APRA has released two new discussion papers and accompanying draft prudential standards on the implementation of the Basel II capital adequacy regime.
The first paper introduces the draft prudential standard for the standardised approach to operational risk. The second paper outlines APRA’s approach to the implementation of the internal ratings-based (IRB) approach to credit risk.

National Australia Bank has released details of the cost for reimbursing customers for over-charging of fees on a range of
financial packages, as well as updating initial estimates in relation
to over-charging of Bank Account Debits tax. 

These issues date back several years.  Incorrect collection of
Debits tax date back as far as 1982 when the tax was first introduced,
while overcharging on package fees may date back to 1994, when the
first package was launched.  The
estimated total overcharging for both the package fees and Bank Account
Debits tax amounts to approximately A$62 million before tax.  This
consists of an estimated A$10 million for Debits tax, and A$52 million
for package fees that will be reimbursed.

In addition, NAB will reimburse customers approximately A$18 million
in interest. This consists of approximately A$4 million for Debits tax,
and A$14 million for package fees.

NAB will also set aside A$30 million to cover remedial activities and contingencies.

The Australian Securities and Investments Commission (ASIC) has released an update report outlining its decisions on recent relief applications made by financial service providers.

The Banking and Financial Services Ombudsman has set out the guidelines he follows when customers write to his office to complain that a credit provider has refused to agree to a proposed repayment plan for a debt that the customer is unable to repay because of general financial difficulties.

The guidelines apply where there is no maladministration or other breach in relation to the original lending but there has been a subsequent change in the customer’s circumstances. And if there is a breach of statutory provisions to do with misleading, deceptive or unconscionable conduct or unjust or unfair contracts, his approach will be different.

The new Code of Banking Practice introduced an obligation to try to help individual and small business customers overcome their financial difficulties and to provide information about the UCCC hardship variation processes if they could apply to the customer’s circumstances. Even if the Code does not apply to you, the Ombudsman comments that non-subscribing banks and other credit providers should consider implementing the guidelines.

Acting fairly and reasonably, in the Ombudsman’s view, requires that credit providers:
• give genuine consideration to a repayment proposal or hardship variation application and any reasonable alternatives that will help the customer overcome their financial difficulties;
• give reasons for any rejection of the proposal, preferably in writing;
• ensure that those reasons reflect legitimate considerations and are referable to the particular customer’s circumstances;
• not start or conclude enforcement action before a decision is made and communicated; and
• respect the customer’s appointment of an advisor and, if one is appointed, not deal directly with the customer.

Acting consistently and ethically, in the Ombudsman’s view, requires that credit providers:
• have clear and reasonable internal processes for assessing hardship variation or enforcement postponement requests and other repayment proposals;
• be able to demonstrate that their staff have followed those processes;
• record and keep any promises made, for example, about suspending enforcement action, and record and keep to any agreement reached. If that includes that the arrangement be reviewed at a certain date, credit providers should not seek to review the arrangement earlier if the customer is keeping to it. Any review should be based on a genuine consideration of the customer’s position at that time;
• ensure that any collection related correspondence is consistent with what has been promised or agreed; and
• confirm in writing any agreement reached and ensure that collection agents and/or later assignees have a copy.

Finally the Ombudsman’s view is that "informing a customer of the UCCC provisions includes telling the customer, at the time of any rejection of a hardship variation application, that they can apply to the relevant court or tribunal under s 68 of the UCCC for an order changing the contract. This information should be given whether or not the credit provider thinks that the application would succeed – the obligation is to do so if those provisions could apply to the customer’s circumstances."

The Insurance Council of Australia has issued a revised General Insurance Code of Practice.

General principles covered by the new Code of Practice include:

• All customer services (including product information, sales
  procedures, claims handling and the management of complaints or
  disputes) will be conducted in a fair, transparent and timely manner.
• If an error is made in assessing applications, deciding on
  claims or investigating complaints, the insurer will take immediate
  action to correct it.
• Customers will have access to any information that has been
  used to assess applications, claims or complaints and will have the
  opportunity to correct any mistakes or inaccuracies within this
  information.
• Insurers will make sure that not only its employees, but
  also its Authorised Representatives and Service Providers meet the
  standards in the Code.

Compliance with the code will be monitored by the independent Insurance
Ombudsman Service to which consumers will be encouraged to contact if
they feel their insurer has breached the code.

It’s unusual for one regulator to report on another regulator.

But in the case of the ASX, ASIC must do so annually because ASX holds an ASIC financial markets licence.

ASIC’s June 2005 ASX assessment report concludes that :

"the ASX has adequate arrangements for supervising the market, including
arrangements for:

• handling
  conflicts between its commercial interests and the obligation to
  operate the market in a fair, orderly and transparent way
• monitoring the conduct of participants, and
• enforcing compliance with its rules.

The ASX has taken a number of positive steps since the release of ASIC’s last report in September 2004, including:

• the
  establishment of arrangements for supervisory and compliance personnel
  to elevate issues of concern to the Audit and Risk Committee of the ASX
  Board; and
• the establishment of an internal compliance function."

The Commissioner of Taxation has announced the results of the ATO’s initial investigation into borrowers of "low doc loans":

In June last year I announced we had begun to investigate whether
people using low documentation loans were likely to have tax compliance
issues. This early work suggested many people using these products had
either understated their income or failed to lodge income tax returns.
Our work since has confirmed our concerns.

In the first of our compliance initiatives, around 350 taxpayers
were selected randomly from eight lenders to get a picture of the
broader population using these products. This information was obtained
using the access powers in the tax law. It identified failure to lodge
tax returns as a primary concern.

Around 50 per cent of these people had not lodged returns – the average was three years outstanding…

In a second initiative we undertook a risk based approach that showed
that, for certain low documentation loan users, concealment of income
is a significant concern…

Although our findings indicate concerning levels of non-compliance
amongst the users of low documentation loans, many users of these
products are fully meeting their tax responsibilities. Many are funding
repayments from legitimate sources like inheritances and capital gains,
often derived from investments in property.