Australian Regulatory Compliance Review

International Accounting Standards

APRA has outlined the approach it will be taking during the implementation of International Financial Reporting Standards (IFRS) in Australia. This follows confirmation of the Australian equivalents to these Standards by the Australian Accounting Standards Board earlier this month. All Australian reporting entities must adopt the Standards for reporting periods beginning on or after 1 January 2005.

The adoption of IFRS will require APRA to revise its prudential standards and statistical requirements for authorised deposit‑taking institutions, life and general insurance companies.

Starting over the next few months, APRA will be releasing a series of discussion papers on the main implications of IFRS for the prudential framework in Australia. APRA will identify the potential changes to prudential standards and statistical requirements, categorised into four groups:
· changes expected to be implemented in 2005
(though no earlier than 1 July);

· changes expected to be implemented in 2005, but
harmonised with the approaches of prudential regulators in other countries;

· possible changes to be effective after 2005, once APRA has had the opportunity of monitoring the prudential impact of IFRS; and

· areas where no change is expected.

APRA will not make any IFRS‑related changes to the existing prudential framework until it has completed relevant consultations, and not before 1 July 2005 at the earliest. In the interim, APRA regulated institutions will need to continue to comply with, and report in terms of, current prudential standards.

IT Governance

IT Governance is based on principles from risk management and disaster recovery. It is directly relevant to implementation of prudential standards and corporate governance.

Standards Australia has issued a draft standard "Corporate governance of information and communications technology".

Most useful are the checklists for assessment of ICT governance.

FSR relief for agents

ASIC has issued Class Order [CO 04/909] to assist Australian authorised deposit-taking institutions (ADIs) that use agents to provide their banking services under the Corporations Act 2001 (the Act) in relation to basic deposit products.

It is ASIC's view that when an agent helps to open a bank account, they may be 'arranging' to issue a financial product within the meaning of the Act.

Class Order [CO 04/909] allows agents appointed by an ADI to arrange for the issue of a basic deposit product without the need to be licensed or to be formally appointed as an authorised representative under the Act.

Under the Class Order, the ADI will be fully responsible and accountable to clients for the activities of their agents. This includes responsibility for ensuring their agents satisfy and continue to meet all relevant legislative and regulatory standards on conduct competency, as well as complying with the disclosure obligations imposed on providing entities under the Act.

Under the ASIC relief, a customer using an ADI approved agent to open their bank account will:

receive financial product disclosure prepared by the ADI, such as a Product Disclosure Statement;

have access to and be informed of the ADIs internal and external dispute resolution systems;

be able to seek redress against the ADI (rather than the agent);

and

deal with staff who are competently trained in opening a basic deposit account.

A key feature of the relief is that any money deposited with an agent will have the same protections that would be available if the money was deposited directly with the ADI, and that clients will have equivalent legal rights against the ADI should that be necessary.

In order to take advantage of the class order, the ADI needs to provide ASIC with notice in writing of its intention to rely on the relief.

Alternative Remuneration Guidelines

Financial planners who are members of the Financial Planning Association (FPA) or the Investment and Financial Services Association (IFSA) will no longer be able to accept any alternative remuneration or 'soft dollar' benefits linked to product or volume sales under a Code of Practice to be adopted from 1 August 2004.

The Code of Practice on Alternative Remuneration in the Wealth Management Industry, has been formally adopted by the FPA and IFSA.

FPA CEO Kerrie Kelly said: "Taken together, these FPA initiatives address all of the 11 categories of what the Australian Securities and Investments Commission (ASIC) referred to as soft dollar benefits in the June 2004 research report, Disclosure of soft dollar benefits.

"The Code of Practice on Alternative Remuneration becomes an integral part of the FPA's Code of Ethics and Rules of Professional Conduct from 1 August with a transition period to 1 January 2005 for full compliance.

"Our members will no longer be able to accept free travel and accommodation at conferences based on the volume of sales of a manufacturer's product, computer hardware or office accommodation, cash or gifts of any sort over the value of $300. Other benefits will need to be disclosed on public registers to be established by FPA Principal members.

"Compliance with the Code, and with the Rebates Guideline once adopted, will be monitored and any complaints against FPA members fully investigated. Where breaches are upheld, details will be published on the FPA website", Ms Kelly said.

Draft ISP Spam Code of Practice

The Internet Industry Assocation (IIA) has released a draft industry Code of Practice for Spam for comment by internet and email service providers.

IIA chief executive, Peter Coroneos, said that the Code aimed at "defining best practice standards for ISP's and ESP's (email service providers) in how they managed spam within their own networks while also empowering their customers to exercise more effective control as users. "

The Code is designed to complement Australia's anti-spam legislation which came into force in April 2004
It is also designed to complement a code for eMarketers which is currently in development by a group chaired by the Australian Direct Marketing Association (ADMA) with participation and assistance from the IIA

The IIA draft Code, once registered by the Australian Communications Authority will be binding on ISPs and ESPs in Australia under co-regulatory arrangements.

E-commerce and Credit Code

The draft Consumer Credit (Queensland) Amendment Bill and the draft Consumer Credit Amendment Regulation (No.1) 2004 have been released for comment. If passed they will implement the e-commerce recommendations of the Post Implementation Review of the Consumer Credit Code.

According to the Uniform Consumer Credit Code Management Committee, the proposed amendments clarify the extent to which the Code , the uniform electronic transactions legislation and the general law authorise the use of electronic communications for transactions governed by the Code.

The proposed amendments do not introduce new e-commerce concepts. They ensure that consumer protection is not compromised because a credit contract was formed electronically or because the debtor elects to receive notices electronically.

Read the Explanatory Paper

News from ASIC

ASIC is continuing to emphasise its enforcement role : from surveillance of financial reports through to prosecuting misleading financial services ads.

There is a debate raging between lawyers and ASIC: ASIC says disclosure documents are too long, the lawyers reply how can disclosure documents be "clear, concise and effective" when they have to comply with complex legislation which carries substantial penalties?

So ASIC has issued further guidance on how it expects licensees and their representatives to prepare Statements of Advice (SOAs).

Free Trade Agreement

The US Free Trade Agreement has been signed.

The next step is the approval of the Australian Parliament.

The US Free Trade Agreement Implementation Bill was passed by the House of Representatives on 24 June and is awaiting Senate consideration.

Amongst the most controversial provisions are those in Schedule 9 of the Bill relating to copyright.

If passed, the current Australian copyright period of 50 years after the author's death will be extended to 70 years to match the US laws.

APRA Business Continuity Draft Standard

APRA has released a draft Prudential Standard on Business Continuity Management (BCM) for authorised deposit-taking institutions, general insurers and life insurance companies (regulated institutions) for public consultation.

Under the proposed Standard, regulated institutions would be required to:

• identify, assess and manage potential business continuity risks to ensure they can continue to meet their financial and service obligations to depositors and policyholders in the event of a material disruption to business operations;
and
• undertake regular reviews of their BCM framework, including periodic testing and maintenance of their business continuity plan.

Comment on the draft standard is invited by 30 September 2004.

ASIC and ASX MOU

A new agreement to improve the efficiency of market supervision by minimising overlap and increasing regulatory cooperation has been signed by the Australian Securities and Investments Commission (ASIC) and the Australian Stock Exchange (ASX).

The new Memorandum of Understanding (MOU) recognises that ASIC and ASX have complementary roles in relation to the oversight of the market and clearing and settlement facilities offered by ASX, and the conduct of brokers and listed entities. The new MOU replaces three existing MOUs entered into by the then Australian Securities Commission and the ASX between 1992 and 1997.