Details of the Financial Framework (Supplementary Powers) Amendment (Treasury Portfolio Measures No. 1) Regulations 2019

 

Section 1 - Name

 

This section provides that the title of the Regulations is the Financial Framework (Supplementary Powers) Amendment (Treasury Portfolio Measures No. 1) Regulations 2019.

 

Section 2 - Commencement

 

This section provides that the Regulations commence on the day after the instrument is registered on the Federal Register of Legislation.

 

Section 3 - Authority

 

This section provides that the Regulations are made under the Financial Framework (Supplementary Powers) Act 1997.

 

Section 4 - Schedules

 

This section provides that the Financial Framework (Supplementary Powers) Regulations 1997 are amended as set out in the Schedule to the Regulations.

 

Schedule 1 - Amendments

 

Item 1 - In the appropriate position in Part 4 of Schedule 1AB (table)

 

Item 1 adds a new table item to Part 4 of Schedule 1AB to establish legislative authority for government spending on an activity that will be administered by Treasury.

 

New table item 347 establishes legislative authority for government spending on the Paying Legacy Unpaid External Dispute Resolution Determination Program (the program).

 

The program would allow the Government to pay eligible persons, consisting of individuals and small business consumers, the value of the award (inclusive of interest) not paid by a financial service provider that has failed to comply with a determination made under the Terms of Reference for the Finance Ombudsman Service (FOS) or the Credit and Investments Ombudsman (CIO) Rules.

 

The Government has announced the payment of these unpaid determinations as part of its response to the Financial Services Royal Commission. The program also supports the findings of the review of the financial system external dispute resolution and complaints framework (the Ramsay Review). The Ramsay Review found that there was a strong case for unpaid determinations made by the former EDR schemes to be paid out, so that their existence does not continue to undermine the credibility of EDR going forward. The review also found that it may not be either appropriate or desirable that current industry participants be required to contribute to compensation arising from determinations against former industry participants and it is a matter for government as to whether it is able to identify a funding source to address these unpaid EDR determinations.

 

The Supplementary Final Report of the Ramsay Review can be found on the Treasury website at: https://treasury.gov.au/review/review-into-dispute-resolution-and-complaints-framework/.

 

There can be a variety of reasons why the determination was not paid at the time of that determination or why it remains unpaid. It is likely the exact circumstances will vary between cases.

 

This program is expected to benefit over 300 consumers and small businesses relating to determinations that have been made on or after 1 July 2008 (when FOS and CIO commenced).

 

In many (but not all) cases, this is because the financial services provider is now bankrupt or insolvent. In other cases, the provider has been deregistered or wound up (without a formal insolvency process).

 

In a small number of cases determinations relate to providers that continue to be registered corporations that have not yet undergone insolvency or been wound up. Payment of unpaid determinations in relation to firms in this category is not included in this program.

 

In addition, some cases that were brought under the FOS Terms of Reference or CIO Rules prior to the establishment of the Australian Financial Complaints Authority (AFCA) are still being processed by AFCA under the predecessor schemes' Terms of Reference or Rules. Determinations that will not be paid in the future arising from these disputes will also benefit from payment under this proposal.

 

Payments will be made under the program until 30 June 2020.

 

The Department of Industry, Innovation and Science (DIIS) will administer the payments of unpaid EDR determinations on behalf of Treasury through the Business Grants Hub. The program will operate for a 12-month period from 1 July 2019 with eligible persons able to lodge an application with DIIS for payment where they satisfy the program guidelines.

 

Unpaid EDR determinations would be eligible for payments after 1 July 2019 until
30 June 2020.

 

DIIS, in consultation with Treasury and AFCA, will prepare program guidelines that will stipulate how the program will operate and ensure payments are made to those who are eligible. Decisions about eligibility for a payment under the program will be made in accordance with the program guidelines, which will be publicly available and published on the GrantConnect website at www.grants.gov.au.

 

A senior official within DIIS will be responsible for making final decisions in relation to the program.

 

An independent merit review process will be provided by a senior responsible officer within the DIIS who is independent of the original process of reviewing eligibility for payment.

 

Funding for this item will likely come from Program 1.1: Department of Treasury, which is part of Outcome 1. Details will be set out in the Portfolio Budget Statements 2019-20, Budget Related Paper No. 1.16, Treasury Portfolio. Treasury will administer a demand-driven annual appropriation.

 

Noting that it is not a comprehensive statement of relevant constitutional considerations, the objective of the item references the following powers of the Constitution:

*         the bankruptcy and insolvency power (section 51(xvii))

*         the insurance power (section 51(xiv))

*         the territories power (section 122).

 

Bankruptcy and insolvency power

 

Section 51(xvii) of the Constitution empowers the Parliament to make laws with respect to 'bankruptcy and insolvency'.

 

The program will allow a payment to be made to an eligible person who was awarded compensation under a particular external dispute resolution scheme but has not received that amount and there is no prospect of receiving the amount due to the payer being bankrupt or insolvent, or at imminent risk of bankruptcy or insolvency.  

 

Insurance power

 

Section 51(xiv) of the Constitution relevantly empowers the Parliament to make laws with respect to 'insurance, other than State insurance'.

 

The program will allow a payment to be made to an eligible person who was awarded compensation under a particular external dispute resolution scheme where the circumstances that gave rise to the making of the award arose in connection with the conduct of the insurance business of a financial services provider.

 

Territories power

 

Section 122 of the Constitution empowers the Parliament to make laws 'for the government of any territory'.

 

The program will allow a payment to be made to an eligible person who lives in a territory, or where the circumstances that gave rise to the making of an award arose in connection with conduct in a territory.

 

 

Statement of Compatibility with Human Rights

 

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

 

Financial Framework (Supplementary Powers) Amendment (Treasury Portfolio Measures No. 1) Regulations 2019

 

This disallowable legislative instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

 

Overview of the Legislative Instrument

 

Section 32B of the Financial Framework (Supplementary Powers) Act 1997 authorises the Commonwealth to make, vary and administer arrangements and grants specified in the Financial Framework (Supplementary Powers) Regulations 1997 (the FF(SP) Regulations) and to make, vary and administer arrangements and grants for the purposes of programs specified in the Regulations.

 

Schedule 1AA and Schedule 1AB to the FF(SP) Regulations specify the arrangements, grants and programs. The FF(SP) Act applies to Ministers and the accountable authorities of non-corporate Commonwealth entities, as defined under section 12 of the Public Governance, Performance and Accountability Act 2013.

 

The Financial Framework (Supplementary Powers) Amendment (Treasury Portfolio Measures No. 1) Regulations 2019 amend Schedule 1AB to the FF(SP) Regulations to add a new table item to establish legislative authority for government spending on an initiative that will be administered by the Treasury.

 

The program would allow the Government to pay eligible persons, consisting of individuals and small business consumers, the value of the award (inclusive of interest) not paid by a financial service provider that has failed to comply with a determination made under the Terms of Reference for the Finance Ombudsman Service (FOS) or the Credit and Investments Ombudsman (CIO) Rules.

 

This compensation will not be paid and, as identified by the Review of the financial system external dispute resolution and complaints framework (the Ramsay Review), payment of these legacy amounts will help to restore confidence in the financial sector to the benefit of the broader community.

 

Consideration has been given to the international conventions as set out in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 and this legislative instrument does not engage any of the applicable rights or freedoms.

 

Human rights implications

 

This instrument does not engage any of the applicable rights or freedoms.

 

Conclusion

 

This instrument is compatible with human rights as it does not raise any human rights issues.

 

 

 

 

 

 

Senator the Hon Mathias Cormann

Minister for Finance and the Public Service