EXPLANATORY STATEMENT
Select Legislative Instrument 2007 No. 194
Issued by the authority of the Parliamentary Secretary to the Treasurer
Corporations Act 2001
Corporations Amendment Regulations 2007 (No. 3)
Subsection 1364(1) of the Corporations Act 2001 (the Act) provides that the Governor‑General may make regulations prescribing matters required or permitted by the Act to be prescribed by regulations, or necessary or convenient to be prescribed by such regulations for carrying out or giving effect to the Act.
The Regulations repeal regulation 2M.6.03 of and Schedule 5A to the Corporations Regulations 2001. These provisions permit bank and life insurance companies to rely on the financial reporting requirements in the Banking Act 1959 and the Life Insurance Act 1995, rather than following the requirements of the accounting standards under Chapter 2M of the Corporations Act 2001.
Targeted consultation has identified that these provisions are not currently being used. In any event, these provisions would allow banks and life insurance companies to prepare financial statements that do not comply with International Financial Reporting Standards (IFRS). This is contrary to Government policy and would erode the benefits to Australian companies of adopting IFRS. In addition, the regulations are outdated, as there are no financial reporting provisions contained in the Banking Act 1959.
Details of the Regulations are set out in the Attachment.
Under the Corporations Agreement 2002, the State and Territory Governments referred their constitutional powers with respect to corporate regulation to the Commonwealth. Under subclauses 506(1) and 507(2) of the Corporations Agreement, the Commonwealth is required to consult with and receive the approval of at least three State and Territory Ministers of the Ministerial Council for Corporations (the Council) before making a regulation under the national law. The Commonwealth has received approval of the Council for the Regulations. In addition, under subclause 511(3), the Commonwealth is required to consult with the Council as to whether proposed regulations should be exposed for public comment for between one and three months. The Commonwealth has received the approval of the Council to waive the public disclosure period for the Regulations.
The Act specifies no other conditions that need to be met before the power to make the Regulations may be exercised.
The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.
The Regulations commence on the day after they are registered.
Attachment
Details of the Corporations Amendment Regulations 2007 (No. 3)
Regulation 1 – Name of Regulations
This regulation provides that the title of the Regulations is the Corporations Amendment Regulations 2007 (No. 3).
Regulation 2 – Commencement
This regulation provides for the Regulations to commence on the day after they are registered on the Federal Register of Legislative Instruments.
Regulation 3 – Amendment of Corporations Regulations 2001
This regulation provides that the Corporations Regulations 2001 (the Principal Regulations) are amended as set out in Schedule 1.
Schedule 1 – Amendment
Item [1] – Regulation 2M.6.03 and Item [2] – Schedule 5A
Items 1 and 2 of Schedule 1 repeal regulation 2M.6.03 and the associated Schedule 5A. The requirements in regulation 2M.6.03 and Schedule 5A do not comply with IFRS and are contrary to Government policy. In addition, the regulations are outdated, as there are no financial reporting provisions contained in the Banking Act 1959.
Overview
The Corporations Amendment Regulations 2007 (No. 3) were enacted to amend the Corporations Regulations 2001 and address the issue of outdated financial reporting requirements for banks and life insurance companies. The regulations were introduced by the Commonwealth Government under the Corporations Act 2001 and the Corporations Agreement 2002, following the referral of constitutional powers for corporate regulation to the Commonwealth by State and Territory Governments. These regulations were developed in consultation with the Ministerial Council for Corporations and aim to align the financial reporting requirements of banks and life insurance companies with International Financial Reporting Standards (IFRS). The repeal of regulation 2M.6.03 and Schedule 5A in the Corporations Regulations 2001 ensures that these entities can no longer rely on the outdated financial reporting requirements in the Banking Act 1959 and the Life Insurance Act 1995, which were not consistent with IFRS and contrary to Government policy. The Regulations aim to maintain the integrity and consistency of financial reporting standards across the Australian corporate sector.
Scope and Application
The Corporations Amendment Regulations 2007 (No. 3) amend the Corporations Regulations 2001 under the Corporations Act 2001, primarily affecting financial reporting requirements for banks and life insurance companies. These regulations specifically target the repealed provisions that previously allowed these entities to rely on financial reporting requirements under the Banking Act 1959 and the Life Insurance Act 1995, rather than adhering to the accounting standards set out in Chapter 2M of the Corporations Act. This change aligns with government policy promoting the adoption of International Financial Reporting Standards (IFRS) across Australian companies, ensuring consistent and transparent financial reporting. The regulations apply to the Commonwealth jurisdiction, following the referral of constitutional powers to the Commonwealth under the Corporations Agreement 2002. The amendment process involved consultation with the Ministerial Council for Corporations, which approved the regulations and waived the public disclosure period. The Regulations commence on the day after their registration on the Federal Register of Legislative Instruments.
Key Provisions
The Corporations Amendment Regulations 2007 (No. 3) (the Regulations) repeal regulation 2M.6.03 of and Schedule 5A to the Corporations Regulations 2001 (paragraphs 1 and 2). These repealed provisions previously allowed bank and life insurance companies to rely on the financial reporting requirements in the Banking Act 1959 and the Life Insurance Act 1995, rather than following the requirements of the accounting standards under Chapter 2M of the Corporations Act 2001 (subsection 1364(1)). This meant that these entities could prepare financial statements that did not comply with International Financial Reporting Standards (IFRS), which was contrary to Government policy. The Regulations were made to address this issue and to ensure that all companies comply with IFRS.
The Regulations impose an obligation on banks and life insurance companies to adhere to the financial reporting requirements set out in the Corporations Act 2001, rather than relying on the outdated provisions in the Banking Act 1959 and the Life Insurance Act 1995 (paragraph 3). This ensures that all companies are subject to the same financial reporting standards, promoting consistency and transparency in financial reporting across the industry. By removing the ability to rely on the repealed provisions, the Regulations aim to eliminate any discrepancies in financial reporting standards and ensure that all companies comply with IFRS.
Failure to comply with the requirements of the Regulations may result in civil or criminal penalties, depending on the nature and severity of the breach. The maximum penalties for contravention of the Corporations Act 2001 can include substantial fines for both individuals and corporations, as well as potential imprisonment for individuals found guilty of serious offences (Division 13.01 of Part 2.1 of the Act). Additionally, the Australian Securities and Investments Commission (ASIC) may take enforcement action against companies or individuals who fail to comply with the Act, which can include imposing financial penalties, disqualifying directors, or seeking court-ordered injunctions or other remedies.
In summary, the Corporations Amendment Regulations 2007 (No. 3) repeal regulation 2M.6.03 and Schedule 5A of the Corporations Regulations 2001, which previously allowed bank and life insurance companies to rely on outdated financial reporting requirements. The Regulations impose an obligation on these entities to comply with the financial reporting requirements in the Corporations Act 2001, ensuring consistency and transparency in financial reporting across the industry. Failure to comply with the Regulations may result in civil or criminal penalties, including substantial fines and potential imprisonment for individuals. The Regulations were made in consultation with the State and Territory Governments and have received approval from the Ministerial Council for Corporations.