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Legislative Assembly for the ACT: 2002 Week 6 Hansard (16 May) . . Page.. 1776 ..

MS TUCKER (continuing):

fidelity funds will be similar to those of APRA, but I would prefer that this be written into the legislation so that it is a formal obligation of the government to do this.

MR CORBELL (Minister for Education, Youth and Family Services, Minister for Planning and Minister for Industrial Relations) (6.52): Mr Speaker, the government will not be supporting Ms Tucker's amendments. Ms Tucker's amendments seek to require a fidelity fund to operate under exactly the same requirements as APRA applies to an insurance fund. This is not an insurance fund, and therefore you cannot apply the APRA requirements. We have sought, through the regulations, to apply all the relevant APRA requirements to the fidelity fund, and those are outlined in the regulations. However, it is not appropriate to apply all of the APRA standards.

The prudential standards proposed under the bill and set out in the accompanying instrument, as I have indicated, will function in a similar way to standards under the Insurance Act. However, they are designed for a different entity. A fidelity fund is a different entity from an insurance fund, and it has a significantly different scale of operations.

For example, insurance must be provided by corporations, and no other structure is acceptable for the provision of insurance. The capital included for their capital adequacy includes paid-up shares and non-cumulative, irredeemable preference shares. The insurance standards include requirements for directors. The proposed fidelity fund structure has none of these characteristics.

The proposed fidelity fund would operate only in the ACT, whereas the Insurance Act applies to large-scale insurance companies that operate throughout Australia and across a wide variety of insurance markets. The proposed fidelity funds can operate only in the ACT and will deal only with a specific market-that is, the construction industry. Insurance standards as required by APRA apply to all general insurers, whatever the range of specialist areas they operate in. So the context in which the fidelity fund operates is different from the context in which the insurance provider operates.

From 1 July, the insurance standards will set a minimum capital requirement of $5 million, on the basis that the insurer will operate throughout Australia and deal with a wide range of risks. The fidelity fund will operate only in the ACT and only for building work. Therefore, the number of claims for building work, as I have already indicated, is historically low and adequate minimum capital requirements, whilst still at a prudent level, are and should be commensurately less.

The government will not be supporting Ms Tucker's amendments.

MS TUCKER (6.54): I need to respond to the minister, because I think he is wrong. We went to a lot of trouble with the words, because we acknowledge that the circumstances will not be exactly identical. We talked with parliamentary counsel about this. My first amendment reads:

... the Minister must, as far as practicable, ensure that the obligations imposed on approved schemes under the prudential standards made under this Act are comparable.

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