» Taxation Secrecy and Disclosure Provisions

9 October 2006

The Review of Taxation Secrecy and Disclosure Provisions
Tax System Review Division
The Treasury
Langton Crescent
PARKES� ACT� 2600

 

Review of Taxation Secrecy and Disclosure Provisions Discussion Paper

I am pleased to provide the following submission from the Administrative Review Council in response to the Review of Taxation Secrecy and Disclosure Provisions discussion paper.

The Council was established by the Administrative Appeals Tribunal Act 1975 (�AAT Act�).� The Council�s role is to monitor and provide advice to Government, through the Attorney-General, in relation to Commonwealth administrative review and administrative law generally.

Overview of comments

  1. the Council supports the broad concept of standardising taxation secrecy and disclosure provisions

  2. the Council considers that the disclosure of personal information to law enforcement, intelligence and regulatory agencies should be subject to a threshold test equivalent to that which would apply if the information were obtained directly by those agencies.� In practice, this would mean that information would rarely be made available by the ATO to some agencies

  3. the Council considers that there are a number of factors relevant to establishing appropriate thresholds for consent to disclosure depending on how the original information was obtained and the purpose for which disclosure is sought

  4. the Council considers that comprehensive training and guidelines in this area are very important, especially in relation to the interaction of the Privacy Act 1988 and any standardised agency secrecy provisions; and

  5. the Council recommends adoption of a number of accountability mechanisms in new legislation and internal ATO procedures in relation to the proposed new regime.

Standardising taxation secrecy and disclosure provisions

The Council supports the broad concept of standardising taxation secrecy and disclosure provisions and locating them within the one piece of taxation legislation.� The Council also agrees with the general proposition that it is necessary to maintain a balance between protecting taxpayer privacy and allowing disclosures necessary to deliver entitlements and meet law enforcement and integrity provisions.�

As recognised in the discussion paper, the collection and disclosure of personal information can represent a significant intrusion on individual rights.� If the correct balance is not achieved, attempts to foster greater efficiencies within government may cause people to become more circumspect in the information that they are prepared to provide to the ATO.�

Proposed disclosure regime

The discussion paper recognises that a number of amendments have been made to tax secrecy provisions in recent years to allow tax information to be disclosed to Australian Government departments and agencies, mostly to assist in the administration of legislation.

The paper also proposes potential new disclosures � disclosures to law enforcement and intelligence agencies and to the Commissioner of Taxation as an employer.� Disclosure to third parties is proposed where the taxpayer consents or where a duty is owed to them.�

As a general principle (Principle 3), the discussion paper proposes that all disclosures of taxpayer information must be justified (p 12).� In support of the proposed principle, the paper refers to s 29 of the Privacy Act 1988 and Information Privacy Principle (IPP) Guideline 38 which requires an agency to establish that the use or disclosure of the information is �reasonably necessary to safeguard a public interest� (p 13).� Factors that would assist in making this determination would include:

The discussion paper also proposes a graduated disclosure framework (p 16) having regard to the remoteness of the proposed use from the reason for which the information was originally collected.

The framework envisages increasingly specific disclosure requirements the greater the distance between the proposed use and the reason for original collection.

On this basis, provisions relating to the disclosure of information for the primary purpose of protecting public finances, such as the provision of information to Centrelink to enable the accurate payment of pensions, would be more generically defined than those for disclosures for the purposes of other Commonwealth legislation and for other purposes (pp 24, 25).� In the latter case, both the purpose for the disclosure and the information able to be disclosed would need to be specified.�

The discussion paper indicates that existing disclosures for other purposes include to entities such as law enforcement agencies, the Australian Securities and Investments Commission and intelligence agencies (p 26). The paper flags a proposed expansion of the ability to use tax information as evidence in non-tax-related serious criminal investigations and prosecutions and suggests that further disclosures could be modelled on IPP 11.1(e) which allows disclosure �that is reasonably necessary for the enforcement of the criminal law or of a law imposing a pecuniary penalty�.

While noting the proposed increase in legislative specificity as disclosure moves further away from protecting public finances, the Council considers that this increased specificity should also be accompanied by a tightening of the disclosure threshold of �reasonably necessary to safeguard a public interest�.� The Council considers this to be so particularly where information sought to be disclosed may be used in law enforcement or penalty proceedings against the original information provider or a third party.�

In these circumstances, the Council is of the opinion that disclosure of information by the ATO to other agencies should be subject to a threshold test equivalent to that which would apply if the information were obtained directly by those agencies.� That is, the ATO should not be able simply to disclose information that it receives for its purposes under its legislation to another agency such as ASIC or APRA unless, in seeking information, that agency can satisfy its own legislative trigger requirements.�

Because they only have the power to collect information relevant to their own legislative purposes, in practice, it is unlikely that the ATO would have information for disclosure to such agencies.� With other agencies, such as intelligence agencies, the scope for disclosure may be greater because of the broader nature of their powers.

Consent to disclosure

The discussion paper proposes inclusion in the tax legislation of a consent provision as an exception to the general rule that information cannot be disclosed similar to that provided for in the Privacy Act (s 14, IPP 11) (p 27).

As this exception would be included in the �for other purposes� category in the information framework at chapter 3.7, both the purpose for the disclosure and the information able to be disclosed would need to be more narrowly defined.� This approach is reflected in the examples provided at p 27 of the discussion paper which are quite limited in nature.� However, the discussion paper recognises that incorporation of a consent provision �would represent a significant broadening of the current [ATO] disclosure provisions�.

The Council notes and supports the proposal in the discussion paper that consent should be express, voluntary and informed.� The Council considers that particular care will need to be taken to ensure that consent is express, voluntary and informed in circumstances where the disclosure of personal information may lead to more serious consequences for the individual.�

A distinction may be drawn between the circumstances in which information was originally collected, that is, voluntarily or through coercive information‑gathering powers.� In the latter circumstances, again particular care will need to be taken to ensure that any consent to disclosure is express, voluntary and informed.

For a customer service organisation, it would seem necessary for information provided to be potentially available across a range of functions within the one organisation if customer service is to be of a high standard.� Customers are likely to be perplexed if one section of an organisation is not aware of their dealings with another section.

The Council considers that similar considerations apply to information sought for monitoring purposes.� Pooling of such information encourages efficiencies even across agencies and can be of benefit to both the collector and the provider of the information.

These examples serve to highlight another critical distinction � between information disclosed for service provision or monitoring purposes and information disclosed for law enforcement or intelligence purposes or to regulatory agencies in the exercise of their coercive investigative powers.� In the first two situations, benefit to the individual is clearly a factor that would not apply in the latter.

Training

The Council stresses the need for comprehensive training in this area, especially in relation to the interaction of the Privacy Act 1988 and any standardised agency secrecy provisions.� Legislative secrecy provisions can often be complex, can cause confusion and be difficult to apply in practice.� Guidelines designed for use by non-legally trained officers may be a useful tool in dealing with any uncertainty that arises about the effect of, and interaction between, privacy and secrecy provisions.�

Accountability

The Council also submits that it will be important for a range of accountability mechanisms to be included in both the new legislation and internal Australian Tax Office procedures adopted to implement the new regime.�

This should include maintenance of full documentary records being of any delegation of powers under the tax secrecy provisions and written records of the �reasonable grounds� for deciding to disclose personal information under the new proposed disclosures to law enforcement agencies and intelligence agencies.�

The Council also recommends development of standardised procedures for the storage of personal information and destruction protocols.

The Council would like to record its thanks for the opportunity to make a submission to the Review of Taxation Secrecy and Disclosure Provisions.� I note that the Council is presently preparing for public release a draft report on agency coercive information-gathering powers.� There are intersections in our draft report with some of the issues raised in the context of the discussion paper.� We would be happy to speak with you further about our work in this area if you consider that it would be of assistance to you.

Yours sincerely

Jillian Segal AM
President


» Mutual Assistance Review

18 October 2006

Senator the Hon Chris Ellison
Minister for Justice and Customs
Parliament House
Canberra ACT 2600

Dear Minister

Thank you very much for your letter of 19 September 2006 enclosing a copy of the discussion paper released by you in relation to Australia�s mutual assistance regime under the Mutual Assistance in Criminal Matters Act 1987 (the Mutual Assistance Act).�

The Council was delighted to comment earlier this year on a related discussion paper concerning Australia�s extradition regime.� We have considered this latest discussion paper with interest and were pleased to see the reference to the Council at paragraph 6.4.5 in relation to judicial review of mutual assistance decisions.�

Issue for comment

The Council has recently been considering information flows between agencies in the context of its project on coercive information-gathering powers. In view of this, our substantive comments on the discussion paper relate to paragraph 6.4.3 concerning how the Mutual Assistance Act should allow for appropriate information sharing.

The discussion paper notes that while the Privacy Act 1988 Information Privacy Principles provide that personal information cannot be used or disclosed except

for the purpose for which it was collected, there are a number of exceptions.� These circumstances include where disclosure is reasonably necessary for the enforcement of the criminal law or where it is required or authorised under law.�

However, the paper states that under the mutual assistance regime, �criminal law� may also include the law of non-Australian jurisdictions.�

The paper suggests that the Mutual Assistance Act could be amended to expressly identify and authorise personal information flows in the mutual assistance process to make sure that information flows clearly fall within the �required or authorised by or under law� exception.

Council comment

The Council agrees with the suggestion in the discussion paper that if this were to be done, the legislation would need to be couched in specific terms and should not simply authorise information sharing generally.�

The collection and disclosure of personal information can represent a significant intrusion on individual rights. If the correct balance is not achieved, attempts to foster greater efficiencies within government may cause people to become more circumspect in the information that they are prepared to provide to government agencies and threaten the implicit endorsement that exists for the collection of personal information.�

In our view, the greater the distance between the original purpose for collecting the information and the reason for its release, the greater the legislative specificity would need to be.� We consider this to be particularly important where information obtained under a low threshold trigger is sought to be disclosed for use in law enforcement or penalty proceedings against the original information provider or a third party.�

In such cases, the Council believes that disclosure of information should be subject to a threshold test equivalent to that which would apply if the information were obtained directly from the relevant entity by the receiving agency.�

Thank you once again for seeking the Council�s views on the discussion paper. We have forwarded a copy of this letter to the Extradition and Mutual Assistance Review Team in the Attorney-General�s Department.�

We would be happy to speak with the Review Team about our work in the area of coercive information-gathering powers if that would be of assistance.� The contact officer for that purpose would be the Council�s Executive Director, Margaret Harrison-Smith on tel. no. 6250 5801 or by e-mail at margaret.harrison-smith@ag.gov.au.

Yours sincerely

Jillian Segal AM
President

 

» Proposed Amendments to the Migration Act

31 October 2006

Mr Chris Hodges
Assistant Secretary
Legal Co-ordination and Procurement Branch
Department of Immigration and Multicultural Affairs
PO Box 25
Belconnen ACT� 2616

Dear Mr Hodges

Thank you for your letter dated 19 September 2006 seeking the Administrative Review Council�s comments on proposed amendments to the Migration Act 1958� (the Act) affecting the Migration Review Tribunal (MRT) and the Refugee Review Tribunal (RRT).

The Handing down decisions

Currently, ss. 368A and 430A of the Act require the MRT and RRT to invite the parties to be present when the decision is handed down and ss.368B(4) and 430B(4) provide that the date of the decision is the date on which the decision is handed down.�

These provisions were inserted into the Act by the Migration Legislation Amendment Bill (No.1) 1998 which came into operation on 1 June 1999.� The explanatory memorandum and second reading speech provide little additional detail on the policy reasons for introducing these provisions other than that they �provide for the formal handing down of decisions and certainty of dispatch�.�

The proposed amendments are in response to the decision in Inderjit Singh v Minister for Immigration and Multicultural Affairs [2001] FCA 73 where it was held that the RRT erred in law in considering itself functus officio after the date of the signing of a decision and that, as a result, it ignored relevant material presented to it by the applicant prior to the formal handing down of the decision without having a valid or lawful reason for doing so.

The amendments would revoke the provisions in the Act requiring the RRT and the MRT to formally hand down review decisions and make the date of the review decision the date that it is signed by a Tribunal Member.� This would bring the Act into line with the statutory provisions for the Administrative Appeals Tribunal, the Veterans� Review Board and the Social Security Appeals Tribunal which do not impose a formal handing down requirement.

Your background paper indicates that �it is not uncommon for the tribunals to receive further material from review applicants who have received an invitation to a handing down�.� The paper states that in many cases, applicants can use the period between the signing of a decision and its formal handing down for the repeated provision of new information and that this has been �interpreted as a convenient way for review applicants to deliberately delay the finalisation of the review application in order to prolong their stay in Australia�.�

The paper also says that the handing down process is administratively costly with no apparent benefit to the applicant.� It notes that since the commencement of the 1998 amendments to the Act, approximately 22% of review applicants have attended the handing down of their decisions.

While we appreciate the administrative efficiencies that the proposed amendments could achieve, they will also effectively reduce the amount of time currently available to applicants to present all relevant material to the Tribunals. As new information is apparently often presented to the Tribunals after the signing of decisions, we would urge that, in bringing the amendments forward, a careful assessment is made to ensure that those who may genuinely wish to bring new information before the Tribunals have sufficient opportunity to do so prior to that point.� We would not be supportive of any amendments that sought to give primacy to administrative efficiency over the ability of applicants to have all relevant material considered.�

Provision would also need to be made in the amendments for the method of notification required if personal service via the handing down is deleted from the Act as well as a comprehensive information program to ensure that potential applicants are aware of and understand the practical implications of the proposed changes.

Procedural fairness obligations

Currently ss. 358A and 424A require the MRT and RRT to give the applicant

certain information that would be the reason, or part of the reason, for affirming the decision under review.� The provisions also require that the Tribunals ensure the applicant understands the relevance of the material and is invited to comment on it.�

These provisions were inserted into the Act by the Migration Legislation Bill (No.1) 1998.� The explanatory memorandum and second reading speech provide some detail on the policy reasons for introducing these provisions; as

The Bill also introduces certain safeguards for applicants by introducing a code of procedure for both the MRT and the RRT which is similar to that already applying to decisions made by the Department.� This code includes such matters as �a requirement that applicants be given access, and time to comment, on adverse material relevant to them.

The statutory provisions have been interpreted in a number of cases, most notably SAAP v Minister for Immigration and Multicultural and Indigenous Affairs [2005] HCA 23,� Minister for Immigration and Multicultural Affairs v Al Shamry [2001] FCA 919 and SZEEU v Minister for Immigration and Multicultural and Indigenous Affairs [2006] FCAFC 2. From your background paper it may be deduced that the cumulative effect of the decisions has been to impose on the Tribunals sometimes incongruous and unnecessary requirements in order to comply with their statutory procedural fairness obligations. The paper says that the decisions have impacted adversely on the capacity of the Tribunals to be economical, informal and quick, as well as fair and just.

The proposed amendments would allow the Tribunals to provide applicants with adverse information relevant to the reason for affirming the decision under review orally or, as presently required as a result of the court decisions, in writing.� The amendments would also provide that the Tribunals would not be required to put to applicants for comment information that has already been given by the applicant in writing for the purposes of the process leading to the decision under review.

The background paper states that the proposed changes do not depart from the underlying intention of giving applicants access to and the opportunity to comment on adverse material.� We agree that they would give the Tribunals greater flexibility in meeting their procedural fairness obligations under the Act and remove current apparently unnecessary limitations in that regard.� We consider that this would be desirable.

However, while there are circumstances, such as those referred to in the paper, where the provision of information orally will be of more assistance to applicants, there will continue to be some circumstances where this will not be the case. The Council would be concerned if, on the basis of considerations of cost, speed and informality, an informal preference were to develop in the Tribunals for oral comments at the time of hearing. The Council considers that there should be guidance provided to Tribunal Members in this respect.

We would like to thank you for the opportunity to comment on the proposed amendments.� In view of his position as Secretary of your Department, Mr Andrew Metcalfe was not asked to contribute to the Council�s consideration.

Additional matter

There is one additional matter of importance to the proper functioning of the Administrative Appeals Tribunal that we would like to bring to your attention.�

The matter relates to the amendment last year to Part 8 of the Act which gave the Federal Court jurisdiction in relation to migration decisions made by the AAT on review under s 500 of the Act.� The Tribunal also reviews decisions concerning the cancellation of business visas under s 136 of the Act.� Under Part 8 as currently drafted, the Federal Magistrates Court (FMC) has jurisdiction in relation to those decisions, including decisions made by a Judge or Deputy President of the Tribunal.  The general policy expressed in s 44AA of the Administrative Appeals Tribunal Act 1975 is that the FMC should not review decisions made by a Judge or Deputy President. �It would appear that this policy is also appropriate in relation to the review of migration decisions.

We consider that it is important that this matter be rectified and would be grateful if you could consider the possibility of it being dealt with in the legislation relating to the amendments on which you have sought our views.

Recommendations

In summary, our main recommendations in relation to the proposed amendments are:

  1. that in removing the formal handing down requirements under the Act, care is taken to ensure that applicants have sufficient opportunity to present new information to the Tribunals prior to the signing of the decision.

  2. in relation to the proposed procedural fairness amendments, that guidance be given to Tribunal Members on the different circumstances in which they should provide applicants with written or oral notice of adverse information.

We would be happy to speak with you further on any of the foregoing and would be pleased to contribute further to consideration of the proposed amendments as they are progressed.

Yours sincerely


Jillian Segal AM
President

 

» Review of the Discipline Regime for Patent and Trademark

30 November 2006

Mr Greg Powell
Project Manager
Attorney Review Implementation
IP Australia
PO Box 200
WODEN� ACT� 2606

Dear Mr Powell

Review of the discipline regime for patent and trade mark attorneys

Thank you for seeking the comments of the Administrative Review Council (the Council) on the new discipline and regulatory review regimes for patent and trade mark attorneys.� The Council was established by the Administrative Appeals Tribunal Act 1975 (�AAT Act�).� The Council�s role is to monitor and provide advice to Government, through the Attorney-General, in relation to Commonwealth administrative review and administrative law generally.�

The Council has a history of offering advice across many areas where administrative review arises, including patents, as covered in its 43rd report, published in 1998, titled Administrative Review of Patent Decisions.� Chapter four of that report specifically covered administrative review of patent attorneys.� For your background information, a copy of that report has been included with this letter.

The comments below are in response to issues raised in the Consultation Papers issued by IP Australia in September 2006.�

Overview of comments

  1. The Council recommends that provisions with a significant impact on individual rights or liberties, or where procedural requirements are so significant that they constitute the essence of a legislative scheme, should be implemented in Acts of Parliament rather than through Regulations.

  2. The Council is supportive of the proposed appeal rights from reviewable decisions of the Disciplinary Tribunal to the Administrative Appeals Tribunal (AAT).

  3. The Council is supportive of all decisions of the Disciplinary Tribunal being published and would encourage all AAT decisions relating to disciplinary appeals for patent and trade mark attorneys to likewise be published.

  4. The Council suggests that consideration should be given to a statutory requirement that the Disciplinary Tribunal publish an annual report each financial year.

  5. In respect of the regulatory regime, the Council suggest that a merits review mechanism should be available so that patent and trade mark attorneys have access to independent review of adverse decisions regarding qualifications and registration.

1. Implementation by amendments to regulations

The Council notes that the legislative framework for the new discipline regime is to be implemented by amendments to the Patents Regulations 1991 and the Trade Mark Regulations 1995.� As a general principle, the Council considers that those provisions with a significant impact on individual rights or liberties, or where procedural requirements are so significant that they constitute the essence of a legislative scheme, should be implemented in Acts of Parliament rather than through regulations. �The issue of what is appropriate to be dealt with by regulation was covered in detail in the Council�s report No.35 titled Rule Making by Commonwealth Agencies.� A copy of that report has also been included with this letter.� These matters are also covered in the Legislation Handbook.

The Council notes that the current arrangements for disciplinary action against patent and trade mark attorneys are contained in the Regulations.� Whilst it may be more expedient to amend the existing regulations, the Council suggests that consideration be given to deleting the provisions from these Regulations and inserting the new provisions into the Patents Act 1990 and the Trade Marks Act 1995.

The Council notes that s.198 of the Patents Act currently confers jurisdiction on the AAT in respect of decisions to refuse to register a person as a patent attorney.� This part of the Act (Chapter 20, Part 1) would provide an appropriate location for the provisions to be inserted.� Similarly, s.228A of the Trade Marks Act currently contains provisions dealing with registration and de-registration of trade mark attorneys.� This part of the Act (Part 21, Division 3) would also provide an appropriate location for the provisions to be inserted.�

2. Appeal Rights

The Council is supportive of the proposed appeal rights from reviewable decisions of the Disciplinary Tribunal to the AAT.� In its report Administrative Review of Patent Decisions the Council was supportive of extending appeal rights to decisions that affect the interests of a person but not those decisions relating to the conduct and assessment of examinations.�

The Council suggests that careful consideration will need to be given to the issue of appropriate notification of appeal rights when a person is advised of an adverse decision by the Disciplinary Tribunal.�

3. Publication of decisions

The Council is supportive of all decisions of the Disciplinary Tribunal being published and would encourage all AAT decisions relating to disciplinary appeals for patent and trade mark attorneys likewise to be published.� The Council notes that the AAT currently provides electronic copies of its decisions to the AUSTLII database daily, and this practice should be continued in respect of disciplinary appeals for patent and trade mark attorneys.

This position is consistent with the recommendation of the Council in its 39th report titled Better Decisions: A Review of Commonwealth Merits Review Tribunals.� Recommendation 68 of that report stated �review tribunals should make their decisions as accessible as possible.� Summaries of significant review tribunal decisions should be included in the tribunals� annual reports.� The Council also� noted that tribunal decisions can serve an educational purpose and assist other practitioners and advisers as well as contributing to accountability.� A copy of that report has also been included with this letter.

4. Annual report

The Council suggests that consideration should be given to a statutory requirement that the Disciplinary Tribunal publish an annual report each financial year.� Publication may mean simply publication to a website maintained by the Disciplinary Tribunal or it may mean something more formal like the tabling before Parliament of a report.� As with publication of decisions, publication of an annual report would assist in improving accountability in the profession and also serve an educational purpose.

5.� Merits review

In respect of the regulatory regime, the Council suggest that a merits review mechanism should be available so that patents and trade mark attorneys have access to independent review of adverse decisions regarding qualifications and registration.� For your background information on this issue, a copy of the Council publication titled What Decisions Should be Subject to Merits Review? has been included with this letter.

The Council would be delighted to continue its involvement on this issue and would be able to provide more detailed comments once the provisions are drafted.� The Council�s Executive Director, Margaret Harrison-Smith, can be contacted on (02) 6250 5800 or by email at margaret.harrison-smith@ag.gov.au.

Yours sincerely

Jillian Segal AM
President

 

» Health Insurance (Pathology and Diagnostic Imaging) Bill

1 December 2006

Ms Farah Reynolds
Senior Legal Adviser
Medicare & Private Health Insurance
Legal Services Branch
Department of Health and Ageing
GPO Box 9848
Canberra ACT 2601

Dear Ms Reynolds,

Re: Health Insurance Amendment (Pathology and Diagnostic Imaging) Bill 2006

Thank you for your correspondence seeking advice from the Administrative Review Council (ARC) on a proposed amendment to the Health Insurance Act 1973 (the Act) by the Amendment (Pathology and Diagnostic Imaging) Bill 2006 (the Bill).

Proposed amendment

The Bill proposes an amendment to s.23DN of the Act to give a specific power to the Minister to vary or revoke accreditation of pathology laboratories in circumstances where the Minister determines that such revocation or variation is necessary to protect public health or safety.

Short response

The ARC considers that merits review should be available for decisions by the Minister under s.23DN of the Act to any revocation or variation of accreditation.

Extended response

The ARC remains guided by its 1999 publication: What decision should be subject to merits review? �(What Decisions?).

That publication indicates that an administrative decision that will, or is likely to, affect the interests of a person should be subject to merits review. The term �person�, in this sense, applies equally to a corporation, which may be the primary party affected by the proposed amendments.

High level policy decisions

What Decisions? identifies a number of factors that may justify excluding merits review of administrative decisions. One possible exception to the general rule relates to policy decisions of a high political content.� However, the exception relates to decisions involving consideration of issues of the highest consequence to the Government.

A decision by a Minister to revoke or vary accreditation of a pathology laboratory in circumstances where the Minister determines that such revocation/variation is necessary in order to protect public health or safety does not readily fall within this exception.

Stay orders

The ARC understands that your Department is concerned that under the current regime the Administrative Appeals Tribunal (�AAT�) may grant a stay order of a Minister�s decision to revoke or vary the accreditation of a pathology laboratory potentially providing for the continuing operation of a pathology laboratory at risk to public health and safety.

However, the ARC does not consider this a real concern. Section 41 of the AAT Act requires the AAT in granting a stay order to take into account �the interests of any persons who may be affected by the review.� This gives the AAT ample scope to consider all relevant factors, including the risk to the general public of allowing an unsafe service to continue in operation.

There is authority that the AAT considers three main factors when granting or not granting a stay order. These are:

In considering whether to grant stay orders, the AAT has indicated the third concern (public safety) to be the most important.2 The ARC believes the AAT will not grant a stay order of a decision under s.23DN unless it is satisfied that public health and safety would not be at risk.

Additionally, the ARC considers a report from an independent authority, such as the National Association of Testing Authorities (as referred to in correspondence to the ARC), could be made available to the AAT to assist in deciding whether to grant a stay order.

Conclusion

The ARC considers that there should be merits review available for decisions of the Minister to vary or revoke accreditation of pathology laboratories. Further, the ARC believes that there are sufficient checks and balances in place to ensure the AAT, when granting stay orders, properly considers public health and safety concerns. Therefore, the ARC does not support the proposed amendments.

Please contact the ARC Secretariat should you wish to discuss the ARC�s comments.

Yours sincerely

Jillian Segal AM
President

 

» Submission to Department of Human Services on the Access Card

12th January 2007

Kerri Hartland
Deputy Secretary
Office of Access Card
Department of Human Services
PO Box 3959
MANUKA ACT 2603

Dear Ms Hartland,

Human Services (Enhanced Service Delivery) Bill 2007

The Administrative Review Council is pleased to provide input into the access card initiative and specifically, to comment on the exposure draft of the Human Services (Enhanced Service Deliver) Bill 2007.

The Council was established by the Administrative Appeals Tribunal Act 1975. The Council�s role is to monitor and provide advice to Government, through the Attorney-General, in relation to Commonwealth administrative review and administrative law generally.� The Council is required to review and inquire into the Commonwealth administrative law system and to recommend to the Attorney-General improvements that might be made to the system.� This includes assessing the adequacy of procedures used in exercising administrative discretions and reviewing classes of decisions, including new legislative proposals, to determine if they should be subject to administrative review.

The areas of particular interest for the Council relate to the administrative law values that need to be taken into account in relation to the card and its use by government departments and agencies.� In this respect, we trust that the Office of the Access Card will have regard to the Council�s recommendations and expertise in this area.

The Council understands that the current Bill is the first part of the legislation that sets out the broad scope of the access card regime and that there will be a further Bill, expected to be introduced in 2007.� It is likely that the areas of most interest will arise in the second tranche of the legislation, however, the Council takes this opportunity to provide some preliminary comments.

General comments

The Council notes that the introduction of the Access Card will result in some clear benefits to customers including the replacement of 17 existing health and social service cards with a single card, improved privacy protection, protection against identity theft, fraud reduction and improved service delivery.� The Council is also supportive of the proposal to allow people to customise and retain personal control over certain aspects of the card and the storage of personal information in separate areas of the card�s chip.

As a number of significant matters including review mechanisms and privacy issues are not dealt with in the current Exposure Draft of the Bill, the Council is keen to ensure that the legislative scheme as a whole complies with administrative law requirements.� This is particularly important since the access card governance and framework will be developed in a series of legislative tranches. It is important for key administrative law considerations to remain at the forefront of the drafter�s consideration.

The Council agrees with the recommendation in the Fels Consumer and Privacy Taskforce Report which states that legislation must adequately provide for administrative oversight of the access card scheme.

Administrative law

The Council recommends that the governance framework for the access card initiative accords with administrative law principles of accountability and transparency to ensure that decisions are made correctly from both a legal and a merits perspective.

This should include the maintenance of full documentary records of delegations under the legislation and comprehensive and standardised guidelines for administrative decision makers in relation to the access card regime.

Privacy

The Council supports the proposal that existing privacy protections in the Privacy Act 1988 apply in relation to the access card and that the Bill is not intended to affect the operation of existing privacy protections.

The Council looks forward to contributing further on this issue when privacy matters are more fully considered in the development of the second tranche of legislation.

Registration

The Council is supportive of the procedures established to address exceptional situations in which the documents of an applicant are not sufficient to clearly establish identity.� Recognising the need to balance identity security and fraud control with the rights of individuals accessing government benefits and services, the Council recommends that in making decisions regarding identity, the needs of disadvantaged and remotely located individuals be carefully considered and accounted for.

In this context, Council notes that under item 55, the Bill provides �You, or someone else on your behalf, may apply to the Secretary for you to be registered on the Register�� In circumstances where a person may be required to act as agent for an individual who is unable to manage their own affairs for any reason such as mental incompetence, Council recommends that the Bill clearly and expressly extends the requirement to provide accurate proof of identity to the agent or guardian of the individual.

Currently, the wording of the legislation refers to �you� and the responsibility of the agent is less clear.� Council is concerned to ensure that individuals who are incompetent are not disadvantaged by the enrolment requirements for the access card register and that there is no opportunity for fraud on the part of a person, such as a family member, acting on behalf of an individual who requires the assistance of an agent or guardian.

Council notes the concerns expressed by the Fels Consumer and Privacy Taskforce about the possible requirement for a �gold standard� proof of identity and the consequences for disadvantaged or incompetent members of the community that make up a significant number of the recipients of health and social service benefits.� The taskforce states that care needs to be excercised in setting identity standards that could exclude marginalised community members from receiving benefits. In this context, the Council urges the legislative drafters to consider an appropriate balance between a proof of identity standard that is too high for a disadvantaged individual to meet and one that is too low, thereby leaving the individual open to fraud by an agent or guardian.

Review procedures

The Council suggests that consideration be given to the appropriate forum for investigation and complaint handling concerning the access card. Current external regulatory bodies such as the Commonwealth Ombudsman and the Australian National Audit Office have existing frameworks, procedures and expertise and may be appropriate in this regard.� It may be more appropriate and efficient for such existing bodies to assume regulatory functions rather than to seek to create a new body with consequential set up requirements and cost.

The Council considers that it will be extremely important for the next tranche of the legislation to provide for appropriate appeal rights for individuals affected by access card related administrative decisions, especially since the intention is that possession of an access card will ultimately be a mandatory requirement for obtaining government entitlements and services.

Delegations

The Council notes that Section 30 of the exposure draft of the Bill provides for the Minister to issue written policy statements in relation to administration of the Bill that will apply to all delegates and authorised persons.

The Council is concerned that in addition to setting out the Government�s policy expectations to which decision makers must have regard in item 30, and the determination of identity guidelines in item 315, there is further provision for the Minister or a CEO to direct delegates/decision-makers.

The wording of items 320(3), 325(2), 330(3), 335(2) and 340(2) state that a delegate must comply with �any directions� that the Minister or Secretary gives to the person.� Council recommends that if the directions are intended to refer to decision making in accordance with a written statement of the policy of the Australian Government, then this should be made clear in the drafting, either by rewording of the delegations provisions or by including a definition.� Paragraph 7.19 of the Explanatory Material suggests that this is the intended outcome.

As a principle of administrative law, although a delegate will be required to act according to, and within the limits of, the instrument of delegation, a delegate acts independently and makes decisions on their own behalf, not in the name of the principal.

The Council recommends that directions given in accordance with government policy be open to some form of scrutiny for accountability purposes.� A means of achieving this would be to include a provision in the legislation requiring the Minister to certify in writing a statement of policy applying to decisions made in relation to the access card. Alternatively, a statement of policy may be one approved by Cabinet and published in the Government Gazette where such a statement would then provide notice in advance of any application to review a decision.

The application of policy should not result in an unjust decision in the circumstances of a case. The Council refers to section 64(4) of the Administrative Decisions Tribunal Act 1997 (NSW) in this regard and looks forward to expanding upon this issue at a later date.

The Council�s publication What Decisions Should Be Subject To Merits Review? provides guidance on which administrative discretions should be reviewable. Council would be happy to provide further advice on this issue.

As you may know, the Council wrote to the Minister, The Hon. Joe Hockey MP on 11 October 2006 expressing a strong interest in being involved in the development of legislation prepared to implement the access card initiative. The Council would be grateful to receive pre-exposure drafts of the legislation as part of a continued involvement in the legislative development process and looks forward to the provision of further comment on the access card scheme.

The Council�s acting Executive-Director is Ms Wendy Banfield who can be contacted on 02 6250 5800 if you would like to discuss the Council�s submission further.

Yours sincerely

Jillian Segal AM
President

 

» Streamlining Prudential Regulation

15th February, 2007

Andre Moore
Streamlining Prudential Regulation Project
Financial System Division
The Treasury
Langton Crescent
PARKES ACT 2600

Dear Mr Moore,

Administrative Review Council Submission: Streamlining Prudential Regulation

The Administrative Review Council is pleased to provide a submission in relation to the Streamlining Prudential Regulation Project and looks forward to providing further input into the drafting of proposed legislative amendments at an early stage.

The Council was established by the Administrative Appeals Tribunal Act 1975. The Council�s role is to monitor and provide advice to Government, through the Attorney-General, in relation to Commonwealth administrative review and administrative law generally.� The Council is required to review and inquire into the Commonwealth administrative law system and to recommend to the Attorney-General improvements that might be made to the system.� This includes assessing the adequacy of procedures used in exercising administrative discretions and reviewing classes of decisions, including new legislative proposals, to determine if they should be subject to administrative review.

The Council comprises a diverse range of Members who are appointed for their high standing in business, public administration or academia and for their significant knowledge and understanding of public administration and administrative law.

Three ex-officio members are appointed by virtue of the office that they hold, being the Commonwealth Ombudsman, the President of the Australian Law Reform Commission and the President of the Administrative Appeals Tribunal.� Through its membership and standing, the Council is particularly well placed to provide comment and advice to government on proposed activities involving administrative law.

The areas of particular concern for the Council relate to the administrative law standards and principles that need to be taken into account in any proposed changes to legislative powers and in administrative decision making likely to affect individuals and entities.

The Council has a current interest in complex business regulation having been provided with terms of reference by the Attorney-General in August 2006 for a new project: Administrative review in areas of complex and specific business regulation. In developing the report for this project, the Council will consider the most effective and efficient accountability mechanisms for decisions in the area of complex business regulation.� It is with this context in mind that the Council considers that it can offer comment in this submission on efficiency issues and implications for business as well as broader administrative standards.

General Comments

The Council notes the project�s overall objective is to streamline prudential regulation through the harmonising of legislation administered by APRA. The Council recognises that such a move requires a balance between maintaining compliance with regulatory requirements in the conduct of business and ensuring that regulated entities are not unduly constrained.

The Council is firmly of the view that in responding to the need for regulatory reform, changes to the current prudential scheme need to be appropriate and well targeted and should not introduce further compliance requirements for business.� Council is also keen to ensure that regulatory changes undertaken as part of the streamlining proposals translate into practical benefits for regulated entities. Council�s position is that in order to strengthen and maintain openness and accountability, merits review rights should be available to ensure fair treatment for all persons affected by a decision, whether individuals or entities.�

The Council is mindful that the HIH Royal Commission was dealing with an extreme example in the failure of a large insurance company and that the principles of regulator accountability should be maintained.

In addressing the apparent lack of uniformity between provisions in legislation administered by APRA, the Council strongly recommends that changes to the various pieces of legislation in the prudential regulation scheme should be carried out in such a way that the resultant powers and procedures can be effectively operationalised. A failure of consistent regulatory action may lead to additional changes and over-regulation.

Proposals

Proposal 1.1

The Council does not disagree in principle with the proposal to include a �materiality test� under the prudential Acts in line with Section 912D of the Corporations Act but considers that there are a number of related issues that need to be clarified.� As a preliminary comment, Council notes that the model for this test in s 912D of the Corporations Act uses the term �significant� rather than �material� and the Council suggests that in the interests of legislative consistency, the same terminology should be adopted in the prudential legislation.

The Council understands that the proposal seeks to address the cost to industry associated with breach reporting. It is probable that cost savings would in practice stem more from administrative rather than legislative reform. In its Breach Reporting Guide 2006, ASIC considers that a regulated entity should use a documented breach register to ensure that it has adequate arrangements in place to identify and report all significant breaches and likely breaches as required by the Corporations Act.� If an entity does have such a register in place, it should enable the entity to make simultaneous reports at little cost to different government agencies.

As a related consideration, there can be an advantage in an entity reporting separately to both APRA and ASIC. A regulated entity will generally be concerned to ensure that it maintains a relationship of trust and close communication with both regulators. If, however, it is thought preferable that one regulator should have an obligation to pass information promptly to the other regulator, the scope of that obligation should be clearly enunciated.

Another administrative reform that is necessary to reduce cost and uncertainty is for the regulators to enunciate a clear policy on the legislative requirements. The Council notes the recommendations of the HIH Royal Commission that APRA balance consultation, inquiry and constructive dialogue with firmness in its requirements and a preparedness to enforce compliance with applicable standards.3� In this regard Council notes that the Explanatory Memorandum foreshadows guidance from the regulator.� Council suggests that APRA provide appropriate guidance, including case study examples, to clarify the proposed standards of breach reporting including what is �significant� or �material�, and to reduce over-reporting of breaches. .� Such guidance should also take into account ASIC�s breach reporting guide so that a corporate entity can adopt a coordinated method of breach reporting.

The Council further notes that the proposals do not appear to make any distinction between information gathering, general reporting obligations and breach reporting.� Recommendation 5.11 of Rethinking Regulation4 states that �The Australian Government � should review the data collection and regulatory reporting obligations imposed on regulated entities�.� In this context, the Council recommends consideration be given to streamlining the data collection and reporting requirements on business.

Proposal 1.2

The Council notes the proposal to require the reporting of material breaches to the regulator no later than 10 business days after a breach is first notified to a responsible person.� Given the consequences of failure to report significant breaches within time and the need for regulated entities to determine if breaches are indeed significant, the Council suggests there is a need to provide for an extension of time, upon application.

In addition, the Council recommends that the definition of �likely breach� in the proposed legislative amendments be consistent, as far as possible, with the definition in the Corporations Act.�

Proposal 1.3

The Council notes the proposal to remove the requirement for a regulated entity to report breaches to the regulator if an actuary or auditor is required to report and has informed the licensee. The Council does not disagree with the aim of removing the need for multiple reporting of breaches but notes that, in practice, most regulated entities will want to maintain a �constructive dialogue� with the regulator .

Proposal 1.4

It is proposed to amend the prudential Acts to ensure that breaches that relate to provisions administered by both APRA and ASIC are only reported to APRA which in turn will provide the information to ASIC.� Council is concerned that ASIC and APRA may have different views as to what constitutes a significant breach. Council notes that APRA�s focus is on prudential regulation while ASIC is concerned with commercial regulation for the protection of consumers, investors and creditors.� Agreed and transparent protocols on potentially different views of �significant� may need to be established to protect industry.

The Council is encouraged in this regard by the establishment of the APRA/ASIC joint working group detailed in the Information Release of 5th February, 2007 that seeks to coordinate policy, compliance and enforcement issues common to both agencies.

Proposal 1.6

The Council is supportive of adequate protections being available to whistleblowers who act in good faith.

Proposal 2.1

The Council notes the intention to remove Ministerial consent where it is presently required as a trigger to the commencement of investigations.

Following removal of Ministerial consent, the Council recommends APRA ensure that there is adequate opportunity to �show cause� as a substitute trigger.

If a show cause trigger is adopted a time limit would be required for a response.� The Council notes that in section 52 of the Insurance Act 1973, APRA may serve on a body corporate a notice requiring it to show cause within a period of not less than 14 days as to why APRA should not investigate the business or appoint a person to investigate the business. In section 52 (1AB) APRA currently may specify a period of less than 14 days if the Treasurer has agreed.� If this power remains with APRA once removal of the Minister�s consent is required Council recommends that there should be some limits on the power such as defined circumstances in which APRA may shorten the �show cause� timeframe.

The Council is also of the view that there should be a clear distinction between the grounds for conducting an investigation and the procedure that is followed. At present the provision of Ministerial consent operates to ensure that the activation of an agency�s investigative powers where other triggers are not available is conducted according to government policy and on public interest grounds. In the absence of that pathway APRA would need a well defined trigger for the commencement of an investigation.�

In its recent draft report, Government Agency Coercive Information Gathering Powers5, the Council consulted with a number of government agencies including APRA and ASIC about appropriate investigation triggers as part of their regulatory responsibilities.� The Council�s view as stated in the report is that the minimum threshold for the use of investigative powers should be that the exercise is consistent with the objects of the legislation and that the state of mind for the use of the powers is that the decision-maker has �reasonable grounds�6 for commencing the investigation. These �grounds� need to be established, not merely by the regulator determining that circumstances warrant an investigation, but by some internal process which is verifiable and which sets out reasonable grounds for the formation of the view that an investigation is required.

Proposal 2.2

The Council notes that the proposal to introduce a trigger into the Insurance Act 1973 based on section 136(g) of the Life Insurance Act 1995 gives APRA wider powers to investigate an entity in the absence of the requirement for Ministerial consent.� The Council notes that section 136(g) of the Life Insurance Act relates to the issuing of a �show cause notice�, not an actual investigation, while the explanatory material accompanying the proposals refers to providing APRA with an effective power to initiate an investigation in a timely manner.

Proposal 2.4

The general approach to merits review reflected in this proposal appears consistent with that advocated in the Council�s publication 'What Decisions Should Be Subject To Merits Review?' (�What Decisions�)7.�� Merits review is an important part of a system of accountability aimed at protecting the legitimate rights of those affected by administrative decisions and making a regulatory body accountable in the exercise of powers and functions.

Proposal 2.4 states that certain decisions would be subject to merits review while some would not. The decisions suggested for exclusion are monitoring and investigation decisions which are characterised as �preliminary in nature�.� In �What Decisions�, the Council states that preliminary or procedural decisions that facilitate, or lead to, the making of a substantive decision are not the type of decision suitable for merits review.� It should be noted, however, that this statement is qualified by the observation that in the case of preliminary or procedural decisions, merits review may not be necessary because such decisions do not generally have substantive consequences.

In the case of a regulated entity in the prudential market that is subject to monitoring and investigation by APRA, there is potential for such an investigation to damage the business and reputation of the entity, as is illustrated by the HIH collapse.� In such circumstances the preliminary or procedural nature of the decision would not be a reason to exclude merits review.

Table 3 in the attachments to the Proposals Paper sets out decisions where it is proposed that merits review should be made available. The Council would be particularly interested in a similar table indicating the decisions of the regulator that will be outside the scope of merits review.� This will ensure that decisions for which exclusion of merits review is proposed are truly preliminary or procedural and do not have substantive consequences.

In assessing whether exclusion is warranted, the Council suggests that the principles contained in the decision of the Full Federal Court in South Australia v Slipper be followed� These principles referred to the exclusion of natural justice but can be applied equally to the proposal to oust merits review. The Court noted that Parliament must make its intentions very clear if it wants to exclude or limit the obligations of natural justice. Finn J (with whom Branson and Finkelstein JJ agreed) summarised the principles as follows:

  1. when a statute confers a power on a public official the exercise of which affects a person�s rights, interests or expectations, the rules of procedural fairness regulate the exercise of that power unless those rules are excluded by express terms or by necessary implication
  2. a legislative intention to exclude the rules will not be assumed or spelled out from indirect references, uncertain inferences or equivocal considerations
  3. an intention to exclude should not be inferred merely from the presence in the statute of rights which are commensurate with some of the rules of procedural fairness
  4. while the rules may be excluded because the power in question is of its nature one to be exercised in circumstances of urgency or emergency, �urgency cannot generally be allowed to exclude the right to natural justice�, although it may in the circumstances reduce its content.8

Critical to the finding in South Australia v Slipper was the �profound� effect of any exercise of the power.

Proposal 2.5

The Council has a particular interest in proposal 2.5 as it relates directly to limits on the scope and availability of merits review in prudential regulation. The Council is concerned that it is proposed that merits review be excluded in respect of certain APRA decisions relating to an entity �where APRA reasonably believes that failure by APRA to act immediately would materially prejudice the interests of beneficiaries or the stability of the Australian financial system�. It is further stated that where merits review is excluded, the decision would be judicially reviewable. The Council notes that judicial review is no substitute for merits review since the court can not change the substantive outcome, which is usually what the entity is seeking.

The proposal that APRA would have an overriding power to decide that a particular decision is one that requires certain rapid action to restore or maintain investor confidence, and is therefore not reviewable would not only be unconventional but would, in the Council�s view and as a matter of principle, be an unacceptable method for determining whether a decision is merit reviewable by a tribunal. The jurisdiction of a tribunal ordinarily depends on whether a decision fits a statutory description of a particular kind, not on whether the decision-maker separately decides that its own decision is unsuitable for some additional reason. If there are categories of APRA decisions that are unsuitable for review, those categories should be defined clearly and separately in the legislation. APRA should not have an overriding power to exempt from review a decision that would be reviewable aside from the exercise of that overriding power. A clear and accountable objective test is required when the result is the exclusion of merits review and that is not what is presently proposed..

The Council in �What Decisions�, sets out the classes of decisions likely to be justifiably excluded from merits review. Although these include where there is �a need to take rapid action to restore or maintain investor confidence in the market�, �What Decisions�� further states that such decisions would typically require complex evaluation of competing facts, be expected to have a high impact on the market and involve a high level of political accountability. Ultimately ��it is rare for decisions to come within this exception�.�

In the view of the Council, a review of an administrative decision in the Administrative Appeals Tribunal would not delay action by APRA unless an applicant obtained a stay of the decision.� Section 41(1) of the Administrative Appeals Tribunal Act 1975 states that �subject to this section, the making of an application to the Tribunal for a review of a decision does not affect the operation of the decision or prevent the taking of action to implement the decision.�� It is unlikely that an applicant would be granted a stay of APRA action in the event of urgency. The HIH Royal Commission found little evidence of review processes being used to frustrate regulatory activities.� The Commission also concluded that it was unlikely that the AAT would grant a stay of an APRA decision where this would pose an unacceptable risk to shareholders.

Proposal 2.6

The Council notes the proposal to provide APRA with exemption powers to allow greater flexibility in the regulatory scheme affecting prudential entities. Council is concerned with the second part of the proposal which aims to clarify that decisions relating to classes of persons are legislative in nature while those relating to a particular person are administrative and therefore merits-reviewable.

The suggestion is that the regulator may determine whether instruments should be treated as legislative in nature and subject to the requirements of the Legislative Instruments Act 2003 or are administrative in nature and therefore merits reviewable. In the view of the Council, it is difficult to predetermine whether an instrument is legislative or administrative in character.� Such an interpretation flows from the character of the instrument and depends on the drafting of the legislation.

Council strongly believes that the regulatory controls on commercial decisions which are classified as legislative are no substitute for merits review (see Legislative Instruments Act 2003 section 17).� Consultation with industry is not an effective replacement for a system of accountability through merits review. In particular, there is no sanction for failure to consult and no requirement to take any particular action or consider issues raised by the consultation process.

However, where APRA makes a general exemption, properly classed as legislative, upon its own initiative, clearly merits review is not applicable.� If a party requests an exemption from APRA, an adverse decision should in principle be reviewable. This will be the case whether the exemption is refused outright, or because the exemption (even a legislative-type exemption) was in different terms to what the person requested.�

Proposal 2.8

In relation to the confidentiality of AAT hearings, it is proposed to replace the confidentiality provisions in the prudential Acts with public hearings allowing an applicant the option to apply for a private hearing. The Council supports this proposal.

The Council also notes that the AAT does need to have the discretion to grant private hearings and to decide in particular circumstances whether the decision should be released in full and if so whether the applicants should be identified.� In recent decisions the AAT has shown a sensitivity to this issue.

In Re Slee and Australian Prudential Regulation Authority9 the AAT considered whether the decision should be released in full and sought submissions from the parties on the issue. The AAT held that subsection 63(14) of the Insurance Act does not prohibit the AAT from publishing its reasons with the applicant being identified. In fact, to construe the provision otherwise would be contrary to public policy, open justice and the policy of the Insurance Act 1952 in enabling disqualification. The AAT also reasoned that, given the protective nature of a disqualification decision, it is important for the insurance industry and other interested parties, including the general public, to be informed of the status of participants. The AAT decided in that case that the applicant's name should not be suppressed.

There may well be circumstances in which it will be appropriate to suppress the name of an applicant or other identifying details in a published decision. It remains open to the AAT to make confidentiality orders to this effect. On the approach taken in Re Slee, this will be a decision to be made in the particular circumstances of an application rather than one that flows from the fact that proceedings have taken place in private.10

The Council also notes the decision in Re VBN and Australian Prudential Regulation Authority11 where the AAT decided to vacate confidentiality orders except for �personal information� within the meaning of the Privacy Act 1988. The decision stated that the public needs to have confidence in the Tribunal�s independence and fairness in carrying out its functions which includes being able to scrutinise tribunal proceedings.

Proposal 3.1

The Council notes that APRA proposes to ensure flexibility and accountability in the administration of prudential standards through the provision of greater discretionary powers.� To the extent that the proposal relates to APRA�s powers to make prudential standards for an individual entity and there is no impact upon merits review, the Council does not disagree with the proposal.�

Streamlining of powers and discretions under the Banking Act, the Life Insurance Act and the Insurance Act is a logical step and accords with the recommendations in the Banks Report that the regulator has greater flexibility in order to address issues affecting individual businesses.

Proposal 3.2

The Council has concerns with proposal 3.2.� In this regard note the comments made in relation to proposal 2.6.

Council�s understanding is that APRA is seeking to remove the ability to exercise a discretionary power under regulations made pursuant to, for example, paragraph 32(3D)(c) of the Insurance Act. The proposal applies to different classes of entities and is to replace the discretion with a legislative power that would be open to scrutiny through the parliamentary process but would not be merits-reviewable.� The explanatory material states �it is proposed that amendments be made to clarify that all variations or modifications to prudential standards which affect a class of persons are legislative instruments and are subject to the requirements of the LIA� (Legislative Instruments Act 2003).

The rationale for the proposed change appears to be that any changes which affect classes of persons need to be made in a transparent manner, including after appropriate consultation.� The Council�s view is that transparency and accountability is best served by the availability of administrative review on the merits of a decision.� As was noted in the Banks Report, some stakeholders considered that the absence of an appropriate review mechanism undermines confidence in the regulatory regime and diminishes the accountability of the regulators.

In the Council�s publication What Decisions it is stated that the potential for a relatively large number of people to seek merits review does not justify excluding those decisions from review.� Instead other methods are suggested for containing costs and to avoid the delay associated with review.� These include ensuring a high standard of primary decision-making and the creation of an intermediate level of review that can operate speedily and informally.

Proposal 4.2

Council notes the proposal to extend the disqualification power currently available to APRA under the Insurance Act 1973 to other prudential legislation.

Section 25A of the Insurance Act 1973 provides

(1)� APRA may disqualify a person if it is satisfied that the person is not a fit and proper person to be or to act as someone referred to in paragraph 24(1)(a), (b) or (c).

The relevant persons under paragraph 24 are a director or senior manager of a general insurer (other than a foreign general insurer); a senior manager, an agent in Australia� of a foreign general insurer� for the purpose of section 118; or a director or senior manager of an authorised Non Operating Holding Company.

It appears that such decisions would currently be reviewable under section 63 of the Insurance Act. As such, the proposed legislative changes would need to ensure that disqualification decisions under the other prudential legislation would similarly be open to merits review.

Proposal 4.4

The Council notes the proposal that APRA have the power under all prudential Acts to refer matters relating to an actuary or auditor to the relevant professional body. The Council�s view is that in drafting the legislative amendments, it would be prudent to comply with Principles 10 and 11 under section 14 of the Privacy Act 1988 that relate to limits on use and disclosure of personal information.

Conclusion

In view of the substantive nature of the Council�s comments, the Council would welcome the opportunity to comment on draft legislation and in this regard, would be grateful to receive an exposure draft at the earliest opportunity.� The Council would also be happy to make itself available for further consultation on these proposals before drafting if that would be helpful.

The Council�s acting Executive Director, Ms Wendy Banfield, can be contacted on (02) 6250 5800 or by email at wendy.banfield@ag.gov.au.

Yours sincerely,

Jillian Segal AM
President

 

» Prudential Decisions Consultation Paper

29 June 2007

Mr Andr� Moore

Manager
Prudential Policy - Superannuation and Insurance Unit
Financial System Division
The Treasury
Langton Crescent
PARKES ACT 2600

Dear Mr Moore

Review of Prudential Decisions Consultation Paper, May 2007

The Administrative Review Council welcomes the opportunity to provide comments in response to this Consultation Paper.�

The Council is pleased to note that the Consultation Paper addresses a number of concerns raised by stakeholders in relation to the earlier Proposals Paper released in December last year.

The Council�s comments on the Consultation Paper are as follows.� They are generally supportive of the suggested approach.

Ensuring APRA�s capacity to act decisively (Proposals Paper, proposal 2.5)

In its earlier submission in response to the Proposals Paper, the Council expressed concern at the suggested exclusion from merits review of certain decisions where APRA �reasonably believed that its failure to act immediately would materially prejudice the interests of beneficiaries or the stability of the Australian financial system�.

The Consultation Paper amends that approach by proposing that the legislation specify when merits review would be available for decisions, including some directions decisions. A limited set of prescribed grounds would govern which decisions would not be subject to merits review.�

The Council considers this to be a much more acceptable and transparent approach.

Streamlining APRA�s directions powers (Proposals Paper, proposals 2.5, 2.7)

The Proposals Paper suggested consolidation of APRA�s directions powers in a single general power under each relevant Act.� The power would be based on
s 11CA of the Banking Act 1959 and s 230B of the Life Insurance Act 1995.

In response to stakeholder concerns that the general directions powers in the Superannuation Industry (Supervision) Act 1993 are substantially different to those in the other prudential legislation, the Consultation Paper proposes only to streamline APRA�s directions powers under the Insurance Act 1973, the Banking Act and the Life Insurance Act.� As under ss 11CA of the Banking Act and 230B of the Insurance Act, the grounds on which APRA would be able to give directions would be specified.�

The Consultation Paper also proposes that APRA would only be able to issue a direction if it has �reason to believe� that the prescribed grounds were met.� In its previous submission to the Review, the Council expressed the view that grounds need to be established, not only by the regulator, but by a process that is externally verifiable.� The proposed inclusion of a �reason to believe� threshold trigger is consistent with this view.�

The Consultation Paper proposes that some directions decisions would be reviewable while others would not.� Decisions requiring APRA to take immediate action �to ensure an entity is able to meet its deposit or policy holder liabilities, limit the actual or potential loss to beneficiaries, or prevent any adverse effects on the stability or reputation of the financial system� would not be reviewable.

While the issue of non-reviewable directions would be subject to the �reason to believe� threshold, several of the grounds for issue are very widely couched. Phrases such as �is, or is about to become�, �is, or might be� in the first three dot points and (p 5) are illustrative.� In the Council�s view, their width significantly diminishes the strength of the proposed threshold trigger.

We suggest that points one (liabilities), two (risk to the security) and five (interests of depositors) incorporate a concept of materiality.� In this way, the grounds could be confined, for example, to circumstances where �there is or there might be a material risk to the security of the entity� or �a direction is necessary to protect the material interests of depositors�. This would allow APRA to act where really necessary but not otherwise unnecessarily exclude merits review.

The Consultation Paper indicates that directions to freeze assets under s 264 of the SIS Act and directions in relation to rollovers under regulation 6.36 would remain exempt from merits review.�

The Council supports the proposal to strengthen the trigger under s 264 so that a direction could only be issued if APRA had �reason to believe� that the entity�s conduct is likely to have a significant adverse impact on the values of beneficiaries� interests.

Introduction of a court-based disqualification process (Proposals Paper 4.2)

The Consultation Paper indicates that the government remains committed to implementing reforms where appropriate to enhance the robustness and flexibility of the disqualification regime applying to individuals under the prudential Acts.�

To this end, it is proposed to add to the Life Insurance Act 1995 a disqualification provision modelled on s 25A (1) of the Insurance Act 1973. There is currently no such provision in the Insurance Act.�

APRA may disqualify someone under s 25A if �it is satisfied that the person is not a fit and proper person�.� While written notice is required (s 25A (4)) and particulars must be given as soon as practicable after a notice is given (s 25A (5)), this is a wide discretion with a low threshold trigger.�� The right of a person to apply to APRA for revocation of the disqualification (s 25A (3)) appears of limited assistance in such a context.�

The Council considers that in relation to the exercise of discretions of this breadth, an external review mechanism is essential.� The Consultation Paper proposes that application for disqualification should be to the Federal Court of Australia rather than to the Administrative Appeals Tribunal.���

It is said that this would make the disqualification regime under the prudential Acts consistent with that under the Corporations Act 2001.� The schemes would, be modelled on sections 206C and 206 G of the Corporations Act.

While strongly of the view that the Administrative Appeals Tribunal has both the expertise and the procedural flexibility to undertake the sort of review contemplated, the Council accepts that an approach in the area of prudential regulation coincident with that of ASIC under the Corporations Act is not without its practical efficiencies.�

Concluding comment

Thank you once again for providing the Council with the opportunity to comment on the Consultation Paper.� We would welcome the opportunity to comment on draft legislation arising from the Review.

The Council may be contacted through its Executive Director, Ms Margaret Harrison-smith on (02) 6250 5800 or by e-mail at margaret.harrison-smith@ag.gov.au.

Yours sincerely

Jillian Segal AM
President

 


1 Re Griffiths Grif-Air Helicopters Pty Ltd and Civil Aviation Authority (1993) 31 ALD 380 at 53.

2 AMT Helicopters Pty Ltd and Civil Aviation Safety Authority [2006] AATA 314, Senior Member B J McCabe

3 The Failure of HIH Insurance Vol 1: A corporate collapse and its lessons, April 2003 p.221

4 Rethinking Regulation : Report of the Taskforce on Reducing Regulatory Burdens on Business, January 2006 p.96.

5 Administrative Review Council draft report, December 2006: see www.ag.gov.au/arc

6 ibid p.18

7 Administrative Review Council report, July 1999.

8 (2004) 136 FCR 259 at [93]. also Australian Government Solicitor, Legal Briefing No. 78, July 2006.

9 [2006] AATA 206; 6 March 2006

10 "The Administrative Appeals Tribunal - Its Role in the Regulation of the Insurance Industry"
Justice Garry Downes AM
Speech delivered to the Australian Insurance Law Association - Northern Territory Branch - Seminar, Darwin
11 April 2006

11 (No 4) (V2005/686) � (2006) 92 ALD 475.