Australian Regulatory Compliance Review

Revised ACCC immunity policy for cartel conduct

Following the introduction of criminal penalties for cartels, the ACCC has released its revised policy for the application of immunity in relation to cartel conduct.

The immunity policy applies to civil proceedings instituted by the ACCC.

Immunity from criminal prosecution will be determined by the Commonwealth DPP in accordance with the same principles that determine immunity under the ACCC’s immunity policy.

ASIC consults on securities lending

ASIC has released a consultation paper on disclosure of substantial holdings arising from securities lending or prime broking.

The consultation paper, Securities lending and substantial holding disclosure, seeks to improve disclosure of substantial holdings in practice and makes it clear that securities lending transactions and prime broking arrangements need to be taken into account in calculating a substantial holding.

Submissions on the proposals contained in the Consultation Paper close on 7 August 2009.

COAG Communique 2 July 2009

The Council of Australian Governments (COAG) meeting on 2 July 2009 focussed on further measures to overcome Indigenous disadvantage and the importance against the background of the global economic and financial crises of bolstering education, training and re-training efforts and securing further microeconomic and regulatory reform to enhance the economy’s future productive potential.

On the regulation front, COAG signed an Intergovernmental Agreement to underpin the establishment of national Australian Consumer Law, based on existing consumer protection provisions and new product safety regulation and enforcement regime, and a further IGA covering national business names registration.

Superannuation industry overview

APRA's latest Insight magazine contains an overview of the superannuation industry since 2007.

It is a useful summary of the impact of the economy on superannuation funds as well as regulatory developments.

Austrac enforceable undertakings

AUSTRAC has commenced a new enforceable undertakings regime.

An enforceable undertaking is a written undertaking that is enforceable in a court, given to and accepted by the AUSTRAC CEO. They are generally an alternative to civil or administrative action where there has been a contravention of the AML/CTF Act, the regulations or the AML/CTF Rules.

Austrac's first acceptance of enforceable undertakings are from Barclays Bank PLC and Mega International Commercial Bank Co,. Ltd , following a number of deficiencies and breaches, including reporting breaches,of Australia's anti-money laundering and counter-terrorism financing (AML/CTF) laws.

Barclay's breaches were identified following an on-site assessment.

The undertakings require the companies to:

• review transactions for a period of seven years and provide AUSTRAC any outstanding reports required by law;
• develop and implement proper systems and controls to ensure that the company complies in the future with its reporting and AML/CTF program obligations;
• submit to AUSTRAC an independent expert report detailing the company's compliance with the AML/CTF laws. The companies will also be required to submit similar reports in 2010 and 2011.

Final decision on taxation of employee share schemes

The Assistant Treasurer, Senator Nick Sherry, has released a Policy Statement setting out the final taxation treatment of shares and rights acquired under employee share schemes, effective from 1 July 2009.

Under the arrangements outlined on Budget night in May, all discounts on shares and rights provided under an employee share scheme would be assessed in the income year in which the shares and rights are acquired.

Under the final framework for employee share schemes, the taxation of discounts on shares and rights acquired under an employee share scheme will remain the starting principle of the regime, with concessional treatment available for particular schemes.

The upfront tax exemption will be means tested and tax deferral will only be accessible where there is a real risk that the shares or rights may be forfeited, such as due to performance hurdles or employment conditions. The pre-Budget use of cessation of employment as a taxing point will be retained and the maximum 10 year deferral period will be reduced to seven years.

Modifications to the original announcement are:

• increasing the income tax threshold for eligibility for the upfront tax concessions to $180,000, to align it with the top marginal tax rate threshold;
• providing further clarity on the meaning of "real risk of forfeiture" via the use of explanatory materials and Tax Office materials, including through the use of a range of example cameos to assist industry;
• • Employees receiving benefits under these schemes will not be able to pay tax upfront and the scheme's governing rules must clearly distinguish these schemes from those eligible for the upfront tax exemption.
• moving the deferred taxing point from a point at which the taxpayer will no longer have a real risk of losing the share or right to a point at which:
• • in the case of shares, there is both no longer a real risk of the taxpayer losing the share and no restriction (present at acquisition) preventing the taxpayer from disposing of the share; and
  • in the case of rights to shares (options), there is both no longer a real risk of the taxpayer losing the right and no restriction (present at acquisition) preventing the taxpayer from either disposing or exercising of the right, however, if after exercising the right, the underlying share is subject to forfeiture and restrictions preventing the taxpayer from disposing of the underlying share, it is the point at which there is both no longer a real risk of the taxpayer losing the share and no restriction (present at acquisition) preventing the taxpayer from disposing of the share.
• allowing the deferral of tax in relation to up to $5,000 worth of shares under particular salary sacrifice based employee share schemes, where there is no real risk of forfeiture.
• removing the reporting requirement for employers to report the market value of employee share scheme benefits in the year of grant, if this is not the year in which the employee is taxed; and
• establishing a three part forward plan of consultation with industry by:
• • asking the Board of Taxation to examine two remaining issues (a) how best to determine the market value of employee share scheme benefits; and, (b) whether shares and rights under an employee share scheme that are provided by start-up, research and development and speculative-type companies should be subject to a tax deferral arrangement, despite not being subject to a real risk of forfeiture;
  • commit to an Exposure Draft process of the Bill to ensure the policy is accurately reflected in the application of the law, including consultation on a range of technical issues raised in submissions that will be contained in the Exposure Draft Bill; and
  • supplementing this process by asking the Board of Taxation to consult with stakeholders  to examine technical matters associated with the implementation of these reforms, and to report to Government in time to allow the Board's views to be taken into account in the draft legislation.

A full reporting regime will also be introduced to significantly boost the integrity of the taxation of share schemes.

The combination of these final reforms and the measures out in the 5 June, 2009 consultation paper are set out in the attached Policy Statement.

As previously announced, the existing law will apply to all shares and rights acquired before 1 July 2009. The Government will introduce the legislation during the Spring Sittings of Parliament.

ASIC identifies financial report focus areas

ASIC has highlighted a number of areas on which company Boards and those responsible for the preparation of financial reports should focus in the upcoming reporting period.

It has identified going concern (solvency), valuation of assets and off-balance sheet arrangements as issues for concern.

New legislation review

Parliament is on a winter break and will next sit from 11 to 20 August 2009.

It's left us with some significant new Bills to review:

• Australian Consumer Law and Trade Practices Amendments
• National Consumer Credit Reform Package
• Personal Property Securities
• Financial services modernisation: margin loans, trustee companies and debentures
• Director and executive termination payment changes

On 1 July we'll have:

• tax changes
• changes to superannuation contributions concessions
• new unfair dismissal rules under the Fair Work Act

And we're waiting for:

• assent and commencement of the anti-cartel laws;
• a decision on the new rules for employee share schemes.
• further updating on COAG's reform program.

Financial services regulation: margin loans, trustee companies and debentures

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP,has introduced the Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009 into Parliament.

The Bill addresses three key areas of financial services regulation:

• Margin lending
• Trustee companies
• Debentures and promissory notes

Margin lending

The new regime will make margin loans subject to the investor protection regime in the Corporations Act. It requires margin lenders and advisers to obtain a licence and be subject to supervision and enforcement by ASIC. It will also give borrowers access to free external dispute resolution services where they have a dispute with their provider.

Margin loan lenders will be subject to responsible lending requirements which will only allow them to provide a margin loan if they are reasonably sure that the borrower is able to afford the loan without suffering substantial hardship. A new provision is included which clarifies whether lenders or financial advisers are responsible for notifying borrowers of margin calls. There will be a 12 month transition period.

Trustee companies

The Commonwealth assumes responsibility for the regulation of trustee companies under a single, standard, national regulatory regime.

Traditional trustee company services will be regarded as financial services under Chapter 7 of the Corporations Act, and trustee companies will be required to hold an Australian financial services licence covering the provision of the relevant services.

The amendments will also protect consumers by establishing a national consumer protection and disclosure regime under the Corporations Act and the ASIC Act. Trustee companies will also need internal and external dispute resolution mechanisms to resolve complaints.

The legislation provides that fees must be fully disclosed to the public via the internet. Fees charged to non-charitable trust clients are limited to the trustee company's latest published schedule of fees.

Also, fees charged to charitable trusts and foundations will be regulated to ensure that beneficiaries of these trusts are protected. Specifically, fees charged to "new client" charitable trusts will remain subject to capping based on the Victorian Trustee Companies Act 1984. "Existing client" charitable trusts will have their fee levels frozen to ensure the fees do not rise as a result of the new regime.

Debentures

The Bill amends the regulation of debentures and promissory notes and creates a register of debenture trustees.

The changes harmonise the legal regime to require all retail debentures and promissory notes to be subject to the consumer disclosure and protection measures currently applying to debentures. This includes the requirement to have a trust deed and trustee arrangements, and to issue a full prospectus.

ASIC will be required to create and maintain the register of debenture trustees, which will be available for viewing by the public.

AUSTRAC Typologies and Case Studies Report 2009

AUSTRAC has issued a new typologies report which outlines some of the latest money laundering methods and other financial crimes in Australia.

The AUSTRAC Typologies and Case Studies Report 2009 presents a range of case studies that highlight illicit activities.

The report also features many 'red flag' indicators of suspicious customer behaviour, and crimes including card skimming, early release super schemes, Ponzi schemes, 'boiler room scams', and internet, lottery and sweepstake scams.