New legislation review

Parliament is on a winter break and will next sit from 11 to 20 August 2009.

It's left us with some significant new Bills to review:

On 1 July we'll have:

And we're waiting for:

Making compliance fun

Financial services regulation: margin loans, trustee companies and debentures

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP,has introduced the Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009 into Parliament.

The Bill addresses three key areas of financial services regulation:

  • Margin lending
  • Trustee companies
  • Debentures and promissory notes

Margin lending

The new regime will make margin loans subject to the investor protection regime in the Corporations Act. It requires margin lenders and advisers to obtain a licence and be subject to supervision and enforcement by ASIC. It will also give borrowers access to free external dispute resolution services where they have a dispute with their provider.

Margin loan lenders will be subject to responsible lending requirements which will only allow them to provide a margin loan if they are reasonably sure that the borrower is able to afford the loan without suffering substantial hardship. A new provision is included which clarifies whether lenders or financial advisers are responsible for notifying borrowers of margin calls. There will be a 12 month transition period.

Trustee companies

The Commonwealth assumes responsibility for the regulation of trustee companies under a single, standard, national regulatory regime.

Traditional trustee company services will be regarded as financial services under Chapter 7 of the Corporations Act, and trustee companies will be required to hold an Australian financial services licence covering the provision of the relevant services.

The amendments will also protect consumers by establishing a national consumer protection and disclosure regime under the Corporations Act and the ASIC Act. Trustee companies will also need internal and external dispute resolution mechanisms to resolve complaints.

The legislation provides that fees must be fully disclosed to the public via the internet. Fees charged to non-charitable trust clients are limited to the trustee company's latest published schedule of fees.

Also, fees charged to charitable trusts and foundations will be regulated to ensure that beneficiaries of these trusts are protected. Specifically, fees charged to "new client" charitable trusts will remain subject to capping based on the Victorian Trustee Companies Act 1984. "Existing client" charitable trusts will have their fee levels frozen to ensure the fees do not rise as a result of the new regime.

Debentures

The Bill amends the regulation of debentures and promissory notes and creates a register of debenture trustees.

The changes harmonise the legal regime to require all retail debentures and promissory notes to be subject to the consumer disclosure and protection measures currently applying to debentures. This includes the requirement to have a trust deed and trustee arrangements, and to issue a full prospectus.

ASIC will be required to create and maintain the register of debenture trustees, which will be available for viewing by the public.

AUSTRAC Typologies and Case Studies Report 2009

AUSTRAC has issued a new typologies report which outlines some of the latest money laundering methods and other financial crimes in Australia.

The AUSTRAC Typologies and Case Studies Report 2009 presents a range of case studies that highlight illicit activities.

The report also features many 'red flag' indicators of suspicious customer behaviour, and crimes including card skimming, early release super schemes, Ponzi schemes, 'boiler room scams', and internet, lottery and sweepstake scams.

National Consumer Credit Protection Reform Package introduced

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP, has introduced the Government’s national consumer credit laws into Parliament.

The regime will establish a single, standard, national law for the regulation of consumer credit.

 The new national regime includes:

  • a national licensing regime regulating credit providers and providers of credit related services enforced by the Australian Securities Commission (ASIC) as the sole regulator (from 1 January 2010);
  • responsible lending requirements (from 1 January 2011);
  • compulsory dispute resolution mechanisms for credit providers;
  • extension of consumer credit laws to residential investment property loans;
  • an increase to the threshold for hardship claims to $500,000.

The Reform Package comprises three Bills:

Subject to the passage of the Reform Package and reference legislation in each state, the Reform package will commence on 1 November 2009:

  • Lenders and credit-service providers (such as brokers) will be required to register with ASIC between 1 November 2009 and 31 December 2009, and will have to apply for a licence by 30 June 2010 in order to continue to engage in credit activities.
  • The responsible lending conduct obligations will commence on 1 January 2011 to provide industry time to put in place the systems, arrangements and training needed to comply with these obligations.

Langes is currently reviewing the draft bills in detail.

We will be discussing the legislation at our seminars in Brisbane, Sydney, Melbourne and Adelaide in August.(More information here).

The Minister announced that modifications to the Exposure Draft Bills include:

  • Exemption from licensing for state-licensed debt collectors (12 months only) and for point of sale credit assistants for example, car dealerships or retail outlets ;
  • The responsible lending conduct obligations will commence on 1 January 2011 to provide industry time to put in place the systems, arrangements and training needed to comply with these obligations;
  • The requirement for credit providers to perform the credit assistance obligations when providing credit assistance in relation to their own proprietary credit products has been removed;
  • Breach reporting by holders of an Australian Credit Licence has been removed;
  •  An express provision has been included to allow some flexibility to the application of the obligations of a licence holder according to the nature, scale and complexity of the credit activities engaged in by the licensee;
  •  Licence requirements only apply to legal assignees of debts and rights under credit contracts;
  •  Responsible lending conduct requirements have been applied to consumer leases;
  •  Inclusion of a provision in the law that presumes that if a consumer will only be able to comply with the consumer’s financial obligations under the contract by selling the consumer’s principal place of residence, the consumer could only comply with those obligations with substantial hardship, unless the contrary is established;
  •  A prohibition on a credit assistant from securing their fees for providing credit assistance by taking a caveat has been included;
  •  The timeframe within which a written assessment requested by the consumer must be provided has been extended to seven business days, if the request is made within two years of the quote or contract date or 21 business days if the request is made thereafter. A consumer’s right to request a copy of the assessment is limited to seven years after the date of the quote or contract;
  •  A lender will be required to give the debtor (and any guarantor) a notice within 10 business days of the first direct debit payment failing in relation to a direct debit instruction;
  •  The civil penalty infringement notice amount is reduced from 1/20th to 1/40th;
  •  The criminal penalty is reduced to two years jail term and 100 penalty units. This reflects the different economic risks in credit matters compared to other financial products;
  •  The small claims procedure has been significantly expanded to include actions for loss or damages of up to $40,000 or to obtain certain orders under the Code where the contract is valued at less than $40 000;
  •  The court jurisdiction and framework has been established and confers civil jurisdiction to Federal and State and Territory courts, including local and magistrates courts, and confers criminal jurisdiction to State courts;
  •  A provision is included to permit the jurisdiction of where legal proceedings can commence to be determined by regulations.

National Consumer Credit Reform exposure draft bill changes

National Consumer Credit Protection Reform Package introduced

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP, has introduced the Government's national consumer credit laws into Parliament.

The regime will establish a single, standard, national law for the regulation of consumer credit.

The new national regime includes:

  • a national licensing regime regulating credit providers and providers of credit related services enforced by the Australian Securities Commission (ASIC) as the sole regulator (from 1 January 2010);
  • responsible lending requirements (from 1 January 2011);
  • compulsory dispute resolution mechanisms for credit providers;
  • extension of consumer credit laws to residential investment property loans;
  • an increase to the threshold for hardship claims to $500,000.

The Reform Package comprises three Bills:

Subject to the passage of the Reform Package and reference legislation in each state, the Reform package will commence on 1 November 2009:

  • Lenders and credit-service providers (such as brokers) will be required to register with ASIC between 1 November 2009 and 31 December 2009, and will have to apply for a licence by 30 June 2010 in order to continue to engage in credit activities.
  • The responsible lending conduct obligations will commence on 1 January 2011 to provide industry time to put in place the systems, arrangements and training needed to comply with these obligations.

Langes is currently reviewing the draft bills in detail.

We will be discussing the legislation at our seminars in Brisbane, Sydney, Melbourne and Adelaide in August.(More information here).

Links:Treasury's Consumer Credit Website

Langes National Consumer Credit Reform website

ASIC;s National Consumer Credit Regulation page

Private Ancillary Funds: new tax guidelines for private philanthropy

The Assistant Treasurer, Senator Nick Sherry, has introduced into Parliament the Tax Laws Amendment (Measures No 4) Bill 2009, which establishes a new legal framework for prescribed private funds from 1 October 2009.

Prescribed private funds, which are now to be known as Private Ancillary Funds (PAFs), are a type of fund designed to encourage private philanthropy by providing businesses, families or individuals with greater flexibility to start and run their own trust funds for philanthropic purposes.

The Assistant Treasurer has also released for consultation the detailed draft Guidelines on how the new PAF framework will apply.

The Bill contains three important changes to the earlier Exposure draft Bill, namely:

  • allowing multiple corporate trustees of PAFs;
  • reducing potential compliance costs by amending the requirement that transitional PAFs must have a single corporate trustee; and
  • widening the scope of the defence available to PAF trustees and directors from being jointly and severally liable to administrative penalties.

The Bill also moves the full administration of PAFs under the authority of the Commissioner of Taxation, gives the Treasurer the power to make legislative guidelines about the establishment and maintenance of PAFs, and gives the Commissioner of Taxation the power to impose administrative penalties on trustees that fail to comply with the guidelines, and power to remove or suspend trustees of non-complying funds.

The draft Guidelines released today contain the following key reforms:

  • replaces the existing complex rules based on accumulation targets with a simpler minimum annual distribution rate for funds, proposed to be set at 5 per cent, being a rate the Government considers to strike the right balance between ensuring resources flow to the charitable sector now, whilst also allowing PAFs to grow for the benefit of the sector in the future;
  • a requirement that funds develop and maintain an investment strategy, which requires consideration of investment objectives and risk;
  • the introduction of valuation rules that seek to minimise the compliance costs associated with making regular valuations; and
  • a requirement, in lieu of setting a minimum fund size, that trusts distribute at least $11,000 per year unless the expenses of the fund are met from outside the fund, to ensure philanthropists have the freedom to establish smaller trusts whilst protecting funds from being eroded by expenses.

Corporate governance resources

Director, managerial and executive termination benefits

The Government has introduced the Corporations Amendment (Improving Accountability on Termination Payments) Bill into Parliament.

It inserts new sections 200AA and 200AB in the Corporations Act and amends sections 200A-G and J relating to the payment of termination benefits to company directors and executives.

The Corporations Act currently allows for termination benefits up to seven times a director’s total annual remuneration package before shareholder approval is required. Additionally, only company directors’ termination benefits are subject to shareholder approval.

If passed, termination benefits for company directors and executives exceeding one year’s average base salary are subject to shareholder approval. In addition, the range of personnel whose termination benefits can be subject to shareholder approval is expanded from directors to also include senior executives or key management personnel. The Bill also clarifies the types of benefits that are subject to shareholder approval

The new rules will not apply retrospectively to existing contracts. The new arrangements will apply to contracts that are entered into and renewed or extended.

The new rules will also apply to existing contracts for which a variation of a condition is made. Minor changes to an existing contract would not be considered a variation of a condition. However, changes that effect an essential term, including any term relating to remuneration would be considered a variation of a condition.