Federal Register of Legislation - Australian Government

Primary content

A Bill for an Act to re-establish confidence in the banking system, to separate retail commercial banking activities involving the holding of deposits from wholesale and investment banking involving risky activities, and for other purposes
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Registered 13 Feb 2019
Introduced Senate 12 Feb 2019

2016‑2017‑2018‑2019

 

The Parliament of the

Commonwealth of Australia

 

THE SENATE

 

 

 

 

Presented and read a first time

 

 

 

 

Banking System Reform (Separation of Banks) Bill 2019

 

No.      , 2019

 

(Senator Hanson)

 

 

 

A Bill for an Act to re‑establish confidence in the banking system, to separate retail commercial banking activities involving the holding of deposits from wholesale and investment banking involving risky activities, and for other purposes

  

  

  


Contents

1  Short title........................................................................................................ 1

2  Commencement.............................................................................................. 2

3  Outline of the purposes of this Act................................................................ 2

4  Definitions..................................................................................................... 3

5  Application to Crown..................................................................................... 5

6  Re‑regulation.................................................................................................. 5

7  Prohibition on affiliations by banks with non‑bank entities........................... 5

8  Individuals eligible to serve on boards of banks............................................ 6

9  Termination of existing affiliations and activities........................................... 7

10  Limitation on banking activities.................................................................... 7

11  Permitted activities of banks......................................................................... 9

12  Evasion of provisions................................................................................ 11

13  Financial Claims Scheme........................................................................... 11

14  Australian Prudential Regulation Authority............................................... 11

 


A Bill for an Act to re‑establish confidence in the

banking system, to separate retail commercial

banking activities involving the holding of deposits

from wholesale and investment banking involving

risky activities, and for other purposes

The Parliament of Australia enacts:

 

1  Short title

                   This Act is the Banking System Reform (Separation of Banks) Act 2019.

2  Commencement

             (1)  Each provision of this Act specified in column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table. Any other statement in column 2 has effect according to its terms.

 

Commencement information

Column 1

Column 2

Column 3

Provisions

Commencement

Date/Details

1.  The whole of this Act

The day after this Act receives the Royal Assent.

 

Note:          This table relates only to the provisions of this Act as originally enacted. It will not be amended to deal with any later amendments of this Act.

             (2)  Any information in column 3 of the table is not part of this Act. Information may be inserted in this column, or information in it may be edited, in any published version of this Act.

3  Outline of the purposes of this Act

                   The purposes of this Act are as follows:

                     (a)  to reduce risks to the financial system by limiting the ability of banks to engage in activities other than socially valuable core banking activities;

                     (b)  to protect taxpayers and reduce moral hazard by removing explicit and implicit government guarantees for high‑risk activities outside of the core business of banking;

                     (c)  to eliminate any conflict of interest that arises from banks engaging in activities from which their profits are earned at the expense of their customers or clients;

                     (d)  to provide for the safer and more effective use of the assets of banks, to regulate interbank control, and to prevent the undue diversion of funds into speculative operations;

                     (e)  to re‑enforce the Constitutional power of the Commonwealth Parliament to regulate banking and other aspects of the Australian economy, and to promote the exercise of that power in Australia’s national interest, including through ensuring an orderly flow of credit and currency to public infrastructure and utilities and to private enterprise engaged in the production and transportation of tangible economic wealth, including manufacturing, agriculture, construction, and mining, successive governments having been deficient in action in the national interest by abrogating such power and relinquishing it to private banking interests, which have been exercising arbitrary judgments on monetary policies in violation of Australia’s national economic interest;

                      (f)  to require that the Australian government re‑regulate Australia’s national financial system by the separation of sound commercial banking, which benefits the average Australian, from the speculative merchant banking activities which have grown like a cancer under financial deregulation, both in this country and worldwide and which have largely caused the present, ever deepening global financial crisis;

                     (g)  to facilitate this re‑regulation of Australia’s financial system by mandating strict Parliamentary control over APRA, including fines and/or jail terms for APRA officials attempting to evade such supervision.

4  Definitions

                   In this Act:

APRA means the Australian Prudential Regulation Authority.

bank means a body corporate carrying on banking business and being an authorised deposit‑taking institution within the meaning of the Banking Act 1959 as amended and in respect of which an authority under subsection 9(3) of that Act is in force.

bank holding company means any body corporate, whether or not operating as a bank, which owns a controlling interest in, or controls in any manner the election of directors or trustees of, or directly or indirectly exercises a controlling influence over the management or policies of any bank.

banking business means:

                     (a)  business that consists of banking within the meaning of paragraph 51(xiii) of the Constitution; or

                     (b)  business that is carried on by a corporation to which paragraph 51(xx) of the Constitution applies and that consists, to any extent, of both taking money on deposit (otherwise than as part payment for identified goods or services) and making advances of money or credit;

but does not include State banking not extending beyond the limits of the State concerned.

business of receiving deposits means the establishment and maintenance of a deposit or account on which the depositor or account holder is permitted to make withdrawals by negotiable or transferable instrument, payment orders of withdrawal, telephone transfers, or other similar items for the purpose of making payments or transfers to third persons or others. Such term includes demand deposits, negotiable order of withdrawal accounts, and savings deposits subject to automatic transfers.

Committee means the Parliamentary Joint Committee on Prudential Regulation created pursuant to subsection 14(1).

investment securities means marketable obligations evidencing indebtedness of any person, co‑partnership, association, or corporation in the form of bonds, notes, or debentures, and obligations of the Commonwealth government, or of any State or subdivision of the Commonwealth, and does not include managed investment schemes or any of the instruments described in paragraph 10(3)(a).

managed investment scheme means a managed investment scheme within the meaning of the Corporations Act 2001 as amended, in which members make contributions in return for an interest in the benefits the scheme produces, in which contributions are pooled to produce the benefits, and members do not have day‑to‑day control over how the scheme operates.

securities entity includes any entity engaged in:

                     (a)  the issue, flotation, underwriting, public sale, or distribution of stocks, bonds, debentures, notes, or other securities; or

                     (b)  market making; or

                     (c)  activities of a broker or dealer; or

                     (d)  activities of a futures commission merchant; or

                     (e)  activities of an investment adviser or investment company; or

                      (f)  hedge fund or private equity investments in the securities of either privately or publicly held companies; but does not include a bank that, pursuant to its authorised trust and fiduciary activities, purchases and sells investments for the account of its customers or provides financial or investment advice to its customers.

swap dealer or swaps dealer means an entity that:

                     (a)  holds itself out as a dealer in swaps; or

                     (b)  makes a market in swaps; or

                     (c)  regularly enters into swaps with counterparties as an ordinary course of business for its own account; or

                     (d)  engages in activity causing itself to be commonly known in the trade as a dealer or market maker in swaps.

swaps entity means a swap dealer, security‑based swap dealer, major swap participant, or major security‑based swap participant.

5  Application to Crown

                   This Act binds the Crown in right of each of the States, of the Australian Capital Territory and of the Northern Territory.

6  Re‑regulation

                   The Australian government shall not implement any policy nor propose any legislation or regulation which is incompatible with the purposes or provisions of this Act.

7  Prohibition on affiliations by banks with non‑bank entities

             (1)  A bank may not:

                     (a)  be or become an affiliate of any insurance company, securities entity, swaps entity or any company which is not a bank; or

                     (b)  be in common ownership or control with any insurance company, securities entity, swaps entity or any company which is not a bank; or

                     (c)  engage in any activity that would cause the bank to qualify as an insurance company, securities entity, or swaps entity or any company which is not a bank.

             (2)  No bank or bank holding company shall, after the commencement of this Act, retain or acquire direct or indirect ownership or control of any company or entity which is not a bank.

             (3)  A bank may not issue bonds or securities which have any voting rights whatsoever in the management or business of the bank. This provision shall not prevent a bank which is listed on any Australian stock exchange issuing shares which carry voting rights in the management or business of the bank.

8  Individuals eligible to serve on boards of banks

             (1)  An individual who is an officer, director, partner, or employee of any securities entity, insurance company, or swaps entity may not serve at the same time as an officer, director, employee, or other institution‑affiliated party of any bank.

             (2)  Subsection (1) shall not apply with respect to service by any individual who is otherwise prohibited under that subsection, if the appropriate Minister with the consent of the Committee determines that service by such an individual as an officer, director, employee, or other institution‑affiliated party of a bank would not unduly influence:

                     (a)  the investment policies of the bank; or

                     (b)  the advice that the bank provides to customers.

             (3)  Subject to a determination under subsection (2), any individual described in subsection (1) who, as of the date of commencement of this Act, is serving as an officer, director, employee, or other institution‑affiliated party of any bank shall terminate such service as soon as is practicable after such date of commencement, and in no event later than the end of the 60‑day period beginning on that date of commencement.

9  Termination of existing affiliations and activities

             (1)  Any affiliation, common ownership or control, or activity of a bank or bank holding company with any securities entity, insurance company, swaps entity, or any other person, as of the date of commencement of this Act, which is prohibited under section 7 shall be terminated as soon as is practicable, and in no event later than the end of a 24‑month period beginning on that date of commencement.

             (2)  APRA may order termination of an affiliation, common ownership or control, or activity prohibited by section 7 before the end of the 24‑month period described in subsection (1), if APRA determines that such action:

                     (a)  is necessary to prevent undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices; and

                     (b)  is in the public interest.

             (3)  Subject to a determination under subsection (2), APRA may extend the 24‑month period described in subsection (1) as to any particular bank for not more than an additional 3 months at a time, if:

                     (a)  APRA certifies that such extension would promote the public interest and would not pose a significant threat to the stability of the banking system or financial markets in Australia; and

                     (b)  such extension, in the aggregate, does not exceed 1 year for any single bank; and

                     (c)  such extension has been approved by the Committee.

             (4)  Upon receipt of an extension under (3), the bank shall notify shareholders of the bank and the general public that it has failed to comply with the requirements of subsection (1).

10  Limitation on banking activities

             (1)  After the expiration of two years after the date of commencement of this Act it shall be unlawful:

                     (a)  for any person, firm, corporation, association, business trust, or other similar organisation, engaged in the business of issuing, underwriting, selling, or distributing, at wholesale or retail, or through syndicate participation, stocks, bonds, debentures, notes, or other securities, to engage at the same time to any extent whatever in the business of receiving deposits subject to cheque or to repayment upon presentation of a passbook, certificate of deposit, or other evidence of debt, or upon request of the depositor; or

                     (b)  for any person, firm, corporation, association, business trust, or other similar organisation, other than a bank, to engage to any extent whatever in the business of receiving deposits subject to cheque or to repayment upon presentation of a passbook, certificate of deposit, or other evidence of debt, or upon request of the depositor.

             (2)  A person commits an offence if:

                     (a)  the person commits or causes a breach of any of the provisions of this section; or

                     (b)  the person:

                              (i)  is an officer, director, employee, or agent of a person, firm, corporation, association, business trust, or other similar organisation; and

                             (ii)  knowingly participates in any such violation.

Penalty:  Imprisonment for 5 years or 1,190 penalty units, or both.

             (3)  A bank may not:

                     (a)  invest in a structured or synthetic product, a financial instrument in which a return is calculated based on the value of, or by reference to the performance of, a security, commodity, swap, other asset, or an entity, or any index or basket composed of securities, commodities, swaps, other assets, or entities, other than customarily determined interest rates; or

                     (b)  otherwise engage in the business of receiving deposits or extending credit for transactions involving structured or synthetic products.

             (4)  A bank or bank holding company shall not:

                     (a)  engage in the business of a securities entity or a swaps entity, including dealing or making markets in securities, repurchase agreements, exchange traded and over‑the‑counter swaps, or structured or synthetic products, or any other over‑the‑counter securities, swaps, contracts, or any other agreement that derives its value from, or takes on the form of, such securities, derivatives, or contracts; or

                     (b)  engage in proprietary trading; or

                     (c)  own, sponsor, or invest in a hedge fund, or private equity fund, or any other fund that exhibits the characteristics of a fund that takes on proprietary trading activities or positions; or

                     (d)  hold ineligible securities or derivatives; or

                     (e)  engage in market‑making; or

                      (f)  engage in prime brokerage activities; or

                     (g)  promote or engage directly or indirectly in any managed investment scheme, including but not limited to the making of loans or granting of credit to, or in any way supporting, either the trustee or manager of any scheme or the members of any scheme; or

                     (h)  make any loan or grant any credit to, or in any way support, any person or corporation, whether or not a customer of the bank, if, to the knowledge of the bank, such support or loan or credit is intended to be employed in the undertaking of any investment or activity prohibited to the bank by this Act.

             (5)  No bank or bank holding company shall act as the medium or agent of any non‑banking corporation, partnership, association, business trust, or individual in making loans on the security of stocks, bonds, or other investment securities to brokers or dealers in stocks, bonds, and other investment securities or in any dealings whatsoever in respect of stocks, bonds, or other investment securities.

             (6)  No bank or bank holding company shall underwrite any issue of stocks, bonds, or other investment securities.

11  Permitted activities of banks

             (1)  The business of banking which may be undertaken by a bank shall be limited to the following core banking services:

                     (a)  the business of receiving deposits;

                     (b)  the extension of credit to individuals, businesses, not for profit organisations, and other entities;

                     (c)  the discount and negotiation of promissory notes, drafts, bills of exchange, and other evidences of debt;

                     (d)  the loan of money on personal security.

             (2)  A bank may participate in payment systems, defined as instruments, banking procedures, and interbank funds transfer systems that ensure the circulation of money.

             (3)  A bank may buy, sell, and exchange coin and bullion.

             (4)  A bank may invest in investment securities as defined in section 4 provided that:

                     (a)  the business of dealing in investment securities and shares by a bank shall be limited to:

                              (i)  purchasing and selling such securities and shares without recourse, solely upon the order, and for the account, of customers, and, subject to subparagraph (ii), in no case for its own account, and the bank shall not underwrite any issue of securities or shares; and

                             (ii)  purchasing for its own account investment securities under such limitations as APRA with the approval of the Committee may prescribe, by regulation; and

                     (b)  in no event shall the total amount of the investment securities of any single obligor or maker, held by the bank for its own account, exceed 10 per cent of its capital stock actually paid in and unimpaired and 10 per cent of its unimpaired surplus fund, except that such limitation shall not require any bank to dispose of any investment securities lawfully held by it on the date of commencement of this Act.

             (5)  In considering any limitations to be imposed by APRA and the Committee pursuant to subparagraph (4)(a)(ii) APRA and the Committee shall give primary consideration to the purposes of this Act as set out in section 3 and shall not approve any investment security which may directly or indirectly enable any investment or activity prohibited to the bank by this Act.

12  Evasion of provisions

             (1)  Any attempt to structure any contract, investment, instrument, or product in such a manner that the purpose or effect of such contract, investment, instrument, or product is to evade or attempt to evade the provisions of this Act shall render such contract, investment, instrument, or product void.

             (2)  A person commits an offence if:

                     (a)  the person attempts to structure any contract, investment, instrument, or product in such a manner that the purpose or effect of such contract, investment, instrument, or product is to evade or attempt to evade the provisions of this Act; or

                     (b)  the person:

                              (i)  is an officer, director, employee, or agent of a person, firm, corporation, association, business trust, or other similar organisation; and

                             (ii)  knowingly participates in any such violation.

Penalty:  Imprisonment for 5 years or 1,190 penalty units, or both.

13  Financial Claims Scheme

             (1)  The Financial Claims Scheme as created by the Financial System Legislation Amendment (Financial Claims Scheme and Other Measures) Act 2008 shall extend to all accounts held with any Australian bank whose banking business does not include any prohibited activities.

             (2)  The Financial Claims Scheme as created by the Financial System Legislation Amendment (Financial Claims Scheme and Other Measures) Act 2008 shall not extend to any accounts held with any Australian bank whose banking business includes any prohibited activities in breach of the provisions of this Act.

14  Australian Prudential Regulation Authority

             (1)  As soon as practicable after the commencement of this Act and after the commencement of the first session of each Parliament, a joint committee of members of the Parliament, to be known as the Parliamentary Joint Committee on Prudential Regulation, shall be appointed.

             (2)  The Committee shall consist of 10 members, of whom:

                     (a)  5 shall be senators appointed by the Senate; and

                     (b)  5 shall be members of the House of Representatives appointed by that House.

             (3)  The appointment of members by a House shall be in accordance with that House’s practice relating to the appointment of members of that House to serve on joint select committees of both Houses.

             (4)  A person is not eligible for appointment as a member if he or she is:

                     (a)  a Minister; or

                     (b)  the President of the Senate; or

                     (c)  the Speaker of the House of Representatives; or

                     (d)  the Deputy President and Chair of Committees of the Senate; or

                     (e)  the Deputy Speaker of the House of Representatives; or

                      (f)  a chair or deputy chair of a committee of a House of the Parliament.

             (5)  A member ceases to hold office:

                     (a)  when the House of Representatives expires or is dissolved; or

                     (b)  if he or she becomes the holder of an office referred to in a paragraph of subsection (4); or

                     (c)  if he or she ceases to be a member of the House by which he or she was appointed; or

                     (d)  if he or she resigns his or her office.

             (6)  Subject to this Act, all matters relating to the Committee’s powers and proceedings shall be determined by resolution of both Houses.

             (7)  The Committee’s duties are:

                     (a)  to hold public inquiries into, and report to both Houses on:

                              (i)  activities of APRA, or matters connected with such activities, to which, in the Committee’s opinion, the Parliament’s attention should be directed; or

                             (ii)  the operation of any law relating to APRA, or of any other law of the Commonwealth, of a State or Territory or of a foreign country that appears to the Committee to affect significantly the operation of such law; and

                     (b)  to examine each annual report that is prepared by APRA, and to report to both Houses on matters that appear in, or arise out of, that annual report and to which, in the Committee’s opinion, the Parliament’s attention should be directed; and

                     (c)  to inquire into any question in connection with APRA’s duties that is referred to it by a House, and to report to that House on that question.

             (8)  Within 30 days of the passage of this Act APRA shall lodge with the Parliament a copy of all Prudential Standards created by APRA pursuant to the Australian Prudential Regulation Authority Act 1998 together with an explanatory statement for each Standard. If any documents are incorporated in the Standard or explanatory statement by reference, the lodgement shall include a description of the incorporated documents and indicate how they may be obtained.

             (9)  Subject to any direction given by the Parliamentary Joint Committee on Prudential Regulation, the appropriate Minister shall, as soon as practicable after the commencement of this Act, by notice in writing, give to APRA guidelines to be observed in relation to the performance of APRA’s functions that relate to the Australian financial system and Australia’s banking system, and may, from time to time, vary or replace guidelines so given.

           (10)  Any Prudential Standard proposed by APRA after the commencement of this Act shall be subject to the approval of the Parliament and if not so approved shall be of no force and effect.

           (11)  Either House of Parliament may pass a resolution disallowing any Prudential Standard at any time after such lodgement, but only if notice of the resolution was given within 15 sitting days of the House or Senate after the lodgement.

           (12)  On the passing of a resolution disallowing any Prudential Standard, the Standard shall cease to have effect.

           (13)  APRA shall not consult with nor accept nor implement the recommendations or decisions of any foreign bank or foreign authority including, but not limited to, the Bank of England and the Bank for International Settlements, without the prior express written approval and consent of the Committee. In seeking such approval and consent APRA shall provide the Committee with full details of any request from such foreign authority or bank and the basis upon which APRA seeks to undertake any contact with such institution or bank or to consider any recommendation or decision of such bank or authority and shall provide to the Committee a copy of all communications with such bodies and a written transcript of any discussions.

           (14)  A person commits an offence if the person breaches or authorises a breach of subsection (13).

Penalty:  Imprisonment for 5 years or 1,190 penalty units, or both.

           (15)  Subject to any terms or conditions as may be imposed by the Committee APRA shall provide to Australian Federal and State Police and law enforcement bodies:

                     (a)  any documents, information or data requested by such bodies regarding any bank under APRA’s regulatory supervision;

                     (b)  any documents, information or data which may come to the attention of or into the possession of APRA and which may evidence a crime or breach of any Australian law.

           (16)  A person commits an offence if:

                     (a)  the person evades, or attempts to evade, the provisions of subsection (15); or

                     (b)  the person:

                              (i)  is an officer, employee, or agent of APRA; and

                             (ii)  knowingly participates in any such violation.

Penalty:  Imprisonment for 5 years or 1,190 penalty units, or both.

           (17)  In the making of any determination to be made by APRA or the Committee pursuant to this Act, APRA and the Committee shall give primary consideration the purposes of this Act as set out in section 3.