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November 13, 2013

Reform of securitisation

APRA's Charles Littrell has given a speech discussing the issues behind proposed securitisation reforms and changes to APS 120 which will be published soon.

The securitisation market collapsed in 2008-2009 but has since improved.

Key points from APRA's review:

"by and large conventional Australian RMBS arrangements were sound, in both a liquidity and credit sense.

Moving from origination to investments, we discovered that securitisation, as one of the family of complex structured credit arrangements, could facilitate losses from investments thought to be secure, but which were in fact highly risky.

We also learned that securitisation could have more systemic implications than regulators thought was the case prior to 2008. If securitisation makes aggressive lending too easy in good times, but isn’t available to fund sound lending in adverse capital markets, then pretty clearly securitisation is pro-cyclical. This is unhelpful in a systemic sense. APRA is hopeful that its proposed reforms will reduce the pro-cyclical element in securitisation.

Then there was the surprise that all the complexity in the market, touted in various forums as innovation and completing markets, turned out to be, by and large, simply a way to conceal bad credit risks from end-investors. These investors, having learned that some complex and opaque instruments could not be trusted, panicked en masse and fled from all complex credit including unsecured lending to otherwise sound banks."

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Posted 13th November 2013 by David Jacobson in Financial Services, Risk Management

Corporate governance for sporting organisations

As stories about sporting bodies now appear on the front page of newspapers as well as the back pages, attention has focussed on their corporate governance.

The Australian Sports Commission (ASC) has published Sports Governance Principles which it applies to national sporting organisations to which the ASC provides taxpayer monies.

The principles cover:

  • Board composition, roles and powers
  • Board processes
  • Governance systems
  • Board reporting and performance
  • Stakeholder relationship and reporting
  • Ethical and responsible decision-making.

More: Dr. Ziggy Switkowski's report for the Essendon Football Club

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Posted 13th November 2013 by David Jacobson in Corporate Governance

Planning for firearm attacks

The Australian-New Zealand Counter-Terrorism Committee (supported by the National Security Resilience Policy Division (NSRPD) of the Attorney-General’s Department) has published The Active Shooter Guidelines for Places of Mass Gathering which provide guidelines for planning and responding to a situation where a person uses a gun to threaten others at sites such as sporting venues, shopping/business precincts, public transport hubs and tourism/entertainment venues.

The guidelines aim to increase awareness of this particular type of threat, while also providing guidance on the issues and options that may be considered during risk mitigation and contingency planning activities.

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Posted 13th November 2013 by David Jacobson in Business Planning, Risk Management, Workplace

November 8, 2013

Government tax and superannuation update

Treasurer Joe Hockey has announced how the Government will deal with 92 measures of announced but unlegislated tax and superannuation measures.

Of the 92 unlegislated and unresolved tax and superannuation changes, the Government will proceed with 18 initiatives. A further three initiatives will be significantly amended.

The Government will not proceed with seven initiatives.

Assistant Treasurer Arthur Sinodinos, with assistance from the Board of Taxation will undertake consultation with tax experts, including a number drawn from the Board's advisory panel over the next two weeks with a disposition not to proceed with the remaining 64 measures.

There will be legislated protection for any taxpayer who has self‑assessed with announced changes that the Government will not proceed with.

Taxpayers that have complied with previous announcements that will no longer proceed, and have paid additional taxation, will be entitled to a refund.

The 7 measures the Government will not proceed with include:

  • Self‑Education Expenses Cap of $2000
  • Change to Fringe Benefits Tax on cars
  • Tax on Superannuation Pensions above $100,000

The Government will proceed with Tobacco Tax Changes and increasing the non‑primary production income eligibility threshold for Farm Management Deposits from $65,000 to $100,000.

The Government has not yet considered changing the low value import threshold for imposition of GST.

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Posted 8th November 2013 by David Jacobson in Superannuation, Tax

Commonwealth Parliament resumes

Commonwealth Parliament will resume sittings on 12th November 2013 and will conclude for the year on 12th December.

The new Government is working its way through what it has to do to implement its agenda as well as resolve announced but unlegislated proposals dating back to 2001.

A draft Legislation Programme can be downloaded here.

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Posted 8th November 2013 by David Jacobson in Business Planning

APRA prudential practice guides for superannuation

The Australian Prudential Regulation Authority (APRA) has released eight final prudential practice guides (PPGs) for the superannuation industry.

The PPGs cover defined benefit matters, contributions and payments, investment governance, valuations and remuneration.

Existing superannuation PPGs on adequacy of resources, contribution and benefit accrual standards and payment standards have been updated.

A final remaining PPG, Prudential Practice Guide SPG 310 Audit and Related Matters, will be released before the end of 2013.

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Posted 8th November 2013 by David Jacobson in Financial Services, Superannuation

November 6, 2013

The end of the Personal Property Securities Act transition: what you need to do

At midnight on 31 January 2014 the PPSA transitional period ends. Any security agreements made before 30 January 2012 which continued to exist after that time and which are registrable on the Personal Property Securities Register lose their temporary priority if they are not registered by the end of the transition period.

The PPS Act generally applies to security interests in personal property located in Australia or if the grantor of the security interest is an Australian entity.

The PPSR does not charge a fee for registration of a Transitional Security Interest (TSI).

Examples of security agreements that may be TSIs not yet registered on the PPSR are:
• some leases and hiring agreements;
• retention of title supplies;
• commercial consignments.

Recent Australian and New Zealand Personal Property Securities Act cases have concerned security interests in personal property as diverse as plant bulbs, guitars, motor vehicles, medical equipment, construction equipment, wool and construction contract take-out rights.

You can register your security interest after 1 February 2014 but its priority over other creditors will not be preserved. This means that another person with a security interest in the same assets which is registered before yours will have first claim to the security in the event that there is default by the person who hired or purchased the goods from you or borrowed money from you to buy the goods (the grantor).

There is also the risk that if the grantor is insolvent or sells the secured assets and your security interest has not been registered, you will lose your security interest altogether.

Langes can advise you whether your commercial arrangements are transitional security interests that should be registered.

More about Personal Property Securities

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Posted 6th November 2013 by David Jacobson in Financial Services, Personal Property Securities

FOS and small business guarantors

The Financial Ombudsman Service (FOS) has published its Approach to disputes lodged by by guarantors who have guaranteed the debts of small business borrowers.

Although guarantee disputes are a small percentage of the total disputes handled by FOS, it saw a large (64%) increase in business guarantee disputes with Financial Service Providers (FSPs) in 2012-2013.

FOS can review most disputes lodged by guarantors, as long as they fall within its Terms of Reference:

  • the business must satisfy the definition of ‘small business’: it must have had fewer than 20 employees (or fewer than 100 employees if the business involves the manufacture of goods) at the time of the act or omission that gave rise to the dispute;
  • if the guarantor is also a company then it must also satisfy the small business definition;
  • a guarantor can lodge a dispute about the circumstances of entering the guarantee even if the small business borrower is insolvent;
  • if the guarantor is seeking to have a guarantee set aside, then the guaranteed debt must be less than $280,000;
  • however, if an FSP is seeking to recover a final amount to extinguish the debt that is less than $280,000, FOS will consider the dispute even though the full guarantee limit may be for more than $280,000;
  • if the guarantor’s dispute is about a request for financial difficulty assistance, FOS will consider the dispute regardless of the guarantee amount.

Even if an FSP is not a subscriber to the Code of Banking Practice, FOS still expects them to generally follow the Code’s guidelines which relate to taking guarantees.

In some limited circumstances, a guarantor may lodge a dispute that would normally be brought by the borrower.

If a guarantor lodges a dispute with FOS, the FSP cannot take action to recover the debt from the guarantor while the FOS dispute remains open.

Langes advises FSPs on disputes with guarantors (and how to avoid them).

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Posted 6th November 2013 by David Jacobson in Financial Services, Insurance

October 30, 2013

The Financial Claims Scheme and the Single Customer View

As ADI's prepare to comply with the APRA requirement to be able to produce a ‘single customer view’ of all protected accounts held by deposit holders, two aspects of the Financial Claims Scheme have become clear:

  • Firstly, aggregated deposits in one name will only be covered to $250,000 regardless of the number of contributories to the account. For example a single million dollar deposit by a super fund trustee for multiple members will only be protected in total to $250,000, not $250,000 per super fund member.
  • Secondly, ADIs with a multi-brand strategy will only be treated as one ADI. A depositor with funds deposited in more than one brand of an ADI will be treated as having one deposit in the ADI and will only be protected in aggregate to $250,000.

Appropriate disclosure must be made to depositors.

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Posted 30th October 2013 by David Jacobson in Financial Services

Current regulatory issues for financial services providers

The regulators' panel discussion at Mutuals 2013 (APRA, ASIC and Treasury) raised some points of general relevance to FSP's:

  • There are no terms of reference yet for Joe Hockey's Financial System Inquiry but all will be revealed soon;
  • The new Government has not yet made a final decision on the details of the Financial Stability Fund Deposit Levy (including whether franking credits can be used to pay it);
  • the scope of the new Government's moratorium on regulation: it will not apply to regulations required to meet international obligations or anything already on the agenda or urgent unforeseen circumstances. The moratorium is only on new issues.
  • there are limits on the adequacy of disclosure as a tool for consumer protection. Disclosure should be "multi-layered". When it does not work regulators may step in;
  • ASIC is concerned with the "assymetry" of hybrid investments targeted at retail investors: the promoters treat it as "at risk" equity while investors treat it as debt. This is a particular risk for SMSFs.

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Posted 30th October 2013 by admin in Compliance, Consumer Law, Corporations Act, Financial Services
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