Australian Regulatory Compliance Review

High Court rejects challenge to APRA

In X v Australian Prudential Regulation Authority [2007] HCA 4 the High Court of Australia rejected a challenge to an APRA notice asking the appellants to show cause why they should not be disqualified from operating in Australia as not being fit and proper.

The notice was issued after evidence to the HIH Royal Commission by the appellants.

The appellants argued that the notice was a breach of the Royal Commissions Act which prohibits penalising witnesses. The High Court rejected that argument.

Insider participation in control transactions

The Takeovers Panel has released for public comment by 6 April a draft Guidance Note and Issues Paper in relation to when the Panel may consider unacceptable circumstances exist when there is insider participation in control transactions.

The Panel considers that the issues of insider participation apply more widely than simply to private equity bids, and to other buy-outs, and therefore has formulated the draft Guidance Note in terms of participation by insiders, regardless of the nature of the bidder.

Do Not Call Register Act

The Do Not Call Register is still being set up. (Here's the Do Not Call Register Act 2006).

ACMA's Home Page and the  Privacy Commissioner's Do Not Call Register page give useful updates.

Draft revised AML/CTF rules and penalty policy principles issued

Austrac has issued draft revised AML/CTF rules for comment.

These draft AML/CTF Rules set out specific requirements on matters such as customer identification, ongoing customer due diligence, reporting of suspicious matters and AML/CTF programs.

Austrac has also published the  Policy (Civil Penalty Orders) Principles 2006 .

The principles indicate that there will be a 15 month moratorium on enforcement of the Act provided the offender has taken reasonable steps to comply with the provision.

In determining whether a reporting entity has failed to take reasonable steps to comply with a civil penalty provision, the AUSTRAC CEO must have regard to all relevant matters, including:

(a) whether the entity has previously failed to take such steps; and

(b) any steps that the entity has taken to comply with its obligations under the Act; and

(c) whether the entity complied with any obligations it may have had under the Financial Transaction Reports Act 1988; and

(d) any discussions and agreements that the reporting entity has had with staff of AUSTRAC; and

(e) any explanation given by the reporting entity to AUSTRAC.

AML Toolkit

AML Amendment Bill introduced

The Attorney-General has introduced the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2007 into Parliament to amend the AML/CTF Act.

The Bill addresses operational and technical issues, as well as taking into account concerns raised by Reports of the Standing Committee on Legal and Constitutional Affairs and the Senate Standing Committee for the Scrutiny of Bills. Some of the changes will be backdated to 12 December 2006 when the Act commenced.

Amendments include:

• amendment of item 18 in table 1 in subsection 6(2). The amendment limits the coverage of item 18 to an account held with an ADI, bank, building society, credit union, or a person specified in the rules. This is to limit accounts covered by the AML/CTF Act to those held with a financial institution. Without this amendment item 18 captures accounts with non-financial institutions which were not intended to be covered by the AML/CTF Act.
• a new item 18A is inserted into table 1 in subsection 6(2). This amendment will make the issuing of a debit card to an additional cardholder a designated service under the AML/CTF Act. The customer of the service is the signatory who receives the card. See the definition of “signatory” in section 5 of the AML/CTF Act.
• the cell at item 19 in the table in subsection 6(2) is repealed, and replaced with a new cell which provides that it is a designated service where a building society or credit union issues a debit card enabling a building society or credit union account holder to debit an account which the building society or credit union holds with an ADI, bank, or person specified in the AML/CTF Rules. Without this amendment, item 19 captures accounts with non-financial institutions which were not intended to be covered by the AML/CTF Act.
• a new item 19A is inserted in table 1 in subsection 6(2) providing that the list of designated services includes issuing a debit card to a signatory to an account held with a building society or credit union where the debit card allows access to an account held by the building society or credit union with an ADI, a bank or a person specified in the AML/CTF Rules. The customer of the service is the signatory who receives the card. See the definition of “signatory” in section 5 of the AML/CTF Act.
• Item 11 of the Bill repeals the existing cell at item 20 of table 1 in subsection 6(2) andreplaces it with a new cell which specifies that the item is limited to where a trustee or manager of a trust, issues a debit card that enables the holder of a beneficial interest in the trust to debit an account held by the trustee or manager of the trust, held with an ADI, a bank, a building society, a credit union or a person specified in the AML/CTF Rules. Without this amendment item 20 captures accounts with non-financial institutions which were not intended to be covered by the AML/CTF Act.
• Item 12 inserts new item 20A in table 1 in subsection 6(2) which will mean that a designated service is provided when a trustee or manager of a trust issues a debit card that enables a signatory authorised by the holder of a beneficial interest in the trust to debit an account held by the trustee or manager of the trust held with an ADI, a bank, a building society, a credit union or a person specified in the AML/CTF Rules. The customer of the service is the signatory who receives the card. See the definition of “signatory” in section 5 of the AML/CTF Act.
• Item 24 repeals subsection 42(6) of the AML/CTF Act. Subsection 42(6) exempts aholder of an Australian financial services licence who provides a designated service under item 54 of table 1 in subsection 6(2) from the reporting obligations under Division 2 (Reports of Suspicious Matters) of Part 3 of the AML/CTF Act. This amendment means that reporting entities providing designated services under Item 54 of table 1 in subsection 6(2) will have to report suspicious transactions. This is consistent with all other reporting entities being required to report suspicious transactions.
• New Section 67(2A): This new subsection excludes from the requirements of Part 5, instructions that arise from the use of a debit or credit card at a branch of a financial institution, in circumstances in which the number of the card is included in the instruction, the card is not of a kind specified in the AML/CTF Rules and the use does not take place in circumstances of a kind specified in the AML/CTF Rules. “Financial institution” is defined in section 5 of the AML/CTF Act. It was not intended that debit and credit card transactions at a branch of a financial institution would be subject to reporting requirements for “electronic funds transfer instructions” under Part 5. This amendment ensures that these services will not be subject to the reporting requirements of Part 5. The exemption is consistent with the other exemptions in section 67. “Electronic funds transfer instructions” is defined in section 5 of the AML/CTF Act.
• New subsection 67(4) excludes instructions given by way of a merchant terminal from the requirements of Part 5, in circumstances in which the operation is authorised by a financial institution, the merchant terminal is not of a kind specified in the AML/CTF Rules and the operation does not take place in circumstances of a kind specified in the AML/CTF Rules.This amendment is to bring merchant terminals in line with the exemption for use of debit and credit cards in Automated Teller Machines. It covers, for example, the use of a card in an EFTPOS terminal at a supermarket. The exemption applies even if a person obtains cash out at the same time.
• New Subsection 85(6) allows a reporting entity that only provides designated services under Item 54 of table 1 in subsection 6(2) to adopt a joint anti-money laundering program if it is a member of a designated business group.
• new Subsection 123(5A) prohibits a person to whominformation has been disclosed under subsection 123(5) from disclosing the information to another person. Subsection 123(5) allows an exemption from the subsection 123(2) tipping off prohibition for reporting entities that make a disclosure to a legal practitioner for the purpose of obtaining legal advice.
• new Subsection 123(8A)prohibits a person to whom information has been disclosed under subsection 123(8) from disclosing the information to another person. Subsection 123(8) allows an ADI to disclose the matters, which would otherwise be subject to the prohibition in subsection 123(2), to an owner–managed branch of an ADI, but a person to whom such a disclosure is made is prohibited from disclosing the information to another person.(See section 12 - Owner-managed branches of ADIs).

Nationwide Building Society fined over security breaches.

Nationwide Building Society (UK) has been fined £980,000 by the Financial Services Authority (FSA) over security breaches. (FSA Media Release, BBC News)

Nationwide was fined for failing to have effective systems and controls to manage its information security risks. The failings came to light following the theft of a laptop from a Nationwide employee's home last year.

During its investigation, the FSA found that the building society did not have adequate information security procedures and controls in place, potentially exposing its customers to an increased risk of financial crime.

The FSA also discovered that Nationwide was not aware that the laptop contained confidential customer information and did not start an investigation until three weeks after the theft.

Nationwide is the UK's largest building society and holds confidential information for over 11 million customers. The FSA will not reveal exactly what was on the laptop as it has still not been recovered.

via Tim Travers

ASIC v James Hardie

ASIC has announced that it has commenced civil penalty proceedings in relation to James Hardie, including against a number of former and current directors and former executives.

The proceedings arise from ASIC’s investigation of matters identified by the Special Commission of Inquiry into the Medical Research and Compensation Foundation.

ASIC’s investigation into possible criminal actions continues.

The civil penalty proceedings filed in the Supreme Court of New South Wales relate to disclosures by James Hardie Industries Limited (JHIL) in respect to the adequacy of the funding of the Medical Research and Compensation Foundation (MRCF).

 ASIC’s proceedings seek declarations that a number of former and current directors and former executives failed to act with requisite care and diligence. The regulator is asking the court to consider banning individuals from acting as a company director and imposing fines.

The action also seeks declarations that the companies, JHIL and James Hardie Industries NV (JHINV), made misleading statements and contravened continuous disclosure requirements. ASIC further alleges that JHINV failed to act with requisite care and diligence in relation to its then-subsidiary JHIL.

Takeovers Panel jurisdiction to be expanded

The Parliamentary Secretary to the Treasurer, Chris Pearce, has introduced  the Corporations Amendment (Takeovers) Bill 2007 into Parliament.

The Bill responds to concerns, arising from the recent court cases between Glencore and the Takeovers Panel, that the Panel might not have the powers it needs to perform its role effectively.

The Bill specifies that the expression ‘a substantial interest’ will not be confined to a narrow set of interests.  This will give the Panel sufficient jurisdiction to intervene where appropriate.  The Bill also gives the Panel jurisdiction to intervene where circumstances are unacceptable having regard to the statutory purposes of the takeovers law. (BillsNet)

Franchising Code of Conduct Review

The Government has released a Report of a review of the disclosure provisions of the Franchising Code of Conduct and the Government Response to the Report.

The Australian Government has accepted 31 of the 34 recommendations of the Review of the Disclosure Provisions of the Franchising Code of Conduct.

Under the reforms, prospective franchisees will be able to contact past franchisees to ask about a franchisor.

Other recommendations agreed by the Government to improve information available to franchisees include:

• provision to franchisees of audit reports of franchise marketing funds;
• a requirement for franchisors to report to their franchisees a material change in the circumstances of the franchise within 14 days rather than the present 60 days.

The Government rejected recommendations that disclosure documents be registered and reviewed by ACCC, that franchisors provide risk statements and that ACCC monitor whether financial statements are audited. It also decided that a recommendation for a unilateral right of termination or variation by a franchisor should be covered by an amendment to section 51AC of the Trade Practices Act 1974.

UPDATE 19 August 2007: Amendments tabled

Auditor rotation

ASIC has released a new policy statement (Auditor rotation [PS 187]) which outlines its approach to applications for relief from auditor rotation requirements in Pt 2M.4 (Sections 324DA-DD)of the Corporations Act.

Rotation is a key aspect of the independence provisions aimed at enhancing the reliability and credibility of financial reports. ASIC says it will be writing to selected auditors requesting their auditor rotation succession plans for listed companies and schemes in the near future.