April « 2009 « Credit Union and Mutual Law Blog

April 27, 2009

Australian credit licensing

The draft National Consumer Credit Protection Bill 2009 creates the Australian Credit License (ACL).

All banks, credit unions, finance companies and other lenders, known in the Bill as credit providers, and all credit advisers and mortgage and credit brokers, known as credit service providers will be required to hold an ACL.

Existing lenders must apply for registration between 1 November 2009 and 31 December 2009. All persons engaging in credit activities must be registered to continue operating after this date.

They will then have six months to apply for an Australian Credit Licence, between 1 January 2010 and 30 June 2010.

All persons who engage in credit activities for the first time on or after 1 January 2010 must apply for and receive an Australian Credit Licence before commencing business.

All registered persons must have applied for their Australian Credit Licence by 1 July 2010.

The ACL regime will be supervised by the Australian Securities and Investment Commission (ASIC) and will replace existing state regulation.

ASIC will be given the power to cancel or suspend a licence or ban people from engaging in credit activities

“Fast-tracking” will not be offered to existing lenders.

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Posted 27th April 2009 by David Jacobson in Legal

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Hardship threshold to be increased in new consumer credit bill

Senator Nick Sherry, Minister for Superannuation and Corporate Law, has announced that the Government will increase to $500,000 the threshold under which consumers can request a change to certain terms of their credit contract on the grounds of hardship, or a postponement of enforcement proceedings.

The threshold is currently $312,400 but that is set to change again on 12 May.

The change will be in the National Consumer Credit Protection Bill 2009, to be released in full for public exposure on Monday, April 27, 2009.

The threshold changes will take effect once the National Consumer Credit Protection Act commences, which is expected to occur on 1 November 2009.

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Posted 27th April 2009 by David Jacobson in Legal

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April 26, 2009

National consumer credit licensing

The requirement for providers of consumer credit and credit-related broking services to obtain a licence from ASIC will be a key feature of the national consumer credit regime due to start on 1 January 2010.ASIC’s licensing process will be coordinated online, supported by a telephone and email service. More information about licensing will be provided as it becomes available.

Draft bills are now expected by the end of April with introduction into Parliament by mid-year.Legislation will be passed by September with licensing to commence by 1 January 2010.

The new regime will be implemented by two draft bills: the National Consumer Credit Protection Bill and the Corporations Amendment Financial Services Modernisation Bill.

The first bill will contain the new national consumer credit code, which sets the framework for the regime; responsible lending conduct provisions (which will include an assessment of the borrower’s capacity to repay the credit being offered); licensing of credit providers and greater enforcement powers for ASIC to police the new regime.

The second Bill will address margin lending, trustee companies and debentures.

At the request of the States and Territories, the Commonwealth has agreed to defer full passage of both bills until September to allow the states to pass their relevant referral legislation in time.

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Posted 26th April 2009 by David Jacobson in Legal

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April 25, 2009

Customer education: ATM skimmers

This ATM Card Skimming and PIN capturing Awareness Guide from CBA contains examples of what skimmers can look like and what to watch out for.

Great PR (and informative).

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Posted 25th April 2009 by David Jacobson in Risk management

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April 24, 2009

Demutualisation of Friendly Societies and Capital Gains Tax

The Government has released for comment draft legislation to implement its policy to provide relief from capital gains tax (CGT) for policyholders of friendly societies that demutualise to for-profit entities.

The closing date for submissions is 15 May 2009.

The draft Tax Laws Amendment (2009 Measures No. 4) Bill 2009 provides relief from capital gains tax (CGT) for policyholders of friendly societies, including joint health and life insurers, which demutualise to for‑profit entities.

Consistent with the existing relief available for policyholders of life insurers that demutualise and the relief for policyholders of health insurers that demutualise, the Bill will provide a cost base for shares issued to policyholders that is based on:

the market value of the health insurance business; and
the embedded value of the life insurance business and any other business of the friendly society.

An equivalent cost base will also be provided to rights to acquire shares that are issued to policyholders under the demutualisation.

All policyholders of the friendly society who receive shares (or rights) will receive the same cost base calculation per share (or right). In addition, any capital gains or losses that arise to these policyholders from them receiving these shares or rights will be disregarded.

To ensure neutrality between policyholders who receive shares (or rights to acquire shares) and policyholders who receive a cash payment, the Government will provide an equivalent cost base calculation for any rights that the policyholder exchanges for the cash payment. This will typically mean that a policyholder who receives such a payment will be taxed on the capital gain being the difference between this cost base and the cash amount received.

The Bill also deals with non-CGT consequences of demutualisation.

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Posted 24th April 2009 by David Jacobson in Mutuals

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April 22, 2009

Draft term subordinated note regulation released for comment

The Assistant Treasurer, Chris Bowen MP, has released for consultation a draft regulation which will facilitate the treatment of certain term subordinated notes as debt for the purposes of the debt/equity tax rules.

The regulation aims to ensure that 'solvency clauses' do not preclude certain term subordinated notes from being debt for the purposes of the debt/equity tax rules. These clauses allow the issuer to defer payment on the note where payment would result in the issuer becoming insolvent or not maintaining its capital adequacy ratio under prudential requirements issued by the Australian Prudential Regulation Authority (APRA) .

The solvency clause is required in Lower Tier 2 term subordinated notes issued by Authorised Deposit-Taking Institutions.

The regulation will apply to term subordinated notes with the following features:

the term of the note is not more than 25 years, beyond which there is no provision for extension;
the return on the note is cumulative, that is if a payment is not made when due the obligation to pay it continues (although interest does not have to accrue on the missed payment); and
the instrument does not (whether or not the issuer is regulated by APRA) meet the requirements of a Tier 1 capital instrument for the purposes of APRA's prudential requirements.

The regulation will apply to payments made under such notes on or after 1 July 2001.

Submissions are due by 22 May 2009

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Posted 22nd April 2009 by David Jacobson in Legal

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April 20, 2009

Final reminder: Mutuals merger forum 30 April

If you don’t know how to respond to a merger offer or whether you should respond at all, then you should register now.

This forum will answer your questions about the important issues involved in mergers.

And if you don’t know what questions you should be asking then you should definitely come .

I want to encourage you to attend even if your organisation is not presently contemplating a merger.

To learn more and to request a registration form contact Levina Chim (T: 02 8234 4777 02 8234 4777 or email lchim@langes.com.au) or click here.

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Posted 20th April 2009 by David Jacobson in Mutuals

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April 16, 2009

NSW Real Property and Conveyancing Legislation Amendment Bill 2009

The Real Property and Conveyancing Legislation Amendment Bill 2009 (NSW) will, when passed, increase the obligations of mortgagees.

Its objects include:

to introduce additional identification requirements to the Real Property Act 1900 in relation to mortgagees and witnesses; and
to require a mortgagee or chargee, in exercising a power of sale in respect of mortgaged or charged land, to take reasonable care to ensure that the land is sold for not less than its market value.

Verification of identity of mortgagor

A mortgagee must take reasonable steps to ensure that the person who executed the mortgage, or on whose behalf the mortgage was executed, as mortgagor is the same person who is, or is to become, the registered proprietor of the land that is security for the payment of the debt to which the mortgage relates.

A mortgagee must keep written records of the steps taken for a period of 7 years from the date of registration of the mortgage.

Similar provisions already exist in Queensland. There the Registrar of Titles has accepted that the AML identification requirements satisfy this requirement.

Mortgagee's power of sale

A mortgagee or chargee, in exercising a power of sale in respect of mortgaged or charged land, must take reasonable care to ensure that the land is sold for:
(a) if the land has an ascertainable market value when it is sold—not less than its market value, or
(b) in any other case—the best price that may reasonably be obtained in the circumstances.

This will be a higher duty than the current duty to act in good faith and mortgagees will need to always obtain a valuation before selling a property.

You will need to review your procedures accordingly.

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Posted 16th April 2009 by David Jacobson in Legal

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April 12, 2009

Dealing with employee fraud

It's not a topic organisations like talking about, but employee fraud can increase in difficult economic times, and typically it can result from alcohol or drug problems, marital problems or gambling.

Even if you have insurance cover for fraud by employees, you still need to deal with internal investigations, liaising with police and, if customers have been defrauded, dealing with and reimbursing customers. And your insurers still expect you to make an effort at recovery before they pay you.

Sometimes you don't find about fraud until an employee has left. But if they are dismissed for fraud (after getting legal advice), don't write them a reference (yes, it has happened) or pay out superannuation (in case there is an entitlement to hold back for dishonesty). If you have a mortgage to secure a staff loan, you may be entitled to add the stolen amount to the debt. Freeze their deposit account.

If the employee does admit to fraud then the odds are the admitted amount is much less than the actual amount (which from experience is 2 or 3 times more).

If you have evidence of fraud, report it to the police. Don't rely on the police to investigate (they don't have time or resources and they expect you to give them a complete brief). But don't threaten a staff member with police action if they don't pay you back (that's extortion by you).

Do your own investigations to understand how the fraud was committed and whether customers were defrauded. Was a fake customer account created or was money taken from actual customers? Sometimes it's hard to work out.

Where did the money go? Was it gambled away or spent on assets you can recover?

If your internal auditor needs help, talk to a lawyer. We can help with obtaining statements for the police. And there may be a prospect of recovery by civil action by freezing assets early.

For the future, what preventative controls do you have? If staff have suspicions who can they talk to?

You need to be preventative, as well as proactive when a fraud is discovered.

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Posted 12th April 2009 by David Jacobson in Risk management

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April 10, 2009

APRA’s ten dimensions of executive remuneration

In this speech, John Trowbridge, APRA Executive Member, explains the context of the executive remuneration debate generally and positions APRA’s approach within the wider debate as a prelude to its forthcoming discussion paper relating to regulated financial institutions.

He referred to ten dimensions of executive remuneration:

“1. Application
APRA’s requirements will apply to prudentially regulated institutions only. By way of contrast … ASIC’s requirements apply to all registered corporations and the ASX requirements apply to all listed corporations.
2. Scope
Within each regulated institution, APRA will take an interest in all personnel whose decisions can have a material effect on the financial performance of the organisation. It will therefore cover senior executives and may also cover some or all sales staff, traders and other personnel. Other regimes may have a more restrictive scope, for example senior executives only.
3. Emphasis
APRA’s emphasis will be on the structure of remuneration rather than on its quantum. [APRA's] interest is related to the management of risk and [it is] keen to see that incentive payments do not encourage excessive or inappropriate risk taking by executives. APRA does not see itself as the guardian of any public assessment of whether pay levels themselves in some organisations are judged to be too high.
4. Format
…APRA and other prudential regulators have the ability to hold company boards directly accountable for their remuneration arrangements. Accordingly [it] can operate by applying enforceable prudential principles. Some other agencies, for example ASIC and ASX, need to rely primarily on compliance with regulatory prescription, while others such as the AICD and ASA are not in a position to go beyond published guidance.
5. Accountability
Accountability under APRA’s prudential approach will be through … supervisors actively reviewing each institution’s remuneration arrangements. By comparison, accountability under the Corporations Act (administered by ASIC) is based on compliance with disclosure requirements and for the ASX it is a combination of disclosure and non-binding shareholder votes.
6. Governance
APRA will be requiring each company’s board and remuneration committee to govern the remuneration practices of the company. APRA already has various standards around the competence and independence of the board and will be extending these standards into the remuneration domain. In other regimes it is usually not possible to hold the board directly responsible in this way, thereby leaving the board with greater discretion as to how it conducts the remuneration affairs of the company.

Remuneration Structure
7. Components
Remuneration can usually be subdivided into three elements, namely fixed pay, short term incentive payments (STI) and long term incentive payments (LTI). APRA will be taking an interest in all three.
8. Risk adjustment
APRA will be requiring incentive payments to be adjusted for risk. Such adjustments have not generally been required by regulators or other agencies in the past. …
9. Time horizon
Extending the calculation of incentive payments over multi-year periods, and deferring bonus payments and the vesting of bonuses for several years, is usually a sound and transparent technique for making risk adjustments. APRA will generally be expecting eligibility for and assessment of bonus payments to go beyond one year.
10. Performance measurement
Performance measurement refers to the form and the metrics of incentive or bonus calculations. APRA will be offering some guidance around such matters as rewards in the form of cash, shares, share options and the like. [It] will also be offering some guidance on calculation methods, which can range from simple percentages of fixed pay to complicated formulae based on various measures of profitability and economic value added or economic capital models.”

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Posted 10th April 2009 by David Jacobson in Risk management

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