Australian Regulatory Compliance Review

Scanning Proof of Identity Documents

The practice of scanning 'proof of identity' documents is becoming more common.

A business may only scan customers' identity documents if it is necessary for its functions or activities. In the first instance businesses should consider whether identification is required and, if so, whether simply sighting a 'proof of identity' document without scanning it would be sufficient.

Privacy Commissioner's Information Sheet

Unsolicited commercial faxes

The Department of Communications, Information Technology and the Arts, is consulting industry, small businesses and individuals in relation to unsolicited commercial faxes, particularly on options that could assist fax users to reduce the volume of unsolicited material received.

The Department has prepared a short discussion paper (pdf) and questions for comment as part of the consultation process.

The closing date for comments and submissions to the Department is 17 September 2007.

Australian Competition and Consumer Commission v Baxter Healthcare Pty Limited [2007] HCA 38

In Australian Competition and Consumer Commission v Baxter Healthcare Pty Limited [2007] HCA 38 the High Court  upheld the ACCC's appeal against findings by the Full Federal Court that Baxter Healthcare Pty Ltd was protected from the operation of the Trade Practices Act 1974 by Crown immunity.

The ACCC alleged that Baxter breached section 46 of the Trade Pravctices Act by entering into long term, exclusive, bundled contracts of between three and five years which tied the supply of sterile fluids to the supply of peritoneal dialysis products, with each of the purchasing authorities in New South Wales, the Australian Capital Territory, Western Australia, South Australia and Queensland. Each State and Territory purchasing authority acquires these products for supply to publicly funded health facilities, including public hospitals.

At trial and on appeal, the Federal Court held that if the State health purchasing authorities with which Baxter was dealing were entitled to Crown immunity, Baxter was entitled to 'derivative' Crown immunity and was protected from the proceedings brought by the ACCC.

With the High Court deciding that Crown immunity does not apply to Baxter the matter has been remitted to the Full Federal Court to consider the underlying issue; whether Baxter's conduct did constitute a misuse of market power or had the purpose, effect or likely effect of substantially lessening competition.

 

Privacy case notes 21-24, 2007

The Privacy Commissioner, Karen Curtis, has released four new case notes:

• In S v Accounting Firm [2007] PrivCmrA 21, it was alleged that Tax File Numbers were improperly disclosed to a debt collection firm and a law firm for collection of outstanding fees. Although the Federal Police took no action,the Privacy Commissioner considered that the accounting firm disclosed the complainants’ Tax File Numbers to the debt collection firm and the legal firm in a manner not authorised under taxation, assistance agency or superannuation law. The Commissioner therefore found that the accounting firm breached paragraph 2.4 of the Tax File Number Guidelines 1992. The accounting firm offered the complainants compensation for the interference with their privacy. Both the law firm and the debt collection firm advised that they had destroyed the Tax File Number information from their records.   
• In T v Retailer [2007] PrivCmrA 22, the Office investigated the improper listing of a payment default on an individual’s consumer credit information file even though the consumer had properly cancelled a door to door sale contract. After conciliation, at the retailer's request, the payment default listing was removed from the complainant's consumer credit file.
• In U v Newspaper Publisher [2007] PrivCmrA 23, it was alleged that a newspaper inappropriately published personal information. The Commissioner dismissed the complaint.
• In V v Medical Practitioner [2007] PrivCmrA 24, the complainant sought access to their medical records which had been used in legal proceedings. The medical practitioner refused on the grounds they were relevant to legal proceedings. The commissioner ruled that as the proceedings were complete, the medical pratitioner must provide the documents.
  

Australian Blogging Conference

You may not realise it but this site is a weblog (blog).

QUT will be hosting the Australian Blogging Conference on 28 September.

The program includes Business and Corporate Blogging and Legal Issues.

It is being organised by Peter Black. Recommended.

Corporations Amendment Regulations 2007 (No. 10): FSR changes

The Corporations Amendment Regulations 2007 (No. 10) commenced on 23 August 2007. They allow for certain information to be 'incorporated by reference' in financial product Statements of Advice and Product Disclosure Statements.

The ACCC and the finance sector

ACCC Commissioner Ed Willett has spoken about finance sector regulatory issues at the Australian Bankers Association Banking Regulation Forum.

Current issues on the ACCC’s radar regarding the banking and financial services sector include:

• ACCC's action against the ANZ Bank for alleged price-fixing;
• mergers between banks and fund managers, including insurance companies. Currently the ACCC is reviewing the Commonwealth Bank of Australia proposed acquisition of IWL Limited (a stockbroking service) and the proposed merger between Bendigo Bank Limited and Adelaide Bank Limited.
• credit and debit/EFTPOS card interchange fee arrangements.

At this time the issue of mergers between the big four banks (the Government's "Four Pillars Policy") is "not one which the ACCC has analysed in any detail or formed a view on".

Merger of financial industry external dispute resolution schemes announced

The Insurance Ombudsman Service Limited Board and the Financial Industry Complaints Service Limited Board and the Banking and Financial Services Ombudsman Limited have announced that agreement in principle to the merger of those three schemes had been reached.

It is intended the new scheme will provide dispute resolution services for over 90% of all the disputes which arise in relation to the provision of financial services in Australia. The Service would provide a “one stop shop” for the vast majority of consumer and small business disputes between the community and financial services providers.

It is hoped that, subject to the regulatory and other requirements, the new scheme will be operating from 1 July 2008.

Privacy (Data Security Breach Notification) Amendment Bill 2007

Senator Stott Despoja introduced the Privacy (Data Security Breach Notification) Amendment Bill 2007 into the Senate on 16 August 2007 as a Private Senator's Bill.

This Bill, if passed, would require organisations and Commonwealth Government agencies to notify affected individuals of a data security breach involving their personal information.

Further Simpler Regulatory System changes come into force

The Governor-General has proclaimed 1 September 2007 as the day on which items 198 to 215, 221 and 222 of Part 3 of Schedule 1 of Corporations Legislation Amendment (Simpler Regulatory System) Act 2007 commence.

ACMA releases reality television review

ACMA doesn't just monitor spam and marketing calls: it has released a review of regulatory issues affecting reality television.

Although the Commercial Television Industry Code of Practice and current regulatory arrangements were found to be broadly effective, a number of matters have been raised in the Report which require action (eg that a clause be included in the Code that prohibits the broadcast of material presenting participants in reality television programs in a highly demeaning or exploitative manner.)

ACCC alleges agreements to lessen competition by Patrick and P&O

The Australian Competition and Consumer Commission (ACCC) has instituted legal proceedings against a number of former Patrick companies (now owned by either Asciano or Toll) and a number of former P&O companies (now owned by DP World) for alleged contraventions of section 45 of the Trade Practices Act 1974.

The ACCC has also instituted legal proceedings against Australian Amalgamated Terminals Pty Ltd for its involvement in a number of the alleged contraventions.

The ACCC has also instituted legal proceedings against certain former senior executives of those companies for allegedly having been knowingly concerned in the contraventions.

The ACCC alleges that in 2001 P&O and Patrick formed an agreement to share their motor vehicle wharf facilities around Australia and to jointly acquire other facilities (First Agreement). The ACCC alleges that the purpose and likely effect of this agreement was to substantially lessen competition between the companies in a number of markets in Sydney, Brisbane, Melbourne and Adelaide.

The ACCC alleges that in 2002 a further agreement was entered into between P&O and Patrick, which extended the areas of cooperation between the companies (Second Agreement).

The ACCC alleges that both agreements sought to fix the prices of P&O and Patrick for the provision of stevedoring services from shared facilities, in contravention of section 45 of the TPA.

The ACCC alleges that the agreements were put into effect by P&O and Patrick in a number of ways during the period 2001 to date, including by the formation of Australian Amalgamated Terminals.

The ACCC is seeking a range of remedies including:

• injunctions
• declarations
• pecuniary penalties, and
• orders preventing the companies from continuing to give effect to the allegedly illegal agreements.

A directions hearing has been listed for 20 September before Justice Sackville of the Federal Court, in Sydney.

New draft AML/CTF Rules

Austrac has released 2 new sets of draft rules for further consultation:

Draft ongoing customer due diligence rules

The previous draft has been revised taking into account comments received. A public consultation period for this revised draft is currently open from 24 August 2007 to 14 September 2007.

Draft Anti-Money Laundering and Counter-Terrorism Financing Rules for reportable details relating to threshold transaction reports

These draft AML/CTF Rules relate to information required to be included in a threshold transaction report under subsection 43(3) of the AML/CTF Act. A public consultation period is currently open from 24 August 2007 to 14 September 2007.

Fringe Lending - Consumer Credit Code Amendments

As part of an ongoing review of the fringe credit industry, the Ministerial Council on Consumer Affairs has invited comments on the exposure drafts of the Consumer Credit Code Amendment Bill 2007 and Consumer Credit Amendment Regulation 2007.

The Bill and Regulations affect fringe credit providers, such as payday lenders, who typically offer short term loans (from four weeks to 18 months) for small amounts (averaging less than $300), particularly to people unable to access credit from the mainstream lenders.

The purpose of the Consumer Credit Code Amendment Bill 2007 and Consumer Credit Amendment Regulation 2007 is to implement the recommendations contained in the Fringe Credit Providers - Decision Making Regulatory Impact Statement. Although the amendments will apply to all credit providers, they particularly target practices which are considered unjust and exploitative.

The proposals include:

• An amendment to prohibit credit providers from asking or taking security over essential
  household goods
• An amendment to require consumers to be given information about direct debit
  authorities
• Amendments to remove the presumption that applies to a Business Purpose Declaration
  and to encourage credit providers to ascertain the purpose of the loan
• An amendment to clarify that the pawnbroker exemption only applies where money is
  lent on the security of pledges of goods and the sole recourse provided for failure to repay
  the loan is for the pawnbroker to sell or otherwise dispose of the goods pledged
• For the purposes of determining the amount of credit fees and
  charges that are imposed or provided under s 7(1)(b) of the Code, a fee or charge is to
  include any fee paid to another party for referral to or from the credit provider
  irrespective of whether the party is related to the credit provider
• permit Government Consumer Agencies to make applications under ss 70 and 72 of
  the Code

 

Petrol price regulation

The price of petrol appears to be more erratic than the stock market.

There are two current inquiries into petrol pricing:

The ACCC has been monitoring petrol prices for some time.

On 15 June 2007 the Treasurer approved the holding of a price inquiry by the ACCC into the price of unleaded petrol, pursuant to section 95H(2) of Part VIIA of the Trade Practices Act 1974.

Matters to be taken into consideration by the inquiry include, but are not restricted to:

• the current structure of the industry
• the extent of competition at the refinery, wholesale and retail levels, including the role of imports
• the determination of prices at each of these levels, including the methodology for determining wholesale prices and
• current impediments to efficient petrol pricing and possible methods to address them.

The inquiry is a public inquiry and is to be completed and a report submitted to the Treasurer by 15 October 2007.

UPDATE: Public hearing transcripts

The Queensland State Government has established a Commission of Inquiry to determine why up to $125 million of the $541 million a year fuel subsidy is not ending up in the pockets of Queensland motorists.

Premier Peter Beattie has appointed former Queensland Court of Appeal judge and former Federal Court judge Bill Pincus QC to head the inquiry, which will report back by November 2007.

ASIC consults on improved disclosure for unlisted, unrated debentures

ASIC has released a consultation paper Unlisted, unrated debentures – improving disclosure for retail investors on proposals to improve disclosure to retail investors in the $8billion unlisted and unrated debenture market.

Comments on the consultation paper are due 1 October 2007. ASIC will consider submissions before publishing a regulatory guide in October 2007. New fundraising documents are expected to comply with the new ‘if not, why not’ benchmarks from 1 December 2007.

The improved disclosure measures (for consultation) are based on an ‘if not, why not’ basis of reporting. That is, issuers would report to investors against certain principles and benchmarks, which they should follow or explain why they may not have followed those principles and benchmarks.

The benchmarks that are proposed serve as the basis for enhanced disclosure. They cover credit ratings, adequate equity capital, adequate liquidity, lending principles (loan to valuation ratios), loan portfolio diversification, valuations, related party transactions and rollovers.

ASIC is proposing reporting on an ‘if not, why not’ basis against these benchmarks:

1. Issuers should have their debentures rated for credit risk by a recognised agency, and have that rating disclosed in the prospectus and advertising.
2. Issuers should have a minimum of 20 per cent equity where funds are directly or indirectly lent to property development. In other cases, the equity should be a minimum of 10 per cent.
3. Issuers should estimate their cash needs for the next three months and have cash on-hand to meet this need.
4. Issuers lending money to property development should be required to maintain a 70 per cent loan to valuation ratio on ‘as if complete’ valuations and 80 per cent on the basis of the latest market valuation.
5. Issuers should disclose how many loans they have, or expect to have, over the coming 12 months by number, value, location, activity and percentage of secured loans.
6. Valuations should be provided. Development property assets should be valued on a cost, ‘as is’ and ‘as if complete’ basis with all three disclosed.
7. Issuers should disclose how many loans they have, or expect to make, to related parties over the next 12 months and what assessment and approval process the follow for such loans.
8. Issuers should disclose their approach to rollovers, including default rollovers.

ASIC’s consultation paper also proposes that advertising for these products should not use words such as ‘secure’ and ‘safe’ and should either disclose a credit rating on repayment of principal or state that no rating exists and there is risk an investor may lose some or all of their capital. For retail investors, ASIC plans to produce an Investor Guide to aid their understanding of disclosure documents and conduct an education campaign to improve understanding of such matters as the need for investment diversification.

The paper also contains "expectations" of participants involved with unlisted, unrated debentures such as Trustees, Auditors, Valuers, Advisers and Publishers/media.

ASIC’s consultation paper provides an appendix which contains market research and lists issuers of unrated and unlisted debentures. The appendix is a listing only and does not signify any particular level of risk with those debentures. It is simply a list of unlisted and unrated debentures.

UPDATE 1 November 2007: ASIC issues RG 69

ASIC provides update on Westpoint, Fincorp and Australian Capital Reserve

ASIC has provided an update on recent activity in the Westpoint, Fincorp and Australian Capital Reserve (ACR) matters.

In respect of Westpoint,  ASIC is continuing investigations to determine whether compensation (e.g. under section 50 of the ASIC Act) is available. ASIC expects to make decisions on these matters by 31 October 2007. ASIC is also pursuing criminal prosecutions and banning applications.

In respect of Fincorp, ASIC has frozen assets and is continuing investigations.

In respect of ACR, ASIC is working with administrators on strategies to maximise the return for noteholders and creditors.

ACMA launches first Do Not Call Register investigation

The Australian Communications and Media Authority (ACMA) has instigated its first formal investigation under the Do Not Call Register Act 2006, which established the Do Not Call Register for Australian consumers. ACMA will investigate Lifestyle Dynamics following numerous complaints from people listed on the Register about continuing to receive calls from the company.

Lifestyle Dynamics is the subject of a large number of consumer complaints (over 90) despite repeated written warnings to the company from ACMA.

APRA recognition of External Credit Assessment Institutions

APRA has released draft guidelines setting out the eligibility criteria by which it will recognise External Credit Assessment Institutions (ECAI's). The guidelines also provide an outline of APRA’s proposed process for mapping a recognised ECAI’s credit assessments to the risk-weights under the standardised approach.

As part of these proposals, APRA will give automatic recognition to an ECAI if it is regulated by the US Securities and Exchange Commission as a ‘nationally recognised statistical rating organisation’. In addition, if an ADI has an exposure domiciled in any one of 19 specified countries, it will be able to use the credit assessments of an ECAI recognised by the national supervisor in that country.

APRA’s proposed recognition process is not a form of prudential regulation and does not constitute licensing of ECAIs. APRA’s focus is on ensuring that an ECAI’s processes and policies are rigorous and systematic, and produce credit assessments of sufficiently high quality to be used by ADIs. It will be the responsibility of each ADI to determine whether it uses the ratings of a particular ECAI.

ACCC alleges price fixing by ANZ Bank

The Australian Competition and Consumer Commission (ACCC) has instituted proceedings in the Federal Court of Australia against the Australian and New Zealand Banking Group Limited (ANZ Bank).

The ACCC alleges that the ANZ Bank in seeking to limit the level of refund Mortgage Refunds could provide to customers in respect of ANZ home loans, has breached section 45 of the Trade Practices Act 1974. 

Mortgage Refunds was a mortgage broker which refunded to its customers a part of the commission it received from lending institutions. The ACCC alleges that the ANZ Bank sought to reach an agreement with Mortgage Refunds to limit its refunds to customers as a condition of it continuing to deal with the bank.

The ACCC is seeking:

• a declaration that the ANZ Bank contravened the price fixing provisions of the Trade Practices Act 1974
• an injunction to restrain the ANZ Bank from entering into similar arrangements
• penalties for its conduct, and
• an order for costs.

According to The Age  it is believed the ACCC will produce a letter in which ANZ demands Mortgage Refunds cap its discount at $500.

According to The Age, ANZ called the ACCC's case "ill-conceived and misplaced in law".

"ANZ as a lender and Mortgage Refunds as a broker are not competitors," the bank said in in a statement.

"Brokers are an important and valued channel for ANZ. The provisions in the Trade Practices Act relied upon by the ACCC are not applicable — ANZ's conduct is vertical in nature, not horizontal between competitors."

Regulation of private equity in Australia

The Senate Standing Committee on Economics has released its Report on private equity investment in Australia.

The Report reviews private equity and then asks "Is current regulation of private equity adequate to protect the economy and the national interest?"

It concludes "yes" (with some additional comments by Labor and Senator Joyce and dissent by Family First):

"5.33 The committee does not consider that any convincing case has been made for any further regulation of private equity activity in Australia at this time. It recognises and endorses the ongoing watching brief maintained on this issue by the Treasury, the RBA, the ACCC, ASIC and the FIRB. The requirements of Chapter 6 of the Corporations Act, the conflict of interest rules, sector-specific legislation and the FIRB guidelines offer appropriate and adequate protection for Australian companies and the Australian public. The activities of both private and listed Australian companies will continue to be reported under the Corporations Act and through the international accounting standards set by the Australian Accounting Standards Board. Private equity consortiums will themselves be guided in their decision-making by prospects for economic success and growth.

5.34 The committee believes it is important to continue to attract foreign investment into Australia and does not accept the narrowly held view that some sectors of the national economy should be protected from private equity activity. The committee views private equity as an opportunity to reinvigorate underperforming public companies, which will subsequently benefit Australian consumers, shareholders and workers. It does not see the market imperative that drives foreign investors to buy out Australian companies as being inconsistent with the national interest and notes the protections already afforded under foreign investment policy and the Foreign Acquisitions and Takeovers Act 1975."

Low doc loans, residential mortgage securitisation and mortgage brokers

The US "sub-prime" lending crisis has focussed attention on the securitisation market and the liquidity it provides for Australian lenders, particularly non-ADI lenders, and "low doc" loans.

( The Economist has a good international overview in its articles "Risk and the New FInancial Order" and "Banks in trouble: the game is up".)

The Reserve Bank of Australia has analysed the structure of Australian residential mortgage backed securitisation here.

In his Opening Statement to the House of Representatives Standing Committee on Economics, Finance and Public Administration on 17 August 2007 Glenn Stevens Reserve Bank Governor said:

For some years now, many long‑term observers, market participants and officials have been troubled by very narrow pricing for risk. In other words, it has been easier and cheaper than had been normal in the past for risky borrowers to access funding. Investors were prepared to take more risk in pursuit of returns in a world of low global interest rates.      

Somewhere or other, returns were eventually bound to disappoint someone. As it turned out, the problems emerged in the US housing sector. Lenders into the so‑called ‘sub‑prime’ market attempted to keep the pace of business up as the US housing sector slowed during last year. But they could do this only by lowering lending standards. Before long, arrears began to rise as some borrowers struggled to meet their commitments.      

Once this deterioration in underlying asset returns had occurred, those with exposures inevitably began to see losses. Because this type of lending was via securitised structures sold into global capital markets, losses have been coming to light right around the world. In most cases, the losses are embarrassing rather than fatal for the institution concerned. The exceptions have been where particular funds invested mainly or solely in these types of risky assets, and especially where leverage was involved. Several hedge funds have borne large losses, including some in Australia.      

All of this created a climate in July and early August in which investors retreated and pricing of risk started to return to levels that could be regarded as more reasonable based on historical experience. A number of capital raisings that had sought to take advantage of the earlier very generous terms were postponed. Volatility in some financial markets increased, share prices declined somewhat and a general sense of heightened uncertainty was evident.      

In considering the implications of all this for our decision on monetary policy, there were two questions to ask. The first was whether there was information to suggest that financial developments were likely to make a sufficient difference, over the relevant horizon for policy, to the global economy, and therefore the Australian economy and the inflation outlook, to remove the macroeconomic case for a 25 basis point adjustment to cash rates. On balance, we judged that there was not. Downside risks to the US economy do appear to have increased over recent months, but in other parts of the world the growth outlook has, if anything, been marked higher recently.      

The second question was whether a rise of 25 basis points in Australian cash rates would, in itself, be financially destabilising. No credible case could be made for that idea. In fact, it would probably have been more destabilising to expectations not to have carried out a policy adjustment that most people could see was needed.      

Accordingly, as you know, monetary policy was  tightened last week, taking the cash rate to 6.5 per cent.      

Subsequently, towards the end of last week there was a period of stress in some major country money markets. Because the exposures to the mortgage problems in the US are still coming to light, financial institutions are uncertain over the standing of other market participants. Objectively, it is extremely unlikely that the sub‑prime mortgage exposures could significantly damage the core banking system in any significant country. The exposures are spread far too widely for that to occur. But precisely because they are spread widely, and because the associated financial structures are opaque, information on who is exposed and by how much is incomplete. Hence people remain wary. At times of uncertainty, market participants naturally get more cautious and want to hang on to cash, rather than lending it in the interbank market."

In an interview on Meet the Press on 19 August, Treasurer Peter Costello called for more progress on licensing of mortgage brokers, who are not prudentially regulated:

PETER COSTELLO: Well, of course, mortgage law is run by the States as is property law. The conveyancing, the transfer of land system, the way you register mortgages and all of those sorts of things. This is a matter for State law. The States themselves have been talking about getting more regulation into this area. The need to license mortgage brokers, to put on them disclosure obligations, the things that they must disclose to borrowers, the things they must take into account. We would want to get a uniform law throughout Australia. In 2006 a ministerial council of the States met to talk about getting a uniform law. It's time that that's brought forward. It's time that the States enact a uniform law, and I am very concerned that some of these low-doc lenders may be pushing money on to people who they know are bad risks - and I want to see that ended.

PAUL BONGIORNO: Now, according to one report today, you're saying if the States don't act you will. How can you if they don't?

PETER COSTELLO: Well, we would say to the States that if they want to refer powers to us, then we would be willing to step in and take their powers and to legislate in this area. I think it's important that it be done. Let me make this very clear - the Australian Government has responsibility of prudential regulation of the financial system. We do that through APRA, the Australian Prudential Regulatory Authority, but outside of deposit-taking institutions and financial institutions are a whole lot of those originators who are just money lenders, basically, under State law. And if you are going to license and regulate them, then it's going to have to be done under State law or otherwise the States should refer their powers to the Commonwealth.

PAUL BONGIORNO: In the last couple of days you have repeated your warning to the banks not to take advantage of the situation on global markets and up their interest rates. I'm just wondering, these warning are coming so regularly from you. Do you know something that maybe we don't?

PETER COSTELLO: Paul, it's a complicated issue, if I can just explain. I said earlier that the Commonwealth has prudential regulation on the banking system. The banking system is well capitalised and highly profitable. There is no need for any bank in the wake of what is happening in the United States to move its interest rate up. That's the point I want to make. Outside of the banking system there are what are called mortgage originators. These are not banks. These are not prudentially regulated.

PAUL BONGIORNO: They have provided competition, haven't they?

PETER COSTELLO: They have, and what they do is they go out and borrow money on the money market and they forward it to borrowers. Now, some of these mortgage originators are actually raising their money in the United States, in the United States where there has been all of this fallout. Now, in order to continue to raise that money in the United States they will have to pay a higher price. If they have to pay a higher price, that may affect their borrowers here in Australia and they may in fact get hit by a credit crunch. They may in fact not be able to borrow it. I am making this point - the fallout will come through some of these originators, but the fallout will not come through the banks and the banks are not entitled to use this as a reason to move their rates.

UPDATE: Treasurer's Press Release

Commonwealth Parliament sitting dates

Parliament is now in recess. Its next sittings will be 11 to 20 September 2007.

There is still a lengthy Bills List to be dealt with before an election is called.

The Asia-Pacific Economic Cooperation (APEC) forum will be held in Sydney from 2-9 September.

Franchising Code of Conduct to be amended

The Trade Practices (Industry Codes - Franchising) Amendment Regulations 2007 (No.1) have been tabled in Federal Parliament. If not disallowed, they will amend the Franchising Code of Conduct, effective 1 March 2008.

These changes are principally to the disclosure obligations of franchisors to franchisees.

The Report of a review and the Government Response to the Report were released on 6 February 2007.

Australian Securities and Investment Commission (Fair Bank & Credit Card Fees) Amendment Bill 2007

The Australian Securities and Investment Commission (Fair Bank & Credit Card Fees) Amendment Bill 2007 has been referred to the Senate Economics Committee which is due to report on 17 September.

The Bill seeks to implement the following measures:

• prohibiting penalty fees imposed on failed financial services transactions if the customer had no actual or constructive knowledge that the transaction would fail. An example of a failed transaction where the customer had no actual or constructive knowledge that the transaction would fail is the presentation in good faith by a customer of a cheque which is then dishonoured;
• ensuring penalty fees for financial services represent a reasonable estimate of the loss suffered by the supplier as a result of the conduct by which the consumer incurs the penalty fee; and
• enabling ASIC to enforce undertakings from financial services suppliers with respect to penalty fees.

The closing date for submissions is Friday 31 August 2007.

Access Card: an IT Project Failure?

In a recent presentation, IT and privacy consultant Roger Clarke declared the Access Card project as a failure listing the following reasons:

• Vast Scale ("largest IT project in the world")
• Arbitrary and Ridiculously Tight Deadlines
• Tenders Prior to Parliamentary Approval
• Untested Technologies
• Unclear Requirements
• Rapidly Changing Requirements
• 'Going for Glory' (Hockey's "pilots are for aircraft")
• Huge Media Scepticism
• Huge Risk of Public Rejection
• Total Failure to Engage with the Public Interest
• Seriously Annoyed Tenderers, left in limbo
• Low Staff Morale, Staff Turnover, Loss of Corporate Memory

"Ellison's staff have realised it's an unmitigated disaster (and I'm limiting my comments here to project risk and not going into the impact it would have on privacy)....

The big Booz Allen Hamilton contract will be paid out.  But the tenderers for the big contracts can pack up and go home now, and the public servants can go hunting for their next jobs.  That will save us, as taxpayers, a cool billion dollars that would have been sadly wasted if the project had proceeded."

via Open and Shut

Expansion of AML/CTF Act: Tranche 2

The Attorney-General's Department has released draft provisions setting out expanded designated services which will be covered by the second tranche of the AML/CTF legislation.

Sectors which will be affected by the second tranche legislation are:

• real estate agents in relation to buying and selling of real estate
• dealers in precious metals and stones engaged in transactions above a designated threshold
• lawyers, notaries, other independent legal professionals and accountants when preparing for or carrying out certain transactions
• trust and company service providers when they prepare for or carry out for a client the transactions listed in the Glossary to the FATF Recommendations.

These service providers would be subject to the same obligations as the existing service providers eg customer identification and AML/CTF Compliance program.

The draft provisions are open for public comment by 7 September 2007.

Trade Practices Amendment (Small Business Protection) Bill 2007

The Trade Practices Amendment (Small Business Protection) Bill 2007 has been introduced into Parliament.

If passed, the Bill will empower the ACCC to bring representative court actions for breaches of the secondary boycott provisions in sections 45D and 45E of the Trade Practices Act.

At present, the ACCC is only able to investigate and prosecute unlawful secondary boycotts under sections 45D and 45E, but it cannot bring representative actions.

National Greenhouse and Energy Reporting Bill 2007

Environment Minister Malcolm Turnbull has introduced the National Greenhouse and Energy Reporting Bill 2007 into Parliament.

If passed, a single, national framework will be established for reporting greenhouse gas emissions, abatement actions and energy consumption and production by corporations from 1 July 2008.

The Bill lays the foundation for the Australian Emissions Trading System.

Qantas provides for air cargo price fixing fines

Qantas Chief Executive Officer Geoff Dixon has announced that Qantas would make a provision of US$40 million (A$47 million) to cover a potential fine that may be imposed in the USA as a result of conduct undertaken by Qantas’ Freight Division.

Investigations have revealed that the practice adopted by Qantas Freight and the cargo industry generally to fix and impose fuel surcharges was likely to have breached relevant competition laws in the USA, Europe, Australia, New Zealand and other jurisdictions.

Mr Dixon said that “On 1 August 2007, the US Department of Justice announced that British Airways and Korean Air had agreed to plead guilty and pay separate US$300 million criminal fines for their roles in conspiracies to fix prices of passenger and cargo flights. British Airways subsequently announced that US$200 million of its fine related to cargo...

“At this stage, it is too early to make a reliable estimate of possible fines in other jurisdictions or of possible liability to third parties under class actions. We expect these amounts will be known over the next two years.”

An air cargo class action has already commenced against Qantas in Australia.

More (Fairfax Digital)

APRA responds to Government's Statement of Expectations

It helps to understand a regulator's objectives. So the release of the Government's ‘Statement of Expectations’ of the Australian Prudential Regulation Authority (APRA), as part of a reform to the governance arrangements for statutory authorities and APRA’s ‘Statement of Intent’ in response gives helpful insights.

The Government's Statement of Expectations discusses the appropriate balance between pursuing safety and protection of beneficiaries on the one hand, and market efficiency on the other.

Interestingly the Government has confirmed that "prudential regulation cannot and should not seek to guarantee a zero failure rate of prudentially regulated institutions or provide absolute protection for market participants (including consumers)."

In response APRA says it "does not pursue a zero failure objective. APRA cannot completely eliminate the risk that a financial institution might fail and it recognises that any attempt to do so would impose unnecesaary burden on financial institutions and harden the arteries of the financial system".

Water Bill 2007

The Water Bill 2007 and the Water (Consequential Amendments) Bill 2007 have been introduced into Parliament and referred to the Senate Environment, Communications, Information Technology and the Arts Committee. The Committee is due to report on 14th August.

The Water Bill is described as "A Bill for an Act to make provision for the management of the water resources of the Murray-Darling Basin, and to make provision for other matters of national interest in relation to water and water information, and for related purposes."

The Bill is wide-ranging: it includes environmental management, Commonwealth-State responsibilities, water reduction risks, water availability, resource management plans and water market rules.

UPDATE 5 September: Acta as passed:

Water (Consequential Amendments) Act 2007

Water Act 2007

To ensure compliance by business the Bill includes the following:

168 Civil penalties for executive officers of bodies corporate
(1) If:
(a) a body corporate contravenes a civil penalty provision; and
(b) an executive officer of the body knew that, or was reckless or negligent as to whether, the contravention would occur; and
(c) the officer was in a position to influence the conduct of the body in relation to the contravention; and
(d) the officer failed to take all reasonable steps to prevent the contravention;
the officer contravenes this subsection.
(2) Subsection (1) is a civil penalty provision.
(3) Under section 147, a Court may order a person contravening subsection (1) to pay a pecuniary penalty not more than the pecuniary penalty the Court could order an individual to pay for
contravening the civil penalty provision contravened by the body corporate.
169 Did an executive officer take reasonable steps to prevent contravention?
(1) For the purposes of section 168, in determining whether an executive officer of a body corporate failed to take all reasonable steps to prevent a contravention to which this Part applies, a Court
is to have regard to:
(a) what action (if any) the officer took directed towards ensuring the following (to the extent that the action is relevant to the contravention):
(i) that the body arranges regular professional assessments of the body’s compliance with this Act, the regulations and the water charge rules;
(ii) that the body implements any appropriate recommendations arising from such an assessment;
(iii) that the body’s employees, agents and contractors have a reasonable knowledge and understanding of the requirements to comply with this Act, the regulations, the water charge rules and the water market rules in so far as those requirements affect the employees, agents or contractors concerned; and
(b) what action (if any) the officer took when he or she became aware that the body was contravening:
(i) this Act; or
(ii) the regulations; or
(iii) the water charge rules; or
(iv) the water market rules.
(2) This section does not, by implication, limit the generality of section 168.

UPDATE 15th August 2007: Senate Committee Report recommends Bill be passed.

Corporations Amendment (Insolvency) Bill 2007

The Corporations Amendment (Insolvency) Bill 2007 has been passed by Parliament and is waiting Assent.

UPDATE: Corporations Amendment (Insolvency) Act 2007 as passed

Chris Pearce, the Parliamentary Secretary to the Treasurer spoke about the Bill in his speech “The changing role of creditors in insolvency” to The Banking and Financial Services Law Association.

He spoke about:

• the treatment of employee entitlements,
• practitioner independence,
• practitioner fees,
• measures to deter misconduct, and
• the new pooling regime.

Superannuation industry reviewed

The Parliamentary Joint Committee on Corporations and Financial Services has delivered its Report on The structure and operation of the superannuation industry (pdf).

In the 266 page report, the committee made 23 specific recommendations including:

• that Treasury conduct a review of the laws and regulations governing superannuation to identify how they may be rationalised and simplified.
• Treasury examine and report to government on the issue of overlapping, inconsistent and conflicting requirements of superannuation funds from a number of regulators.
• exit fees that exceed the administrative cost of transfer should be prohibited prospectively.
• ASIC consult further with superannuation funds on the provision of online calculators. Following this process ASIC should provide additional regulatory relief that will better enable funds, without undermining consumer protection imperatives, to use the generic calculator exemption to provide benefit projections for their members.

Same-Sex Entitlements

The Human Rights and Equal Opportunity Commission's Same-Sex: Same Entitlements Report has identified 58 laws that must be amended to eliminate discrimination against same-sex couples and their children in the area of federal financial and work-related entitlements.

The Report concludes that straightforward definition changes could remove discrimination in the following areas:

• Employment
• Workers’ Compensation
• Tax
• Social Security
• Veterans’ Entitlements
• Health Care Costs
• Family Law
• Superannuation
• Aged Care
• Migration.

UPDATE: Draft Bill introduced into Senate on 14 August 2007 as a Private Senator's Bill.

Federal Parliament resumes

Parliament is resuming for its Spring Sittings starting with the period 7 to 16 August 2007.

Debate will resume on Government bills already introduced with some new Bills marked for introduction and passage this sittings (subject to an election announcement).

On Tuesday the Parliamentary Joint Committee on Corporations and Financial Services is scheduled to deliver its Report of inquiry into the structure and operation of the superannuation industry .

APRA consults on Life Insurance standards

The Australian Prudential Regulation Authority (APRA) has released a consultation package on its proposals to maintain the prudential framework for life companies, including friendly societies, in the light of amendments being made to the Life Insurance Act 1995 (Life Act) by the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007.

To ensure the continued operation of the existing prudential framework, APRA proposes to replicate most of the provisions removed from the Life Act in new and amended prudential standards. These include:

• two new prudential standards to ensure that key provisions relating to actuaries, auditors and reinsurance continue to operate;
• the reissue of actuarial standards, which are currently set by the Life Insurance Actuarial Standards Board, as APRA prudential standards; and
• minor amendments relating to governance and ‘fit and proper’ requirements.

APRA is proposing that the new prudential standards will be available in the fourth quarter of 2007 and take effect on 1 January 2008.

APRA releases draft Basel II market risk standard

The Australian Prudential Regulation Authority (APRA) has released a discussion paper on proposed refinements to APRA’s current approach to market risk for authorised deposit-taking institutions (ADIs)  under the Basel II framework and draft Prudential Standard APS 116 Capital Adequacy: Market Risk.

Comments are invited by 5 September 2007.

ASX releases revised Corporate Governance Principles and Recommendations

The ASX Corporate Governance Council has issued The revised Corporate Governance Principles and Recommendations (pdf). The revised Principles will start on a company's first financial year commencing on or after 1 January 2008.

The ASX has provided a document setting out the differences between the 2003 and 2007 editions of the Principles and Recommendations

In summary, the key changes are:
• ‘Best practice’ has been removed from the title and the text of the document – to be known as the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations - to eliminate any perception that the Principles are prescriptive and so not to discourage companies from adopting alternative practices and ‘if not, why not’ reporting where appropriate.
• There are now eight Principles instead of ten with Principle 8 amalgamated into Principles 1 and 2, and Principle 10 amalgamated into Principles 3 and 7. These changes make the document more user-friendly by structuring the guidance more logically.
• Guidance to Principle 2: Structure the Board to Add Value sets out a list of “relationships affecting independent status” that a company should take into account when determining the independence of a director rather than providing a definition of independence. Companies are required to disclose their reasons for considering a director ‘independent’ notwithstanding the existence of one of these relationships.
• Council recommends that companies’ trading policies should prohibit hedging unvested options and that any hedging of vested options should be disclosed to the company under Principle 3: Promote Ethical and Responsible Decision-Making. Council’s position complements the Government proposal to amend the Corporations Act to require companies to disclose their policy on hedging of options.
• Principle 7: Recognise and Manage Risk now makes it clear that material business risks involve both financial and non-financial risks. Companies are encouraged to adopt appropriate risk oversight, management policies and internal control systems rather than disclosing specific material business risks.

• Recommendation 7.2 now deals with “material business risks” in broad terms. Where a company has risks relating to sustainability or corporate social responsibility (CR) that are material to its business they should be considered in the context of the revised Recommendation 7.2.

• Recommendation 7.3 contains a revised version of the existing “assurance” or “sign-off” on financial reporting risks. The Recommendation requires the board to disclose that it has received assurance from the CEO/CFO that the declaration under section 295A of the Corporations Act is founded on a sound system of risk management and internal control which is operating effectively in all material respects in relation to financial reporting risks.

• Recommendation 9.4 has been deleted and instead commentary has been added to Recommendation 8.2 suggesting companies may wish to consult shareholders about equity-based incentive plans involving the issue of new shares to executives, other than directors, prior to implementing them.

Financial Sector Reform update

As noted here , the Financial Sector Legislation Amendment (Discretionary Mutual Funds and Direct Offshore Foreign Insurers) Bill 2007 and the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007 were reviewed by the Senate Economics Committee.

The Committee has now delivered its reports here and here respectively.

The Committee recommended that both Bills be passed.

The report on the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007 contains an interesting discussion on the new prudential whistleblower provisions and their difference from the Corporations Act provisions.

UPDATE 26 September. Act as passed: Financial Sector Legislation Amendment (Discretionary Mutual Funds and Direct Offshore Foreign Insurers) Act 2007

UPDATE 27 September. Act as passed: Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007

ASIC consults on financial adviser training

ASIC has released a consultation paper seeking industry and consumer feedback on proposals to update Regulatory Guide 146: Licensing: Training of financial product advisers (RG 146).  (RG 146 was formerly called PS 146.)

 The purpose of the consultation paper is to seek feedback on proposals about:

• the appropriateness of current training standards;
• recognition of prior study and training; and
• the quality and currency of courses on the ASIC Training Register.

 Submissions on the consultation paper close on 25 September 2007.