March « 2008 « Australian Regulatory Compliance Review from Langes+ Lawyers

March 31, 2008

Component pricing

The Minister for Competition
Policy and Consumer Affairs, the Hon Chris Bowen MP, has announced that the
Government will proceed with amendments to the Trade Practices Act 1974 (TPA) relating to component pricing in advertising to consumers to ensure consumers know a single total price they will have to pay for goods and services that they buy.

Component
pricing is the practice of advertising prices as the sum of separate
components, for example, advertising an airfare as $100 plus $48 tax,
fees and charges.

Business will not be prevented from using component pricing, provided
that the total price is also displayed prominently as a single figure.

The ASIC Act will not be amended: the new rules will not apply to financial service providers.

The provision will apply only to business-to-consumer
advertisements to the extent that a single figure price is quantifiable at the time of making a representation in an advertisement.The provisions will not apply to representations made
between businesses or between business and government.

Schedule 1 of the draft Bill contains the component pricing
amendments. In particular, the draft Bill contains the following
changes since the previous consultation rounds:

The definition of ‘single price’ excludes charges relating to
postage and handling.
The Government will not proceed with mirror amendments to the Australian Securities and Investments Commission Act 2001. This will allow the current legislative arrangements to continue to apply to financial services.

Stakeholders are invited to submit comments the draft Bill by 17 April 2008

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Posted 31st March 2008 by David Jacobson in Trade Practices

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Australia-USA securities and financial services mutual recognition

U.S. Securities and Exchange Commission Chairman Christopher Cox and
Australian Prime Minister Kevin Rudd have announced that the SEC, the
Australian Securities and Investment Commission (ASIC) and the
Australian Treasury Department have begun formal discussions to
consider a mutual recognition arrangement for the two nations’
securities markets. The discussions are intended to enhance
cross-border law enforcement cooperation, facilitate regulatory
coordination, and increase investor access to well-regulated capital
markets.

The SEC and ASIC have agreed to undertake a formal assessment of
each other’s regulatory systems to determine the extent to which each
jurisdiction produces a comparable level of investor protection. The
results of the comparability assessment would be published for public
comment before being made final. Once the comparability assessment is
completed, this would provide the basis for further discussions between
the SEC and ASIC regarding a formal mutual recognition arrangement,
which would include specific discussion of the extent to which, and
under what circumstances, U.S. and Australian securities exchanges and
market participants could operate in each other’s markets and would
articulate the additional cooperation arrangements that would be
necessary and appropriate to ensure the integrity of financial markets
and the protection of investors.

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Posted 31st March 2008 by David Jacobson in Financial Services

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March 30, 2008

Reserve Bank Financial Stability Review: Crisis Management Arrangements

The Reserve Bank’s March 2008 Financial Stability Review gives an overview of the global financial environment and Australia’s financial system concluding with a discussion of crisis management arrangements, ADIs’ liquidity management policies and proposed regulation of mortgage brokers.

The Review discloses that the Council of Financial Regulators has been reviewing aspects of Australia’s arrangements for the management of a financial crisis in the light of UK’s Northern Rock experience. It discusses 2 particular areas:

arrangements in Australia would be enhanced by the establishment of a scheme to repay depositors in a failed authorised deposit-taking institution (ADI) in a timely fashion. Under the existing legislation, depositors rank ahead of other creditors in a failed ADI, although they are likely to have to wait some time before they could be repaid. Given this, the Council is working on an Early Access Facility, which would provide early repayment of up to $20 000 per depositor in a failed institution; it is estimated that this cap is sufficient to cover the entire deposits of around 80 per cent of depositors…

reviewing APRA’s powers for dealing with a distressed financial institution. While these powers are more extensive than those available to the Financial Services Authority in the United Kingdom, the Council has recommended legislative changes that would give a statutory manager appointed by APRA additional powers, and provide APRA with greater flexibility in arranging a takeover by, or a transfer of assets and liabilities to, another ADI in a timely fashion.

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Posted 30th March 2008 by David Jacobson in Financial Services

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Standing Committee of Attorneys‑General Decisions – March 2008

The Standing Committee of Attorneys‑General has agreed to give priority to nationally consistent regulation and co-operation in the following areas:

Interstate Enforcement of Fines
Workplace Privacy
Personal Property Securities Law Reform
Tort Law – Proportionate Liability
Accession to Hague Convention on Service Abroad
Sterilisation of Intellectually Disabled Minors
Surrogacy
Harmonisation
National Electronic Conveyancing System
Trustee Companies
Jury Selection
Indigenous Justice
Model Criminal Code
Uniform Spent Convictions
Litigation FundingVictims of Crime
Harmonisation of anti-discrimination laws
National Directory of Alcohol and Drug Treatment Services
Legal aid funding
Suppression orders
Trans-Tasman court proceedings and regulatory enforcement
Disabilities Convention
National Legal Profession Model Laws
Missing Persons

The next next SCAG meeting will be in July 2008.

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Posted 30th March 2008 by David Jacobson in Business Planning, Deregulation_

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APRA’s view on securitisation of assets for contingent liquidity purposes

APRA has written to ADI’s giving its view on ADIs seeking to securitise a portion of their loan portfolio specifically to create mortgage-backed securities that are eligible for repurchase agreement (repo) transactions with the Reserve Bank of Australia (RBA).

APRA’s understanding is that ADIs intend to hold all of the securities issued by the securitisation vehicle until needed in obtaining liquidity from the RBA.

APRA has agreed that the proposed structures can be designed to meet APRA’s prudential requirements, subject to the provisions outlined in its letter and the conditions under which the RBA will accept these securities.

The ADI is expected to treat the entire pool of securitised loans as on-balance sheet assets for capital adequacy purposes under APRA’s Prudential Standard APS 120 Securitisation, Attachment B paragraph 23.

At this point however, APRA does not consider the securities issued under such structures to constitute part of the ADI’s liquid assets.

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Posted 30th March 2008 by David Jacobson in Financial Services

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March 29, 2008

High Court decides in favour of internet and interstate trade

In Betfair Pty Limited v Western Australia [2008] HCA 11 the High Court decided that Western Australian legislation outlawing the operation of betting exchanges was unconstitutional because it imposed protectionist burdens on interstate trade and therefore contravened section 92 of the Constitution.

Befair held a licence under Tasmanian law to operate a betting exchange, by which bets may be laid on a horse or a team losing as well as winning. Customers from all over Australia can place bets by telephone or internet.

But provisions of WA’s Betting and Racing Legislation Amendment Act, which came into effect on 29 January 2007, made betting with a betting exchange an offence.

The High Court held that section 24(1aa) was invalid to the extent that it applied to a person who made or accepted offers to bet through the use of Betfair’s betting exchange by telephone or internet between WA and Betfair’s Hobart premises. Section 27D(1) was invalid to the extent that it would apply to Betfair’s publishing or making available WA race fields by telephone or internet between Tasmania and another State.

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Posted 29th March 2008 by David Jacobson in Business Planning

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AFS licensees: compensation requirements

ASIC has issued a reminder to Australian financial services licensees that the compensation requirements in s912B of the Corporations Act 2001 commence, for most licensees, on 1 July 2008.

Many licensees will comply with these requirements
by obtaining professional indemnity (PI) insurance. Those licensees who
are seeking ASIC’s approval of alternative arrangements are reminded
that they will need to apply to ASIC for approval soon.

Regulatory Guide 126 Compensation and insurance arrangements for AFS licensees

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Posted 29th March 2008 by David Jacobson in Financial Services

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March 28, 2008

AML/CTF compliance reporting

The first compliance reports (for the period from 13 December 2006 to 31 December 2007) are due by Monday 31 March.

These reports are mandatory and will be important guidance for Austrac on the success of its education program and to identify compliance difficulties.

In his address to the Australian Bankers’ Association Anti-Money Laundering Forum (text) (pdf) (slides) (pdf) on 14 March the Acting Austrac CEO discussed the issue of backcapture of customer identification:

Some entities have indicated that they were not fully compliant with the ‘know your customer’ (KYC) provisions as at 12 December 2007, but advise that they will be fully compliant at some future date prior to expiry of the 15-month period – i.e. prior to 12 March 2009.

So an important issue that has arisen in this context, is to clarify a reporting entity’s obligation, in respect of the capture of know your customer (KYC) information for new customers who are provided with a designated service after 12 December 2007, but before the reporting entity has reached full compliance.

Our response has been to remind reporting entities that the Minister’s Policy Principles do not alter the commencement dates that were within the AML/CTF Act itself. The Act sets down the legal requirements, which include that all new customers were to be identified in accordance with the AML/CTF Act provisions from 12 December 2007. To avoid the possibility of enforcement action – including civil penalty orders, a reporting entity must by 12 March 2009, at the very latest, have undertaken KYC procedures on all customers for which there is a legal requirement from 12 December 2007. This applies regardless of the date during the 15-month period at which the reporting entity reaches full compliance. This means that the reporting entity which is delayed in achieving compliance, will need to backdate its data capture for these new customers to cover the period from 12 December 2007 to the date that full compliance is achieved.

However, he observed that:

AUSTRAC has advised reporting entities that are concerned with our approach to backcapture, that it is open for them to make confidential and case-by-case submissions on alternative approaches, that the entity may consider are practical and cognisant of their commercial circumstances, and which would be acceptable to AUSTRAC in terms of reasonable steps to meet compliance…

should an entity elect to continue customer identification that is based on systems and processes applicable prior to the AML/CTF Act coming into effect, then we would generally take the view that reasonable steps had been taken. Though the previous system for customer identification under the Financial Transaction Reports Act 1988 is limited to ‘account-based customers’, if these processes were also applied to customers seeking other designated services under the AML/CTF Act, then we would also generally take the view that in those circumstances, reasonable steps had been taken.

Complying businesses will already be looking ahead to 12 December 2008
when the final obligations covering ongoing customer due diligence and
the new reporting requirements on suspicious matters, international
funds transfer instructions and threshold transactions come into force.

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Posted 28th March 2008 by David Jacobson in Anti-money laundering

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March 27, 2008

Winding up statutory demand dates are critical

In times of uncertainty, more company winding-up notices (statutory demands) are issued. Failure to comply results in a presumption of insolvency.

So the High Court’s decision in Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Limited [2008] HCA 9 is timely.

The High Court decided that a court could not extend the time for compliance with a statutory demand under the Corporations Act if the time fixed by the Act had already expired.

A statutory demand is a demand served on a company under section 459E of the Corporations Act to pay a debt or debts within 21 days. Section 459F(2) provides that if the company applies pursuant to section 459G for an order to set aside the demand, a court may extend the period for compliance, and if no extension is ordered the period ends seven days after the application under section 459G is finally determined.

Aussie Vic applied to the Victorian Supreme Court for an order setting the demand from Esanda aside. On 20 June 2006, Master John Efthim dismissed the application to set aside the demand but ordered that the time for compliance be extended to 4 July 2006. Aussie Vic was entitled to appeal to a single judge of the trial division of the Supreme Court. After the extension fixed by Master Efthim had expired but before the appeal to a single judge had come on for hearing, Aussie Vic applied for another extension of time for compliance.

The issue went all the way to the High Court: no extensions could be given.

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Posted 27th March 2008 by David Jacobson in Corporations Act

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Liquidity in the Australian mortgage-backed securities market: is it time for AussieMac?

Joshua Gans and Christopher Joye from the Melbourne Business School argue that the markets for primary residential mortgage-backed securities in Australia are not operating efficiently.

"Under our proposal, the Commonwealth would guarantee the credit
worthiness of an Australian government agency, which we loosely call
‘AussieMac,’ thereby lending it Australia’s AAA credit rating. This
would allow AussieMac to issue substantial volumes of very low cost
bonds into the domestic and international capital markets. The funds
raised through issuing these bonds could be used to acquire
high-quality AAA-rated Australian home loans off the balance-sheets and
warehouse facilities of lenders (including the majors). AussieMac
would, therefore, serve to guarantee liquidity in the Australia home
loan market in the event that other private sources of capital were to
supply insufficient funding, such as is currently the case."

Australian Financial Review article

Full paper: Aussie Mac: A Policy Proposal for Australia

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Posted 27th March 2008 by David Jacobson in Financial Services

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