Szuch v Australian Prudential Regulatory Authority

Background 4 On 10 October 2006, APRA declared that Mr Szuch was no longer eligible for appointment as a life company actuary pursuant to s 94(3) of the Life Insurance Act as it stood at that time (the declaration). 5 APRA made the declaration because: (1) Between 1998 and 2004, Mr Szuch provided actuarial services to a number of Queensland-based Friendly Societies. (2) In March 2002, APRA amended the Australian Life Insurance Actuarial Standards under the Life Insurance Act that applied to, among other things, life insurance companies (the new standards). (3) Between 2002 and 2004, Mr Szuch provided actuarial services to the Queensland-based Friendly Societies consistent with his own interpretation of the methodology required to comply with the new standards. (4) By letter dated 1 April 2004, APRA advised Mr Szuch that his interpretation of the methodology required to comply with the new standards was incorrect and that APRA had concerns about the quality of his work. (5) In the period between 1 April 2004 and 21 March 2006, the parties exchanged numerous pieces of correspondence. While it appears that there were multiple issues in dispute in that correspondence, the primary issue was whether Mr Szuch's methodology was compliant with the new standards. Mr Szuch maintained that his approach to the methodology was correct under the new standards. APRA maintained that Mr Szuch was not complying with the new standards, asserting that it had been advised by its internal actuary that this was the case. (6) On 21 March 2006, APRA advised Mr Szuch that the issue was being considered by a delegate of APRA. (7) On 10 October 2006, APRA's delegate made the declaration. On Mr Szuch's request, the declaration was reviewed internally by APRA pursuant to s 236(2) of the Life Insurance Act, and was subsequently confirmed on 20 December 2006. No further review of the decision was conducted. 6 The effect of the declaration was that Mr Szuch was no longer eligible for appointment as a life company actuary. APRA added Mr Szuch's disqualification to its Disqualification Register and published notice of its decision to disqualify Mr Szuch on its website. 7 Unless it is revoked, varied or otherwise dealt with in a manner permitted by the Life Insurance Act, the declaration remains in force indefinitely and the notice of disqualification on APRA's website remains publicly searchable.

Legislative background 8 The declaration was made pursuant to s 94(3) of the Life Insurance Act, which at the time (October 2006) was in Part 6 (Financial management of life companies), Division 3 (Appointed actuaries). Section 94 provided: 94 Cessation of appointment (1) A person ceases to hold an appointment as the actuary of a life company if: (a) the person ceases to be eligible for such an appointment; or (b) the person gives the company a written notice of resignation of the appointment; or (c) the company gives the person written notice that the appointment is terminated. (2) A person who, apart from this subsection, would be eligible for appointment as a life company's actuary is not so eligible if there is in force a declaration by APRA under subsection (3). (3) APRA may, in writing, declare that a person is not eligible for appointment as a life company's actuary if the person has failed to perform adequately and properly the functions and duties of an appointed actuary under this Act. 9 At the time of the declaration, APRA had significant powers effectively to disqualify individuals from acting as an actuary of a life insurance company. However, since the introduction of the Financial Sector Legislation Amendment (Review of Prudential Decisions) Act 2008 (Cth), APRA is: …no longer authorised to disqualify a person nor determine that is a person is not a disqualified person for the purposes of the Act. Instead, the powers of disqualification and revocation are vested in this Court. (See Burroughs v Australian Prudential Regulatory Authority [2016] FCA 775; (2016) 340 ALR 267 at [3] per Allsop CJ.) 10 This "court-based disqualification regime" was introduced following a 2006 regulatory review of prudential regulation in an attempt to achieve greater consistency between the disqualification regime that was at the time administered by APRA and the disqualification regime that was administered by the courts in the area of corporations law (see generally Burroughs v Australian Prudential Regulatory Authority [2016] FCA 775; (2016) 340 ALR 267 at [56]).

The relevant principles 11 Section 245B of the Life Insurance Act relevantly provides: Court power to revoke or vary a disqualification etc. (1) A disqualified person, or APRA, may apply to the Federal Court of Australia for: (a) if the person is a disqualified person only because he or she was disqualified under section 245A - a variation or a revocation of the order made under that section; or (b) otherwise - an order that the person is not a disqualified person. (2) If the Court revokes an order under paragraph (1)(a) or makes an order under paragraph (1)(b), then, despite section 245, the person is not a disqualified person. … 12 As Mr Szuch was not disqualified under s 245A of the Life Insurance Act, he brings his application pursuant to s 245B(1)(b). 13 Section 245A of the Life Insurance Act sets out the court's powers of disqualification under the regime currently in force. It relevantly provides: Court power of disqualification (1) On application by APRA, the Federal Court of Australia may, by order, disqualify a person from being or acting as someone referred to in subsection (2), for a period that the Court considers appropriate, if the Court is satisfied that: (a) the person is not a fit and proper person to be or act as such a person; and (b) the disqualification is justified. … (3) In deciding whether it is satisfied as mentioned in paragraph (1)(a), the Court may take into account: (a) any matters specified in the regulations for the purposes of this paragraph; and (b) any criteria for fitness and propriety specified in the prudential standards; and (c) any other matters the Court considers relevant. (4) In deciding whether the disqualification is justified as mentioned in paragraph (1)(b), the Court may have regard to: … (b) if the application is for the person to be disqualified from being or acting as an appointed actuary or auditor - the person's conduct in relation to the functions or duties of an actuary or auditor under this Act; and (c) in any case - any other matters the Court considers relevant. …

Consideration 14 The legislative scheme under which this application is brought is analogous to the scheme for disqualified persons under Part III, Division 5 of the Insurance Act 1973 (Cth) (the Insurance Act). In particular, the relevant wording of s 26 of the Insurance Act is identical to s 245B of the Life Insurance Act. Further, the disqualification requirements in s 25A of the Insurance Act, are, in substance, the same as those in s 245A of the Life Insurance Act. 15 In Burroughs v Australian Prudential Regulatory Authority [2016] FCA 775; (2016) 340 ALR 267, Allsop CJ held that a court, in exercising its discretion to revoke a disqualification made under s 26 of the Insurance Act should be guided by the considerations found in s 25A of the Insurance Act. Further, while the court is not required to make a positive finding of a person's fitness and propriety in the nature of a jurisdictional fact, it is required to have regard to previous conclusions pertaining to an applicant's fitness and propriety, and whether those conclusions continue to be sufficiently justified (see Burroughs v Australian Prudential Regulatory Authority [2016] FCA 775; (2016) 340 ALR 267 at [67]). 16 The same approach is to be taken here. That is, it is appropriate to consider the factors set out in s 245A in assessing whether to accede to Mr Szuch's application. Section 245A(3) permits a court, when deciding whether someone is a fit and proper person, to consider: (a) any matters specified in the regulations for the purposes of this paragraph; (b) any criteria for fitness and propriety specified in the prudential standards; and (c) any other matters the court considers relevant. Further, s 245A(4) permits a court, in deciding whether the disqualification of an appointed actuary is justified, to consider the person's conduct in relation to the functions or duties of an actuary. 17 In my view, the previous conclusions relating to the applicant's fitness and propriety do not continue to be justified, for these reasons: (1) The conduct that led to Mr Szuch's disqualification is not attributable to deficiencies in Mr Szuch's character, diligence, honesty or integrity, which are important "criteria for fitness and propriety specified" in the relevant prudential standard (APRA's CPS 520 Fit and Proper Standard). (2) Because Mr Szuch has continued to practise as a general actuary since the declaration, and has not committed any breaches in that time, I am satisfied that his conduct over the period of his disqualification supports a finding that his disqualification is no longer justified (c.f. Burroughs v Australian Prudential Regulatory Authority [2016] FCA 775; (2016) 340 ALR 267 at [132]). (3) Approximately 13 years have passed since the declaration, and Mr Szuch now acknowledges that his interpretation of the methodology required to comply with the new standards was incorrect, thereby demonstrating a "clear insight into the nature of his … past wrongdoings … and … human capacity to change" (Burroughs v Australian Prudential Regulatory Authority [2016] FCA 775; (2016) 340 ALR 267 at [76]). (4) APRA does not oppose the order that Mr Szuch seeks. As Allsop CJ said in Burroughs v Australian Prudential Regulatory Authority [2016] FCA 775; (2016) 340 ALR 267 at [135], "APRA's role in determining the prudential standards for insurance in Australia coupled with the close working relationships" with industry "mean that the views of APRA as industry regulator will be accorded significant weight by the Court" in an application of this kind. (5) Mr Szuch has provided an undertaking that, relevantly, means that he will not be appointed actuary of a life insurance business regulated by APRA. There is, thus, no risk that Mr Szuch may again engage in the conduct that led to the declaration, which in turn negates any prudential risk for the life insurance industry. In considering this factor, it is important to acknowledge that the purpose of the disqualification regime in the Life Insurance Act is to protect the general public and not to punish individuals (c.f. Burroughs v Australian Prudential Regulatory Authority [2016] FCA 775; (2016) 340 ALR 267 at [61]). In those circumstances, it is clear that Mr Szuch's disqualification does not further any of the Life Insurance Act's protective functions. 18 It was for the above reasons that, upon the giving of Mr Szuch's undertaking, the court ordered on 20 March 2018 that, pursuant to paragraph 245B(1)(b) of the Life Insurance Act, the applicant is not a disqualified person. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Callaghan.