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ASIC has released two international consultation papers on outsourcing [from The International Organization of Securities Commissions' Standing Committee 3 on Market Intermediaries (IOSCO SC3) and the Basel Committee Joint Forum] and is encouraging interested persons to submit comments on either or both of these consultation reports.
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ASIC has issued Policy Statement 181 Licensing: Managing conflicts of interest [PS 181] setting out how it expects financial services licensees to manage their conflicts of interest.
PS 181 is based on the new conflicts management obligation for licensees implemented by the Commonwealth Government’s Corporate Law and Economic Reform Program (CLERP 9) legislation. The new obligation takes effect from 1 January 2005.
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ASIC has released its policy proposal regarding new dollar disclosure obligations.
Dollar disclosure will be required from 1 January 2005. Under the dollar disclosure provisions, providing entities and product issuers will be obliged to disclose various fees, benefits, costs and interests as amounts in dollars in:
Statements of Advice (SOAs);
Product Disclosure Statements (PDSs); and
periodic statements.
Unless ASIC makes a determination that, for example, dollar disclosure is not possible, fees and benefits must be disclosed as amounts in dollars.
The policy proposal paper sets out how ASIC plans to approach the dollar disclosure provisions together with how it proposes to use its power to make dollar disclosure determinations.
ASIC expects licensees and product issuers to have plans for complying with the dollar disclosure obligations underway. The six-month transition period exists for licensees and product issuers to make any necessary adjustments to their systems, processes and documents so that they can comply with the dollar disclosure obligations. ASIC may consider extending the compliance date for a short period provided industry participants demonstrate they are taking steps to ensure they can comply with the dollar disclosure obligations.
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APRA has reminded authorised deposit-taking institutions of the threats from “phishing” and key-logger and Trojan attacks.
APRA has strongly recommended ADI’s which offer internet banking take precautions such as:
• introduce procedures to ensure that under no circumstances would a customer be
asked to reveal their PIN/password;
• implement strong authentication and control mechanisms to provide reliable
safeguards against identity theft;
• actively seek out fake websites or other scams which target their institution;
• ensure appropriate limits are in place for online transactions; and
• ensure fully documented incident response procedures are in place which are
communicated to all relevant staff members.
APRA said ADI’s should also encourage their customers to protect themselves.
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ACCC has announced it will not intervene in the proposed joint venture of the voucher processing facilities of Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corporation.
According to ACCC, “the transaction will create a joint venture company, upon the completion of a competitive tender process, with the function of acting as a service entity. As a result, the parties to the arrangement will collectively outsource their voucher processing requirements, but will not provide these facilities downstream as a single entity. The banks will continue to compete for the provision of voucher processing services to downstream customers.”
Presumably the transaction also complies with APRA’s Prudential Standard APS 231 on outsourcing.
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ASIC has commented on public discussion about directors entering agreements for their removal at the time of their appointment.
The Corporations Act 2001 says that only the shareholders can remove a director of a public company and that attempts by directors to remove another director from office are void. This means that an agreement (or any other arrangement) that says that a director can be removed from office if the other directors decide is ineffective.
The key quotes:
“ASIC recognises that companies and their boards want to be free to establish robust and effective measures for assessing the performance of individual directors, and of the board as a whole. Good governance often involves assessing the performance of individual directors and holding each director to real account for their performance. Measures can include peer review mechanisms, where directors comment on and assess the contribution of other directors.
But it must be the shareholders who ultimately decide whether a director is to remain in office…
ASIC urges companies to adopt the following two principles in designing such standards:
These two principles can be achieved by setting out the arrangements in the company’s constitution. This has the added advantage of allowing shareholders a vote on the arrangements themselves.“
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APRA is encouraging trustees to apply for licences early.
Even though the deadline for having a licence is 30 June 2006, it points out that applications close on 31 December 2005.
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The Minister for Finance and Administration, Senator Nick Minchin has released the Government’s response to the report on the review of corporate governance of statutory authorities and office holders.
Senator Minchin said the objective of the review was to identify issues surrounding existing governance arrangements and provide options for the Government to improve the performance and get the best from statutory authorities, their office holders and their accountability frameworks.
Although the Government has agreed to revise some structures, it has refused to establish an Inspector-General of Regulation to investigate, where necessary, the systems and procedures used by regulatory authorities in administering regulation.
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APRA has released a discussion paper in which it proposes to strengthen the LMI prudential capital and reporting framework and the eligibility requirements for ADIs claiming the 50 per cent concessional risk weight on certain loans that are mortgage-insured.
Currently, under prudential standard APS 112 – Capital Adequacy: Credit Risk and associated guidance notes, ADIs qualify for a 50 per cent concessional risk weight on loans above 80 per cent LVR that are fully secured by registered mortgage over a residential property, and 100 per cent mortgage-insured through an ‘acceptable’ LMI. Without mortgage insurance, high-LVR loans attract a 100 per cent risk weight.
For non-standard loans, proposed amendments will require mortgage insurance on loans with an LVR in excess of 60 per cent for ADIs to claim the capital concession.
The proposal will amend the definition of ‘acceptable’ mortgage insurance to require insurance to be provided by an LMI that:
• is authorised by APRA; or
• is domiciled in a country APRA considers to have comparable prudential regulation.
Where the insurer or any reinsurer has contractual recourse to the ADI, or a member of the ADI’s consolidated group (excluding the captive LMI), the ADI will not be eligible for capital concessions.
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ASIC has issued a warning to the mortgage broking industry regarding misleading advertising.
‘Don’t claim that you are independent or impartial if that’s not true’, Mr Greg Tanzer, ASIC’s Executive Director of Consumer Protection and International said.
‘In every case that we have examined to date, we found such claims were misleading. For example, you cannot be totally impartial if you only deal with a limited panel of lenders who are paying you commission’, Mr Tanzer said.
Mr Tanzer issued the warning after ASIC accepted an enforceable undertaking from Structured Financial Solutions Pty Ltd not to use the words ‘impartial’ or ‘independent’ in any future advertising or promotional material.
ASIC considered the claims misleading and deceptive because Structured Financial Solutions advises consumers only about the lenders appointed to its panel. All of the lenders on the panel pay commission to Structured Financial Solutions.
ASIC has previously taken action against Fintrack and Mortgage Choice.
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