Financial Sector (Collection of Data) (reporting standard) determination
No. 11 of 2011
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority
Financial Sector (Collection of Data) Act 2001, subsection 13(1B) and section 15
Under subsection 13(1B) of the Financial Sector (Collection of Data) Act 2001 (the FSCOD Act), where the Minister directs APRA under section 13C to determine reporting standards in relation to a financial sector entity or financial sector entities, APRA must, by legislative instrument, determine reporting standards with which financial sector entities must comply. Such standards relate to reporting financial or accounting data and other information regarding the business or activities of the entities. Section 15 of the FSCOD Act gives APRA power to declare a date when reporting standards begin to apply.
1. Background
In general terms, DMFs are entities that offer ‘discretionary cover’; that is, an insurance-like product that involves an obligation on the DMF to consider meeting a claim made on it, but which gives the DMF a discretion as to whether or not it will pay the claim. DMFs may sell ‘insurance-like’ products but are not APRA-authorised general insurers or unauthorised foreign insurers
On 4 April 2003 the HIH Royal Commission recommended that the Insurance Act 1973 be amended to extend prudential regulation to all discretionary insurance-like products. Prior to a decision on whether to extend regulation to discretionary mutual funds (DMFs), the Minister for Revenue and Assistant Treasurer announced on 3 May 2007 that DMFs would be required to provide data to APRA, in order that the Government better understand the use and operation of DMFs.
Amendments to the FSCOD Act to include DMFs were contained in the Financial Sector Legislation Amendment (Discretionary Mutual Funds and Direct Offshore Foreign Insurers) Act 2007 (DMF Act), which was passed by Parliament on 13 September 2007. This enabled APRA to make reporting standards under the FSCOD Act requiring DMFs to provide detailed data to APRA on their operations. Final DMF reporting standards and corresponding reporting forms and instructions under the FSCOD Act came into effect in December 2007. The DMF data collection has now applied in respect of the financial years 2008 to 2011.
The integrity of the DMF collection is reliant on each DMF complying with the abovementioned legislation. To assist with ensuring that all DMFs are complying with the legislation, the Assistant Treasurer and Minister for Financial Services and Superannuation directed APRA on 21 February 2011 under section 13C of the FSCOD Act to obtain details from relevant Australian Financial Services (AFS) Licence holders regarding their dealings with DMFs during the period 2008 to 2010.
Consequently, APRA has determined this reporting standard to facilitate a one-off data collection that will require AFS Licence holders authorised to deal in miscellaneous financial risk products (within the meaning of section 766A of the Corporations Act 2001) to report to APRA their dealings with DMFs over the period 1 January 2008 to 31 December 2010. This will ensure that the information underpinning the review on the potential regulation of the DMF industry is robust.
2. Purpose of the instruments
A large majority of DMF business is arranged through AFS Licence holders who are authorised to deal in miscellaneous financial risk products. Therefore, a data collection from these licence holders is expected to identify all DMFs operating in the financial sector and ensure that the DMF data collection is as complete as possible.
This reporting standard and corresponding reporting form facilitates the one-off data collection, providing APRA with information on of any DMF that AFS Licence holders have dealt with between 1 January 2008 and 31 December 2010. This information includes the contact details of the DMF and the premium invoiced with any DMFs during the most recent financial year.
3. Operation of the instruments
Financial Sector (Collection of Data) (reporting standard) determination No. 11 of 2011 determines the following reporting standard with effect on and from the date of registration on the Federal Register of Legal Instruments:
- Reporting Standard DRS 1_1 Notification by AFS Licence holders
The one-off data collection as detailed in the above reporting standard will be due on 31 January 2012.
4. Consultation
Section 17 of the Legislative Instruments Act 2003 requires consultation when a rule-maker makes a legislative instrument. APRA undertook consultation with all AFS Licence holders authorised to deal in miscellaneous financial risk products from 24 October 2011 to 21 November 2011 on the proposed one-off data collection. The consultation process involved the release of a consultation letter outlining the proposed collection, together with a draft reporting standard. A small number of submissions were received and as a result some minor modifications were made to address aspects raised in the submissions.
5. Regulation Impact Statement
A regulation impact statement for the changes described in this Explanatory Statement was not required.