Australian Regulatory Compliance Review

Simplified superannuation advice guidelines

The Australian Securities and Investments Commission (ASIC) has released class order relief for superannuation fund trustees (and their authorised representatives) who provide personal advice to fund members about their existing super fund.

ASIC’s Regulatory Guide 200 and Class Order [CO 09/210] deal specifically with advice about a member’s existing interest in a super fund. CO 09/210 applies only to super fund trustees or their authorised representatives. The guidance and relief applies in certain circumstances, and does not cover more complex personal advice about super, including switching, or retirement planning advice.

The relief applies to all super funds (other than self-managed super funds), but to rely on the relief, super fund trustees will need an Australian financial services licence with a personal advice authorisation. Those super fund trustees who do not meet the requirements of the relief must comply with section 945A of the Corporations Act when providing personal advice.

SMSF borrowing: risks in member giving guarantee for loan

The ATO's Taxpayer Alert TA 2008/05 "Certain borrowings by self managed superannuation funds ", discussed arrangements under which the trustee of a self managed superannuation fund (SMSF) enters into certain limited-recourse borrowings, which may not meet the conditions in subsection 67(4A) and/or breach other provisions of the Superannuation Industry (Supervision) Act 1993 (SIS Act), as well as related superannuation rules.

The ATO identified 5 features of such arrangements which may give rise to taxation and superannuation regulatory issues.

One of those features (relevant to whether the loan was limited recourse) was whether a personal guarantee for the borrowing is given by a third party, particularly when the guarantee is given by a member or a related party of the SMSF.

In draft taxation ruling TR2009/D3 the ATO has now advanced the risk of a SMSF Member in providing a personal guarantee for a loan to the fund by stating that:

A payment pursuant to that guarantee will constitute a contribution to the fund if the guarantor has no right of indemnity against the fund. A contribution will be made by a guarantor who has a right of indemnity only if the guarantor subsequently forgoes that right or is prevented from enforcing that right (for example by the statute of limitations).

Such a payment may breach the superannuation contribution limit.

ASIC consults on securities lending

ASIC has released a consultation paper on disclosure of substantial holdings arising from securities lending or prime broking.

The consultation paper, Securities lending and substantial holding disclosure, seeks to improve disclosure of substantial holdings in practice and makes it clear that securities lending transactions and prime broking arrangements need to be taken into account in calculating a substantial holding.

Submissions on the proposals contained in the Consultation Paper close on 7 August 2009.

COAG Communique 2 July 2009

The Council of Australian Governments (COAG) meeting on 2 July 2009 focussed on further measures to overcome Indigenous disadvantage and the importance against the background of the global economic and financial crises of bolstering education, training and re-training efforts and securing further microeconomic and regulatory reform to enhance the economy’s future productive potential.

On the regulation front, COAG signed an Intergovernmental Agreement to underpin the establishment of national Australian Consumer Law, based on existing consumer protection provisions and new product safety regulation and enforcement regime, and a further IGA covering national business names registration.

New legislation review

Parliament is on a winter break and will next sit from 11 to 20 August 2009.

It's left us with some significant new Bills to review:

• Australian Consumer Law and Trade Practices Amendments
• National Consumer Credit Reform Package
• Personal Property Securities
• Financial services modernisation: margin loans, trustee companies and debentures
• Director and executive termination payment changes

On 1 July we'll have:

• tax changes
• changes to superannuation contributions concessions
• new unfair dismissal rules under the Fair Work Act

And we're waiting for:

• assent and commencement of the anti-cartel laws;
• a decision on the new rules for employee share schemes.
• further updating on COAG's reform program.

Financial services regulation: margin loans, trustee companies and debentures

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP,has introduced the Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009 into Parliament.

The Bill addresses three key areas of financial services regulation:

• Margin lending
• Trustee companies
• Debentures and promissory notes

Margin lending

The new regime will make margin loans subject to the investor protection regime in the Corporations Act. It requires 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.

Margin loan lenders will be subject to responsible lending requirements which will only allow them to provide a margin loan if they are reasonably sure that the borrower is able to afford the loan without suffering substantial hardship. A new provision is included which clarifies whether lenders or financial advisers are responsible for notifying borrowers of margin calls. There will be a 12 month transition period.

Trustee companies

The Commonwealth assumes responsibility for the regulation of trustee companies under a single, standard, national regulatory regime.

Traditional trustee company services will be regarded as financial services under Chapter 7 of the Corporations Act, and trustee companies will be required to hold an Australian financial services licence covering the provision of the relevant services.

The amendments will also protect consumers by establishing a national consumer protection and disclosure regime under the Corporations Act and the ASIC Act. Trustee companies will also need internal and external dispute resolution mechanisms to resolve complaints.

The legislation provides that fees must be fully disclosed to the public via the internet. Fees charged to non-charitable trust clients are limited to the trustee company's latest published schedule of fees.

Also, fees charged to charitable trusts and foundations will be regulated to ensure that beneficiaries of these trusts are protected. Specifically, fees charged to "new client" charitable trusts will remain subject to capping based on the Victorian Trustee Companies Act 1984. "Existing client" charitable trusts will have their fee levels frozen to ensure the fees do not rise as a result of the new regime.

Debentures

The Bill amends the regulation of debentures and promissory notes and creates a register of debenture trustees.

The changes harmonise the legal regime to require all retail debentures and promissory notes to be subject to the consumer disclosure and protection measures currently applying to debentures. This includes the requirement to have a trust deed and trustee arrangements, and to issue a full prospectus.

ASIC will be required to create and maintain the register of debenture trustees, which will be available for viewing by the public.

Personal Property Securities Bill 2009 introduced

The Attorney-General, Robert McClelland,has introduced the Personal Property Securities Bill 2009 into Parliament. Its object is to create a comprehensive national system of personal property securities (PPS) law.

PPS law governs how personal property may be used as security for a loan.

When passed this Bill will replace more than 70 different pieces of Commonwealth, State and Territory law.

The new law will be supported by a referral of power from the States and a national online register of PPS interests.

Last week, New South Wales became the first State to refer their power in this area to the Commonwealth.

A copy of the text of the Bill attached to the NSW referral can be downloaded here.

New Langes partner appointed: Patrick Dwyer

We're delighted to announce that Patrick Dwyer will be joining Langes as a partner from 1 July. He will be based in our Sydney office.

Patrick was previously General Counsel Home Lending with GE Money. He's been with GE for the last 6 years.

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New rules for credit providers lending to Victorians: unfair contract terms and EDR scheme for credit

If you provide credit to Victorian residents (even if your business is based outside Victoria) you are affected by the Victorian Fair Trading and Other Acts Amendment Act 2009 which commenced operation on 11 June 2009.

The 2 main requirements are:

• to comply with new unfair contract terms rules; and
• to join an ASIC-approved External Dispute Resolution scheme relating to credit disputes.

Unfair consumer credit contract terms

The new unfair contract law (set out in Part 2B of  Victoria’s Fair Trading Act 1999) pre-empts the Commonwealth's unfair contract terms law which is due to apply nationally from 1 January 2010,

Consumer Affairs Victoria has published Guidelines on unfair terms in consumer credit contracts.

EDR Scheme for credit

Amendments to Victoria's Consumer Credit Act require credit providers lending to Victorian residents to join an ASIC-approved External Dispute Resolution scheme by 1 July 2009.

Whilst many credit providers will already be in an EDR scheme for the purpose of their AFS Licence, their existing scheme may not extend to credit disputes. Credit providers who are affected should confirm extended coverage with their EDR scheme provider.

Dispute resolution brochures provided to consumers will need to confirm the applicability of the EDR scheme to credit disputes.

ASIC financial services update

In a speech by ASIC Deputy Chairman Jeremy Cooper which could be his last before he becomes chair of the Review into the Governance, Structure,Efficiency and Operation of Australia's Superannuation System he starts his regulatory review of Financial Services by decrying the quality of jokes about the GFC ( A director decided to award a prize of $100 for the best idea of saving the company money during the credit crunch. It was won by a young executive who suggested reducing the prize money to $20).

His speech covers:

• the new EDR scheme rules due to start on 1 January 2010;
• the duties of financial advisers;
• financial product design;
• the new consumer redit laws;
• whether the sale of financial products to retail investors should be further regulated.