As part of its commitment to cutting red tape costs by $1bn a year, the Commonwealth Government has proposed changes to the Financial Sector (Shareholdings) Act 1998 (FSSA) (Cth) regarding shareholdings in ‘financial sector companies’ (defined as ADIs and authorised insurance companies and upstream 100% holding companies of such) and the requirement to seek the Treasurer’s approval for certain share acquisitions in those companies. These reforms have not been the subject of extensive analysis but do represent a useful administrative step.
The current law under the FSSA is that a person must not acquire a ‘stake’ in a financial sector company of more than 15%, or if they already hold an approval for a higher percentage, increase it, without the approval of the Treasurer. The Treasurer has the authority to grant approval if it is in the national interest to do so. Currently, ‘stake’ is defined broadly as the aggregate of the ‘direct control interest’ held by that person and the ‘direct control interest’ held by their ‘associates’ (defined widely).
One of the consequences of this definition is that, where a person acquires a direct control interest in a financial sector company of more than 15%, their associates are also required to obtain the Treasurer’s approval, despite possibly holding no direct control interest in the relevant company themselves. This requirement clearly imposes a burden on the associates of the actual shareholder to comply with the FSSA.
The proposed reform to the FSSA will refine the definition of ‘stake’ to only include those persons who hold a direct control interest in the company, removing the requirement on associates with no direct control interest in a financial sector company to seek the Treasurer’s approval for a shareholding in excess of 15%. The situation will remain the same for associates who hold a direct control interest of any size in a financial sector company (as defined).
The Government’s view is that this reform will remove the ‘technical trap’ for associates of actual shareholders and remove an ‘unnecessary burden’ for associates with no direct shareholding. This proposed reform is wrapped up in the Government’s Treasury Legislation Amendment (Repeal Day) Bill 2014 which includes a broad range of de-regulation reforms (of which this is just one). This bill has been introduced into Parliament and the reform of the FSSA has bi-partisan support. At the time of writing, the bill remains in the House of Representatives.