The Turnbull government has released the details of new legislation aimed at boosting the resilience of Australia’s financial system.
The lengthily titled Financial System Legislation Amendment (Resilience and Collateral Protection) Bill was introduced into parliament yesterday by Assistant Treasurer and Minister for Small Business, Kelly O'Dwyer.
She explained that it has been designed to make Australia's financial system more resilient, and ensure that the country’s financial institutions can continue to participate in global capital markets. The bill, she said, “delivers on Australia's G20, post-GFC commitment, to address systemic risks associated with trade in over-the-counter derivatives”.
"It also delivers on the government's commitment to "clarify domestic regulation to support globally coordinated policy efforts, and facilitate the ongoing participation of Australian entities in international capital markets,' in response to the Financial System Inquiry,” she added.
According to O'Dwyer, financial institutions in the US, Europe and Japan are already prepared to comply with international margin requirements for non-centrally cleared derivatives that are due to kick in from September.
This bill, she said, will ensure that Australian institutions are also be ready and able to comply with the new rules when September comes around.
“Requiring institutions to provide margin – collateral to cover the costs of default on a trade – will reduce the potential impact of counterparty default on financial institutions and the broader financial system; making it more stable and resilient,” she explained.
The bill will also allow Australian institutions to comply with international requirements in tandem with any corresponding standards set by the Australian Prudential Regulation Authority (APRA), she added.
It was developed following consultations with APRA, as well as other industry stakeholders including the Reserve Bank of Australia (RBA) and the Australian Securities and Investments Commission (ASIC).
The news came as Treasurer, Scott Morrison, announced that the government was also set to introduce new measures into parliament aimed at driving investment by encouraging innovation, risk taking and an entrepreneurial culture.
The Tax Laws Amendment (Tax Incentives for Innovation) Bill, which will be introduced into parliament today, includes two key measures. Firstly, a tax incentive for early stage investors will give concessional tax treatment to investors to promote investment in innovative, high growth potential start-up companies.
This incentive will include a 20 per cent non-refundable carry forward tax offset on investments in qualifying companies (capped at $200,000 per investor per year) and a 10-year exemption on capital gains tax, provided investments are held for 12 months or more.
Secondly, the bill will change the tax treatment of early stage venture capital limited partnerships (ESVCLPs) to attract more investment into venture capital. Investors will receive a 10 per cent non-refundable carry forward tax offset on capital invested through an ESVCLP, while the maximum fund size for new and existing ESVCLPs will be increased to $200 million.
According to Morrison, a number of reforms will also be made to the income tax treatment of venture capital more generally.