Australian Regulatory Compliance Review

ASIC announces results of its strategic review

The Australian Securities and Investments Commission (ASIC) has announced it has completed a strategic review.

The key changes ASIC is making in order to be closer to the market and to take emerging trends into account more quickly are:

• additional investment in market research and analysis;
• the appointment of an experienced External Advisory Panel drawn from a variety of sectors of the economy in order to advise ASIC’s Commission on market developments and potential systemic issues;
• abolition of the four current ‘silo’ directorates of ASIC and replacing them with 17 outwardly-focused stakeholder teams covering the financial economy (e.g. teams for retail investors and consumers, investment managers, investment banks, superannuation funds and financial advisors);
• additional resources directed to the supervision of brokers and intermediaries and to operators of exchange-traded products and to surveillance of exchange-traded markets; and
• a better balance between national and regional initiatives (e.g. more resources into Perth and Western Australia.). 

ASIC will retain its strong approach to enforcement. ASIC will now have six main enforcement or deterrence teams (instead of one large directorate). Each team will be tasked with specific responsibilities such as insider trading, major fraud, and international fraud and teams for other significant misconduct.

ASIC will retain current staff levels of 1600. ASIC will carry out the restructure within its current budget and has not asked the Government for additional resources for the 2008/09 financial year.

The new arrangements take effect from now and will be fully implemented during the next four months.

APRA releases research on superannuation fund governance

The Australian Prudential Regulation Authority (APRA) has released the results of its recent research on the governance practices of APRA-regulated superannuation funds (pdf).

The research, based on a detailed survey of superannuation trustees, found that there was little difference between the Corporate, Public Sector, Industry and Retail sectors in many areas of trustee policies and practices.  In some areas, however, there were statistically significant differences between the sectors, with Retail trustee practice more often different from that of the other sectors.

Some of the findings of the research include:

 

• Trustee directors of the large funds in the survey were typically well qualified, experienced and reasonably well trained in their trustee duties.
• Most boards (76 per cent) have both independent audit and regular self-assessment to review compliance with the Superannuation Industry (Supervision) Act 1993 and other regulations.
• Service providers are widely used in the superannuation industry, with the average fund using more than 13 service providers. Over 60 per cent of Retail directors have one or more associations with service providers, a figure that is double that for directors of Corporate funds and almost three times that for Public Sector or Industry funds.
• Relative to the other trustees, Retail trustees have fewer directors, shorter (but just as frequent) board meetings, and rely more on fund executives to take the initiative on most key decisions. By contrast, trustees in the other three sectors mostly make the decisions with the main input coming either from themselves or from their consultants.
• More than half of all Retail trustee directors are employed by related parties or by the fund itself, and very few are nominated by fund members. By contrast, many Industry, Corporate and Public Sector trustee directors are member-nominated.
• More than half of Corporate, Public Sector and Industry trustee directors are themselves members of their funds.  About one in five Retail trustee directors are members of their funds.

Productivity Commission Report on Consumer Policy: consumer protection law and product safety

The Minister for Competition Policy and Consumer Affairs, Chris Bowen MP, has released the Productivity Commission's final report of the Review of Australia's Consumer Policy Framework.

The Productivity Commission's key recommendations include:

• a single national generic consumer law, based on the Trade Practices Act 1974 (TPA), which would apply in all States and Territories;
• identifying unnecessary or costly consumer regulation that only applies in a few States and Territories, or to one industry, and either removing them or, if justified, introducing nationally consistent rules;
• transferring regulation of credit providers and finance brokers to the Australian Government, with the Australian Securities and Investments Commission (ASIC) as the regulator;
• national laws to tackle unfair terms in consumer contracts;
• a national approach to product safety laws and enforcement; and
• new redress and enforcement powers for consumer regulators, including the ability to seek redress for non-parties, civil pecuniary penalties, banning orders and substantiation notices.

The Commission also recommended an enhanced role for the Australian Government in consumer policy.

The Government will consider the recommendations and, as agreed by the Council of Australian Governments (CoAG), respond formally at the end of October 2008.

National Rental Affordability Scheme - technical paper released

The National Rental Affordability Scheme is due to commence on 1 July 2008. The Government has released a Technical Discussion Paper on the planned operation of the National Rental Affordability Scheme (NRAS).

The Technical Paper outlines the key features of the Scheme including tenant eligibility, roles for all levels of Government and potential participants in the Scheme and the assessment criteria for tenders.

The Scheme will provide incentives to institutional investors to build 50,000 affordable rental properties by 2012. If market demand remains strong the Government will deliver a further 50,000 incentives from 2012 onwards.

The National Rental Affordability Scheme offers annual incentives for a period of ten years. The two key elements are:

• A Commonwealth incentive of $6,000 per year refundable tax offset or grant; and
• A State or Territory incentive of $2,000 per year in direct or in kind financial support.

Submissions close on 31 May 2008.

Energy reporting streamlining

The Minister for Resources, Energy and Tourism, the Hon Martin Ferguson AM MP and the Minister for Climate Change, Senator the Hon Penny Wong have announced a review of the Energy Efficiency Opportunities Regulations 2006 . Proposed amendments aim to better streamline energy use reporting with the Australian Government's new National Greenhouse and Energy Reporting (NGER) System.

Amendments to the EEO Regulations will make it easier for EEO member companies to collect and report one set of energy use data, reducing potential duplication.

Most companies will not be affected by the changes. However, for those companies that may have different sets of energy use under each scheme, the amendments will

• reduce the compliance burden; and
• avoid duplicative reporting requirements

The amendments are intended to commence on 1 July 2008, to coincide with the commencement of the NGER System.

Garnaut Review climate change update

The Garnaut Review's draft report will be released by 30 June 2008,

The interim report, issues papers and background and discussion papers can be found here.

AML and securities

The Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2008 (No. 2) (pdf) sets out exemptions for entities Issuing or selling a security or derivative provided one of the following conditions apply:

• the service is a disposal of a security or derivative through an agent who is doing so in the course of carrying on a business of disposing of securities or derivatives in the capacity of agent;
• the transaction occurs on a prescribed financial market (ie a stock exchange);
• it is an issue of an interest in a managed investment scheme (including an option to acquire an interest in a managed investment scheme) where the managed investment scheme is quoted on a prescribed financial market and it is under a distribution reinvestment plan or an initial public offering.

Queensland consumer credit interest rate capped

The Consumer Credit (Queensland) and Other Acts Amendment Bill was passed by the Queensland Parliament on 1 May 2008.

Background

Competing rights on insolvency: share lending agreement

In Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group Limited [2008] FCA 594 the Federal Court had to decide on the competing rights of a lender (Beconwood) and a borrower (Green Frog, a part of the now insolvent Opes Prime Stockbroking group) under a Securities Lending Agreement. The lender had loaned its shares in return for a loan from the borrower Opes Prime. Opes Prime had obtained its funds from ANZ on the security of the shares it borrowed from Beconwood; ANZ wanted to sell those shares upon default by Opes Prime. ANZ could not sell the shares unless they had been transferred by Beconwood to Opes Prime so that it had the right to mortgage them to ANZ.

The lender Beconwood wanted its shares back upon payment of its debt to Green Frog. Otherwise its shares would be pooled with all the other Green Frog assets and it would become a mere creditor and lose its rights over those specific shares.

After a detailed analysis of the Agreement, including reference to US cases, the Court rejected the Lender's (Beconwood's) claim over the shares. The Court decided that Beconwood had legally transferred the shares to Green Frog (despite use of the lender/borrower terms).

The decision did not deal with claims over representations made to Beconwood about the effect of the agreement.

April 2008 podcast

In this month's podcast (click here to listen) I discuss 2 topics:

1. Directors' duties in times of economic uncertainty (see also section 180(2) Corporations Act)
2. Nikolich's case and the effect of HR policies

The podcast goes for 9 mins, 23 seconds and is 8.62mb.