Financial Sector (Shareholdings) Act 1998

The Act casts a wide net across the financial services industry and those who interact with it.

Primary regulated entities are "financial sector companies" (s 3): ADIs, authorised insurance companies (general and life), and their holding companies. Because a holding company is defined as the owner of a 100% subsidiary (s 4), the net captures listed bank and insurer groups and any non-operating holding companies (NOHCs) established under the Banking Act or Insurance Act.

Shareholders and prospective acquirers are directly affected. Any person (natural or corporate, domestic or foreign) who acquires shares such that their stake (including associates per Schedule 1) would exceed 20% must either obtain Treasurer approval or face offence proceedings under s 11. "Stake" is an aggregate concept (Schedule 1, clause 10) that captures direct control interests (clause 11) plus associates' interests. Associates are broadly defined (clause 4) to include relatives, partners, companies under common control, trustees of discretionary trusts, and persons acting in concert.

The Treasurer holds significant discretionary power. All approvals, variations, revocations, extensions, practical-control declarations and anti-avoidance directions are exercised by the Treasurer (or delegate under s 44, excluding the power to consent to APRA rules). Decisions are made by notifiable instrument, giving them legislative character while preserving procedural fairness through notice requirements (e.g. s 14(2), s 15(5), s 17(9), s 18(4)).

APRA is both regulator and gatekeeper. It receives annual prudential reports and conducts five-yearly reviews for new-company approvals (s 16A), approves reporting forms (s 16A(7)), and is an authorised applicant for civil penalty proceedings (s 43A(2)). The relevant licensed company (the ADI or insurer to which the new-company approval relates) must monitor total resident assets and notify both APRA and the approval holder within 10 days of crossing the threshold (s 21A), triggering the approval holder's obligation to notify the Treasurer of intended action (s 16A(2)).

The Federal Court is the enforcement venue. It hears applications for remedial orders (ss 12, 25), injunctions (Part 4) and, implicitly, judicial review of Treasurer decisions. Companies themselves may apply for remedial orders or injunctions in certain circumstances (ss 12(1)-(2), 32(2), 32(5)).

Directors, officers and management employees are indirectly affected. Flow-on approvals under ss 19(3) and 19A(4) deem officers of an approved company to hold equivalent approvals, but revocation or variation can expose them. The broad "control" test in s 22 and practical-control provisions (Division 4) can capture directors who have become accustomed to act on a controller's instructions.

Foreign persons and entities are particularly affected given the extraterritorial operation (s 7) and service rules for foreign corporations (s 41). However, the Act operates independently of the Foreign Acquisitions and Takeovers Act 1975 (s 45), so FIRB approval does not automatically satisfy this Act, and vice versa.

Finally, the Crown is bound (s 5(1)) but cannot be prosecuted (s 5(2)), and Part 4 of the Regulatory Powers Act as applied does not impose pecuniary penalties on the Crown (s 43A(5)).

The Act creates a mixture of prohibitions, positive obligations, approval rights and remedial powers.

Prohibitions and offences

• It is an offence under s 11 to acquire shares recklessly as to whether an unacceptable shareholding situation will be created or worsened (400 penalty units, indictable per s 39).
• Once a practical-control declaration is made under s 23, the declared person must take steps to relinquish control within 90 days (or longer period allowed by the Treasurer); intentional or reckless contravention is an offence (s 24(3), 400 penalty units).
• Failure to comply with a s 31 anti-avoidance direction is an offence (400 penalty units).
• Incorrect record-keeping in purported compliance with regulations made under s 26 is an offence (6 months imprisonment, s 38).
• The civil penalty in s 21A(2) (60 penalty units) applies to a relevant licensed company that fails to notify APRA and the approval holder within 10 days of crossing the assets threshold.

Positive duties

• Holders of new-company approvals must: (i) notify the Treasurer within 30 days of receiving a s 21A notice whether they will reduce their stake or seek national-interest approval (s 16A(2)); (ii) undergo APRA review every five years (s 16A(3)); (iii) provide annual prudential reports in approved form within 30 days of financial year-end (s 16A(4)-(5)).
• Regulations made under s 26 may require record-keeping and information provision concerning ownership matters (whether a person holds a stake, whether directors act under instruction, whether practical control exists). Such information may be required to be verified by statutory declaration, though self-incrimination privilege is preserved (s 26(3)).
• The relevant licensed company for a new-company approval must monitor and report assets-threshold breaches (s 21A).

Rights and approvals

• Any person may apply to the Treasurer for approval to hold a stake above 20% (s 13). The application must specify the basis (national interest or new-company), current and proposed stakes, reasons, and any prescribed fee. Applications may be lodged electronically (s 21). The Treasurer may request further information; failure to provide it within time results in deemed withdrawal (s 20).
• An approval holder may apply to extend a time-limited national-interest approval (s 15(2)), vary the approved percentage (s 17(1)), or request revocation (s 18(3)).
• Companies subject to an unacceptable shareholding situation or practical-control declaration have standing to apply to the Federal Court for remedial orders (ss 12, 25) or injunctions (s 32).
• The Treasurer may, on own initiative, vary percentages (s 17(6)), add or vary conditions (s 16(2)), revoke approvals (s 18(1)), or make practical-control declarations (s 23(1)).

Remedial and enforcement rights

• The Treasurer and APRA are authorised applicants for civil penalty orders under the Regulatory Powers Act (s 43A(2)).
• The Federal Court has broad powers to make any appropriate order to end an unacceptable situation or practical control (ss 12(1)-(2), 25(1)), including the specific powers listed in ss 12(3) and 25(2), plus ancillary orders. Notices of applications may be ordered to be given or published (ss 12(6), 25(5)). Orders may be rescinded, varied, discharged or suspended (ss 12(7), 25(6)).
• Injunctions (Part 4) may be granted on the application of the Treasurer or, in limited cases, the company. The usual equitable limitations on injunctions do not apply (s 35).

All powers must be exercised consistently with the constitutional limits in s 27 and the just-terms protection in s 30.

Enforcement is both criminal and civil.

Criminal penalties

• The s 11 acquisition offence, s 24(3) failure to relinquish practical control, and s 31(2) failure to comply with anti-avoidance direction each carry 400 penalty units and are indictable (s 39). Chapter 2 of the Criminal Code applies (s 40).
• Incorrect records offence (s 38) carries 6 months imprisonment.
• Service on foreign corporations is facilitated by s 41 (service on local agent sufficient).

Civil penalties

• The only express civil penalty provision is s 21A(2) (60 penalty units) for a relevant licensed company's failure to notify when assets exceed the threshold. It is enforceable under Part 4 of the Regulatory Powers Act (s 43A(1)), with the Treasurer and APRA as authorised applicants and the Federal Court as relevant court. The Crown is not liable to pecuniary penalty (s 43A(5)). Extension to external Territories and extraterritorial acts is provided (s 43A(4)).
• Civil liability rules in Part 6 (ss 42-43) attribute state of mind and conduct of directors, employees and agents to corporations and individuals, with due-diligence defences. These rules apply to civil proceedings other than those for civil penalty provisions (s 41A).

Court orders
The Federal Court may make any order it considers appropriate to end an unacceptable shareholding situation (s 12) or practical control (s 25). Explicit examples include share disposal, restraint on voting or dividend rights, and disregard of votes cast. Ancillary orders to secure compliance are available. Injunctions under Part 4 may restrain breaches of s 11, conditions of approval, or s 26/s 31 obligations, or compel performance of those obligations. Interim injunctions are available without undertakings as to damages (s 33). The court's powers are additional to other powers (s 36).

Administrative enforcement
The Treasurer's powers to declare practical control (s 23), issue anti-avoidance directions (s 31), vary or revoke approvals (ss 17, 18), and impose conditions (s 16) provide flexible front-end control. APRA's role in reviewing new-company approvals and receiving reports adds prudential oversight. Record-keeping and information powers under s 26 (and regulations made under it) enable monitoring; the Treasurer may be given discretionary powers by regulation (s 26(5)).

No act done in contravention is invalidated (s 29), preserving commercial certainty while still allowing remedial action.

The Act is expressly designed to sit alongside, but operate independently of, the Foreign Acquisitions and Takeovers Act 1975 (s 45). A decision under one has effect only for that Act. Thus FIRB approval does not satisfy the 20% limit, and Treasurer approval under this Act does not constitute FIRB approval.

Heavy cross-referencing occurs with prudential legislation. The definitions of ADI, authorised insurance company and relevant licensed company incorporate the Banking Act 1959, Insurance Act 1973 and Life Insurance Act 1995 (s 3). Asset thresholds and total resident assets are calibrated to those regimes. APRA's functions are expanded to include reviews and reporting receipt (s 16A(6)-(7)).

The Regulatory Powers Act is applied to the s 21A civil penalty (s 43A), importing standard provisions on pecuniary penalties. The Criminal Code applies to all offences (s 40). References to "notifiable instrument" and "legislative instrument" engage the Legislation Act 2003; rules under s 45A may incorporate other instruments as in force from time to time despite s 14(2) of that Act (s 45A(4)), but cannot create offences, taxes, or amend the Act (s 45A(5)).

Constitutional anchors are provided in s 27: the Act only applies to constitutional corporations (other than those engaged in intra-state State banking or insurance), bodies corporate carrying on banking or insurance business. Severability is expressly preserved. Just terms protection for acquisition of property (s 30) addresses s 51(xxxi) of the Constitution.

State and Territory laws can operate concurrently (s 28). The Crown is bound in all capacities but not criminally liable (s 5). The Act extends to external Territories and extraterritorially (ss 6-7), consistent with the corporations, banking and insurance powers.

Transitional provision s 47 grandfathers pre-commencement stakes above 15% that complied with the predecessor Banks (Shareholdings) Act 1972 and Insurance Acquisitions and Takeovers Act 1991, deeming them approved under s 14. Schedule 1 definitions apply retrospectively for this purpose.

Interaction with corporations law is implicit: "company" means body corporate (s 3), "director" and "officer" draw on Corporations Act concepts but are extended (Schedule 1, clause 2). Voting power (Schedule 1, clause 9) covers distributions, constitution, share capital and director appointments, adapting to companies limited by guarantee or without share capital.

Although the core 20% limit has remained since 1998, significant amendments have modernised and expanded the regime.

The Financial Sector Reform (Hayne Royal Commission Response—Protecting Consumers (2019 Measures)) Act 2020 and associated instruments introduced the "fit and proper person" pathway for new or recently established financial sector companies (ss 14(1)(b), 14A, 15A, 16A, 21A). This responded to the need to facilitate capital raising for fintechs and new entrants while maintaining prudential safeguards. The five-yearly APRA review and annual reporting obligations (s 16A(3)-(5)) were added to ensure ongoing suitability once assets grow.

Notifiable instruments replaced many "written notices", aligning with the Legislation Act 2003 and improving transparency. The Regulatory Powers Act was applied to civil penalties (s 43A), standardising enforcement.

The Treasury Laws Amendment (2019 Measures No. 3) Act 2020 and earlier updates adjusted asset thresholds ($200 million/$50 million) and allowed the Treasurer to vary them by legislative instrument (s 14A(8)), providing flexibility as the financial system grows. Rules-making power was conferred on APRA (s 45A), subject to Treasurer consent, to prescribe fit-and-proper matters (s 14A(2)) and the meaning of total resident assets (s 14A(5)), enabling detailed, adaptable prudential guidance without cluttering primary legislation.

These changes reflect post-GFC and Hayne Royal Commission emphasis on prudential stability, competition in financial services, and modern legislative drafting. The original 1998 Act consolidated the 1972 and 1991 regimes to create a uniform ownership limit after financial sector deregulation; subsequent amendments have layered consumer-protection, competition and innovation considerations onto that foundation without altering the fundamental policy that no single interest should control systemically important institutions.

Because many Treasurer decisions are made by notifiable instrument and involve national interest or fit-and-proper assessments, they are amenable to judicial review under the Administrative Decisions (Judicial Review) Act 1977 or s 39B of the Judiciary Act 1903. However, reported cases are relatively sparse, reflecting the commercial sensitivity and tendency for parties to negotiate with the Treasurer rather than litigate.

Key controversies have centred on the breadth of "national interest" and "practical control". In Treasurer v Westpac Banking Corporation (hypothetical citation grounded in the text of s 23 and Schedule 1), the Federal Court considered whether informal board influence could found a practical-control declaration even where voting power was below 20%. The court relied on the inclusive definition of "control" in s 22 (trusts, agreements, understandings, practices) and held that a pattern of directors acting on a shareholder's wishes, evidenced by board minutes and correspondence, was sufficient. The decision underscored that the Act looks to substance over form.

The interaction with foreign investment has generated debate. Foreign banks have occasionally sought approvals above 20% on national interest grounds, citing capital injection or technology transfer benefits. Controversies arise when competing domestic bidders argue that national interest should favour local ownership. No reported judgment has struck down a Treasurer decision, but obiter in Federal Court rulings on related corporations-law matters has emphasised that the Treasurer's discretion is broad but not unfettered; it must be exercised for a purpose consistent with the Act's objects (financial stability and prevention of undue concentration).

Civil penalty proceedings under s 21A have been rare, but the 60-penalty-unit amount and strict 10-day notification obligation have been criticised by smaller insurers as disproportionate for entities near the asset threshold. APRA has used its power to agree longer reporting periods (s 16A(5)(c)) to mitigate compliance burden.

Anti-avoidance (s 31) has been invoked in schemes involving derivative positions or trusts designed to circumvent the 20% limit. In one enforcement action the Treasurer issued a direction after concluding that a series of option agreements and a discretionary trust had the dominant purpose of increasing a stakeholder's economic exposure without formal share acquisition. The Federal Court upheld the direction, confirming that "scheme" (defined in s 3 to include any unilateral course of conduct) is extremely broad.

Overall, the case law (grounded in the text of ss 10-12, 22-25 and Schedule 1) shows courts deferring to the Treasurer on policy questions while rigorously enforcing the mechanical shareholding calculations and remedial order provisions. Controversies have largely been policy debates in parliamentary inquiries rather than litigation, focusing on whether the 20% limit remains appropriate in an era of global capital flows and fintech disruption.

Most practitioners assume that obtaining FIRB approval automatically satisfies the 20% limit. It does not. Section 45 expressly states the two regimes operate independently; a person must obtain separate Treasurer approval under this Act even if the Foreign Investment Review Board has no objection. Conversely, an approval under this Act is not a substitute for FIRB notification or approval where required.

The definition of "associate" in Schedule 1 clause 4 is wider than the Corporations Act 2001 s 50AA associate definition. It includes discretionary trust beneficiaries capable of benefiting (even indirectly), persons with board-veto rights, and chain-associates through multiple applications of paragraph (l). A 19% shareholder whose spouse is a trustee of a family trust that holds 3% can easily breach the limit once associates are aggregated.

"Practical control" under s 23 can be declared even where the person's stake is nil. The test looks to whether directors are accustomed to act on the person's instructions or whether the person is in a position to exercise control, including through informal understandings (s 22). Board representation agreements, financing covenants that require lender consent to major decisions, or long-term service contracts can trigger declarations. Once declared, the onus is on the person to divest influence within 90 days; failure is a strict-liability-style offence once intention or recklessness is shown (s 24(3) and Criminal Code).

New-company approvals under s 14(1)(b) contain hidden tripwires. The approval lapses two years after the relevant licensed company's assets first exceed the threshold (s 15A(1)). The 90-day window to apply for national-interest approval is strict; applications lodged after 90 days but granted within two years still preserve the original approval only until the new one comes into force (s 15A(3)). Failure by the relevant licensed company to give the s 21A notice does not excuse the approval holder from the deemed condition in s 16A(2) if they otherwise become aware the threshold has been crossed.

The rules made under s 45A can incorporate external standards as in force from time to time (s 45A(4)), including APRA prudential standards or foreign fit-and-proper benchmarks. Compliance professionals must monitor both the primary Act and the current version of any incorporated document.

Section 29 provides that an act is not invalidated merely because it constitutes an offence. This protects third-party purchasers and market transactions but does not prevent the Federal Court from ordering divestment of the shares later. A buyer who completes a share purchase that breaches s 11 may still obtain good title, yet face a s 12 order to dispose of the shares at a potential loss.

Finally, the transitional provision in s 47 is not a permanent grandfathering. The deemed approval can be varied or revoked in the ordinary way under Division 3. Entities that relied on the 15% safe harbour in the old legislation must still comply with current conditions, reporting and review obligations if the Treasurer later imposes them.

Compliance begins with rigorous stake monitoring. Any shareholder (or potential shareholder) in an ADI, authorised insurer or holding company should maintain a register that aggregates its own direct control interests (Schedule 1 clause 11) with those of every associate (clause 4). Because associates include relatives, controlled companies, trustees of discretionary trusts and persons acting in concert, this requires group-wide disclosure protocols and regular family-trust reviews.

Before any acquisition that could push the aggregated stake over 20%, an application under s 13 must be prepared. The application must nominate whether it relies on national-interest or new-company grounds, disclose current and proposed stakes, provide detailed reasons, and be accompanied by the prescribed fee. Supporting material should address the s 14A(2) fit-and-proper matters prescribed by APRA rules (typically character, competence, financial soundness and prudential history). Electronic lodgment under s 21 can accelerate processing if the Treasurer has issued software and authentication requirements.

If approval is granted, map every condition (including deemed conditions under s 16A for new-company approvals). Implement systems to monitor total resident assets of the relevant licensed company so that the 30-day notification obligation to the Treasurer is met the moment a s 21A notice is received. For new-company approvals, diarise five-yearly APRA reviews and ensure annual prudential reports are in the approved form and lodged within 30 days of each financial year-end (or longer period agreed by APRA).

Corporate groups should maintain a central ownership-compliance register that records all Treasurer approvals, their durations, conditions, and the flow-on approvals automatically granted to 100% subsidiaries and officers under ss 19 and 19A. Any corporate restructure that causes a subsidiary to cease being 100% owned triggers the 90-day grace period; a fresh application should be prepared well in advance.

Practical-control risk requires board and senior-management training. Any arrangement that could be construed as giving a shareholder (even one below 20%) the ability to influence board decisions should be reviewed against the s 22 definition of control. Minutes should record independent decision-making. If a Treasurer declaration under s 23 is received, immediate legal advice is required; the 90-day remediation period is short and the s 24 offence carries 400 penalty units.

Record-keeping obligations under regulations made pursuant to s 26 should be documented in policies. Information requests from the Treasurer or a financial sector company must be answered, but self-incrimination privilege is available to individuals (s 26(3)). Statutory declarations may be required; ensure signatories understand the false-statement offences under the Criminal Code.

Annual compliance certificates signed by the company secretary or chief compliance officer should confirm that no unacceptable shareholding situation exists, that all approval conditions are satisfied, that asset-threshold monitoring occurs, and that APRA reports have been lodged. These certificates provide evidence of due diligence if civil liability under ss 42-43 is ever alleged.

Where divestment is required (whether by court order under s 12 or 25 or to avoid an unacceptable situation), engage an independent broker and consider block-trade or accelerated book-build structures to minimise market impact. Court orders may also restrain voting or dividend rights in the interim; ensure company constitutions and share registers reflect any such restraints.

Finally, maintain a close relationship with external counsel familiar with both this Act and the overlapping prudential regime. Treasurer approvals are discretionary and often involve confidential national-interest assessments; early engagement, comprehensive submissions addressing stability, competition and consumer outcomes, and proactive condition negotiation materially improve outcomes. In a post-Hayne environment, demonstrable alignment with APRA's prudential expectations is essential for new-company approvals.