FSR compensation arrangements
AFS licensees who provide financial services to retail clients are required under the Corporations Act to have adequate compensation arrangements. Regulations deferred the commencement of this requirement until 11 March 2005 and continued the pre-FSR requirements for certain licensees to have a security bond and/or professional indemnity insurance. The compensation arrangements requirement has been further deferred until 1 July 2006.
International Financial Reporting Standards in Australia
ASIC has outlined its expectations about the nature and extent of disclosure required under Australian Accounting Standard AASB 1047 Disclosing the Impacts of Adopting Australian Equivalents to International Financial Reporting Standards for 30 June 2005 annual financial reports.
The objective of AASB 1047 is to inform financial report users about the impact of changes in accounting policies arising from the implementation of International Financial Reporting Standards (IFRS) in the financial reporting period leading up to the first financial report prepared in accordance with IFRS.
AASB 1047 requires disclosure of:
- any known or reliably estimable information about the quantified impacts on the financial report had it been prepared using IFRSs; or
- if such impacts are not known or reliably estimable, a statement to that effect. In this case AASB 1047, suggests that entities should also update their disclosures made in 2004 about the management of the transition to IFRSs and the explanation of the key differences in accounting policies expected to arise.
ASIC will be reviewing compliance with AASB 1047 as part of its ongoing review of financial reports of listed entities.
Entities with 30 June year ends will publish their first IFRS financial reports for the half-year ended 31 December 2005 and for the year ended 30 June 2006.
Volunteers and Tax
The Commissioner of Taxation, Michael Carmody recently launched 2 publications intended to help volunteers navigate their way through taxation issues: "Volunteers and tax" and "Non-profit organisations and fundraising".
Volunteers and tax (NAT 4612) explains the tax treatment of common payments made to volunteers such as honoraria, allowances and reimbursements. It provides guidance on GST, FBT and PAYG withholding obligations that may arise on transactions involving volunteers
Non-profit organisations and fundraising (NAT 13095) which explains the various concessions that exist under the income tax, GST and fringe benefits laws to assist non-profit organisations with their fundraising activities. The guide also outlines: the tax obligations fundraisers should be aware of; tax deductible gifts and contributions eg the income tax and GST treatment of donations; tax treatment of raising money eg via concerts and sporting events.
Business Continuity Standard finalised by APRA
The Australian Prudential Regulation Authority (APRA) has issued prudential standards on business continuity management (BCM) for authorised deposit-taking institutions (ADIs) and general insurers.
The new prudential standards aim to ensure that ADIs and general insurers implement a “whole of business” approach to BCM appropriate to the nature and scale of their individual operations.
Key requirements of the prudential standards include:
- the Board of Directors and senior management of an ADI or general insurer must consider business continuity risks and controls as part of the company’s overall risk management framework provided to APRA on an annual basis;
- an ADI or general insurer must identify critical business functions, resources and infrastructure which, if disrupted, would have a material impact on the company’s business operations, reputation or profitability;
- an ADI or general insurer must assess the impact of plausible disruption scenarios on critical business functions, resources and infrastructure and have in place appropriate recovery strategies to ensure all necessary resources are readily available to withstand the impact of the disruption; and
- an ADI or general insurer must develop, implement and maintain through review and testing procedures, a Business Continuity Plan that documents procedures and information which enable the company to respond to disruptions and recover critical business functions.
The two new standards come into effect immediately, but ADIs and general insurers have a 12‑month transitional period in which to identify areas of non-compliance with the new standards and provide to APRA a rectification plan and timetable.
Super fund choice and employers
The ATO has published an on-line choice of superannuation fund guide for employers.
- Key dates
- Key Steps
- Employee eligibility
- Identifying a fund for employer contributions
- Completing the Standard choice form
- Employers' record keeping requirements
- Potential penalties
- Employers' ongoing superannuation obligations
- Sample documents
AUSTRAC launches anti-money laundering elearning application
AUSTRAC has launched its anti-money laundering (AML) elearning application.
It has been designed to assist cash dealers, industry associations, members of the public and other
interested stakeholders in understanding the various reporting and Know Your Customer obligations within the Financial Transaction Reports Act 1988 (FTR Act).
It consists of a study guide and 15 separate modules.
ecommerce and Credit Code update
Last year the UCCCMC released a draft amendment bill designed to address changes in technology since the Credit Code commenced in 1996.
It has now released details of amendments that have been made to the Consumer Credit (Queensland) Amendment Bill 2004 (the Bill) and the Consumer Credit Amendment Regulation (No.1) 2004 (Regulations) as a result of submissions received by it.
Inclusions of Mortgages in section 162(1)
Mortgages will now be required to conform with requirements as to legibility and language.
Amendments have been made to confirm that a notice can be provided by electronic communication.
Consent to receive electronic communications
Amendments have been made to provide for the debtor to specifically consent to receive electronic communications. Consent cannot be implied from a person merely providing their email address.
The language of specific consent is drawn from the Electronic Funds Transfer Code of Conduct (at clause 22.1(b)) (EFT Code) which refers to a user’s agreement to be given by "specific positive election after receiving an explanation of the implications of making such an election”.1
Building on the EFT Code requirements, before consent is given it will be necessary to inform the debtor, mortgagor or guarantor that:
a) paper documents may no longer be given
b) electronic communications should be checked for notices; and
c) consent to the giving of documents by electronic communications may be withdrawn at any time.
Date of Document or other document - 173(1)(c)
Section 173(1)(c) raises issues about the receipt and attribution of electronic communications. Given the potential for credit providers to contractually shift the time of receipt from entry into the consumer's information system to exit from the credit provider's, amendments have been made to apply the receipt rules of section 13 of the ETA in all cases, without the option to vary.
A specific provision has now been included within the amendments that expressly invokes the attribution rules of section 14 of the ETA, but without the option to vary.
1 "Specific positive election" is also adopted in the Code of Banking Practice.
APRA releases Basel II credit risk policy
The Australian Prudential Regulation Authority (APRA) has released the first of a series of discussion papers on the implementation of the new Basel II capital adequacy regime in Australia. The paper deals with the ‘standardised’ approach to credit risk and proposes a new prudential standard in this area.
The major practical impact will be the change in risk-weighting for loans and the point at which mortgage insurance is required.
A key quote:
APRA proposes to introduce a risk-weighting scheme for residential mortgage loans which is based upon the loan-to-valuation ratio (LVR) of a loan, the loan type (whether the loan is a standard or non-standard housing loan) and whether the loan has acceptable mortgage insurance covering a minimum of 40 per cent of the original loan amount. Depending upon these characteristics, a loan may be risk-weighted at 35, 50, 75 or 100 per cent...
This compares to the current arrangements where, in order to qualify for a 50 per cent (concessional) riskweight, a residential mortgage loan must have an LVR of less than 80 per cent (or 60 per cent for a nonstandard loan) or be 100 per cent mortgage insured through an acceptable lenders mortgage insurer.
Most Australian banks, building societies and credit unions are likely to adopt the standardised approach to determine their regulatory capital requirements for credit risk. However, APRA expects larger banks, which in aggregate represent the majority of assets in the industry, to seek accreditation for the more sophisticated Basel II approaches.
APRA has called for comments by 30 September.
Super advice and fund regulation update
Superannuation choice begins on 1 July 2005, and by 28 July 2005, around five million employees will have received a form giving them the option to choose the fund into which their compulsory superannuation guarantee contributions will be paid.
ASIC has announced it will use 300 real consumers ("shadow shoppers") to check what advice
people are given when they seek information about their superannuation.
ASIC's survey will cover the full range of superannuation advice, namely:
- all financial advisers, including banks, financial planners and accountants;
- advice on retail funds, industry funds, corporate funds and self-managed super funds; and
- all states and territories.
ASIC will also be checking whether the financial advice complies with the law, particularly whether advisers have met their legal obligations related to switching. These obligations include that the adviser finds out about the client's current superannuation arrangements and considers any potential lost benefits or transfer costs before recommending a change.
The transition period during which current APRA regulated trustees must be licensed by APRA and entities registered will expire on 30 June 2006.