January « 2010 « Australian Regulatory Compliance Review from Langes+ Lawyers

January 10, 2010

What laws apply to you?: developing compliance policies

Following on from my recent post on risk I was asked: what laws apply to my business? What must I know about?

It’s fairly easy to prepare a list of Commonwealth and State laws and local by-laws (and mandatory and self-regulatory codes of conduct) and talk about the significant penalty provisions. And it is important that every business understands the laws that apply to it.

But it shouldn’t stop there. It’s essential for a business to build a framework of policies and procedures around the core legislation and then train your staff and monitor them to ensure compliance relevant to your business on a day to day basis.

So what are the basics?

The Corporations Act
whichever Act licenses your industry
The Trade Practices Act and consumer protection laws (including the new Australian Consumer Law)
The Commonwealth Privacy Act
the various Tax Acts (Commonwealth and State)
occupational health and safety laws
employment and discrimination laws
intellectual property laws
real property laws
environmental laws
insurance laws
contract and ecommerce laws
your industry’s standards and codes

If you provide financial services:

Anti-Money Laundering and Counter-Terrorism Financing Act
Consumer Credit Code (and the new National Consumer Credit Protection Act)
Banking Act
APRA Prudential Standards

If you are a public company:

ASX Corporate Governance Principles and Recommendations
Stock Exchange Business and Listing Rules (if you are listed)

So how do you translate those laws into understandable policies and procedures?

Your policies may be structured by department or function or process eg HR, accounting, sales, marketing. They should be given to staff as appropriate or made available on an intranet. Each business procedure should incorporate any legal requirement.

Here are some issues that need to be covered:

Corporate governance
Business structures and tax
Confidentiality
Conflicts of interest
Staff recruitment and employment conditions
Investor and shareholder relationships
Anti-money laundering and suspect transaction reporting
Environmental reporting
Gifts and inducements
Political donations
Competition and unlawful trade practices
New products
New customers
Strategic partnerships
Proprietary information (who owns employees’ inventions)?
Use of copyright materials and other IP (eg client logos)
Handling media enquiries
Customer complaints
Trust accounts and client property
Document retention
Licence condition monitoring and renewal
Reporting obligations (including continuous disclosure, if applicable)
Whistleblowing
Fraud reporting
Litigation
Dealings with regulators
Equal opportunity, discrimination, bullying, harassment and victimisation
Occupational health and safety (licensing, training, first aid, accidents)
Technology use policies including email and internet abuse, weblogs, Facebook, Twitter
Relationships between staff
Drug and alcohol abuse
Gambling
Account opening procedures
Credit approval procedures
Debt collection
Marketing including trade promotions and advertising sign off and website compliance
Terms and conditions of sale
Management accounting
Insurance coverage and risk management
Government grants
Business acquisitions and sales
Succession planning
Property ownership and leasing

No doubt there will be others that apply to your business. But you can’t manage your legal compliance if you don’t document it.

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Posted 10th January 2010 by David Jacobson in Compliance

January 7, 2010

National Consumer Credit – what should you be doing now?

The new National Consumer Credit Protection laws have been enacted.

Key points:
• The National Credit Code (NCC) will replace the Uniform Consumer Credit Code (UCCC) from 1 July 2010.
• From 1 April 2010, you will be able to register with ASIC, and from 1 July 2010, you will be able to apply to ASIC for your Australian Credit Licence (ACL).
• Responsible lending obligations will commence from 1 January 2011 for authorised deposit taking institutions (ADIs) and registered financial corporations (RFCs).
• Other credit businesses such as brokers will be subject to some of the responsible lending requirements from 1 July 2010, and then the rest of the requirements from 1 July 2011.

Margin lenders will have extra obligations.

If you are a credit business, it’s time to start planning what you need to do.

Registration and licensing
ASIC has released some helpful regulatory guides on registration and licensing. RG 202 deals with registration and RG 204 deals with licensing. You can find these on the ASIC credit webpage. As a first step, you should read these guides.

What you need to do in preparation for your ACL will depend a lot on the nature of your credit business.

• If you are an ADI such as a bank, building society or credit union, you will probably already have an Australian Financial Services Licence (AFSL). Much of the compliance requirements for an ACL are similar to those for an AFSL (although for a different part of your business), and your compliance infrastructure for your AFSL can be modified and extended to also cover your ACL. In RG 204, ASIC says that it expects AFSL holders will comply with their general conduct obligations under their ACL by maintaining the same types of arrangements as they have in place for their AFSL.

• If you are a lender only, you may not have an AFSL unless you provide other financial services. If you don’t have an AFSL, you’re going to have a considerable amount of work to do: you’ll have to put in place a program to cover your ACL obligations. This includes a documented compliance plan, risk management system, and other documented measures covering organisational competence, conflicts of interest, dispute resolution and so on. You may have existing measures in place that address some of these requirements, in which case they can be revised and upgraded as needed to meet the ACL requirements.

• If you are a broker or other intermediary, you will first need to decide whether you will obtain your own ACL, or act as a credit representative of a licensee. In most cases we expect that you will end up needing to obtain your own ACL, because lenders and others to whom you refer applicants will probably require this. Assuming you have to apply for an ACL, you will also need to put an ACL compliance infrastructure in place.

Smaller lenders and intermediaries should note ASIC’s view that what you need to do to comply will depend on the nature, scale and complexity of your business. What a large bank must do to comply might not be (and probably won’t be) the same as what you need to do. ASIC has also produced an information guide for small credit businesses (see INFO97). It offers some suggestions for practical steps you can take.
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Posted 7th January 2010 by Patrick Dwyer in National Credit Code, Trade Practices

Financial Claims Scheme implementation proposals

The Australian Prudential Regulation Authority (APRA) has released for consultation a discussion paper detailing proposals on the implementation of an Early Access Facility for Depositors under the Financial Claims Scheme (FCS) for authorised deposit-taking institutions (ADIs).

The FCS was established in October 2008 and is designed to provide depositors with timely access to their deposits in specified covered financial products, up to a defined amount (up to $1 million per depositor in any one ADI until 12 October 2011), in the event that their ADI becomes insolvent. The Government will review the FCS deposit limit by October 2011.

APRA is administrator of the FCS. APRA has the ability to determine the most appropriate payment method by which account-holders are to be paid out under the FCS on a case-by-case basis, taking into account the particular circumstances of a failed ADI.

APRA’s intention is to provide accountholders with access to their deposits up to the FCS limit under the Early Access Facility for Depositors as soon as possible following the declaration of the FCS. To do that, ADIs must provide reliable data in the required format.

APRA will release a draft reporting standard later in 2010 that sets out further detail on proposed information collection requirements. Once the requirements are finalised, there will be a transition period to allow industry time to make changes to their information technology systems for FCS purposes.

Submissions on the discussion paper are due by 12 March 2010.

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Posted 7th January 2010 by David Jacobson in Financial Services

January 6, 2010

Are directors responsible for a Black Swan risk?

The key roles of a board of directors include monitoring regulatory compliance and risk management systems in their company.

Although the economic events of the last 2 years were well beyond the control of any individual board of directors, some companies did a better job than others in anticipating, identifying and managing the consequences of the GFC.

How can a board prepare for a Black Swan event, which by definition is unknown in advance and highly improbable but which has a large impact?

The author of The Black Swan, Nassim Nicholas Taleb, argues that as it is impossible to know the unknown risks, we should base our decisions around how unknown risks might affect us and prepare for the consequences.

He argues that just as we can prepare for known and repeated risks, we should also prepare for risks which have catastrophic consequences even if we don’t know exactly what the risk that causes it is or its probability of occurring.

The uncertainty is the hardest thing for boards and management to deal with.

If you were a director or manager of a casino, would you focus on anti-money laundering compliance, gambling policies and reducing losses resulting from cheaters or unlikely events such as a possible attack by a white lion, kidnapping of the casino owner’s daughter, an attempt by a former employee to blow up the casino or an employee failing to lodge tax forms? All of these improbable events actually happened with significant cost.

How does the law deal with this? If the risk is unpredictable then directors are not in breach of their duties to exercise care and diligence under
Section 180 Corporations Act. But, as Taleb points out, one of the characteristics of improbable events is that experts predict them after the event.

A board does not have a duty to forecast unpredictable events, but it is required to determine that the company has implemented appropriate monitoring systems, and it must take appropriate action when it becomes aware of a problem and believes that management is not properly dealing with it.

In reviewing risk management, a board should ensure management has identified the most likely sources of material future risks and
understand how the company is addressing any significant potential vulnerability.

Whilst the business judgment rule has not changed, courts may apply new standards, or interpret existing standards, to increase board responsibility for risk management. The reputation of companies and boards with flawed risk management processes will also be affected. The crisis management skills of several major companies have been tested recently.

The Government has responded to the GFC by emphasising the connection between director and executive remuneration and corporate risk-taking.

If at a minimum, boards are responsible for monitoring compliance obligations and known risks, what risks are known?

Financial Risks (liquidity risks, counterparty risks)
Disclosure Risks
Fraud
Bribery and Foreign Corruption (if operating overseas)
Disasters: material disruptions in the financial system, terrorist attacks, natural disasters such as earthquakes or tsunamis, weather extremes like cyclones or floods, or company-specific disasters such as industrial accidents.
Products Liability
Health and Safety
Environmental
Insurance
Information Technology
Intellectual Property
Anti-competitive conduct (cartels, price-fixing)
Employment-related claims
Social Responsibility and Human Rights

Boards will need to ensure they are adequately trained and have the right mix of skills to deal with these risks.

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Posted 6th January 2010 by David Jacobson in Compliance, Corporate Governance

January 4, 2010

Final Productivity Commission report on executive remuneration

The Government has released the final Productivity Commission report on executive remuneration.

The Government will now consider the Commission’s recommendations; it intends to respond during the first quarter of 2010

The Commission concluded that capping pay or introducing a binding shareholder vote on it would be impractical and costly.

Instead, the Commission has recommended that the corporate governance framework should be strengthened by:

removing conflicts of interest, through independent remuneration committees and improved processes for use of remuneration consultants;
promoting board accountability and shareholder engagement, through enhanced pay disclosure and strengthening the consequences for those boards that are unresponsive to shareholders’ ‘say on pay’.

The Commission has specifically proposed that:

Companies be required to explain in the remuneration report their response to a ‘no’ vote of 25 per cent or more the previous year.
Where there is a second consecutive vote against the remuneration report of 25 per cent or more, a separate ‘re-election’ resolution would be put automatically at that annual general meeting (and included in voting papers circulated prior to the meeting), to the effect that all elected directors who signed the directors’ report for that year face re-election at an extraordinary general meeting (to be held within 90 days). To pass, this re-election resolution would require a majority of eligible votes cast.

Other recommendations include:

For the election of directors at a general meeting, where the board seeks to declare no vacancies and the number of directors is less than the constitutional maximum, approval should be sought from shareholders by way of an ordinary resolution at that general meeting. Boards would retain their powers to appoint directors and fill or leave vacant casual vacancies throughout the year. This recommendation would be effected through amendments to the Corporations Act 2001 and relevant regulations.
The Corporations Act 2001 should specify that company executives identified as key management personnel and all directors be prohibited from voting their shares on remuneration reports and any resolutions related to those reports.
The Corporations Act 2001 should be amended to require proxy holders, except in exceptional circumstances, to cast all of their directed proxies on remuneration reports and any resolutions related to those reports.
The Australian Securities and Investments Commission should issue a public confirmation to companies that electronic voting is legally permissible without the need for constitutional amendments — as recommended in 2008 by the Parliamentary Joint Committee on Corporations and Financial Services.

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Posted 4th January 2010 by David Jacobson in Corporate Governance, Corporations Act

Exposure draft changes to Division 7A non-commercial loan rules

The Assistant Treasurer, Senator the Hon Nick Sherry, has released for public consultation the Government’s exposure draft legislation and explanatory material, on changes to tighten the non-commercial loan rules in Division 7A of the Income Tax Assessment Act 1936, as announced in the 2009-10 Budget.

The exposure draft legislation proposes changes that will prevent shareholders and their associates from avoiding tax on distributions and benefits they receive from private companies such as holiday houses, cars and other luxury items, at prices that are less than market value.

The changes will not apply to genuine farming businesses and small businesses that include a residence located at the business.

Submissions close on 1 February 2010.

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Posted 4th January 2010 by David Jacobson in Tax

January 3, 2010

Should you notify customers of data breaches?

Although a decision on mandatory data breach notifications will not be made until the second stage of the Federal Government’s response to the ALRC Report (to be considered once the first stages reforms have been progressed), in the meantime the Privacy Commissioner’s voluntary guide should be considered when developing your policy on responding to data breaches.

To remind us that serious data breaches are still occurring, Computerworld has published the 2009 data breach hall of shame. Most of these resulted from basic security breaches.

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Posted 3rd January 2010 by David Jacobson in Privacy

National Consumer Credit Code update: are you affected?

The National Consumer Credit Protection Acts have received Royal Assent.

ComLaw has published the following Acts as passed:

National Consumer Credit Protection Act 2009
National Consumer Credit Protection (Fees) Act 2009
National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 .

The Acts apply to you if you engage in credit activities.

What is a credit activity?
Any person that engages in any credit activity must be licensed or authorised by a licensee, whether the person does so on the person’s own behalf or on behalf of another person including:

providing credit
providing a credit service (including providing credit assistance to a consumer or acting as an intermediary)
providing consumer leases
being a mortgagee under a Consumer Credit Code regulated mortgage
being a beneficiary under a Consumer Credit Code regulated guarantee

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP, has indicated that point-of-sale retailers such as car dealerships and retail outlets will be exempt from the requirements that relate to giving credit assistance to consumers. The Federal Government will examine the regulatory oversight of these entities within the next 12 months. He also indicated there will be an exemption, for the first 12 months only, for state or territory licensed debt collectors.

Timetable
Anyone who engages in certain credit activities will need to register with ASIC between 1 April and 30 June 2010 (inclusive) .

Registered credit participants will then have six months to apply for an Australian credit licence or become a representative of a licensee, between 1 July 2010 and 31 December 2010.

New entrants to the credit market will have to apply for an ACL or be authorised by a licensee from 1 July 2010.

The new National Consumer Credit Code provisions will commence from 1 July 2010.

The requirement not to arrange or provide credit that is unsuitable will apply to non-ADIs and non-Registered Finance Companies from 1 July 2010 and to ADIs and RFCs from 1 January 2011.

All other responsible lending obligations (including disclosure requirements, such as the provision of quotes, credit guides and assessments) will apply to all licensees and representatives from 1 January 2011.

The full timetable is here.

Future posts on implementation will be published at our dedicated National Consumer Credit Reform website.

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Posted 3rd January 2010 by David Jacobson in National Credit Code

2010 trends

If you have time to read and reflect, Futurist Richard Watson has published a trends and technology timeline for 2010 with forecasts out to 2050.

The key mega trends on the map are:

Ageing
Power shift Eastwards
Globalisation
Localisation
Digitalisation
Personalisation
Volatility
Individualism
Environmental change
Sustainability
Debt
Urbanisation

These trends are applied to 16 specific industry classifications.

There are some fascinating forecasts both for the short and long term.

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Posted 3rd January 2010 by David Jacobson in Business Planning

January 2, 2010

Australian Regulatory Compliance Review has moved

After 5 and a half years and 1816 posts, Australian Regulatory Compliance Review has moved here in order to provide better services to you.

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Posted 2nd January 2010 by David Jacobson in Weblogs