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Perspectives on Cyber Risk
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Exposure draft of Treasury Laws Amendment (Non-ADI Lender Rules) Bill 2017 released for consultation

Exposure draft of Treasury Laws Amendment (Non-ADI Lender Rules) Bill 2017 released for consultation

July 24, 2017 2:23 PM | Print this page

As announced in the 2017-2018 budget, the Treasury have released an exposure draft of a new Bill to provide the Australian Prudential Regulation Authority (APRA) with new powers in respect of the provision of credit by entities that are not authorised deposit-taking institutions (non-ADI lenders), to complement APRA’s existing powers in respect of ADIs: Treasury Laws Amendment (Non-ADI Lender Rules) Bill 2017 (the draft Bill).

Consistent with the Budget announcement, the draft Bill proposes to:

  • amend the Banking Act 1959 to provide APRA with a power to make rules concerning the lending activities of non-ADI lenders for the purpose of addressing financial stability risks (non-ADI lender rules), provide APRA with a new power to issue a direction to a non-ADI lender should the entity fail to comply with a non-ADI lender rule, and introduce penalties for non-ADI lenders that fail to comply with a direction by APRA; and
  • amend the Financial Sector (Collection of Data) Act 2001 to allow APRA to collect data from non-ADI lenders for the purposes of monitoring their activities and determining when to use its new powers.
    Consultation will close on 14 August 2017.

Key changes include:

  • The Banking Act will be amended to include new definitions of non-ADI lender, non-ADI lender rule and lending finance at ss5(1). Under current law, non-ADI lenders are not currently defined in the Banking Act.
  • New Part IIB will be inserted into the Banking Act to further define non-ADI lenders and create a power for APRA to make rules and issue directions with respect to non-ADI lenders.
  • Section 38C will be inserted into the Banking Act to provide APRA with the ability to make non-ADI lender rules. New section 38C is broadly modelled on section 11AF of the Banking Act to provide internal consistency within the Act.
  • Section 38E will be inserted into the Banking Act providing APRA with the power to issue directions in certain circumstances. New section 38E is broadly modelled on section 11CA of the Banking Act to provide internal consistency within the Act.
  • Section 38F creates an offence should a non-ADI lender contravene a direction provided to it under section 38E. New section 38F is broadly modelled on section 11CG of the Banking Act to provide internal consistency within the Act.
  • Consequential amendments to the Financial Sector (Collection of Data) Act 2001 (FSCODA) to broaden APRA’s ability to gather data from all relevant non-ADI lenders. Currently, the FSCODA enables APRA to collect limited data from certain non-ADI lenders. The proposed change will widen the class of registrable corporations under the FSCODA and will ensure that all non-ADI lenders, within specified parameters, are captured by these amendments.
  • Corporations which are not considered to be registrable corporations for the purposes of the FSCODA will include those corporations: whose sum of assets in Australia, consisting of debts due to the corporation resulting from transactions entered into in the course of the provision of finance by the corporation, does not exceed $50,000,000 (or any greater or lesser amount as prescribed by regulations); and whose sum of the values of the principal amounts outstanding on loans or other financing, as entered into in a financial year, does not exceed $50,000,000 (or any other amount as prescribed by regulations). Currently, the scope of registrable corporations is significantly narrower.

Treasurer's comments

In a media release, the Treasurer commented on the reasons for the implementation of the Bill:

  • New powers necessary to enable APRA to manage the financial stability risks posed by the activities of non bank lenders, complementing APRA’s current powers over ADIs: Since December 2014, the Australian Prudential Regulation Authority (APRA) has taken a series of steps to address emerging financial stability risks by tightening the lending practices of banks and ADIs particularly in relation to residential home loans. However, APRA does not have powers over the lending activities of non-bank lenders, even where they materially contribute to financial stability risks. The draft Bill will enable APRA to issue rules relating to lending practices of non bank lenders, where it considers that they materially contribute to financial stability risks.
  • Enforcement mechanisms: new rules will be backed by appropriate enforcement mechanisms. If a non-bank lender fails to comply with a rule, it will be directed by APRA to comply. If it fails to comply with an APRA direction, the non-bank lender will face appropriate penalties.
  • Data collection: The legislation also enhances APRA’s ability to collect data from non-bank lenders, so it can better tailor the use of these new powers.
  • 'Approach financial risks with a scalpel rather than a chainsaw': this measure provides APRA a 'new scalpel' to deal with risks specific to non-bank lenders. APRA will use its independent judgement to determine how and when to use this tool, in consultation with the Council of Financial Regulators. 'The Turnbull Government is committed to ensuring that APRA is able to respond flexibly to financial and housing market developments that pose a risk to financial stability'.

The AFR writes that the Bill is significant because it will give APRA access to 'crucial data on the state of lending in the so-called shadow banking sector'. A separate AFR report comments that the new rules have been received with approval from lenders.

[Sources: Exposure Draft: Treasury Laws Amendment (Non-ADI Lender Rules) Bill 2017; Explanatory Memorandum Treasury Laws Amendment (Non-ADI Lender Rules) Bill 2017; The Hon Scott Morrison MP Treasurer of the Commonwealth of Australia Media Release 17/07/2017; The AFR 17/07/2017; 17/07/2017]