Australian Regulatory Compliance Review

Data breach prevention

Australia does not yet have mandatory data breach notification laws (see last year's ALRC proposals) so we don't know about breaches other than those that get public notoriety (eg files dumped in bins, stolen laptops or forgotten CD's.)

But we can learn from those breaches analysed in the USA: Verizon has published its 2009 Data Breach Investigations Report.

Its analysis of data breaches concluded:

• 74% were caused externally, 20% internally;
• 67% were aided by errors, 22% involved privilege misuse;
• 69% were discovered by a third party, 87% were considered avoidable through simple controls.

The 5 recommendations were:

• Ensure essential controls are met.
• Have data retention policies: find, track, and assess data.
• Collect and monitor event logs.
• Audit user accounts and credentials.
• Test and review web applications.

In Australia the Privacy Commissioner has issued a Voluntary Data Breach Notification Guide.

Board of Taxation Discussion Paper on GST and cross‑border transactions

The Board of Taxation has released a discussion paper on the Board’s review of the application of GST to cross‑border transactions.

The Government has asked the Board to consult widely with relevant stakeholders and report to the Government on improvements to the design of the GST system necessary to ensure that cross‑border transactions are treated in an efficient and effective manner. A particular focus will be those design features underpinning the involvement of non‑residents in the Australian GST system with a view to simplifying the design.

The closing date for submissions is 4 September 2009.

Senate Committee Termination Payments Bill reporting date extended

The Senate Economics Legislation Committee's inquiry into the Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 has been extended as the committee requires more time to finalise its report. The committee intends to present the final report by Monday, 7 September 2009.

Financial Ombudsman case studies

The latest newsletter from the Financial Ombudsman Service (here) has 3 case studies worth reviewing to understand the Ombudsman's approach to resolving disputes:

• Financial planning advice: Mr and Mrs A complained about the advice they received from their bank's financial planner about how they could arrange their financial arrangements to allow Mrs A to qualify for the maximum aged pension and maximise their income. After a meeting with the bank’s planner, he provided advice that Mrs A would qualify for the full pension if her term deposit monies were invested in a superannuation fund in her name and recommended investment in a bank balanced superannuation fund.

  Mr and Mrs A accepted the advice and transferred the funds to the recommended fund. Mrs A subsequently reached retirement age and applied for the aged pension. However, she was subsequently advised by Centrelink that her pension entitlement was approximately half the full pension. A review of the financial planner’s advice showed he had erred in his calculation. The lower pension entitlement therefore meant Mr and Mrs A’s overall already modest income fell after implementing the planner’s recommendation. The value of Mrs A’s superannuation investment subsequently fell significantly.

  The Financial Ombudsman Service’s view was that the recommendation made by the planner was inappropriate given Mr and Mrs A’s financial position, their historical investment profile and the resultant reduction in their income. Had the correct pension information been stated, and the appropriate recommendation supplied, it was more likely than not, in the circumstances of this case, that Mr and Mrs A would have retained their existing investment arrangements together with a part pension.

  On that basis, the Financial Ombudsman Service determined that the disputants were entitled to be put back in the position they would have been had the term deposit remained in place and the bank was liable to compensate them on that basis.

• Travel insurance: Mr B was stranded in Thailand in September of last year when the Phuket airport was closed due to an anti-government protest. As a result, Mr B had to purchase new flight tickets, and incurred additional costs. The member denied his claim on the basis that the proximate cause for the loss arose from an excluded clause in the policy that is “a loss that arises from any act of war, or from a rebellion, revolution, insurrection or taking power by the military”. The Financial Ombudsman Service upheld Mr B’s claim on the basis the events should be described as a “riot” or “civil commotion” rather than an “insurrection”.
• Superannuation advice: Mr D alleged that the superannuation consultant agreed to advise the consumers into the future and for an indefinite period of changes to the superannuation rules which would prevent them withdrawing their contributions without incurring tax or other penalties.

  Eight years after initial contact, changes to superannuation rules meant that a component of Mr and Mrs D’s superannuation contributions would be taxed substantially if it were withdrawn. Mr and Mrs D complained that the member breached its contractual obligation to warn them of such changes ahead of their operation, and claimed compensation.

  The Financial Ombudsman Service found that there was no ongoing retainer to provide financial advice, Mr and Mrs had not paid any fees for advice, and that there had been no contact between Mr and Mrs and the member during the eight year period. The Financial Ombudsman Service did not uphold the dispute

Margin lending dispute resolution ASIC consultation paper

The Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009, if passed, will require margin lenders and advisers to obtain a licence and be subject to supervision and enforcement by ASIC. It will also give borrowers access to free external dispute resolution services where they have a dispute with their provider.

ASIC’s Consultation paper 112 Dispute resolution requirements for consumer credit and margin lending ( CP 112) explains how ASIC proposes to apply the dispute resolution requirements for margin lenders and those who provide advice on margin loans, once the Financial Services Modernisation Bill reforms of margin lending, come into effect.

Submissions close on Friday 11 September 2009.

Review of statutory implied conditions and warranties

The Minister for Competition Policy and Consumer Affairs, the Hon Dr Craig Emerson MP, has released an Issues Paper, Consumer rights: Statutory implied conditions and warranties, on behalf of the Commonwealth Consumer Affairs Advisory Council (CCAAC).

On 12 March 2009, the former Minister for Competition Policy and Consumer Affairs announced a review of the Australian law on implied conditions and warranties (implied terms) by CCAAC.

The Issues Paper explores the adequacy of the current laws on implied terms and the need, if any, for amendments to improve existing laws and to empower regulators to ensure compliance with these laws. The Issues Paper also considers some of the related issues, such as 'lemon laws' to protect consumers where goods repeatedly fail to meet expected standards; the existence of extended warranties and their interaction with laws on implied conditions and warranties; and other possible means to improve the operation of the existing laws on implied terms in Australia.

The closing date for submissions is Monday, 24 August 2009

Consolidated Trade Practices Act

ComLaw has published a consolidated Trade Practices Act 1974 incorporating the anti-cartel provisions in Part IV.

Further consultation on employee share schemes

The Assistant Treasurer, Senator Nick Sherry, has released the timeframes for the final round of industry consultations on reforms to the taxation of employee share schemes, including releasing the Terms of Reference for the Board of Taxation review component.

As set out in the final Policy Statement of 1 July 2009, the Government will undertake a three-stage consultation process.

The three stages are:

• a two-week consultation period on a draft Exposure Bill beginning in August;
• a Board of Taxation consultation on technical issues to report to the Assistant Treasurer within approximately one month of the release of the draft Exposure Bill; and
• a comprehensive Board of Taxation review on two further substantive issues to report to the Assistant Treasurer by 28 February, 2010.

Following the first two stages of this consultation process, it is envisaged legislation based on the policy statement will be introduced into Parliament in the Spring sittings.

The Board of Taxation's review is the third stage of the consultation process. The issues before the Board are:

• how to best determine the market value of employee share scheme benefits; and
• whether shares and rights under an employee share scheme at a start-up, R&D or speculative focused company should have separate tax deferral arrangements.

Private health insurers governance standards

We have set up a new site for private health insurers and you can read about the latest consultation draft of the PHIAC governance standards here.

Calculating monetary penalties

The Commonwealth and most states express monetary penalties for breaches of laws as penalty units.

The amount of one unit is then set out in a separate Act allowing for easy adjustment when necessary.

The amount of a Commonwealth penalty unit is currently prescribed by section 4AA of the Crimes Act as $110. The amount of penalty units in the states are similar but do vary.

The Commonwealth Attorney-General has published a helpful penalty unit conversion table.