Australian Regulatory Compliance Review

Disclosure requirements for non-standard margin lending facilities

ASIC has released Consultation Paper 129 Non-standard margin lending facilities – improving disclosure for retail clients (CP 129) which sets out the key features and risks which ASIC proposes should be disclosed in a Product Disclosure Statement (PDS).

A non-standard margin lending facility differs from a standard margin lending facility in that ownership of securities passes out of the investor’s hands. Ownership is transferred to the lender who then transfers consideration for the securities back to the investor, representing the ‘loan’ component of the facility. Products like this were offered by lenders such as Opes Prime Stockbroking Ltd and Tricom Equities Ltd up until 2008.

Under recent changes to the Corporations Act, margin lending will be regulated as a financial product and supervised by ASIC. ASIC’s proposed requirements for non-standard margin lending facilities supplement the Financial Services Working Group’s proposed requirements for shorter, simpler disclosure for standard margin loans.

Handling of confidential information by listed companies: ASIC guide

ASIC has released Consultation Paper Handling confidential information (CP 128) and the attached draft regulatory guide for discussion. The paper sets out a range of best practice guidelines for companies and their advisers who are in receipt of confidential, price-sensitive information.

ASIC’s goal in developing these best practice guidelines is to help parties ensure that confidential, price-sensitive information is provided to all the market in a timely manner, through the ASX announcements platform, rather than provided selectively to some participants at an incomplete stage.

Achieving product rationalisation for managed investment schemes and life insurance products

Treasury has released a proposals paper for consultation about a proposed product rationalisation framework for managed investment schemes and life insurance products. Product rationalisation is a process of converting or consolidating products of a similar nature into a single product with equivalent features and benefits. Its main purpose in this context is to remove outdated, so-called 'legacy' products by transferring investors into newer, more efficient products.

Submissions close on 26 February 2010.

ASIC regulatory guide on schemes of arrangement

ASIC has released an updated Regulatory Guide 60 Schemes of arrangement (RG 60) and Consultation Paper 127 Schemes of arrangement: Statements under s411(17)(b) (CP 127).

Amongst other things ASIC is considering what future guidance might be provided regarding schemes which result in a reverse takeover if consideration for the members of the company proposing the scheme (the target company) is shares in the offeror company, and the scheme results in a change in control of the offeror company or has a material effect on control of the offeror company.

AWB update: ASIC v Lindberg

More than 3 years after the Cole Inquiry report into AWB's activities in the UN Oil for Food Program was published, ASIC civil proceedings against the former AWB CEO are still not resolved.

The latest decision in Re AWB Ltd (No 10) [2009] VSC 566 recaps the ASIC actions against Lindberg and the various rulings against ASIC.

AWB Index

UPDATE 17 December 2009: ASIC to appeal permanent stay of its second civil penalty case

Personal Property Securities: draft amendments to Corporations Act

The Attorney-General's Department is seeking comments on the exposure draft of the Personal Property Securities Bill (Corporations and other Amendments Bill) 2009.

The exposure draft Bill proposes amendments to the Corporations Act 2001 consequential on passage of the Personal Property Securities Act to:

• close the Register of Charges under Chapter 2K
• amend the terminology of the Corporations Act in line with the PPS functional approach
• where appropriate, to include PPSA retention of title property within the definition of property in the Corporations Act (in line with the PPSA functional approach)
• maintain existing rights (that is, to ensure the amendments do not interfere with certain existing rights under the Corporations Act), and
• provide appropriate transitional and application arrangements.

Submissions are sought by no later than 22 January 2010.

ASIC consults on corporate bonds

ASIC has released Consultation Paper 126 Facilitating Debt Raisings to assist with the development of a sustainable listed corporate bond market in Australia.

The Consultation Paper proposes relief from long form prospectus requirements subject to the following conditions:

• the companies are listed and have a good continuous disclosure history – e.g. they have not been suspended for more than five days over a period of 12 months;
• the bonds offered are simple, vanilla bonds offered to retail and wholesale investors at the same price; and
• the size of the bond offer is at least $100 million to maximise the prospects of a liquid secondary market.

Comments are due by 19 February 2010.

ASIC has also developed a guide on investing in corporate bonds, which covers what corporate bonds are, how they work, what the risks are and provides a checklist of things to look for when investing.

ASIC issues policy guidance on margin lending licensing

ASIC has released policy and regulatory guidance to assist issuers and advisers of margin lending facilities comply with new licensing, conduct and disclosure requirements, following the passage of the Corporations Legislation Amendment (Financial Modernisation) Act 2009 (the Act).

The Act, amongst other things, makes margin lending facilities a financial product and requires that issuers and advisers of margin lending facilities hold an Australian Financial Services Licence (AFSL).

In addition, the regime imposes new responsible lending requirements on issuers of margin lending facilities and clarifies responsibility for providing notification of margin calls.

Under the Act, issuers and advisers will have a 12-month transition period from commencement of the Act until the new requirements take effect (commencement of the relevant sections have not yet been proclaimed). During the first six months of the transition period, existing margin lenders and advisers of margin loans will be required to apply for an AFSL authorisation.

A number of ASIC's existing regulatory guides have been amended to take into account the inclusion of margin lending facilities as a financial product.

The updated policy and regulatory guidance comprise:

• Updates to Regulatory Guide 2 AFS Licensing Kit: Part 2 — Preparing your AFS licence application(RG 2) and Regulatory Guide 3AFS Licensing Kit: Part 3 — Preparing your additional proofs (RG 3)
• Update to Regulatory Guide 146Licensing: Training of financial product advisers(RG 146);
• Update to Regulatory Guide 166Licensing: Financial requirements (RG 166)
• Update to Pro Forma 209 Australian financial services licence conditions(PF 209)
• Regulatory impact statement

Companies limited by guarantee: draft Corporations Amendment (Corporate Reporting Reform) Bill 2010 released

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP,has released the draft Corporations Amendment (Corporate Reporting Reform) Bill 2010 and the accompanying Regulations for comment.

Companies limited by guarantee

The main change affects Australia's 11,000 companies limited by guarantee, many of which are sports and recreation related organisations, community service organisations, education-related institutions and religious organisations.

A three tiered differential reporting framework will be introduced exempting small companies limited by guarantee from reporting and auditing requirements and providing other companies limited by guarantee with streamlined assurance requirements and simplified disclosures in the directors’ report. In addition, the process for companies to distribute the annual report to their members will be streamlined.

Companies limited by guarantee will be prohibited from paying a dividend, as the government believes the corporate structure of companies limited by guarantee means that they are not suited for conducting for-profit activities which could legitimately warrant the payment of dividends to members.

Under the first tier, companies would be exempt from preparing the financial report and the directors’ report. This tier comprises of companies limited by guarantee with annual revenue less than $250,000 which do not have deductible gift recipient status.

Under the second tier, companies would:

• prepare a financial report, which they could elect to have reviewed rather than audited;
• prepare a streamlined directors’ report, rather than a full director’s report; and
• be subject to a streamlined process for distributing the annual report to members.

The second tier comprises of the following companies limited by guarantee:

• companies with an annual revenue of less than $250,000 that are a deductible gift recipient; and
• companies with an annual revenue of $250,000 or more but less than $1 million, irrespective of whether the company is a deductible gift recipient.

Under the third tier, companies would:

• continue to prepare an audited financial report;
• prepare a streamlined directors’ report, rather than a full director’s report; and
• be subject to a streamlined process for distributing the annual report to members.
• The third tier comprises of companies limited by guarantee with an annual revenue of $1 million or more, irrespective of whether the company is a deductible gift recipient.

Other changes

The other key measures include:

• streamlining parent-entity reporting;
• providing greater flexibility for companies to pay dividends, by replacing the profits test with a solvency-type test; and
• allowing companies to more easily change their year-end date.

The reforms will also implement refinements to the regulatory framework, including:

• improving disclosure of non-financial information in the directors' report;
• protecting solicitors' representation letters from disclosure to enable auditors to properly verify a company's contingent liabilities;
• refining the statement of compliance with International Financial Reporting Standards contained in the directors' declaration; and
• clarifying the circumstances in which a company can cancel its share capital.

The closing date for submissions is 3 February 2010.

Draft bill for ASIC supervision of financial markets

Treasury has released for comment an exposure draft Corporations Amendment (Financial Market Supervision) Bill 2009 containing proposed changes to the Corporations Act 2001 providing for ASIC to supervise domestically licensed financial markets, creating a new rule making power for ASIC and providing additional powers for ASIC to enforce these rules.

Comments close on 24 December 2009.