contractual approaches to how instruments are converted into ordinary shares or mutual equity interests. [Schedule 1, item 27, Schedule 2, item 19, Schedule 3, item 61, section 11CAA of the Banking Act, section 36A of the Insurance Act, and section 230AAB of the Life Insurance Act]
protected policy of the general insurer, to meet the entitlements of protected account-holders or relevant policyholders by transferring their accounts or policies to a receiving body. Enable APRA to obtain information from third parties in relation to the FCS APRA may obtain information from any other person (in addition to those specified in the current law) relevant to determining and paying amounts under the FCS. APRA may obtain only from specified persons (for example, a statutory manager of an ADI) information relevant to determining and paying amounts under the FCS. Ensure the effective payout of FCS entitlements to third-party claimants of the policyholder of a failed general insurer when the policyholder is in liquidation Payments made by APRA under the FCS to an insolvent corporate policyholder and which are the subject of claims by any third party claimants against the insolvent policyholder are to be paid in liquidation according to the priority provided for under section 562 of the Corporations Act. If APRA makes payment under the FCS to an insolvent corporate policyholder, it uncertain whether a third party claiming against the insolvent policyholder will be accorded priority in liquidation, under section 562 of the Corporations Act, for the amount claimed and paid to the insolvent policyholder. Enable APRA to make interim payments to claimants under the FCS APRA may, in accordance with regulations, determine the total amount of interim claims made by a claimant of a protected policy, and to make payments in response to those interim claims. It is uncertain whether APRA can make a series of interim determinations allowing additional payments under the insurance FCS. This may be desirable where, for example, the losses insured by a protected policy materialise, and become payable, on multiple occasions over a period of time or where it is expedient to make an initial payment of an undisputed amount and further payments following assessors’ reports. Granting the Treasurer discretion to declare the FCS at an earlier time The Treasurer may now declare the FCS in relation to an ADI or general insurer once a statutory manager has taken control of the ADI or general insurer, in addition to the existing preconditions in the law. The Treasurer may declare the FCS in relation to an ADI only when APRA has applied to wind up the ADI, and in relation to a general insurer only when it is under judicial management or an external administrator has been appointed.