Commonwealth Banks Regulations (Amendment) 1991 No. 93
EXPLANATORY STATEMENT
STATUTORY RULES 1991 No. 93
ISSUED BY THE AUTHORITY OF THE TREASURER
COMMONWEALTH BANKS ACT 1959
COMMONWEALTH BANKS REGULATIONS (AMENDMENT)
Section 129 of the Commonwealth Banks Act 1959 (the Act) provides that regulations may be made for the purposes of the Act.
Subsection 27K(1) of the Act prohibits foreign persons, as defined in the Foreign Acquisitions and Takeovers Act 1975, from subscribing to shares in the Commonwealth Bank of Australia (CBA) under its first registered prospectus. This means that foreign employees of the CBA are not permitted to subscribe to shares issued under the CBA's first registered prospectus. It also means that foreign owned institutions are not permitted to act as underwriters or subunderwriters in the issue of shares under the CBA's first registered prospectus because they are contracted to take up shares if the issue is under-subscribed. Subsection 27K(4) of the Act specifies that a regulation can be made to provide an exception or modification to subsection 27K(1) of the Act.
The new regulation 38 allows foreign employees of the CBA and its subsidiaries as specified in the regulation to participate in the issue of shares under the CBA's first registered prospectus made in accordance with the CBA's Employee Share Ownership Scheme (ESOS). (However, the CBA's foreign employees will not be permitted to subscribe to CBA shares issued under the first registered prospectus beyond their entitlements under the CBA's ESOS.) The rationale for the regulation is that it would be inequitable to allow all domestic CBA staff to participate in the ESOS, while not allowing foreign employees of the CBA and its subsidiaries to participate.
The new regulation 39 allows foreign brokers and insurers to act as underwriters and sub-underwriters in relation to the issue of shares under the CBA's first registered prospectus. A broker is defined as a person who is a member of the Australian Stock Exchange, while an insurer is defined as a body corporate authorised under the Insurance Act 1973 to carry on insurance business or registered under the Life Insurance Act 1945. This means that the exemption from subsection 27K(1) of the Act is confined to foreign-owned brokers and insurers operating in Australia.
The purpose of the new regulation 39 is to expand the pool of eligible brokers and insurers to act as underwriters and sub-underwriters to the issue of shares under the CBA's first registered prospectus. It is intended that the group of underwriters and sub-underwriters will be chosen from Australian-owned institutions to the greatest extent possible, but it may be necessary to draw on the institutions made eligible by the regulation in order for the issue of CBA shares under its first registered prospectus to be fully underwritten.
The regulations are made at this time with a view to the issue of CBA shares occurring in the middle of this year.
Overview
The Commonwealth Banks Regulations (Amendment) 1991 No. 93 were enacted to address specific gaps in the Commonwealth Banks Act 1959 concerning the participation of foreign entities in the Commonwealth Bank of Australia's (CBA) share issues under its first registered prospectus. The regulations were issued under the authority of the Treasurer and are designed to ensure equity in the CBA's Employee Share Ownership Scheme (ESOS) and to maintain the stability of share issues by expanding the pool of eligible underwriters. The policy objective is to balance the need for equitable participation among all CBA staff, including foreign employees, with the necessity of maintaining control over foreign ownership and underwriting activities within Australia. The new regulations provide exceptions that allow foreign employees to participate in share issues under the ESOS, while limiting their subscriptions to their entitlements, and permit foreign brokers and insurers to act as underwriters, provided they are operating in Australia.
Scope and Application
The Commonwealth Banks Regulations (Amendment) 1991 No. 93 primarily targets foreign persons as defined under the Foreign Acquisitions and Takeovers Act 1975, while also extending its application to foreign employees of the Commonwealth Bank of Australia (CBA) and its subsidiaries, as well as foreign brokers and insurers. These regulations amend the Commonwealth Banks Act 1959 to allow foreign employees to participate in the CBA's first registered prospectus under the Employee Share Ownership Scheme (ESOS), provided they do not subscribe beyond their ESOS entitlements. Additionally, foreign brokers and insurers are permitted to act as underwriters or sub-underwriters in the issue of CBA shares, ensuring a broader pool for underwriting. These regulations apply on a national level within Australia, extending their jurisdictional reach across all states and territories. It is important to note that while these amendments provide specific exceptions to the prohibitions outlined in the Act, they are limited to foreign-owned entities operating within Australia. The application of these regulations is further governed and potentially expanded through subordinate instruments, ensuring they can adapt to specific circumstances or future amendments as needed.
Key Provisions
The Commonwealth Banks Regulations (Amendment) 1991 No. 93 introduces several key provisions aimed at modifying the existing framework governing the Commonwealth Bank of Australia (CBA). Section 27K(1) of the Commonwealth Banks Act 1959 (the Act) previously prohibited foreign persons from subscribing to shares in the CBA under its first registered prospectus. However, the new regulation 38 provides an exception for foreign employees of the CBA and its subsidiaries, allowing them to participate in the share issue as part of the CBA’s Employee Share Ownership Scheme (ESOS). It is important to note that these foreign employees can only subscribe to shares up to the extent of their entitlements under the ESOS. This amendment was made to address the inequity of allowing domestic employees but not foreign employees to participate in the share ownership scheme.
The new regulation 39 broadens the scope of entities that can act as underwriters and sub-underwriters for the issue of shares under the CBA's first registered prospectus. Specifically, it permits foreign brokers and insurers to participate in this capacity, provided they are members of the Australian Stock Exchange or authorised under the Insurance Act 1973 to carry on insurance business. This amendment aims to expand the pool of eligible institutions that can underwrite the share issue, ensuring that the process is fully subscribed. It is worth noting that these exceptions are limited to foreign-owned institutions operating within Australia.
In terms of obligations, the Act imposes specific requirements on the CBA and its foreign employees, as well as on the foreign brokers and insurers involved in the share issue. The CBA must ensure that foreign employees participating in the share issue do so within the limits set by the ESOS. Foreign brokers and insurers, on the other hand, must be authorised or registered as per the relevant Australian legislation to be eligible for underwriting roles. These entities must also adhere to the conditions set forth in the new regulations to avoid any legal complications.
The Act also outlines potential consequences for non-compliance with these regulations. While the specific penalties are not detailed in the explanatory statement, breaches of regulations under the Commonwealth Banks Act 1959 could generally lead to civil or criminal penalties, depending on the nature and severity of the breach. For instance, failing to comply with the ESOS entitlements could result in financial penalties or legal action against the CBA or the involved foreign employees. Similarly, foreign brokers and insurers found to be acting outside their authorised capacity could face penalties ranging from fines to legal sanctions. These potential consequences underscore the importance of adhering to the regulations as outlined in the Act.