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How regulated is Australia?

The Australian Government Productivity Commission has released its report Regulation and its Review 2004-05.

Whilst the Commission expresses concern at the low level of compliance with the requirement for Regulation Impact Statements, its broader analysis is of general interest:

The volume of existing and new regulation is clearly great, but is difficult to measure with precision. At the Federal Government level, there are more than 1500 Acts of Parliament. The amount of existing subordinate legislation is currently unknown, but there are around 1000 statutory rules (including Regulations) in force. The establishment of the Federal Register of Legislative Instruments, to meet the requirements of the Legislative Instruments Act 2003, will by 2008 allow the identification of all Federal Government subordinate instruments of a legislative nature/character.

In 2004-05, the Australian Government made 2552 new regulations, a significant increase over the annual average of 1441 in the previous five years .

However, a major contributor to this increase was the revoking and remaking of several hundred legislative instruments, including by the Civil Aviation Safety Authority.

In addition, each state and territory also administers a large body of legislation and regulation, with several hundred new Acts passed each year. For instance, NSW has about 1300 Acts and 650 principal statutory instruments, with a further 5500 local government planning instruments...

A major concern of business is the compliance burden of regulations. Available >evidence suggests that the gross compliance burden of regulations is very large. For example, the OECD estimated that in 1998 the cost to small and medium sized businesses in Australia arising from labour market, taxation and environmental regulations was $17 billion (OECD 2001). A range of other estimates of compliance burdens have been published in recent years, highlighting the large additional >burden of regulation, unintended and unnecessary impacts and a disproportionate impact on small business (Banks 2005b).

October 31, 2005 in Business Planning | Permalink | Comments (0) | TrackBack

An Australian Do Not Call register?

A discussion paper (pdf) canvassing options for a national, legislated Do Not Call register was released today by the Minister for Communications, Information Technology and the Arts, Senator Helen Coonan.

A Do Not Call register would give consumers the right to ‘opt-out’ of telemarketing approaches at any time.

Under the possible model, individuals and small businesses (those employing 20 or less people) would be able to register to ‘opt out’ of receiving unsolicited phone calls except for calls from a limited number of exempt organisations in limited circumstances.

Companies making calls would be required to maintain lists of numbers they are prohibited from contacting and to update these regularly. Companies that contravene the register provisions could be fined.

To enable registration processes to be completed and telemarketers sufficient time to update their do not call lists, it would be necessary to allow a certain time limit to lapse from the receipt of an application to listing of a telephone number on a do not call register. A period of 30 days is proposed.

There would be no time limit on how long numbers remain on a register. Once people indicate they do not wish to receive telemarketing calls it would be assumed that unless they request removal of their numbers from the register, they continue to wish not to receive telemarketing solicitations.
Consumers would be able to list any numbers issued in their names on a do not call register. They would also be able to register phone numbers on behalf of minors and be authorised, in writing, to register numbers on behalf of other persons.

It is proposed that an Australian do not call register would not apply to direct marketing approaches by facsimile transmission.

In addition certain minimum national “contact” standards would be imposed on the telemarketing industry and exempt organisations.

Submissions are due by close of business Wednesday 30 November 2005.

October 31, 2005 in Business Planning, Privacy | Permalink | Comments (1) | TrackBack

Consumer Credit Code to be clarified

The Uniform Consumer Credit Code Management Committee has released a Solicitor Lending, Instalment Contracts and the Uniform Consumer Credit Code Consultation Package.

The purpose of the amendments is to confirm that the following forms of credit are covered by the Code:   

  • terms sale of land and conditional sale of goods;
  • ‘tiny terms’ contracts; and
  • solicitor lending.

Submissions close 9 December 2005.

October 30, 2005 in Financial Services | Permalink | Comments (0) | TrackBack

Multi-level marketing is not always pyramid selling

Everyone knows that pyramid selling is unethical and illegal, but it is not always easy to identify an unlawful  pyramid selling scheme as defined by Section 65AAD of the Trade Practices Act.

In Australian Communications Network Pty Ltd v Australian Competition and Consumer Commission [2005] FCAFC 221 (25 October 2005) the Full Court of the Federal Court of Australia upheld an appeal by ACN against the Federal Court's original finding that its multi-level scheme for the marketing of retail telephone services was pyramid selling which is an offence under Section 65AAC.

Some key quotes:

"ACN engages independent representatives (IRs) who sign up customers for ACN’s services.  IRs are not employees of ACN.  Nor do they acquire ACN’s phone services themselves for onsupply.  ACN bills its customers direct and pays IRs a commission on billings.  IRs are not responsible for a customer’s bad debts to ACN.  To become appointed as an IR a person makes a payment, called a participation fee, of $499 plus GST (total $548.90) to ACN.  There is an annual renewal fee of $163.90.

2 The multi-level aspect is an essential element of ACN’s system.  IRs introduce other  IRs.  Those downstream IRs in turn introduce other downstream IRs and so on.  The downstream IRs form part of an upstream IR’s "organisation" for the purpose of calculating commissions on ACN’s billings to customers introduced by the IRs.  All downstream IRs pay their participation and annual renewal fees to ACN, not to the IR who recruited them. Commission arrangements are complex, and will be explained in a little more detail below, but in essence, IRs receive commissions not only for the billings to customers they have signed up but also for ACN’s billings to customers signed up by their downstream IRs.  However, no commission or other reward is earned simply by recruiting a downstream IR; there has to be a billing by ACN to a customer for telephone services...

The primary issue is whether Selway J was correct in holding that some forms of compensation payable by ACN to IRs were "recruitment payments".  This question turned on whether an IR’s entitlement to such payments could be said to be "in relation to the introduction to the scheme of further new participants"...

It is clear from the text of s 65AAD(1)(b) that a payment for the introduction to the scheme of further new participants will be a payment in relation to the introduction of the new participants.  Also, it is clear from the Explanatory Memorandum that it was intended that a payment that is, in substance, a payment for the introduction of new participants is an aspect of the vice or mischief aimed at by the legislative scheme.  But the question of whether payments made, for example, under a multi-level marketing scheme as a result of post-introduction activities of the members introduced by participants were also intended to be recruitment payments requires consideration of whether such payments were also considered to be part of that vice or mischief...

the vice inherent in pyramid selling schemes is the reward that, as a matter substance, is given directly or indirectly, for the introduction of new participants, rather than a reward based on sales or other such activities by a participant or others introduced by participants.  In the present case, the ACCC was not able to refer the Court to any material or cases that suggest that the latter activities, which the ACCC itself described as a legitimate multi-level marketing scheme, were an aspect of the vice or mischief aimed at by the legislative prohibition of pyramid selling schemes.  Indeed, the ACCC was not able to point to any economic or social vice or mischief involved in a multi-level marketing scheme that would warrant such a scheme falling within the prohibition of pyramid selling schemes proscribed by Div 1AAA...

44 True it is, the marketing of goods and services may be involved in a pyramid selling scheme, as subs (3)(e) makes clear.  But the converse does not follow; the fact that there is multi-level marketing of goods and services does not necessarily mean there is a "pyramid selling scheme"."

UPDATE: The Australian Competition and Consumer Commission has filed an application for special leave to appeal to the High Court from the judgment of the Full Federal Court in relation to a scheme operated by Australian Communications Network Pty Ltd. Media Release

SPECIAL LEAVE REFUSED

October 26, 2005 in Trade Practices | Permalink | Comments (0) | TrackBack

APRA Disqualification Register

APRA has the power to disqualify an individual from holding prudentially significant roles within the Australian authorised deposit-taking, general insurance and superannuation industries.

Its Disqualification Register is now public.

October 25, 2005 in Financial Services | Permalink | Comments (0) | TrackBack

Ombudsman comments on Debt Collection Guidelines

The Banking and Financial Services Ombudsman has issued a Bulletin discussing the new Debt Collection Guideline for Collectors and Creditors, recently released by the Australian Competition &Consumer Commission (‘ACCC’) and the Australian Securities & Investments Commission (‘ASIC’).

Although it will not necessarily determine the outcome in any particular case, the Ombudsman will take the Guideline into account when considering disputes about debt collection matters and will take into account the various consumer protection laws and decided cases referred to in it.

October 25, 2005 in Financial Services, Trade Practices | Permalink | Comments (0) | TrackBack

Australia's anti-money laundering delay criticised

The International Financial Task Force has released a report evaluating Australia's progress on implementing international anti-money laundering rules. It shows that Australia has gaps in its system and is not fully implementing the recommendations.

Some of the findings:

While narcotics offences provide a substantial source of proceeds of crime, the majority of illegal proceeds are derived from fraud-related offences. One Australian Government estimate suggested that the amount of money laundering in Australia ranges between AUD 2—3 billion per year...

Criminals use a range of techniques to launder money in Australia. Generally, money launderers seek to exploit the services offered by mainstream retail banking and larger financial service and gaming providers. Visible money laundering is predominantly carried out using the regulated financial sector, particularly through the use of false identities and false name bank accounts facilitated by forged documents to structure and transact funds. Money launderers often move funds offshore by using international funds transfers. Money launderers also move funds through smaller or informal service providers such as alternative remittance dealers. Australian authorities also identified other methods that served as money laundering vehicles: cash smuggling into and out of Australia, and the use of legitimate businesses to mix proceeds of crime with legitimately earned income/profits. Law enforcement has also recognised a growing trend in the use of professional launderers and other third parties to launder criminal proceeds...

Australia generally pursues money laundering via proceeds of crime action using the Proceeds of Crime Act (POCA); however, the key issue in terms of effective implementation of the money laundering offence is the low number of money laundering prosecutions at the Commonwealth level (ten dealt with summarily and three on indictment since 2003, with five convictions), indicating that the regime is not being effectively implemented. Money laundering is also criminalised at the State and Territory level, and these offences vary in comprehensiveness. The lack of statistics on State and Territory prosecutions and convictions for ML prevents an evaluation of their effectiveness...

The Suppression of the Financing of Terrorism Act 2002 (SoFTA), which came into force in July 2002, amended a number of existing Acts to implement Australia’s obligations under the UN Suppression of the Financing of Terrorism Convention and relevant UN Security Council Resolutions. As amended, the Criminal Code Act 1995 now contains several offences related to the financing of terrorism: receiving funds from or making funds available to a terrorist organisation; providing or collecting funds to facilitate a terrorist act. While broadly satisfactory, this offence does not specifically cover the collection of funds for a terrorist organisation or provision/collection of funds for an individual terrorist. This should be rectified. There have not been any prosecutions for terrorist financing.

October 21, 2005 in Anti-money laundering, Financial Services | Permalink | Comments (0) | TrackBack

Corporate governance for ADI's

John Laker, Chair of APRA has strongly rebuffed critics of APRA's draft governance standards in a speech to the Asian Bankers Association Symposium on “Promoting Good Corporate Governance”.

He posed three questions:
• Should corporate governance standards in regulated financial institutions be higher than those for non-financial firms?
• If so, how does a prudential regulator seek to promote those standards?
• Are governance requirements a burden on financial institutions?

He answered the questions as follows:

In its consultative document, Enhancing Corporate Governance for Banking Organisations, the Basel Committee set out the arguments why corporate governance for banking institutions is of greater importance than for other companies, given the crucial financial intermediation role of banks in an economy, the need to safeguard depositors’ funds and their high degree of sensitivity to potential difficulties arising from ineffective corporate governance. The Committee stated that effective corporate governance practices, on both a system-wide and individual bank basis, are essential to achieving and maintaining public trust and confidence in the banking system, which are critical to the proper functioning of the banking sector and economy as a whole.

The Committee concluded, without qualification, that “minimum standards of corporate governance for banks should therefore be more ambitious than for non-financial firms.” (p4). APRA strongly supports this conclusion. Indeed, we believe it also applies to all regulated institutions responsible for safeguarding the financial and physical assets of the community...

APRA’s recent governance proposals have prompted a response from some quarters in Australia that corporate governance is no place for a prudential regulator and should be left to business laws — in our case, the Corporations Act. This view is plainly wrong, and betrays a lack of understanding of the role and history of prudential regulation in this country. The Corporations Act establishes general obligations on board directors and other officers to act with care and diligence and in good faith; inter alia, it also sets out requirements for independence of external auditors. These obligations apply to all incorporated bodies, as much to a small manufacturing concern as to a major financial institution. However, the Corporations Act is silent on the interests of depositors and policyholders. It is silent on a board’s responsibilities for risk management. It is silent on board composition and skills. It is silent on the internal audit function. On its own, the Act provides a starting point for a robust prudential framework for governance of financial institutions, but additional requirements are needed in the interests of APRA’s beneficiaries...

Nor can it be left to the ASX, for one very obvious reason. Of the over 400 institutions APRA regulates in the deposit-taking and insurance industries, only 18 or four per cent are listed companies. Without APRA’s prudential framework, there would be no “ambitious” minimum governance standards, to use the Basel Committee’s words, for 96 per cent of regulated financial institutions in Australia...

A related claim is that APRA’s proposed requirements are an additional burden on that small number of regulated institutions that are listed on the ASX. How could this be if, at first blush, our requirements merely reproduce the “best practice” recommendations of the ASX Corporate Governance Council? The issue is that our requirements, as proposed, would bind on all regulated institutions whereas the Council’s recommendations apply only on an “if not, why not” basis. They are guidelines for listed companies and if a company considers that a recommendation is inappropriate to its particular circumstances, it has the flexibility not to adopt it, provided shareholders are given an explanation.

APRA's final governance standards are due for release in early 2006.

October 19, 2005 in Corporate Governance | Permalink | Comments (0) | TrackBack

John Laker interview

John Laker is the Chairman of APRA: he is in charge of banks, building societies, credit unions, insurance companies, superannuation funds and friendly societies.

In this interview in the Company Director Journal he explains his approach to corporate governance:

"There were three main lessons to come out of the HIH episode and one was the importance of having a regulatory framework that gave APRA the power of intervention," says Laker.
"The second lesson was for us to have a more effective radar to pick up early warning signals. This meant building up our ability to assess risk.
"The third lesson was that APRA was just too thinly staffed on the front line. We benchmarked ourselves against comparable regulators and it showed we were at the light touch end and this is not where the Government or the community expected us to be."

"Our approach starts out by looking at the deposit taking sector as a whole," Laker says. "It doesn't divide it into listed and unlisted. We look at the principles of prudent management of the institutions in that sector and the standards we believe should be in place.
"In developing new standards we look at what is in place including the Corporations Act and the ASX Corporate Governance Principles. We clearly have regard to what other regulators require but we are the only regulator charged with promoting sound and prudent behaviour that protects people's money or their assets.
"The clear mandate we have been given by Parliament is that the standards of prudent behaviour are to be higher than in other sectors. We have full regard for the Corporations Law and the ASX guidelines but in the APRA regulated sector we make no apologies for the fact that we set our standards at the higher end.
"That's what the prudential regulator's mandate is and that's what Parliament expects us to do. But clearly how we go about implementing those standards require us to be careful."

In respect of directors' independence: "If a board believes that a director is not independent but there are other reasons why that person should be treated as independent, we simply want them to run the 'if not, why not' arguments past us and persuade us.
"In the first instance a board relies on shareholders to provide discipline. The difficulty for us is that the majority of our companies are not listed and not subject to the ASX guidelines. Therefore the depositor or policy holder doesn't have the opportunity to vote.
"In almost all circumstances that I can envisage the ASX guidelines and what we require will dovetail very straightforwardly. But there may well be special cases and we will have to wait and see what arguments are put to us."
"If an entity wishes to depart from the ASX guidelines and put up an "if not, why not" reason they would have to have a pretty good argument to win over shareholders. In the long term you would think the interests of shareholders and depositors would coincide. But what may well be very good for shareholders in the short term may not be good for depositors and that's where there are natural tensions."

October 16, 2005 in Corporate Governance | Permalink | Comments (0) | TrackBack

Debt collection guidelines

The Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC) have issued a jointly produced publication, aimed at improving standards in the debt collection industry: Debt collection guideline: for collectors and creditors

A debt collector who breaches the harassment and coercion provisions of the Commonwealth consumer protection laws risks fines of up to $220,000 for individuals or $1.1 million for a corporation. Similar fines are risked if a collector is convicted of knowingly making false or misleading representations (criminal prosecution).

Apart from criminal sanctions, ASIC or the ACCC can seek civil court orders against a collector, including injunctions against future conduct and non-punitive orders, such as corrective advertising.

Someone who has suffered loss or damage from a collector’s action may be able to recover their losses in certain circumstances.

October 16, 2005 in Business Planning, Financial Services, Privacy, Trade Practices | Permalink | Comments (0) | TrackBack