Overview

The Financial Sector (Shareholdings) Act 1998 was enacted to address the need for regulatory oversight of shareholdings in Australia’s financial sector, ensuring that entities holding significant stakes in financial institutions are subject to scrutiny that aligns with national interests. This legislative framework empowers the Treasurer to approve or disapprove shareholdings exceeding 15% in financial sector companies, thereby maintaining financial stability and protecting consumers. The Act was passed by the Parliament of Australia and aims to prevent unacceptable shareholding situations that could compromise the integrity and stability of the financial sector. In the case of Hana Financial Group Inc.'s application to hold a stake of more than 15% in Korea Exchange Bank Co., Ltd., the delegate of the Treasurer, Brandon Kong Leong Khoo, approved the holding of a 100% stake, deeming it to be in the national interest.

Scope and Application

The Financial Sector (Shareholdings) Act 1998 applies to any person or entity seeking to acquire or hold a significant stake in a financial sector company, as defined under the Act. The Act regulates the shareholdings in such companies to ensure they do not result in unacceptable shareholding situations, which could potentially threaten the stability of the financial sector. The Act is applicable across the Commonwealth of Australia and its provisions extend to entities both within and outside Australia, provided they have a connection to an Australian financial sector company. The Act provides for the Treasurer to grant approvals for shareholdings exceeding the 15% threshold, subject to conditions that may be imposed, varied, or revoked to ensure they remain aligned with the national interest. The Act also allows for flow-on approvals in cases where the financial sector company is a holding company for an authorised deposit-taking institution or an authorised insurance company, thereby extending its regulatory reach to subsidiary entities. Notably, the Act does not specify explicit exclusions or thresholds beyond the 15% shareholding limit but allows for flexibility through the imposition of conditions by the Treasurer. The application and enforcement of the Act may be further detailed through subordinate instruments, which can provide additional guidance or specific provisions to address emerging issues within the financial sector.

Key Provisions

Section 13 of the Financial Sector (Shareholdings) Act 1998 (the Act) allows an entity to apply to the Treasurer for approval to hold a stake of more than 15% in a financial sector company. The Act specifies that the approval can be granted for a stake of up to 100%. In this instance, the applicant, Hana Financial Group Inc., has applied for and received approval to hold a 100% stake in Korea Exchange Bank Co., Ltd, a financial sector company. This approval was granted by Brandon Kong Leong Khoo, a delegate of the Treasurer, under subsection 14(1) of the Act, who is satisfied that the approval is in the national interest. This approval is effective immediately and remains in force indefinitely. The Act imposes various obligations on entities seeking approval to hold a stake in a financial sector company. Firstly, entities must apply to the Treasurer under section 13 of the Act. The Treasurer then assesses whether the approval is in the national interest and, if satisfied, grants the approval under section 14. Additionally, the Act allows the Treasurer to impose conditions or further conditions on the approval under paragraph 16(2)(a) of the Act, and to revoke or vary these conditions under paragraph 16(2)(b). Entities holding an approval may also apply to vary the percentage specified in the approval under section 17(1) of the Act. Furthermore, the Treasurer may, on their own initiative, vary the percentage specified in the approval under subsection 17(6) of the Act if they are satisfied that it is in the national interest. Under section 11 of the Act, an unacceptable shareholding situation occurs if a person or group of persons acquire shares in a financial sector company such that an unacceptable shareholding situation comes into existence, or if such an unacceptable situation already exists, there is an increase in the stake held by the person in the company. An individual or entity can be held liable for this offence if they are reckless as to whether the acquisition would have this result. The maximum penalty for an individual is 400 penalty units, whereas for a body corporate, the penalty is not exceeding 2,000 penalty units. An offence under section 11 is considered an indictable offence. The Act also provides for the imposition of flow-on approvals. Under section 19, if an approval has been granted for the holding of a stake in a financial sector company and that company is a holding company for an authorised deposit-taking institution or an authorised insurance company, then an approval is taken to exist for the holding of a stake of equal value in each financial sector company that is a 100% subsidiary of the holding company. This ensures that the approval process is streamlined and comprehensive, covering all relevant subsidiaries.