Banks (Shareholdings) Regulations (Amendment) 1996 No. 23
EXPLANATORY STATEMENT
STATUTORY RULES 1996 No. 23
Issued by the Authority of the Treasurer
Banks (Shareholdings) Act 1972
Banks (Shareholdings) Regulations (Amendment)
Section 10 of the Banks (Shareholdings) Act 1972 (the Act) generally limits the nominal amount of the voting shares of a bank in which a person (including a corporation) may have an interest to 10 per cent, or 15 per cent with the approval of the Treasurer, of the total nominal amount of the voting shares of the bank. Under subsection 10(4) of the Act the Governor-General may, after application made to the Treasurer by a person, if the Governor-General is satisfied that to do so is in the national interest, fix a higher percentage for that person by instrument published in the Gazette. Subsection 10(5A) provides that the Governor-General may, on the publication under subsection 10(4) of an instrument fixing a percentage applicable to a corporation in respect of a bank, after application made to the Treasurer by the corporation, by instrument in writing published in the Gazette, declare that the percentage so fixed is also applicable to the persons who are from time to time relevant officers of the corporation in respect of the bank.
Section 17 of the Act provides that the Governor-General may make regulations for the purposes of the Act.
Currently the Commonwealth Bank of Australia (CBA) and the Commonwealth Development Bank of Australia (CDB) are able to conduct banking business by virtue of their listing under section 5 of the Banking Act 1959. The CBA owns 91.9 per cent of the CDB, with the Commonwealth of Australia holding the remaining 8.1 per cent. The Government's decision to sell its remaining 50.39 per cent shareholding in the CBA will see the CBA put on a similar legislative footing as other privately owned banks. This will involve, inter alia, the granting of authorities to the conduct banking business under section 9 of the Banking Act 1959 to the CBA and CM This in turn will subject the CBA and CDB to the Banks (Shareholdings) Act 1972, and will require the making of instruments under section 10 of that Act.
Instruments have been gazetted in accordance with the Act, effectively fixing a percentage of 100 for the CBA in relation to its interest in the CM Fixing this percentage will allow the CBA to hold up to 100 per cent of the shares in the CDB.
Under section 9 of the Act the associates (including officers, partners, subsidiaries and related companies) of the CBA would also be deemed to have the same interest in the CDB as that corporation. In the case of officers of the CBA, an instrument pursuant to subsection 10(5A) of the Act is proposed which would fix a percentage of 100 in relation to interests in the CDB for those persons who are from time to time relevant officers of the CBA.
Under the Act, it is not possible to make a 'class' instrument for the interests of the associates of the CBA, other than its relevant officers. These other associates represent a large and ever-changing group of persons and corporations.
Rather than make an instrument pursuant to subsection 10(4) for every person within the meaning of section 9, it is convenient to prescribe these interests - that is, to have them disregarded for the purposes of section 10 of the Act - by regulation, as provided for by section 17 and paragraph 8(9)(d).
Paragraph 8(9)(d) of the Act provides that a prescribed interest in a share, that is an interest of such a person or class of persons as is prescribed, shall be disregarded. The Banks (Shareholdings) Regulations (the Regulations) currently prescribe a class of persons in relation to their interests in the banks listed in the Schedule to the Regulations, where those interests are deemed to be held by virtue of an associate relationship. The effect of the proposed amendments to the Regulations would be to disregard, for the purposes of the Act, interests in the CDB arising from associate relationships with the CBA.
The Schedule to the Banks (Shareholdings) Regulations is amended by adding a new item after Item 12, and the names Commonwealth Development Bank of Australia and Commonwealth Bank of Australia in columns two and three respectively.
Overview
The Banks (Shareholdings) Regulations (Amendment) 1996 No. 23, issued under the authority of the Treasurer, were enacted to address a legislative gap in the Banks (Shareholdings) Act 1972. This Act, established by the Parliament of Australia, aims to regulate the shareholdings of banks and maintain financial stability by limiting the voting shares that a person or corporation can hold in a bank. The proposed amendments to the Regulations aim to disregard, for the purposes of the Act, the interests in the Commonwealth Development Bank of Australia arising from an associate relationship with the Commonwealth Bank of Australia. This change is necessary following the Government's decision to sell its remaining shareholding in the Commonwealth Bank of Australia, bringing it on a similar legislative footing as other privately owned banks. The amendment to the Regulations is intended to provide a more efficient way of managing the interests of a large and ever-changing group of persons and corporations associated with the Commonwealth Bank of Australia, without the need to create individual instruments for each person within the meaning of section 9 of the Act.
Scope and Application
The Banks (Shareholdings) Regulations (Amendment) 1996 No. 23 applies to the Commonwealth Development Bank of Australia (CDB) and the Commonwealth Bank of Australia (CBA), and the entities and individuals associated with them, in light of the Commonwealth Government's decision to sell its remaining shareholding in the CBA. The Act governs the maximum shareholding a person, including a corporation, can hold in a bank, currently set at 10 per cent, or 15 per cent with Treasurer approval, but these limits are subject to adjustment by the Governor-General under certain conditions. The proposed amendments to the Regulations aim to disregard, for the purposes of the Act, any interests in the CDB arising from an associate relationship with the CBA. These regulations are made under the authority of the Banks (Shareholdings) Act 1972, extending to the whole of Australia. The Act does not apply to any interests in the CDB that are held by relevant officers of the CBA, for whom a separate instrument will be published in the Gazette under subsection 10(5A).
Key Provisions
The Banks (Shareholdings) Regulations (Amendment) 1996 No. 23 amends the Banks (Shareholdings) Regulations to address the interests of the Commonwealth Bank of Australia (CBA) in the Commonwealth Development Bank of Australia (CDB). The Act (sections 10 and 17) sets out the general limits on shareholdings in banks and empowers the Governor-General to make regulations under section 17 for the purposes of the Act. The current Act restricts individuals and corporations to a 10 per cent interest in voting shares, with potential increases to 15 per cent subject to the Treasurer's approval, or higher in special cases approved by the Governor-General.
The Act imposes specific obligations on the CBA and its associates, including relevant officers, to ensure compliance with the shareholding limits. The amendment to the Regulations aims to disregard the interests in the CDB arising from associate relationships with the CBA. This means that the interests of the CBA's associates, other than its relevant officers, will not count towards the 10 per cent limit for the purposes of section 10 of the Act. By prescribing these interests through regulation, the amendment simplifies the regulatory process by avoiding the need for individual instruments for each associate.
The Banks (Shareholdings) Act 1972 imposes penalties for breaches of its provisions. Specifically, under section 14, any person who contravenes any of the provisions of the Act, or any regulations made under the Act, commits an offence and is liable to a fine of up to 10,000 penalty units for individuals, and up to 50,000 penalty units for bodies corporate. A contravention of the Act can also lead to civil consequences, including the potential for court orders to rectify the breach or compensation claims from affected parties. Furthermore, the Act provides that any instrument made under section 10 of the Act shall be deemed to be a legislative instrument for the purposes of the Legislative Instruments Act 2003, thereby subjecting the instruments to additional scrutiny and compliance requirements.