Australian Regulatory Compliance Review

Personal Property Securities Bills passed

The Personal Property Securities Bill and the Personal Property Securities (Consequential Amendments) Bill 2009 were passed by Parliament on 26 November 2009 and are awaiting assent.

The new law will set up a national register of personal securities and change security types and procedures.

It will replace more than 70 different pieces of Commonwealth, State and Territory law.

It is proposed to commence in May 2011.

UPDATE Acts as passed:

Personal Property Securities Act 2009

Personal Property Securities (Consequential Amendments) Act 2009

Consolidated Personal Property Securities Act 2009 (incorporating consequential amendments)

Ripoll report on financial products and services released

The Parliamentary Joint Committee on Corporations and Financial Services (chaired by Bernie Ripoll MP) has released its report into the issues associated with recent financial product and services provider collapses, such as Storm Financial, Opes Prime and other similar collapses, with particular reference to:

• the role of financial advisers;
• the general regulatory environment for these products and services;
• the role played by commission arrangements relating to product sales and advice, including the potential for conflicts of interest, the need for appropriate disclosure, and remuneration models for financial advisers;
• the role played by marketing and advertising campaigns;
• the adequacy of licensing arrangements for those who sold the products and services;
  the appropriateness of information and advice provided to consumers considering investing in those products and services, and how the interests of consumers can best be served;
• consumer education and understanding of these financial products and services;
• the adequacy of professional indemnity insurance arrangements for those who sold the products and services, and the impact on consumers; and
• the need for any legislative or regulatory change.

In conducting its inquiry, the Committee decided to focus specifically on non-superannuation products and services.

The Committee's recommendations focus on stricter regulation of financial advisers.

Corporations Legislation Amendment (Financial Services Modernisation) Act 2009 assented to

The Corporations Legislation Amendment (Financial Services Modernisation) Act 2009 received royal assent on 6 November 2009.

It is expected that Schedule 1 (margin lending), Schedule 2 (trustee companies) and parts of Schedule 3 (debentures) will commence by 1 January 2010. The rest of the Act commenced on 6 November 2009.

Draft regulations and example PDS

Regulation of credit ratings and credit ratings agencies

ASIC has announced that it has decided to withdraw current class order relief that allows issuers of investment products to cite credit ratings without the consent of credit rating agencies.

From 1 January 2010, issuers must ensure that the credit rating agency has given its consent for the inclusion of a credit rating (and its form and context) in any fund raising or takeover documents that will be issued after this date.

Also from 1 January 2010, credit rating agencies will be required to hold an Australian Financial Services (AFS) licence. (see here).

ASIC targets unsolicited credit cards: NAB agrees to deactivate cards

ASIC has reminded financial institutions of the prohibition in Section 12DL of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) against the sending of unsolicited credit and debit cards by annnouncing the terms of National Australia Bank's response to ASIC's concerns with National Australia Bank (NAB)'s distribution of American Express credit cards as ‘companion’ cards to NAB Qantas Gold account customers. ASIC was concerned that the distribution was unsolicited and potentially in breach of section 12DL .

ASIC was concerned because the distribution of American Express cards was not made in response to a request in writing from customers, and involved the sending of a companion card to its Qantas Gold Card which was an additional card, and not a card sent in renewal, replacement or substitution of an existing card.

In response to ASIC’s concerns, NAB is writing to all of its Qantas Gold account customers. NAB will either give customers who have already used the companion cards the choice not to retain the card (via an opt-out process) or give customers who have not used the companion cards the opportunity to confirm that they wish to retain the card in writing (via an opt-in process), otherwise the companion card will be automatically deactivated.

In both instances, customers’ NAB Qantas Gold accounts will remain open and their Qantas Gold MasterCards or Visa cards will continue to work.

Eligible Emissions units as Financial Products: Draft Regulations

The Government has decided that eligible emissions units under the Carbon Pollution Reduction Scheme will be financial products for the purpose of the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001.

Treasury is consulting interested parties about draft regulations which contain adjustments to the financial product regime so that it fits the characteristics of eligible emissions units and does not involve unnecessary compliance costs.

Australian Consumer Law update: deferral to 1 July 2010 and other amendments

The Trade Practices Amendment (Australian Consumer Law) Bill 2009 has been introduced into the Senate.

The Government has tabled amendments proposing that the provisions concerning the national unfair contract terms law will not commence before 1 July 2010.

Other proposed amendments to the unfair contract terms provisions:

• provide that a term in a consumer contract can only be unfair if it would cause financial or non-financial detriment to a party;
• remove the consideration of whether a term would cause detriment, or a substantial likelihood thereof, from the considerations that a Court must have regard to in determining whether a term of a consumer contract is unfair;
• remove the power for the Minister to prohibit terms by regulation;
• provide that the Minister must take into account certain factors in prescribing by regulation an example of an unfair term;
• clarify that the unfair contract terms provisions apply to consumer contract terms varied on or after commencement as varied.

Bankruptcy Amendment Bill introduced

The Attorney-General, Robert McClelland,has introduced the Bankruptcy Legislation Amendment Bill 2009 into Parliament.

UPDATE: The Bill has been referred to the Senate Legal and Constitutional Affairs Legislation Committee. Its Report is due on 2 February 2010.

The Bill introduces a number of reforms, including:

• increasing the minimum amount for which a creditor can petition for bankruptcy from $2,000 to $10,000;
• increasing the stay period from when a declaration of intent to file a debtor’s petition is filed to when a creditor may commence action to recover debts from seven to 28 days;
• increasing the income, asset and debt thresholds to allow more people in financial distress to enter into voluntary debt agreements;
• introducing a more efficient and transparent process for fixing and reviewing trustee remuneration;
• strengthening the penalties for some offences, particularly those involving fraud; and enhancing powers for the Inspector-General in Bankruptcy to investigate possible offences.

Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009 passed

The Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009 has been passed by both the House of Representatives and the Senate.

Amongst other things the Bill amends the Corporations Act 2001 to:

• establish a national regulatory regime for margin loans ;
• require that promissory notes valued at $50,000 or over are subject to the same regulatory regime as debentures;
• require the establishment of a public register of debenture trustees.

It is now awaiting assent.

Updated compensation and insurance arrangements for AFS licensees

ASIC has released an updated version of Regulatory Guide 126 Compensation and insurance arrangements for AFS licensees (RG 126).

ASIC has removed the requirement for Australian Financial Services (AFS) licensees to obtain automatic insurance run-off cover as it is not available to AFS licensees in the current insurance market.

The changes mean that:

• until 31 December 2009 – adequate PI insurance is based on what is available in the market now, provided it meets the minimum requirements outlined in Section C of RG 126; and
• from 1 January 2010 – in addition to the above, AFS licensees are required to obtain switching cover that covers the situation where an AFS licensee moves a client from a product that is not on the approved product list to one that is on the approved product list.

The revised version of RG 126 also clarifies that fraud cover is not required for licensees who are sole traders.