Australian Regulatory Compliance Review from Langes+ Lawyers

May 2, 2013

OAIC’s Guide to Information Security

The Office of the Australian Information Commissioner (OAIC) has published a final version of its Guide to Information Security: ‘Reasonable steps’ to protect personal information.

The Australian Privacy Commissioner, Timothy Pilgrim, said that 100% of the high profile investigations he completed in 2011–12 involved data security issues.

Information security obligations for businesses are contained in the National Privacy Principles, the credit reporting provisions in the Privacy Act and the Tax File Number Guidelines.

The guide provides guidance on information security, specifically the reasonable steps entities are required to take under the Privacy Act to protect the personal information they hold.

It provides examples of steps and strategies which may be reasonable for an entity to take.

This could include taking steps and implementing strategies to manage the following:
• governance
• ICT security
• data breaches
• physical security
• personnel security and training
• workplace policies
• the information life cycle
• standards
• regular monitoring and review.

The guide recommends businesses build privacy and information security measures into their processes, systems, products and initiatives at the design stage.

In the amendments that commence on 12 March 2014, the security of personal information is dealt with in APP 11. The obligations in APP 11 are similar to those in NPP/IPP 4. However, APP 11 will require an entity to take reasonable steps to protect personal information from ‘interference’ (eg hacking), as well as from misuse, loss, unauthorised access, modification or disclosure.

Langes can assist you to review your privacy policy to address information security issues.

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Posted 2nd May 2013 by David Jacobson in Consumer Law, National Credit Code, Privacy, Tax

ASIC review of capital guaranteed products

ASIC has released Report 340 ‘Capital protected’ and ‘capital guaranteed’ retail structured products (REP 340) which contains a health check of the Australian market for unlisted retail structured products promoted as having capital protection or a capital guarantee.

The report found retail investors often have a poor understanding of these complex investments because of the way that some of these products are labelled, with confusing or potentially misleading messages about the level of risk investors are exposed to.

The use of terms such as ‘qualified’, ‘limited’, ‘conditional’ or ‘contingent’ in conjunction with the phrase ‘capital protected’ or ‘capital guaranteed’ may not be sufficient to avoid the phrase as a whole being likely to mislead or deceive consumers about the risk to their capital, particularly where, if certain conditions are met, the whole of the capital will be at risk.

Despite being labelled or described with terms such as ‘capital protected’ and ‘conditional capital protected’, some products have knock-in clauses and performance hurdles that may lead to investor losses. The report highlights concerns around:

the accuracy and balance of advertising for these products
the labelling and description of reverse convertible products as offering ‘conditional capital protection’ or ‘conditional protection’. The value of these investments is usually linked to the worst performing reference share, meaning investors could lose some or all of their money, and
certain ‘internally geared’ structured products that are described as entailing a compulsory capital protected loan, where all of the investor’s outlay is at risk of loss if reference assets don’t perform. Where the investment exposure is ‘notional’, there may also be risks for investors who claim tax deductions on their payments.

If significant issues in the market persist, ASIC will consider appropriate regulatory options, particularly in relation to the description of medium-risk and high-risk financial products using terms such as ‘capital protected’.

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Posted 2nd May 2013 by David Jacobson in Consumer Law, Corporations Act, Financial Services

April 29, 2013

Government responds to Trio and St.John reports on investor losses

The Minister for Financial Services and Superannuation has released the Government’s response to the report by the Parliamentary Joint Committee on Corporations and Financial Services on the collapse of Trio Capital (the Trio Report) as well as the report by Mr Richard St. John on Compensation arrangements for consumers of financial services.

The Government accepts the majority of the reports’ recommendations including legislative changes to strengthen the professional indemnity insurance requirements of providers of financial services that deal with retail consumers, changes to improve the communication of risks to investors and to ensure the adequacy of regulatory processes and consultation papers by Treasury on powers to support ASIC in its enforcement role and to improve the governance arrangements of managed investment schemes.

The Government will consult on whether ASIC should have more powers when an AFSL holder changes ownership.

The implementation of the Government’s response will be coordinated by a Superannuation Regulators Working Group, comprised of representatives from Treasury, APRA, ASIC and the ATO.

An industry-funded last resort scheme to compensate consumers impacted by a financial collapse was not recommended by Mr St. John, who noted that at this stage such a scheme would be inappropriate and possibly counterproductive. The Government accepts this recommendation. It will warn SMSF trustees that they do not have the same access to compensation as APRA-regulated funds in the event of theft or fraud.

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Posted 29th April 2013 by David Jacobson in Corporations Act, Financial Services, Superannuation

Farm finance proposals

The Commonwealth Government has announced a Farm Finance package consisting of four measures:

short–term assistance in the form of concessional loans of up to $650,000 for productivity enhancement projects or debt restructuring
funding for up to 16 additional full–time counsellors with the Rural Financial Counselling Service
increasing the non-primary production income threshold for Farm Management Deposits (FMDs) from $65,000 to $100,000, and allowing consolidation of existing FMD accounts
establishing a nationally consistent approach to farm debt mediation.

The government will introduce legislation to give effect to the FMD changes. It is anticipated that the changes will take effect from 1 July 2014.

The government will work with the banking and agricultural sectors as well as the states and territories to progress a consistent approach to farm debt mediation. NSW and Victoria have different schemes and Queensland does not have one: Background

The Government has written to the State and Northern Territory (NT) Governments asking for their support in delivering components of the package.

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Posted 29th April 2013 by David Jacobson in Financial Services

April 26, 2013

Case note: unconscionable conduct by mobile phone provider

In Australian Competition and Consumer Commission v Excite Mobile Pty Ltd [2013] FCA 350 the Federal Court decided that Excite Mobile Pty Ltd engaged in false and misleading and unconscionable conduct in its provision of mobile phone services to customers across Australia. The Court also found Excite Mobile acted unconscionably and used undue coercion when attempting to obtain payment for mobile phone services.

A large number of consumers across all parts of Australia were affected by Excite Mobile’s conduct, including consumers living in indigenous communities on the Cape York Peninsula, remote areas in Queensland and Western Australia, and throughout the Northern Territory.

Excite Mobile promoted its services through telephone marketing (telemarketing) calls by representatives of Lime India and other call centres in India, Pakistan and the Philippines. Lime India also attended to the customer service issues of Excite Mobile’s customers, attempted to collect unpaid accounts purportedly owed to Excite Mobile by customers, and entered information in relation to dealings with Excite Mobile’s customers into an electronic database, for and on behalf of Excite Mobile.

Excite Mobile provided Lime India with the scripts to be used in the telemarketing calls and directed the telemarketers to follow the scripts.

Potential customers were contacted by telemarketers who offered the customer an enticement to contract, namely the “gift” of a phone and holiday vouchers. The contracts offered were on a 24 month plan. The plans consisted of a minimum monthly fee, for which customers would receive a set daily allowance for calls and text messages, depending upon the size of their contract. The most commonly selected contract was the $33 per month plan, for which customers received a daily allowance for calls and text messages capped at $2.20. Any costs incurred outside of the cap would be added to the monthly bill.

The scripted explanation of the cap set out above was not included in any of the 10 recorded examples heard by the court. Instead the telemarketers simply said words to the effect of “[f]or only $33 you get $66 worth of calls.”

The terms that Justice Mansfield found to be unconscionable, in addition to the “day cap” clause included a $75 cool off fee that customers were required to pay, as well as a $195 charge imposed for returning a damaged phone, even if it was only the box that was damaged. (more…)

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Posted 26th April 2013 by David Jacobson in Consumer Law, Marketing, Trade Practices

Making sense of regulatory news

Whether you call it “being connected” or “the fear of not knowing”, more of us are getting our news electronically faster than the print media and evening television news can deliver it.

The problem with the “river of news” is putting it into context and identifying what is important to you.

With the volume of regulatory and market information you receive daily to make sure you’re not missing out on what’s going on (including news you get from us), it’s sometimes easy to think that rather than set up another project you should just do what everyone else is doing to get by.

The only way to make sure you’re not missing out on the important things is to understand what they are so you can identify your risks and set your priorities!

To provide the context for the compliance river of news and help you identify the important information we have set up a website containing videos, resources and tests.

Have a look at what we’ve done. It’s online so you don’t have to travel to a conference.

It complies with ASIC’s CPD requirements. And the website keeps training records for you.

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Posted 26th April 2013 by David Jacobson in Compliance, Financial Services

Deferral of abolition of NSW duties

The NSW Premier has announced that the following categories of NSW stamp duty, which were due to be abolished as from 1 July 2013, will continue to be charged indefinitely in order to fund education reforms:

transfer duty on unquoted marketable securities;
transfer duty on non-real (ie, non-land) business assets; and
mortgage duty (unless already exempt).

This means that duty will continue to be charged on transactions involving:

transfers of, or declarations of trust over shares in unlisted companies registered in NSW; units in unit trusts scheme where the register is maintained in NSW or, if outside Australia, then the manager is a NSW company or natural person resident in NSW; goodwill and intellectual property (including patents and trademarks) of a business carried on in NSW; statutory licences or permissions granted under Commonwealth law and exercised in respect of NSW; statutory licences, permissions or poker machine entitlements granted under NSW law; and
loans where security is granted over property wholly or partly in NSW, or the making of further advances where such mortgage or charge has already been granted.

More details are expected in the NSW State Budget.

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Posted 26th April 2013 by David Jacobson in Business Planning, Financial Services, Tax, Uncategorized

April 22, 2013

Regulation of financial businesses

The Australian Prudential Regulation Authority (APRA) has released a consultation package on proposed changes to exemption orders under the Banking Act 1959 and revised Section 66 guidelines.

Registered Financial Corporations and religious charitable development funds are currently exempt from the need to be authorised as deposit-taking institutions (ADIs).

Registered Financial Corporations

APRA is proposing requirements aimed at reducing the likelihood that an investor, and particularly a retail investor, in an RFC would confuse a debenture with an ADI deposit or other deposit-like product.

APRA proposes to restrict the use of certain terms by RFCs, including the words ‘deposit’ and ‘at-call’, and to require all debenture offerings to have a minimum maturity of 31 days.

APRA proposes that these new requirements would take effect from 1 July 2013.

APRA proposes that RFCs not allow retail investors to redeem their funds at-call. Rather, retail debenture offerings would be required to have a minimum initial maturity period of 31 days, so that for all practical purposes investments with RFCs are not able to be used for transactional banking activities. An investor would not be able to redeem, and an RFC would not be able to repay, any funds for 31 days from the date they are invested.

APRA proposes that an RFC would be required upon maturity of a debenture to either repay an investor’s funds via cash, cheque or direct credit to an account at an ADI, or to roll the investment into another debenture with a term of at least 31 days if the investor has requested that its investment be rolled over.

APRA proposes to not allow RFCs to provide certain transaction facilities, including Automatic Teller Machine (ATM) access to an account with the RFC, BPAY, Electronic Funds Transfer at Point of Sale (EFTPOS) and cheque account facilities.

Any funds raised from 1 July 2013 would need to comply with the proposed requirements. However, existing retail debenture issues would be allowed a transition period of up to three years in which to become compliant with the proposed requirements. Existing debenture issues would be required to comply with the proposed requirements at the earlier of their next rollover date or 30 June 2016.

Religious charitable development funds

APRA proposes to require RCDFs which offer products to retail investors to become either an ADI or an RFC or operate a managed investment scheme. APRA proposes to withdraw the current exemption order for RCDFs that offer retail products from 28 June 2014.

However, RCDFs that do not take funds from retail investors may continue to receive a Banking Act exemption from 28 June 2014, with five-year reviews thereafter.Conditions will include not offering BPAY facilities. RCDFs are already prevented from offering ATM, EFTPOS and cheque account facilities.

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Posted 22nd April 2013 by David Jacobson in Corporations Act, Financial Services

ASIC reviews quality of SMSF advice

ASIC has released Report 337 SMSFs: Improving the quality of advice given to investors (REP 337).

The report summarises the findings from ASIC’s Self-managed superannuation fund (SMSF) taskforce’s review of the quality of advice given to SMSFs by financial planners and accountants.

ASIC conducted a review of over 100 investor files relating to the establishment of an SMSF that were provided by financial planners and accountants. The files targeted were considered to be in higher risk categories through, for example, having lower balances or less diversified investments.

While most advice provided was rated as adequate ASIC found issues in the following areas:

advice was not sufficiently tailored to the needs of the investor
replacement product disclosure was absent or inadequate
insurance recommendations were absent or inadequate
an inappropriate single asset class was provided to investors
suitable alternatives to an SMSF were not considered, and
there was inadequate consideration of the investor’s long-term retirement planning objectives.

ASIC’s report contains a number of practical tips advisors can use to improve the quality of SMSF advice.

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Posted 22nd April 2013 by David Jacobson in Corporations Act, Superannuation

Reporting by charities

The ACNC has released the sample 2013 Annual Information Statement and 2014 Annual Information Statement Consultation Paper for consultation.

The information provided by a charity in the Annual Information Statement will be used to determine the charity’s entitlement to registration as a charity with the ACNC, their compliance with the ACNC Act and ongoing eligibility to receive tax concessions.

The AIS will require reporting of information additional to existing reporting obligations to ASIC or relevant State or Territory body.

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Posted 22nd April 2013 by David Jacobson in Charities