Australian Regulatory Compliance Review

Copyright Update

The Copyright Legislation Amendment Act 2004 received assent on 15 December 2004.

In addition to amendments relating to the extension of the term of copyright protection in the USFTAI Act, the Amendment Act makes a number of amendments to provisions of the Act relating to criminal offences, presumptions, the exception to the reproduction right, and the scheme for limitation of remedies available against carriage service providers. The amendments made to the Act by the USFTAI Act and the Copyright Legislation Amendment Act 2004 detail the nature of the limitations on remedies and set out the conditions that must be satisfied by a carriage service provider, in relation to certain online activities, before the limitations apply.

The Copyright Amendment Regulations 2004 amend the Copyright Regulations to provide procedures that form part of the conditions that must be satisfied by carriage service providers who intend to take advantage of the scheme.  The Copyright Amendment Regulations 2004 were gazetted on 23 December 2004 and will come into effect on 1 January 2005.

ASIC roundup

ASIC has been prolific in the last 2 weeks in issuing all sorts of things to allow staff to get away for Christmas including :

• Unit pricing: APRA and ASIC have released a consultation paper seeking industry comment on proposed guidance for good practice in unit pricing.
  
  The release of this consultation paper follows a joint review of unit pricing practice in life companies, superannuation providers and fund managers conducted by the regulators from July to December 2004.
  
  Both ASIC and APRA have raised concerns about unit pricing practices in these entities in recent years. There have been several instances of unit pricing errors involving compensation of more than $10 million and affecting many thousands of investors.
• Secondary service provider FSR relief
• Non-cash payment facilities policy proposal paper
• PDS Guidance: ASIC has  provided guidance for product issuers preparing and reviewing Product Disclosure Statements (PDSs). The guidance highlights a number of compliance issues product issuers should take into account to ensure that their PDSs meet both the content and presentation requirements of the law.
  
  The guidance follows an ASIC review of over 100 PDSs prepared before 11 March 2004. ASIC also announced that it plans to conduct nation-wide campaigns into PDSs issued by the financial services industry, and the findings from its recent review will be used to focus on specific disclosure issues for particular product classes.
• Charities fund raising: ASIC has released an updated version of Policy Statement 87: Charitable investment schemes and school enrolment deposits [PS 87] to reflect recent legislative changes and to provide additional clarification and guidance. 
  
  The policy statement sets out the relief from the fundraising, managed investment, debenture and licensing provisions of the Corporations Act 2001 (the Act) that ASIC may give to charities for the offer and operation of certain investment schemes.

Dollar Disclosure Policy/ Transition

ASIC has issued Policy Statement 182 Dollar Disclosure [PS 182]. PS 182 follows ASIC's policy proposal paper (PPP) Dollar Disclosure published in August 2004 and takes into account feedback to that paper.

The dollar disclosure regime requires those who provide personal advice and product issuers to disclose various costs, fees, charges, expenses, benefits and interests as amounts in dollars.

The policy statement describes the limited class order relief ASIC has granted, including relief for:

• disclosure items contingent on unknown facts and circumstances [CO 04/1430];
• costs of derivatives, foreign exchange contracts, general insurance products and life risk insurance products [CO 04/1431];
• interest payable on deposit products [CO 04/1432];
• non-monetary benefits and interests [CO 04/1433]; and
• amounts denominated in a foreign currency [CO 04/1435].

ASIC has also granted relief that extends the transition to the dollar disclosure requirements to 1 July 2005 from the previous starting date of 1 March 2005.

Electronic Record Retention

Draft Taxation Ruling TR 2004/D23 was released on 8 December 2004 for public comment by 21 January 2005.

The draft Ruling explains the principles associated with the retention of electronic records created from business transactions including those carried out through the internet for the purposes of s 262A of ITAA 1936. It sets out the ATO view on what are sufficient electronic records to be retained including those created by internet electronic commerce so as to record and explain all transactions and other acts engaged in by such persons for the purposes of the ITAA 1936. The draft Ruling also explains the ATO view on access under s 263 of the ITAA 1936 to electronic records including those created from electronic commerce.

As a result of the release of TR 2004/D23, Taxation Ruling TR97/21 is withdrawn with effect from 8 December 2004. The Notice of Withdrawal states that Taxation Ruling TR 97/21 does not deal with the retention of electronic records created from business transactions carried out through the Internet or through the use of Smartcards.

Marsh & McLennan Insurance Inquiry

The inquiry by New York Attorney General Eliot Spitzer into price fixing and secret commissions by insurance broker Marsh & McLennan could have global repercussions. For example, see the reports by NY Times and USA Today.

It will be interesting to see whether ASIC finds out whether there are similar practices in Australia.

UPDATE: Aon Australia have placed an ad in the 7 December Fin Review assuring its clients, suppliers and the public that it would be wrong to assume there are similar practices in Australia.

Access to shareholders register

In IMF (Australia) Ltd v Sons Of Gwalia Ltd (Administrator Appointed) [2004] FCA 1390, IMF sought court approval to approach past and present shareholders of Sons of Gwalia who may have acquired their shares on the basis of a misleading picture of the company’s financial strength painted by alleged non-disclosure of the state of its gold reserves and its commitments under gold hedging contracts.

IMF wished to invite shareholder participation in collective recovery action against the company.

The Court held that the proposed use of the Share Register information is prohibited by s 177(1) of the Corporations Act and is not exempted by the provisions of s 177(1A).  This conclusion relates only to limitations on the use of information about shareholders obtained from the company’s Share Register.  It has nothing to say about other ways of bringing proposed recovery action to the attention of shareholders and inviting their participation.

Family Law Act and Credit Providers

From 17 December 2004, new Part VIIIAA of the Family Law Act 1975 will allow the Family Court to make orders binding a credit provider in relation to matters involving a party to the marriage.

In making an order about property interests of married persons the Family Court could direct a creditor, in relation to a debt owed to the creditor (whether secured or unsecured):

• to substitute one party to the marriage for both parties
• to substitute one party to the marriage for the other, or for both parties
• adjust the proportion of liability between the parties to a marriage

The Court may also :

• make an order restraining a person from repossessing property of a party to a marriage, or
• grant an injunction restraining a person from commencing legal proceedings against a party to a marriage.

However, a court may only make such an order if:

• it is reasonably necessary, or appropriate and adapted, to effect a division of property
• it is not foreseeable that the order (or injunction) would result in the debt not being paid in full
• there is procedural fairness to the third party, and
• the court is satisfied it is just and equitable to make the order (or grant the injunction).

Australia US Free Trade Agreement

The Copyright Legislation Amendment Bill 2004 has been introduced into the Senate.

The Bill contains additional amendments agreed to by Australia in order to implement the Free Trade Agreement. See the correspondence between Vaile and Zoellick.

The Bill broadens criminal liability for breaches. It also makes temporary copies of illegal copies unlawful.

Demutualisation in Australia

Competitive pressures continue to force mutuals to look for new sources of capital (outside their existing membership).

In this article Mark Fitzgerald argues that there is no evidence that an organisation's performance is improved by demutualisation. He refers to research undertaken by the Association des Assureurs Cooperatifs et Mutuels Europeens which has refuted this claim.

"The study of 97 companies in 11 countries within the European market shows that mutuals outperform stockholder companies in greater claims payments, lower costs and better overall financial performance.

Mutuality was shown to have a significant value by creating a circle of mutual benefit focusing primarily on customer value resulting in good performance, which in turn strengthens and promotes the mutual idea...

The ICMIF Report makes interesting reading, in this regard, as it demonstrates that most co-operatives seeking to demutualise in order to inject new capital into their organisation, have usually fallen prey to a takeover once they have become stockholding entities. The report concludes that the arguments for demutualisation are not so much based on hard facts, but more often on the ideology of demutualisation."

ACCORD has commenced work to compare the stated aims of proponents of demutualisation with the actual outcome.

ACCORD is currently examining the performance of 10 co-operatives that have recently demutualised in NSW. By comparing their mandatory prospectus pre-demutualisation with their current status, it aims to measure the real as against rhetorical results and impacts of the process.

Finance and mortgage brokers

The Ministerial Council on Consumer Affairs has released a discussion paper detailing options for a national regulatory scheme for finance and mortgage brokers.

The paper discusses entry requirements to the industry as well as consumer protection and redress mechanisms.

Mortgage brokers will have to obtain a licence, detail the reasons for their recommendations to consumers, and disclose all commissions.

The Ministerial Council invites comments or submissions on the issues raised and the proposals to address those issues no later than 15 February 2005.