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December 31, 2012

Regulation of finance companies

The Government has announced that ASIC and APRA will consult in 2013 on proposals to regulate non-ADI finance companies that issue debentures to retail investors.

The proposals have two broad aims. The first is to improve the financial strength of retail debenture issuing finance companies. The second is to more clearly differentiate debenture issuers from banks, building societies and credit unions that are regulated under APRA's prudential framework.

The proposals involve:
• mandatory minimum capital and liquidity requirements;
• restricting the ability of issuers to offer 'at call' investments and use 'bank-like' terms to describe their products;
• improving on-going disclosure to investors; and
• enhancing the capacity of trustees to monitor the financial performance of issuers and compliance with their legal obligations.

It is proposed amendments be made to the instrument that exempts Registered Financial Companies from the Banking Act to prohibit debenture issuers using terms like 'deposit' to describe their debentures. It is also proposed they be prohibited from offering these products on an 'at-call' basis and that debentures would have a minimum maturity period such as 31 days.

These proposals have two objectives. The first is to facilitate investor understanding that retail debentures have a different risk profile from ADI deposits. The second is to reduce the likelihood of issuers' being subject to large numbers of investors seeking to redeem their debentures at very short notice.

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Posted 31st December 2012 by David Jacobson in Corporations Act, Financial Services

December 24, 2012

Corporations Act amendments: executive remuneration and dividends

Treasury has released a draft Corporations Legislation Amendment (Remuneration Disclosures and Other Measures) Bill 2012 for discussion.

The key executive remuneration measures include:

  • Requiring listed disclosing companies whose financial statements have been materially misstated to either disclose whether any overpaid remuneration to Key Management Personnel (KMP) has been ‘clawed-back’, or if no reduction, repayment or alteration of overpaid remuneration has been made, an explanation of why not;
  • removing the requirement for unlisted disclosing entities that are companies to prepare a remuneration report. The Bill will require only listed disclosing companies to prepare remuneration reports;
  • requiring listed disclosing companies to include in the remuneration report a general description of their remuneration governance framework;
  • requiring the disclosure of details in the remuneration report of all payments made to KMP upon their retirement from a listed disclosing company; and
  • requiring listed disclosing companies in the remuneration report to disclose for each KMP:
    (a) the amount that was granted before the financial year and paid to the person during the financial year;
    (b) the amount that was granted and paid during the financial year; and
    (c) the amount that was granted but not yet paid during the financial year.

Dividends test
The Bill also replaces the test for the payment of dividends to allow companies to:
• either declare or determine a dividend, consistent with Corporations Act dividend provisions and company practice; and
• calculate assets and liabilities based on existing reporting requirements.

The new dividends test also requires directors to reasonably believe that the company will be solvent, immediately after the dividend is declared or paid.

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Posted 24th December 2012 by David Jacobson in Corporations Act

December 20, 2012

Updated FOFA guidance

ASIC has released final guidance for two aspects of the Future of Financial Advice (FOFA) reforms – the best interests duty and scaled advice.

ASIC’s final guidance on the best interests duty is in an update to Regulatory Guide 175 Licensing: Financial product advisers – conduct and disclosure (RG 175) and covers:

  • acting in the best interests of the client
  • satisfying the ‘safe harbour’ for the best interests duty
  • providing appropriate personal advice, and
  • prioritising the interests of the client.

The scaled advice guidance is in Regulatory Guide 244 Giving information, general advice and scaled advice (RG 244).

ASIC has provided examples about giving scaled advice while complying with the best interests duty.

It includes worked examples of scaled advice by banks, general insurers, superannuation funds, financial planners, and stockbrokers.

ASIC will release final guidance on conflicted remuneration and employee remuneration in February 2013.

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Posted 20th December 2012 by David Jacobson in Corporations Act, Financial Services, Future of Financial Advice Reforms

December 12, 2012

Advertising by superannuation funds

ASIC has written to superannuation trustees reminding them about disclosure requirements associated with advertising and promotional material (including direct mailouts to members) for superannuation products.

ASIC's Regulatory Guide 234 Advertising financial products and advice services (including credit): Good practice guidance (RG 234) also applies to superannuation.

ASIC's concerns about advertising that may lead to misleading or deceptive concerns include:

  • the statements do not give a balanced message about the returns, benefits and risks associated with an interest in the fund
  • the warnings, disclaimers and qualifications in relation to the fund are not disclosed in a balanced manner and are not given sufficient prominence
  • the document does not give a realistic impression of the overall level of fees and costs that a consumer is likely to pay.

ASIC says it is also aware of superannuation trustees offering cash incentives to encourage members to consolidate their super money, or for new members to acquire an interest in the fund: trustees need to ensure that their messages about their products and services remain balanced and that members are not distracted from making an informed financial decision.

ASIC has also referred to APRA's letter to RSE licensees cautioning them against being influenced by fund promoters.

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Posted 12th December 2012 by David Jacobson in Corporations Act, Financial Services, Marketing, Superannuation

December 4, 2012

CPD Financial Services Law Seminars February 2013: registrations open

Langes+ invites you to this CPD seminar for financial services providers.

In response to feedback we have added a breakfast session for Responsible Managers and a session dealing with Privacy (including the new Australian Privacy Principles and credit reporting) which will be relevant to both marketers and collections staff.

The seminar will cover all the ‘must-know’ rules and traps for each topic. Topics are selected for their relevance and contain practical case studies and examples with time allowed for discussion.

We look forward to seeing you.


Session 1 (bookable separately)
8am to 9.45 am Introduction to Responsible Managers’ duties (including light breakfast from 7.30am)

Session 2
10 am to 11am Marketing issues:
advertising credit and financial services, dealing with referrers and linked credit

Session 3
11.15 am to 1pm Privacy Act changes (including changes affecting marketing and credit reporting)

Light lunch

Session 4 Collections issues
1.45 pm to 3pm Credit enforcement update: hardship, mortgagee sales and resolving EDR Complaints

When and where
Brisbane 19 February 2013
Sydney 20 February 2013
Melbourne 26 February 2013
Adelaide 27 February 2013

Whole Program: $550.00 (incl GST)
$495 if you pay by 31 January 2013
$467.50 per person if 3 or more attend from same organisation
All sessions bookable separately
Session 1 $200 (incl GST) ($180 if paid by 31 January 2013)
Sessions 2, 3 and 4 $165 each (incl GST) ($148.50 each if paid by 31 January 2013)

Register now

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Posted 4th December 2012 by David Jacobson in Compliance, Corporations Act, Financial Services, Marketing, National Credit Code, Privacy

November 29, 2012

FOFA draft bill and regulations

Treasury has released a draft of Corporations and Consumer Legislation Amendment (Consumer Financial Protection) Bill 2012 for consultation.

The Bill will restrict the use of the terms 'financial adviser' and 'financial planner'.

An exposure draft regulation has also been released for consultation.

The regulations will replace the licence exemption for accountants with a new form of limited licence from 1 July 2013 which will enable accountants to discuss a range of financial products with their clients. The range of products includes SMSFs, superannuation, securities, simple managed investment schemes, general insurance, life risk insurance and basic deposit products. Apart from SMSFs, holders of this licence will only be able to talk about these products at a class of product level, meaning they cannot recommend specific products to their clients. Holders of this licence will also be able to lodge an annual compliance certificate rather than an auditor's report if they do not handle client money.

The consumer protection provisions of the Corporations Act, such as the best interests duty, will be extended to financial advice provided by accountants.

The draft regulations also streamline licence experience requirements for accountants who hold a practicing certificate issued by one of the professional accounting bodies (the Institute of Chartered Accountants in Australia, CPA Australia Ltd and the Institute of Public Accountants).

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Posted 29th November 2012 by David Jacobson in Corporations Act, Financial Services, Future of Financial Advice Reforms

November 28, 2012

Unclaimed Moneys Bill passes House of Reps

The Treasury Legislation Amendment (Unclaimed Money and Other Measures) Bill 2012 has been passed by the House of Representatives, with amendments relating to transitional procedures.

The Government has also announced details of new Regulations.

The Bill will now be sent to the Senate for passage this week. UPDATE: Passed by Senate on 29 November 2012.

UPDATE 6 December: Royal Assent given on 4 December 2012. Download the Act as passed.

The Bill will bring forward the time at which money is recognised under the relevant law as lost or unclaimed.

Amounts held by ADIs will become unclaimed moneys three years after the last deposit or withdrawal (other than fees or interest), instead of seven years. Amounts held by FHSA providers become unclaimed moneys three years after the last contribution or withdrawal (other than fees, taxes or interest). Amounts held by insurers will become unclaimed moneys three years after the policy matures, instead of seven years. Superannuation funds will transfer funds of unidentifiable members after 12 months instead of five years.

The amendments will provide more time to ADIs, FHSAs providers, life insurers and superannuation funds to implement the changes. They will now have until 31 May 2013 to report on and transfer lost accounts and other lost moneys to Australian Securities and Investments Commission or the ATO as appropriate.

ADIs are required to make a supplementary assessment and payment by 31 May 2013 in addition to the seven year assessment and payment currently required by 31 March 2013. The default assessment date for supplementary payment is 30 May 2013. However, ADIs could pick any date as their assessment date, between 31 December 2012 and 29 May 2013.

ADIs do not need to assess the seven-year unclaimed amount again in the supplementary assessment as they already did so in the original assessment. This means that the supplementary assessment does not need to include the seven-year unclaimed amount to avoid double counting.

The amendments include:

  • The date for assessment of unclaimed moneys for ADIs has been set as 31 December each year.
  • the minimum unclaimed money amount that is required to be reported and transferred to ASIC will be $100 or such other amount as may be prescribed

To avoid capturing accounts unintentionally, the Government will introduce regulations so that children’s accounts will still need to be inactive for seven years before being treated as lost. In addition, regulations will specify that First Home Saver Accounts will be excluded until the requirement to make a deposit in four years has been met.

The regulations will also clarify that term deposits remain excluded and sub-accounts will continue to be treated as part of a parent account when determining whether there has been activity on an account in the last three years. Linked accounts (that is, an account that a customer must hold as a condition of holding another account with the same bank, building society or credit union) and mortgage offset accounts will be treated similarly.

The regulations will also clarify that accounts that are frozen by a court order or other legal requirement will also be excluded while they remain frozen and that the three year inactivity period will restart when the freeze is lifted.

The regulations will also clarify that superannuation accounts that have been active in the last 12 months, but where the member is uncontactable, will not be transferred to the ATO.

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Posted 28th November 2012 by David Jacobson in Corporations Act, Financial Services, Insurance, Superannuation

November 27, 2012

Directors’ insurance update

In our July 2011 article one of the questions we recommended directors ask their insurers was “Are directors entitled to payment as legal defence costs are incurred (or in advance) or only as reimbursement?”

We also observed that as a policy usually has an overall aggregate limit of liability covering all the different types of cover, unless there are sub-limits a high claim in one area of the policy in one year may limit the amount available in other areas of the policy in that year.

In Steigrad v BFSL 2007 Limited [2011] NZHC 1037 (the Bridgecorp decision) the NZ High Court decided that the Bridgecorp directors were prevented from having access to their company's D & O policy to meet their defence costs because there were civil claims by investors relating to the collapse of Bridgecorp that were potentially in excess of the $20 million limit of the D&O policy. The D&O policy aggregated cover for liability and defence costs.

The Bridgecorp receivers argued that the full amount of insurance should come to the receivers. By pooling the policy proceeds, rather than separating how much could be allocated to defence costs and how much to liability, secured creditors had priority.

The directors argued that a claim could not be made on the policy until it was quantified, which could only happen after any defence.

The appeal of that decision to the NZ Court of Appeal has been heard and judgment reserved.

The decision is relevant to all directors' liability insurance providing coverage for civil compensation in which defence costs are within the aggregate limit.

The case has also highlighted the issue of whether when there are either multiple claims and/or multiple claimants, an insurer may be precluded from making compensation payments until all claims have been resolved.

While there have been no similar cases in Australia different insurers have responded in different ways.

Directors should review their policies in advance of renewal.

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Posted 27th November 2012 by David Jacobson in Corporate Governance, Corporations Act, Insurance

November 23, 2012

Penalty units increase passed

The Crimes Legislation Amendment (Serious Drugs, Identity Crime and Other Measures) Bill 2012 has been passed by both Houses of Parliament and is awaiting Royal Assent.

"Penalty units" in the Commonwealth Crimes Act will increase from $110 to $170.

The change will increase penalties under the Corporations Act, the Competition and Consumer Act, the Australian Consumer Law and the National Credit Act as well as many other Commonwealth laws.

At the latest the change will take effect on the day after 1 month after the Act receives Royal Assent.

UPDATE: Royal Assent was given on 28 November 2012

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Posted 23rd November 2012 by David Jacobson in Compliance, Consumer Law, Corporations Act

Personal Liability for Corporate Fault Reform Bill 2012 passed

The Personal Liability for Corporate Fault Reform Bill 2012 has been passed by both Houses of Parliament and is awaiting Royal Assent.

UPDATE: Royal Assent given on 10 December 2012

Download Act



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Posted 23rd November 2012 by David Jacobson in Corporate Governance, Corporations Act
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