ASIC has issued a guidance note on Statements of Advice following its review of a large number of SOAs provided by industry associations and identification of a number of concerns with them.
ASIC has also announced a campaign examining insurance brokers remuneration practices.
APRA's latest Insight magazine carries this article on the friendly society industry.
The key quote:
"...several friendly societies have demutualised and restructured their operations to focus on activities outside the traditional friendly society business. Competitive and other pressures are likely to lead to further rationalisation in the industry over coming years."
Non-cash payment products
What do stored value cards and loyalty schemes have to do with financial products?
In this speech Mark Adams, Director, Regulatory Policy, ASIC, describes the regulatory framework affecting "non-cash payment products".
AFS Licence Conflicts Management
New Conflicts Policy
ASIC has issued Policy Statement 181 Licensing: Managing conflicts of interest [PS 181] setting out how it expects financial services licensees to manage their conflicts of interest.
Australian Financial Services Licensees are obliged (among other things) to have adequate arrangements for the management of conflicts of interest that may arise wholly, or partially, in relation to the provision of financial services by the licensee, or a representative of the licensee, as part of the financial services business of the licensee or the representative (the ‘conflicts management obligation’).
The new obligation takes effect from 1 January 2005.
The policy is not limited to advisers. It is not limited to commission or staff bonus disclosures.
The purpose of a “conflict of interest policy” is to prevent and address potential conflicts of interest. Possible conflicts might include:
Whether or not the above, or similar possibilities, apply to you, each AFS Licensee is required to have a policy stating how it would identify and then manage these if they did arise.
The conflicts management obligation does not prohibit all conflicts of interest. It does not provide that a licensee can never provide financial services if a conflict of interest exists. Rather, the conflicts management obligation requires that all conflicts of interest be adequately managed.
Free Trade Agreement ready to start
Australia’s Trade Minister Mark Vaile and the US Trade Representative Bob Zoellick have announced that the final arrangements are complete to allow the Australia-United States Free Trade Agreement to enter into force, on schedule, on 1 January 2005.
It is expected that legislation to implement the agreement will be introduced into parliament soon.
Consumer Credit Regulation Policy
The presentations from the 2nd National Consumer Credit Conference "Australian Credit at the Crossroads: Looking for Landmarks" held on 9 November 2004, Melbourne have been published by Consumer Affairs Victoria.
The presentations cover policy proposals and experiences from academics, regulators , consumer advocates and lenders.
In this speech on the Australian Banking System on 10 November 2004, APRA Chairman John Laker commented on APRA's ongoing prudential regulation of the financial services industry and in particular standards for "fit and proper persons" and corporate governance:
"we have seen need to strengthen our capital and risk management standards in response to developments that were causing us unease, particularly in housing credit. Our actions have involved:
• the removal of certain types of capitalised expenses – such as loan origination fees and mortgage broker commissions – from calculations of regulatory capital;
• a tightening of prudential standards for “low doc” and other non-traditional mortgage loans where ADIs do not independently verify the borrower’s servicing capacity;
• an improved capital framework for lenders’ mortgage insurance, which assumes a significant proportion of credit risk in housing lending in Australia; and
• a new prudential standard on business continuity management.
These last two initiatives are currently in the public consultation stage.
These actions will be augmented by two new prudential standards governing behaviour in our regulated institutions. These are still “work in progress”. The first is a proposed fit and proper standard for responsible persons, which will put the onus on regulated institutions to ensure that directors, senior managers, auditors and (where relevant) actuaries of these institutions have the competence and integrity necessary to perform their roles. The second is a proposed standard for corporate governance, which aims to promote the highest standard of prudence by boards, the pivotal decision-making body in an institution. APRA will shortly be releasing a second round of discussion papers on these two standards."
Consumer Credit Code Hardship and Postponement Thresholds Increased
Consumer Credit Amendment Regulation (No. 1) 2004 inserts two new sections (22A and 23A) in the Consumer Credit Regulation 1995 which provide that, respectively, for the purposes of s.66(3) of the Consumer Credit Code, ss 66 to 69, and, for the purposes of section 86(2) of the Code, part 5, division 3 of the Code, do not apply to a credit contract under, or in respect of, which the maximum amount of credit that is or may be provided is more than an amount equal to 110% of the amount of the average loan size for new dwellings in New South Wales
The effect of the Regulation is that the loan amounts for which borrowers can seek hardship relief or apply for a postponement has increased from $125,000 to $340,670 (the current amount which reflects the average NSW housing loan where prices are highest). The amount will be updated monthly after the release of Australian Bureau of Statistics figures.
ASIC has issued a FAQ on What information can be provided about superannuation without requiring an AFS licence?
It discusses the position of :
- financial planners, giving advice to clients;
- the trustees of superannuation funds, giving advice to members and to prospective or former members and beneficiaries;
- accountants, giving advice to clients;
- employers, giving advice to employees and to prospective or former employees; and
- union officials, giving advice to union members or other employees.
in relation to decisions about:
- joining a superannuation fund or contributions being made to superannuation over other types of investments;
- joining, or contributions being made to, a particular type of superannuation fund over other types of superannuation fund;
- joining, or contributions being made to, a particular superannuation fund;
- additional contributions being made to a superannuation fund (including expressing an opinion that salary sacrifice is tax-effective);
- selection of a particular investment or insurance option(s) within a superannuation fund;
- rollovers into a fund or out of another fund;
- movements of membership between sub-plans or superannuation products within a fund;
- movement of membership between growth and pension phase within a fund;
- calling for the cashing of benefits from a fund prior to the compulsory cashing of benefits.
International Financial Reporting StandardsThe Australian Prudential Regulation Authority (APRA) has released an overview paper for ADI's on the ‘Adoption of International Financial Reporting Standards – prudential implications’ that will assist APRA‑regulated institutions in their preparations for IFRS, which come into effect from the first reporting period on or after 1 January 2005.
IFRS will replace the Australian Accounting Standards. It will result in fundamental changes to accounting and taxation processes.