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ASIC has today released Consultation Paper 129 Non-standard margin lending facilities – improving disclosure for retail clients (CP 129) designed to help retail investors better understand the risks involved with non-standard margin lending facilities. CP 129 sets out the key features and risks which ASIC proposes should be disclosed in a Product Disclosure Statement (PDS).
The release of CP 129, which clearly outlines where the regulation of a non-standard margin lending facility applies, is accompanied by a draft Regulatory Guide containing ASIC's expectations for improved disclosure to help retail clients understand and assess these facilities.
Submissions on the proposals contained in CP 129 close on 26 February 2010.
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.
For further details (including to access a copy of CP 129), refer to ASIC's website.
(For background information on the Corporations Legislation Amendment (Financial Services Modernisation) Act 2009 and the regulation of margin lending, refer to our Breaking News for 7 December 2009).
The Government has today released for public comment draft regulations and example Product Disclosure Statements (PDSs) for superannuation and managed investments products.
Under the proposed regimes, PDSs will be limited to six A4 pages of key information presented in a clear and uncomplicated manner. These documents will be supported by more detailed or frequently updated information provided online so that businesses can enjoy greater flexibility without compromising investor protection.
The closing date for submissions is 26 February 2010.
For further details (including to access copies of the draft regulations, explanatory materials and example PDSs), refer to the Treasury website.
ASIC has approved new Terms of Reference (TOR) for the Financial Ombudsman Service Limited (FOS), which will give consumers increased access to FOS for new complaints received from 1 January 2010. In particular, the new TOR will provide a more consistent treatment of consumers and industry members than the currently operating five separate sets of rules and guidance of FOS' predecessor schemes.
ASIC has noted in today's release that in addition to its current consultation on proposed updates to dispute resolution requirements for consumer credit and margin lending in Consultation Paper 112 (which was released in July this year - refer to our Breaking News for 29 July 2009 for further details), it will consult in early 2010 on updates for trustee companies that provide traditional trustee company services. These consultations are likely to result in FOS needing to update the new TOR during 2010 to accommodate disputes relating to these areas.
For further details on the new FOS TOR, refer to the ASIC website.
ASIC has today released the following further regulatory guidance on the implementation of the National Consumer Credit Protection Act, representing the second package of regulatory guidance on the implementation of the National Consumer Credit (NCC) regime:
- New publications
- Regulatory Guide 204 Credit licensing: Applying for and varying a credit licence
- Regulatory Guide 205 Credit licensing: General conduct obligations
- Regulatory Guide 206 Credit licensing: Competence and training
- Regulatory Guide 207 Credit licensing: Financial requirements
- Regulatory Guide 208 How ASIC charges fees for credit relief applications
- INFO 97 Guidance for small credit businesses
- Update publications
- Regulatory Guide 51 Applications for relief
- Regulatory Guide 108 No Action letters
The guidance sets out how ASIC will approach the administration of the NCC regime - it has been developed to help industry prepare their credit licence applications and also understand ASIC's expectations in relation to their obligations as credit licensees. The release of this second package is part of ASIC's effort to provide as much upfront guidance as possible before the commencement of the NCC regime in July 2010. It follows the release of guidance on the registration process, which begins on 1 April 2010. ASIC also plans to issue further regulatory guidance, including guidance on responsible lending and compensation and insurance arrangements for credit licensees, in early 2010.
For further information on these guides and earlier guidance released by ASIC in relation to the NCC regime, refer to the ASIC website.
The National Consumer Credit Protection Act 2009 No 134 (Cth) received Royal Assent on 15 December 2009 and was published on the FRLI on 16 December 2009. This Act implements the first half of an implementation plan agreed to by the Council of Australian Governments, which transfers the regulation of consumer credit, and related financial services, to the Commonwealth. In broad terms, the Act:
- introduces a national licensing regime requiring persons engaged in credit activities to hold an Australian Credit Licence (ACL);
- imposes 'responsible lending conduct' obligations on ACL holders;
- prescribes a framework for dispute resolution and civil remedies;
- provides for the enforcement of the proposed regime, including ASIC's powers to examine persons, inspect books and gather information, prosecute persons and require others to provide reasonable assistance, and issue infringement notices for strict liability offences;
- provides for administrative and miscellaneous matters, including the maintenance of registers relating to credit activities by ASIC and the review of certain decisions of ASIC by the AAT;
- prescribes the (new) National Credit Code (NCC), which largely replicates the Uniform Consumer Credit Code; and
- provides for exemptions from all or some of the operation of the NCC for persons, contracts, mortgages, guarantees or consumer leases determined at the discretion of ASIC, under Part 12, Div. 5.
The National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 No 135 (Cth) received Royal Assent on 15 December 2009 and was published on the FRLI on 17 December 2009. The Act makes transitional and consequential provisions to support the transfer of credit regulation from the states and territories to the Commonwealth.
For further details (including to access copies of the legislation and explanatory materials), refer to the COMLAW website.
ASIC has today released updated 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).
The reforms were introduced by the Federal Government to enhance investor protection. The same licensing, conduct and disclosure requirements that currently apply to financial services will soon apply to providers and financial advisers in relation to margin lending facilities and margin lending facilities will be regulated in the same way as other financial products.
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 Act is yet to be 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.
For further details (including to access copies of the updated regulatory guides and details of the transition timetable), refer to the ASIC website.
Following the release earlier today (see Breaking News below for 2 December) of a Treasury consultation paper on Reforms to the Supervision of Australia's Financial Markets and draft legislation, ASIC has announced arrangements for managing the transfer of 'front line' market supervision from the ASX to ASIC. In summary, the reporting lines/areas of responsibility for ASIC will be divided as follows.
- A cross functional management team to develop proposals for assuming its new
market supervision responsibilities, including:
- market surveillance and participant supervision
- consideration of emerging markets trends, such as market structure, innovation and competition.
- A Market Supervision Advisory Panel (chaired by ASIC Commissioner, Belinda Gibson) to advise on its approach to its new responsibilities. The panel includes four members from the financial services industry with experience in the legal, compliance, retail and institutional aspects of broking , as well as ASIC senior executives. ASIC has noted that it will also still seek input from relevant industry and stakeholder associations, as well as from market participants (as applicable).
In today's announcement, ASIC has also said that it plans to consult publicly in the first quarter of 2010 about the rules it will supervise.
For further details, refer to ASIC's website.
The Minister for Financial Services, Superannuation and Corporate Law today released a consultation paper and draft legislation facilitating reforms to the supervision of Australia's financial markets.
This follows on from the announcement on 24 August this year by the Treasurer and Minister Bowen that the Australian Securities and Investments Commission (ASIC) would take over the supervision of real-time trading on all of Australia's domestic licensed markets. The preparation of legislation is the first step towards implementing that change.
The Government is consulting on a new system for rule making and enforcement of those rules by ASIC in relation to domestic licensed financial markets in Australia.
Key elements of the exposure draft of the Bill are the:
- removal of the obligation on domestic financial market operators to supervise their financial markets. Instead, market operators will be responsible for the operation of their markets and the supervision and enforcement of their operating rules, which relate to operational issues;
- provision of a new type of rule called a 'market integrity rule' which will be made and enforced by ASIC; and
- establishment of an infringement notice regime in relation to a contravention of the market integrity rules.
Comments on the exposure draft of the Bill and consultation paper are due by 24 December 2009.
For further information (including to access a copy of the exposure draft of the Bill and consultation paper) refer to the Treasury website.
ASIC has released its first package of regulatory guidance to help entities and individuals prepare for the proposed National Consumer Credit regime.
The guidance has been released prior to the commencement of the legislation to ensure those likely to be impacted by the reforms can determine whether they will need to be registered or licensed, and to help them prepare their businesses in readiness for the new requirements when they come into effect.
ASIC has released:
- INFO 96 – Information Sheet 96 Getting ready for credit, which explains how the national credit regime applies and what people can do to start getting ready for credit;
- RG 203 – Regulatory Guide 203 Do I need a credit licence?, which is designed to help people who engage in credit activities understand whether they need to be licensed; and
- RG 202 – Regulatory Guide 202 Credit registration and transition, which outlines the process for registering with ASIC and the transition from registration to licensing.
Registration is the first step in the transition process. Persons who engage in credit activities can apply to ASIC to be registered from 1 April 2010 until 30 June 2010. Registered persons will then have six months to apply for an Australian Credit Licence, between 1 July 2010 and 31 December 2010.
ASIC will be releasing further guidance in the coming weeks to assist licensees understand and comply with the new obligations, which will begin to take effect from 1 July 2010.
(For background information on the National Consumer Credit regime, refer to our Breaking News for 25 June 2009)
The Parliamentary Joint Committee on Corporations and Financial Services has released its report on its inquiry into financial products and services in Australia.
The inquiry focused on the role played by financial advisers, the state of the general regulatory environment, remuneration models (such as commissions), the role of marketing and advertising in financial product distribution, the licensing arrangements of those who sold the financial products and services, and the consumer protection and insurance arrangements in place.
The Committee has put forward 11 major recommendations for reform. The main proposed reforms are that:
- the Corporations Act be amended to explicitly include a fiduciary duty for financial advisers operating under an AFSL, requiring them to place their clients' interests ahead of their own and disclose more prominently in marketing material restrictions on the advice they are able to provide consumers and any potential conflicts of interest;
- the government consult with and support industry in developing the most appropriate mechanism by which to cease payments from product manufacturers to financial advisers;
- the government consider the implications of making the cost of financial advice tax deductible for consumers as part of its response to the Treasury review into the tax system;
- ASIC immediately begin consultation with the financial services industry on the establishment of an independent, industry-based professional standards board to oversee nomenclature, and competency and conduct standards for financial advisers; and
- the government investigate the costs and benefits of different models of a statutory last resort compensation fund for investors.
ASIC has today released a second consultation paper on its proposals for compensation and professional indemnity (PI) insurance arrangements for credit licensees. This is part of the extensive consultation process that ASIC is undertaking to implement the new National Consumer Credit regime and follows an earlier consultation paper issued in July this year, Consultation Paper 111 Compensation and financial resource arrangements for credit licensees (CP 111).
Consultation Paper 125 Compensation requirements for credit licensees: Further consultation (CP 125) seeks further feedback on particular aspects of ASICs proposals on the compensation requirements that should apply to credit licensees.
The proposals outlined in CP 125 are based on the compensation arrangements outlined in the National Consumer Credit Protection Bill 2009 (Bill) and the exposure draft regulations, and the consultation undertaken so far. ASIC's final policy and guidance materials on credit compensation and professional indemnity insurance, including regulatory guides, will reflect the final form of the legislation and regulations.
The Bill and the exposure draft regulations require credit licensees to ensure they have in place adequate compensation arrangements. Licensees are required to meet this obligation by holding adequate PI insurance cover, unless they are exempted by regulation. The exposure draft regulations exempt certain categories of credit licensees from the requirement to hold PI insurance, including credit licensees that are regulated by APRA, and licensees whose sole business is lending and who do not undertake any non-lending credit activities.
ASIC proposes that:
- all licensees that are not exempt will need to hold PI insurance cover at a set minimum (either $2 million or another amount), depending on the nature of their business; and
- this cover should include 'run-off' cover, which refers to cover for claims made after the insurance policy has ended that have arisen from the acts or omissions of the insured during the period of insurance cover. ASIC is seeking the industry's feedback on whether this is likely to be available to credit licensees in the current market.
Submissions on the proposals contained in CP 125 close on 18 December 2009.
For further details (including to access a copy of CP 125), refer to ASIC's website.
The Standing Committee of Officials of Consumer Affairs has released a consultation regulatory impact statement (RIS) on reforms based on best practice in state and territory consumer protection laws, and a new national product safety regime. These reforms are being considered as part of the development of the Australian Consumer Law (ACL).
It sets out options for:
- reform proposals in the ACL which amend the provisions of the Trade Practices Act 1974 (TPA) based on best practice in existing state and territory consumer laws; and
- implementing the recommendations of the Productivity Commission's 'Review of the Australian Consumer Product Safety System' as part of the ACL.
The proposals are due to be presented to the Ministerial Council on Consumer Affairs for consideration on 4 December 2009.
The closing date for submissions on the consultation RIS is 27 November 2009.
For further details (including to access a copy of the consultation RIS), refer to the Treasury website.
ASIC has today made the following two announcements in relation to credit rating agencies (CRAs) in Australia, which will come into effect on 1 January 2010.
- CRAs will be required to hold an Australian financial services licence and will, therefore, be required to comply with the general licensing obligations under Chapter 7 of the Corporations Act as well as some specially tailored conditions which ASIC will impose on licences that are granted to CRAs.
- ASIC is withdrawing current class order relief (under ASIC class orders CO 07/428 and 07/429) that allows issuers of investment products to cite credit ratings without the consent of CRAs. Accordingly, issuers must ensure that the CRA has given its consent for the inclusion of a credit rating (and its form and context) in any fund raising (PDS and prospectus) or takeover (statements and target's statements) documents that will be issued after 1 January 2010.
For further details in relation to these announcements, refer to ASIC's website.
ASIC today 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 run-off cover. Previously, AFS licensees were required to obtain professional indemnity (PI) insurance policies that included 12 months automatic run-off cover from 1 January 2010.
Automatic run-off cover is cover for claims made after the insurance policy has ended which have arisen from the acts or omissions of the insured during the period of insurance cover. The cover is negotiated upfront at the commencement of the PI insurance policy, rather than separately.
ASIC has decided to remove the requirement to obtain automatic 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.
For further details (including to access a copy of RG 126), refer to ASIC's website.
The Financial Planning Association (FPA) has today announced that its Board has approved the FPA's remuneration policy to move away from commission-based fees for financial planning advice. FPA members will be required to transition from commission-based remuneration by 1 July 2012 (although the FPA is encouraging members to adopt approved remuneration practices as soon as their business is ready). At this stage, risk products and rebates and related payments (which are product directed payments to AFS licensees) are not part of the policy. The FPA has, however, established a member working group to progress appropriate remuneration principles for risk products, and a working group to determine how corporate superannuation will be implemented. Both groups will report to the FPA by early 2010.
For further information, refer to the FPA website at www.fpa.asn.au.
The Federal Government has today released an options paper exploring strategies for improving protections for corporate whistleblowers, which the Federal Government acknowledges play an important role in helping to detect fraud and other forms of corporate and financial services misconduct.
The paper deals with a series of concerns which have been identified with the existing protections and poses a number of options for addressing them. These issues include:
- who is allowed to qualify for protection as a whistleblower – former employees, for example, currently do not qualify;
- what types of issues can be disclosed under the protections – some matters which ASIC can investigate cannot currently be the subject of a protected disclosure;
- whether motive should affect protection – currently an individual with malicious motives cannot be protected even if the information they disclose is genuine;
- whether anonymity should affect protection – many whistleblowers may wish to be anonymous but, if they do not disclose their name from the start and later they need to come forward (eg, to give evidence), they cannot be protected;
- when a court can order the production of documents which reveal a whistleblower's identity – there is concern that whistleblowers will be discouraged from coming forward unless there is further guidance on this issue;
- what confidentiality restrictions should apply to those receiving disclosures second-hand – there may be a loophole in post-disclosure confidentiality protections; and
- whether prospective whistleblowers should be protected for seeking legal advice – this may encourage more whistleblowers to come forward by providing greater certainty in relation to how the law operates.
The paper does not, however, address the issue of granting leniency to whistleblowers who are involved in the misconduct they are reporting, as this issue was dealt with in the CAMAC report, Aspects of market integrity, released in July 2009 (see our Breaking News for 30 July 2009 for further details on that report) and the issue is now being considered by ASIC.
The closing date for submissions on the options paper is 21 December 2009.
For further details (including to access a copy of the report), refer to the Treasury website.
ASIC has today released its second report on the unlisted, unrated debenture market and a consultation paper outlining proposals to improve the benchmarks under ASIC's Regulatory Guide 69 Debentures: Improving disclosure for retail investors (RG 69).
The report, REP 173 Debentures: Second review of disclosure to investors, sets out ASIC's findings on the effectiveness of the disclosure benchmarks, investor education, audit and supervision of debenture issuers, advertising and ongoing disclosure to clients. (REP 173 follows on from ASIC's first report, REP 127 Debentures: Improving disclosure for retail investors, released in April 2008.)
Overall, ASIC's second industry review found that the 'if not, why not' disclosure regime in RG 69 is working well but can be further strengthened to improve disclosure for investors and to respond to the failure of a number of debenture issuers particularly during the global financial crisis.
ASIC also released today Consultation Paper 123 Debentures: Strengthening the disclosure benchmarks, which sets out ASIC's proposals to:
- adjust the disclosure benchmarks in RG 69, including those relating to minimum amounts of equity capital, adequate liquidity, and disclosure about loan portfolios and valuations;
- improve the presentation and explanation of benchmark disclosures; and
- change how it administers the law regarding the naming of debentures.
Comments on the proposals in the consultation paper are due by 4 December 2009. ASIC plans to issue the new regulatory guide in February 2010. For further information (and to access the relevant documents), refer to ASIC's website. (For details on REP 127, refer to our Breaking News for 23 April 2008.)
ASIC has today issued a Consultation Paper seeking further feedback on how to better facilitate the delivery of financial services information online.
Consultation Paper 121 Facilitating online financial services disclosures (CP 121) sets out ASIC's proposed:
- relief to give providers certainty about giving product disclosure statements, financial services guides and statements of advice to retail clients via hyperlinks and references to website addresses; and
- good practice guidance on online disclosure.
The Consultation Paper also discusses whether paper disclosure or online disclosure should be the default method of delivering financial services disclosures.
Generally, under the current law, a provider needs to obtain a retail client's express agreement before delivering financial services disclosures online (ie, paper disclosure is the default method of delivering disclosures). However, ASIC recognises that this requirement may create practical difficulties that are posing a barrier to some providers delivering disclosures online.
The closing date for submissions on CP 121 is 11 December 2009.
For further details (including to access a copy of CP 121), refer to ASIC's website.
The Minister for Financial Services, Superannuation and Corporate Law has today released draft regulations and accompanying commentary material in relation to the disclosure of short selling information under the Corporations Amendment (Short Selling) Act 2008.
The draft regulations require the reporting of:
- covered short selling transactions to market operators - this information will be aggregated and publicly released by market operators on the following business day and such an approach is consistent with the existing ASIC interim disclosure regime; and
- short positions by short sellers to ASIC - this information will be aggregated by ASIC and released to the public four business days after the positions are taken.
The Government has completed its consideration of the policy issues associated with the regulations but is seeking comments from stakeholders on a range of specific technical issues (outlined in the commentary material) by 23 October 2009 with a view to having the regulations considered by the Executive Council in November 2009. The Government proposes to review these regulatory arrangements 12 months after the commencement of the new positional reporting requirements.
For further details, refer to the Treasury website. (For background information on the Short Selling legislation, refer to our Breaking News for 17 December 2008.)
ASIC has today released a consultation paper, CP 120 Operators of clearing and settlement facilities, which provides proposed guidance on the regulation of clearing and settlement (CS) facilities. While ASIC has previously issued some regulatory guidance on clearing and settlement, to date it has not issued any consolidated policy guidance on licensing and regulation of CS facilities in Australia. Accordingly, CP 120 is designed to provide more comprehensive guidance in this area. It:
- outlines when an Australian CS facility license is required (ie, what types of activities will require a CS facility licence);
- now Australian and overseas operators can apply for a licence (and what is a sufficient equivalent overseas regulatory regime for a non-Australian CS facility operator to be granted authorisation to operate in Australia);
- outlines ongoing obligations of CS facility licensees;
- explains ASIC's approach to advising the Minister about applications for exemption from the requirement to hold a licence; and
- is designed in part to complement international regulatory developments promoting the use of central counterparty clearing and settlement of OTC derivative transactions.
The closing date for submissions on the consultation paper is 13 November 2009 and ASIC's aim is to release the regulatory guide by February next year.
For further details (including to access a copy of CP 120), refer to ASIC's website.
ASIC has today issued CO 09/728 Variation of CO 08/1 Group purchasing bodies, which extends the transitional period for compliance with CO 08/1 Group purchasing bodies (otherwise due to expire today) until 31 January 2010. CO 08/1 gives conditional relief from the AFS licensing regime and Chapter 5C of the Corporations Act for some group purchasing bodies who arrange or hold risk management products for the benefit of third parties. The principal reason for extending the transitional period is so that ASIC can consider:
- how the eligibility tests under CO 08/1 operate
- appropriate updating of ASIC's policy outlined in Regulatory Guide 195 Group purchasing bodies for insurance and other risk management products.
For further details (including to access copies of the class orders and RG 195), refer to ASIC's website.
The Minister for Financial Services, Superannuation and Corporate Law and the Minister for Finance and Deregulation have today released for public comment draft Corporations Amendment Regulations and an example PDS for margin lending disclosure.
This disclosure framework, which has been developed by the Financial Services Working Group in close consultation with industry, complements the wider national margin lending regime currently being considered by Parliament as part of the new single Commonwealth-managed consumer credit system.
Comments on the draft regulations and example PDS are required by 23 October 2009. For further details (including to access copies of the draft documents and explanatory commentary released today), refer to the Federal Treasury website. (For background details on the Financial Services Working Group's work on the margin lending disclosure documents, refer to our Breaking News for 18 January 2009.)
The Minister for Financial Services, Superannuation and Corporate Law has today announced that the Government will be proposing a number of enhancements to the National Consumer Credit Protection legislation, principally to address recommendations in the report from the Senate Economics Committee inquiry into the National Consumer Credit Protection Bill 2009 and related bills, which was handed down on 7 September 2009.
The main proposed changes are:
- to defer the commencement of the consumer credit reforms by six months to 1 July 2010 (but the start date for the responsible lending obligations on Authorised Deposit-taking Institutions and Registered Financial Corporations will remain 1 January 2011);
- to remove section 130(3) from the Credit Bill so that credit providers will have to verify information provided in a preliminary assessment;
- to clarify that consumers have access to remedies without first having a formal finding by a court in relation to a civil penalty;
- to require lenders to provide consumers with reasons for rejecting applications for hardship variations and stays of enforcement.
There are also other proposed changes relating to ASIC's powers and decision-making.
For further details, refer to the Minister's announcement on the Treasury website. (Also, see our Breaking News for 25 June 2009 and 14 August 2009 for background on the National Consumer Credit Protection legislation.)
Treasury has today released a consultation paper, together with draft regulations and explanatory material, on reporting requirements in relation to business placed with unauthorised foreign insurers. These draft regulations supersede those issued for consultation in May last year. The proposed reporting requirements have been expanded from those originally envisaged. In particular, it is now proposed that aggregate data be collected on all insurance contracts entered into during a reporting period with APRA-authorised general insurers, Lloyds underwriters and unauthorised foreign insurers. Also, transaction level data will be collected on dealings with unauthorised foreign insurers and in atypical risks.
The closing date for submissions on the draft regulations is 8 October 2009. For further information (including to access the draft regulations and supporting materials), refer to the Treasury website. (Also, for details of the earlier draft regulations released for consultation, see our Breaking News for 29 May 2008.)
ASIC has today released a consultation paper, CP 117 Consent to quote credit ratings in disclosure documents and PDSs, in which it is seeking comments on the appropriateness of current class order relief (under CO 07/428) that allows issuers of investment products to cite credit ratings in disclosure documents without the consent of credit rating agencies (ie, Standard & Poor's, Moody's Investor Service and Fitch Ratings). (There is equivalent takeovers relief in CO 07/429.) ASIC is seeking feedback to help it with finding an appropriate balance between:
- making credit ratings available to retail investors;
- promoting the accountability of credit rating agencies to investors; and
- giving credit rating agencies better control of the use of their ratings.
In particular, CP 117 seeks more information from stakeholders, including from issuers and their advisers, credit rating agencies and organisations representing retail investors, about:
- how important credit ratings are to retail investors;
- whether the use of credit ratings in disclosure documents and advertising to retail investors is common;
- how credit rating agencies control the use of credit ratings; and
- the practicalities and costs of requiring and giving consent to cite credit ratings in disclosure documents.
The closing date for submissions on CP 117 is 22 October 2009. ASIC expects to announce its decision on whether it will revoke the current class order relief in November.
For further details (including to access a copy of CP 117), refer to ASIC's website.
ASIC has today released a consultation paper and proposed regulatory guidance on criteria for exemption from Australian financial market licence provisions for professional markets.
The proposed regulatory guidance, Exempt professional financial markets, is designed to inform industry and their advisers of the circumstances where ASIC may advise the Minister to exempt a market from the operation of the financial markets regime. ASIC's objective is to develop an approach to market licence exemptions that reflects international developments flowing from the global financial crisis and serves to enhance market integrity and stability.
The consultation period on the proposed regulatory guidance closes on 19 October 2009.
For further details (including to access a copy of CP 116), refer to ASIC's website.
ASIC has today released its consultation paper, CP 115 Responsible lending, which explains how ASIC proposes to implement the responsible lending obligations as they apply to credit licensees under the National Consumer Credit Protection Bill 2009. (This consultation paper is part of the ongoing consultation process that ASIC is undertaking to implement the proposed National Consumer Credit Protection Program.)
ASIC says it intends to administer the responsible lending obligations in light of other obligations that apply to credit licensees, including the general conduct obligations they are required to meet under clause 47 of the National Credit Bill, the consumer protection provisions in the ASIC Act 2001 (Part 2, Div 2) and other relevant credit legislation.
The closing date for submissions is 30 September 2009 and ASIC proposes to release the regulatory guide in December this year.
For further details, including to access a copy of CP 115, refer to the ASIC website.
Treasurer Wayne Swan and Chris Bowen (Minister for Financial Services, Superannuation and Corporate Law) have today jointly announced proposed changes to ASIC's role in supervising Australia's financial markets, which will result in ASIC being responsible for both supervision and enforcement of the laws against misconduct in relation to Australia's financial markets. (The present arrangements require individual financial markets to self-supervise trading on their individual markets.)
It is intended that legislation will be introduced into the 2010 Autumn sittings of Parliament to give effect to this change, with ASIC to begin performing these functions in the third quarter of 2010.
For further details (including in relation to implementation and timing of this proposed reform), refer to the joint media release on the Treasury website.
The Government has today released for public comment draft regulations and explanatory material to give effect to the following matters dealt with in the Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009 (which was introduced into the House of Representatives on 25 June 2009):
- the national regulation of margin loans;
- the national regulation of trustee companies; and
- enhancements to the regulation of debentures.
The closing date for submissions on these draft Corporations Amendment Regulations and related explanatory material is 18 September 2009. For further details (including to access copies of the materials released today), refer to the Treasury website. (For further details on the Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009, refer to our Breaking News for 25 June 2009.)
ASIC has today announced changes to hardship withdrawals from frozen mortgage funds which expand the circumstances in which operators are able to make payments to fund members who demonstrate the need to access funds on hardship grounds. Today's announcement follows on from the hardship relief measures announced by ASIC in October 2008.
The changes to the existing hardship relief provisions include:
- increasing the cap on hardship withdrawals in a calendar year to $100,000;
- allowing an investor to make up to four withdrawals in a calendar year (subject to the $100,000 cap); and
- extending the hardship grounds to cover a beneficiary of a deceased estate of a member, where the beneficiary is suffering hardship, and members who are unemployed for at least three months without other means of support.
The existing hardship relief provisions announced last year by ASIC continue to apply.
- changes to the timetable for the National Consumer Credit Protection Reform Package (NCCPP) to better protect consumers; and
- draft regulations and explanatory material for the NCCPP for public comment (and details of further regulations to be released by the end of August).
Timetable (and other) changes
The main changes to implementation dates are as follows.
- The responsible lending conduct requirements for brokers and some lenders will now apply from 1 January 2010 (instead of 1 January 2011, as previously proposed). The responsible lending conduct requirements will commence for the remaining lenders (ie, Authorised Deposit-taking Institutions and Registered Finance Companies) from 1 January 2011 to allow these credit providers sufficient time to prepare for compliance with the new regime and ensure a smooth transition for the industry.
- All remaining responsible lending requirements (such as disclosure of fees and commissions) will commence on 1 January 2011.
- The commencement of certain implementation requirements (summarised in a table attached to the Minister's media release) to the new National Credit Code for all credit providers will be deferred from 1 January 2010 to 1 July 2010.
These regulations support the National Consumer Credit Protection Bill 2009, the National Consumer Credit Protection (Transitional and Consequential Provisions) Bill 2009, and the National Consumer Credit Protection (Fees) Bill 2009, which were introduced into Parliament on 25 June 2009. They clarify important elements of these Bills, including licensing arrangements, the nature of exemptions for debt collectors and point of sale retailers, where legal proceedings will commence, transitional matters and fees payable by holders of an Australian credit licence. Regulations to amend the Electronic Transactions Regulations 2000 to exempt a number of transactions under the introduced bills from provisions of the Electronic Transactions Regulations are also included in the package released today.
The Government is seeking submissions on the exposure draft regulations by 9 September 2009.
For further details (including to access the draft regulations and accompanying materials), refer to the Minister's media releases on the Treasury website.
The Financial Planning Association of Australia (FPA) has today released a consultation draft of its 2009 Code of Professional Practice. The revised Code follows international best practice as determined by the Financial Planning Standards Board, which licenses the CFP mark to the FPA in Australia.
The Code brings the FPA's Code of Ethics, Practice Standards, Definitions and Guidance together under the one document. It incorporates many of the current obligations imposed on FPA members and, in addition, the FPA has released:
- Practice Standard 7 – Professional Obligations for Financial Planners
- Practice Standard 8 – Principal (AFSL) Member Professional Obligations
- Rules for Professional Conduct relating to Practice Standards 1 to 8
The Code of Ethics, and Practice Standards 1 – 6 have been approved by FPA members already. Once the FPA has consulted on the overall Code, and Practice Standards 7 and 8 it will work with its members on implementation. The FPA expects that members will have the full Code in place from 1 July 2010, after a consultation period on the overall Code and the new Practice Standards released today. The current consultation process (open to FPA members) closes on 18 September 2009. For further details, refer to the media release on the FPA website. (FPA standards and guidance are available to FPA members on the FPA website.)
ASIC today released a consultation paper, CP 114 Client money relating to dealing in OTC derivatives, which contains proposals to improve disclosure by a financial services licensee dealing in OTC derivatives. The paper also clarifies how ASIC expects licensees to comply with the client money provisions in the Corporations Act. ASIC ultimately is seeking a regulatory position where licensees are better informed about the handling of client money and that licensees improve their disclosures to clients about the counterparty risk to which clients are exposed. The closing date for submissions on the consultation paper is 18 September 2009.
For further details (including to access a copy of CP 114), refer to the ASIC website.
ASIC has today released Regulatory Guide 201 Unsolicited credit cards and debit cards (RG 201), clarifying ASIC's interpretation of the scope of section 12DL of the Australian Securities and Investments Commission Act 2001, which prohibits a person from sending unsolicited credit cards and debits cards to consumers.
The aim of this guidance is to provide card providers with a clear statement of ASIC's view of the types of card distributions that are allowed under section 12DL (which mirrors section 63A of the Trade Practices Act 1974). The guide sets out ASIC's view that the exceptions to the general prohibition under section 12DL only allow the sending out of a credit card or debit card that is effectively the same as, or equivalent to, the existing card and would not place the consumer in a different position with respect to use of the card. ASIC gives the example of where a card provider sends new cards with the same features to cardholders whose existing cards are close to expiry, or where the new card has new security features.
For further details (including to access a copy of RG 201), refer to ASIC's website.
ASIC has today released a report, Overview of decisions on relief applications, outlining decisions on recent applications from the corporate finance, financial services and managed investments provisions of the Corporations Act 2001.
The report, which covers applications considered by ASIC between 1 December 2008 and 31 March 2009, provides an overview of the circumstances in which ASIC exercised, or refused to exercise, its discretionary powers to grant relief and also outlines limited instances where ASIC decided to take a no-action position in relation to non-compliance with provisions of the Corporations Act.
For further details, refer to the ASIC website. (For details of previous update reports issued by ASIC, refer to our Breaking News for 24 April 2009, which also contains references to earlier relief application reports issued by ASIC.)
CAMAC has today released its report Aspects of market integrity (June 2009). The report responds to a request (from the Government) for advice on a number of practices that have the potential to damage the integrity of the market and investor confidence:
- directors' interests in the securities of listed companies and margin lending
- 'blackout' trading by company directors
- spreading of false and misleading information
- disclosure of information in the briefing of analysts.
The report makes a number of recommendations, the main ones being:
- dealing in a company's shares by its directors and executives should be subject to board clearance, and should not permitted during 'blackout' periods
- directors and executives should be required to disclose share trading within a short time (no longer than five days).
- annual reports should include the number or percentage of shares held by directors or executives that are subject to a pledge
- there should be civil penalties for market misconduct (for those offences for which only criminal prosecution is now available)
- market manipulation should be treated as a 'serious offence' for the purposes of telephonic interception legislation
- providing false or misleading information to bodies that conduct clearing and settlement operations should be an offence.
The report also proposes action by the ASX Corporate Governance Council to build on existing guidance and encourage more open practices in relation to briefings, including:
- making briefings more accessible (including through use of the Internet)
- keeping of records
- processes for checking information disclosed and rectifying any inadvertent disclosure by making the information generally available
- restricting briefings during times of market sensitivity.
For further details (including to access a copy of the report) refer to the CAMAC website.
ASIC has today released a consultation paper, CP 113 Competence and training for credit licensees (CP 113), which explains how ASIC proposes to interpret the competence and training requirements as they apply to credit licensees. (The release of CP 113 is part of the extensive consultation process that ASIC is undertaking to implement the proposed National Consumer Credit regime.)
Under the proposals in relation to assessing organisational competence, ASIC will look to the qualifications and experience of the licensee's key people and use this as a measure of the licensee's competence. As a general rule, ASIC expects key people to have:
- a relevant qualification (either an industry specific course or a more general qualification); and
- at least two years relevant experience.
ASIC proposes, however, also to accept key people without relevant qualifications but with five years relevant experience in the credit industry over the last seven years until December 2013.
In relation to training requirements, licensees will need to document their training regimes. However, because of the diversity of roles in the credit industry, ASIC proposes not to prescribe particular training for most credit representatives. The exception is for mortgage broking representatives, whom ASIC expects to have a Certificate IV in Financial Services (Finance/Mortgage Broking). However, existing mortgage brokers who do not have this qualification will be given until December 2013 to obtain it.)
The closing date for submissions on CP 113 is 20 August 2009. ASIC is proposing to release the final regulatory guide by early November 2009.
For further details (including to access a copy of CP 113), refer to ASIC's website.
ASIC has today released a consultation paper, CP 112 Dispute resolution requirements for consumer credit and margin lending (CP 112), seeking feedback on proposals designed to ensure that consumers have timely access to dispute resolution if they have a problem with consumer credit or margin lending. CP 112 explains how ASIC proposes to apply the dispute resolution requirements for credit providers, brokers and other credit licensees and their representatives, as well as for margin lenders and those who provide advice on margin loans, once the National Consumer Credit Protection Bill, and reforms around margin lending, come into effect. The dispute resolution requirements are similar to those that currently apply to holders of an AFSL and their representatives and the new requirements for credit and margin lending providers will have implications for ASIC's two regulatory guides on dispute resolution:
- Regulatory Guide 139 Approval and oversight of external dispute resolution schemes (RG 139); and
- Regulatory Guide 165 Licensing: Internal and external dispute resolution (RG 165).
ASIC is seeking feedback from all interested parties, including industry members, industry associations, consumer groups and consumers and ASIC-approved external dispute resolution schemes, and the closing date for submissions is 11 September 2009. ASIC proposes to release updated drafts of RG 139 and RG 165 by late September/early October, with a view to issuing updated regulatory guides in mid/late October.
For further details (including to access a copy of CP 112), refer to ASIC's website.
ASIC has today released the first package of policy proposals on the implementation of the proposed National Consumer Credit regime, comprising:
- Consultation Paper 110 General conduct obligations for credit licensees (attaching draft Regulatory Guide 104 Licensing: General conduct obligations for AFS and credit licensees); and
- Consultation Paper 111 Compensation and financial resources arrangements for credit licensees.
ASIC is planning to release the finalised policies in November 2009 (once the National Consumer Credit Protection Bill (Bill) has been passed).
ASIC has also announced that the release of today's consultation papers is the first step in an extensive consultation process (which will result in ASIC publishing a range of policy and guidance papers) that ASIC will undertake over the next six months as it prepares to implement the Bill, which was introduced into Federal Parliament in June.
For further information about today's consultation papers and to obtain updated information about ASIC's proposals and polices in relation to the National Consumer Credit regime, refer to the ASIC website. (For information on the Bill, refer to our Breaking News for 25 June 2009.)
ASIC has today released two policy proposals, Consultation Paper 108 Margin lending: training of financial advisers (CP 108) and Consultation Paper 109 Margin lending: Financial requirements (CP 109), which outline how ASIC proposes to apply:
- training requirements to financial product advisers who advise on margin lending facilities; and
- the financial resource requirements to AFS licensees who provide financial services in relation to margin lending facility products.
ASIC will also shortly be issuing a consultation paper about dispute resolution requirements for consumer credit, margin lending and trustee companies. These initiatives follow on from the introduction into Federal Parliament on 25 June 2009 of the Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009 (Bill).
In today's release, ASIC has also noted that:
- its other existing policies and regulatory documents on financial services and products will generally apply to margin lending facilities and to licensees that provide financial services in relation to a margin lending facility
- current AFS licensees will need to apply for a variation to their existing licence if they intend to provide a financial service in relation to a margin lending facility
- the Government's Financial Services Working Group (FSWG) is finalising a new margin lending disclosure regime, including a simplified margin lending PDS. The FSWG will be consulting on the new regime, as well as an example document, later this year.
The closing date for submissions on the consultation papers is 10 August 2009.
For further details (including to access copies of relevant consultation papers and also to access a good summary of the requirements), refer to the ASIC website. For further details on the Bill, refer to our Breaking News for 25 June 2009.
ASIC has today released Regulatory Guide 200 Advice to superannuation fund members (RG 200) (and accompanying conditional class order relief, CO 09/210), to enable superannuation fund trustees and financial advisers to give more information and advice to superannuation fund members about the member's existing interest in their superannuation fund.
- discusses the conditional class order relief in CO 09/210;
- provides guidance on the boundaries between factual information, general advice and personal advice when superannuation fund trustees and financial advisers (including outsourced providers) communicate with members about their existing interest in a superannuation fund; and
- describes how factual information and advice can be given to superannuation fund members using a variety of delivery methods and channels.
The class order relief applies to all superannuation funds (other than self-managed funds), but to rely on the relief, superannuation fund trustees will need an Australian financial services licence with a personal advice authorisation. Those trustees who do not meet the requirements of the relief must comply with section 945A when providing personal advice.
For further details (including to access the class order and RG 200), refer to ASIC's website.
ASIC has today released consultation paper, CP 107 Securities lending and substantial holding disclosure, which is looking at ways to improve disclosure of substantial holdings in practice and clarify that securities lending transactions and prime broking arrangements need to be taken into account in calculating a substantial holding. ASIC says that improved disclosure in this area is part of its efforts to rebuild and maintain confidence in the integrity of Australia's markets and, therefore, is seeking stakeholder feedback on these proposals.
The closing date for submissions on the proposals contained in CP 107 is 7 August 2009.
For further details (including to access a copy of CP 107), refer to the ASIC website.
The Government has today introduced into the House of Representatives the Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009. The Bill addresses three key areas of financial services regulation:
- Margin lending
- Trustee companies
- Debentures and promissory notes
(This follows on from the release of an exposure draft of the Bill in May.)
The Government has today introduced into the House of Representatives the National Consumer Credit Protection Reform Package of Bills, comprising:
- the National Consumer Credit Protection Bill 2009, which replicates the current Uniform Consumer Credit Code (UCCC) as the National Credit Code;
- the National Consumer Credit Protection (Transitional and Consequential Provisions) Bill 2009; and
- the National Consumer Credit Protection (Fees) Bill 2009.
(This follows on from the release of exposure drafts of these Bills in April this year.)
These Bills mark phase one of the new national consumer credit regime, which covers:
- a national licensing regime regulating credit providers and providers of credit related services enforced by ASIC as the sole regulator;
- new responsible lending requirements;
- reduction in red-tape for Australian businesses in the credit industry;
- low cost, easy access dispute resolution mechanisms for consumers;
- new consumer redress options;
- protections for investment property loans;
- enhancements to the State-based UCCC; and
- an increase to the threshold for hardship claims.
To ensure the smooth operation of the legislation, the Reform Package will be supplemented by regulations on a range of matters to give guidance to industry and allow greater flexibility so that the laws may be applied in a sensible and practical way. The Government intends to build on the reforms to enhance the regulatory framework established by this package and work on Phase 2 will include the areas of credit card limit extensions, fringe lending issues and reverse mortgages as well as extending the regulation of credit to include small business and other investment loans.
For further details, refer to the Bills and accompanying explanatory materials on the COMLAW website. The Federal Government has also established a Consumer Credit website. (For further background on the National Consumer Credit regime, refer to our Breaking News for 27 April 2009.)
The package of consumer credit reforms will be available at www.treasury.gov.au/consumercredit.
The Government has today introduced into the House of Representatives the Trade Practices Amendment (Australian Consumer Law) Bill 2009. The Bill establishes the key elements of a single, national consumer law framework. It will amend the Trade Practices Act 1974 to establish and apply the ACL and introduce new penalties, enforcement powers and consumer redress options. The Bill also amends the consumer protection provisions of the ASIC Act to introduce corresponding provisions that will apply in respect of financial services, in relation to unfair contract terms, penalties, enforcement powers and consumer redress options. For further details, refer to the Bill and accompanying explanatory materials on the COMLAW website. The Federal Government has also established an ACL website.
ASIC has today released new measures to enhance market disclosure and efficiency in capital raisings and unlisted disclosing entities. The new equity raising policies:
- streamline the fundraising process by enabling faster and more effective disclosure
- aim to make it easier to include retail investor participation in fundraisings by expanding situations where a full prospectus or PDS is not required
- allow listed companies and managed investment schemes engaging in equity raisings increased scope to update the market through continuous disclosure obligations and a 'cleansing notice' instead of the currently required prospectus or PDS.
ASIC has also announced today measures to clarify how unlisted entities should provide continuous disclosure to investors. (This includes unlisted companies and managed investment schemes with more than 100 members and unlisted debenture issuers.) In particular, this guidance contains 'good practice' guidelines for website publication, including ensuring information is easy to locate on the site and posted as soon as practicable.
The policy and relief documents released today by ASIC include the following.
Share purchase plans
- Regulatory Guide 125, Share purchase plans
- Class Order [CO 09/425] Share and interest purchase plans
- Class Order [CO 09/465] Variation of Class Orders [CO 04/671] and [CO 05/26]
Removing the 10% discount limit on placements for listed schemes
- Class Order [CO 09/462] Variation of Class Order [CO 05/26]
Increasing the maximum 5-day suspension period for cleansing notices
- Regulatory Guide 173, Disclosure for on-sale of securities and other financial products
- Regulatory Guide 189, Disclosure relief for rights issues
Takeovers relief for rights issues and dividend reinvestment plans
- Regulatory Guide 199, Broadening the rights issue and dividend reinvestment plan exceptions for takeovers -
- Class order [CO 09/459] Takeovers relief for accelerated rights issues
Unlisted disclosing entities
- Regulatory Guide 198, Unlisted Disclosing Entities: Continuous Disclosure Obligations
Foreign securities prospectus relief
- Regulatory Guide 72, Foreign securities prospectus relief
- Class Order [CO 09/68] Prospectus and PDS relief for foreign scrip takeovers
- Class Order [CO 09/69] Variation of Class Orders [CO 03/606] and [CO 04/671]
For further details (including to access copies of these documents and accompanying explanatory materials), refer to the ASIC website.
ASIC has today released an updated version of regulatory guide RG 30 Paperless issues and transfers under a global debenture (RG30). RG 30 sets out ASIC's guidance on granting relief from the obligation under section 1071H of the Corporations Act 2001 for an issuer to provide certificates or other title documents for a paperless issue or transfer under a global debenture.
ASIC has confirmed that the updated RG30 does not change ASIC's policy on the issue and transfer of global debentures. In summary, RG30:
- makes reference to new provisions of the Corporations Act 2001 since RG30 was last published;
- reflects the current approaches to the management of global debenture issues; and
- indicates that a global debenture is a debenture for the purposes of section 9 of the Corporations Act 2001, rather than the previous view that such issues involved a 'unit' of debenture. (ASIC says that this change does not have any significant implications for issuers of global debentures. It now considers that a global debenture is a debenture under section 9 as it is an undertaking by the body to repay as debt money deposited with or lent to the body.)
As a result of the update to RG 30, ASIC will withdraw Pro Forma 2 Paperless issues under a global debenture. Relief will now be provided in individual instruments reflecting the conditions outlined in RG30 (see Table 1 and Table 2).
ASIC says it will keep this policy under review, especially in light of changing market conditions, legal developments and other circumstances.
For further details (including to access a copy of the updated RG30), refer to ASIC's website.
The Corporations Amendment Regulations 2009 (No 5), which were made on 4 June 2009, were registered today (5 June) on the FRLI. These regulations introduce the following additional information requirements to be included in offer documents for unsolicited off-market offers (ie, offers made directly to individuals to purchase their financial products, generally shares) where payments are to be made by instalments:
- the amount of each instalment;
- when each instalment will be paid – eg, yearly on the anniversary of acceptance of the offer;
- how many instalments will be paid – eg, if the payments are to be made over a number of years, precisely how many instalments would be paid;
- how the instalments will be paid, eg, into a nominated bank account or by a cheque in the mail; and
- the total present value of the offer.
The new regulations commence on 6 June 2009. For further details, refer to the COMLAW website.
The Government has today released an industry issues paper, Improving Australia's Framework for Disclosure of Equity Derivative Products, on the issue of the regulation and disclosure of equity derivatives. In releasing this issues paper, the Government is responding to market concern at the lack of an appropriate disclosure framework covering equity derivatives, which has:
- reduced transparency of ownership changes and takeover moves;
- reduced the ability of companies to know who their effective owners are; and
- enabled hedge funds to outflank traditional institutional investors by using economic interests to influence companies.
The closing date for submissions on the issues paper is 31 July 2009.
For further details, refer to the media release issued by Senator Nick Sherry (Minister for Superannuation and Corporate Law) on the Treasury website: (which also provides a link to the discussion paper).
Senator Nick Sherry (Minister for Superannuation and Corporate Law) has today released a report (compiled by Treasury and ASIC) on ratings user reforms, following two roundtables held in March with banking and finance industry groups. The report contains the following four recommendations, all of which are accepted by the Government:
- ASIC to consider possible options for investor education addressing over-reliance on credit ratings;
- ASIC to continue to work with rating agencies on progressing their AFSL applications;
- banks and industry bodies to continue their efforts to encourage more informed investment decisions; and
- the Federal Government to continue to make known the benefits and quality of Australia's prudential regulation system.
The Minister has today also confirmed that ASIC has requested, and the Government has agreed to, a short extension of the licensing timeframe for ratings agencies to no later than 1 January 2010. The current AFSL exemption for ratings agencies will continue to apply until the new licensing commencement date.
For further details (including to access a copy of the report), refer to Senator Sherry's media release.
APRA has today released a consultation package on remuneration for ADI's and general and life insurance companies, comprising:
- a discussion paper
- draft extensions to the governance standards already applying in these industries
- a draft prudential practice guide (PPG).
APRA's proposals on remuneration are designed to implement the Financial Stability Forum's Principles of Sound Compensation Practices. The PPG will assist regulated institutions to comply with the proposed requirements in the governance prudential standards and, more generally, will assist Boards in their consideration of prudent practice in remuneration. The PPG covers a number of issues, including:
- the use of deferred compensation
- the links between incentives and risk
- the use of shares in incentive arrangements
- the need to link incentive compensation to both forward's looking and backward's looking risk measures
- the balance between cash and non-cash incentives.
APRA is seeking submissions on the draft standards and PPG by 24 July. Subject to consultation, it is expected that the final prudential standards and associated PPG will be released in September 2009 and be effective from 1 January 2010. For further details (including to access the documents), refer to APRA's website (at www.apra.gov.au)
ASIC has announced that it will lift the current ban on covered short selling of financial securities from today (which is earlier than the previously announced date of 31 May). ASIC confirmed that the basis for the earlier lifting of the ban is due to its further review of market conditions but has also said that it will reimpose the ban (using its enhanced and clarified powers under the Corporations (Amendment) Short Selling Act 2008) and without consultation if it considers market conditions warrant such action. ASIC will, in its monitoring of the market along with the ASX, pay particular attention to short selling activity by participants (including activity by hedge funds and similar institutions) which could potentially harm Australia's financial system.
ASIC has confirmed that the daily reporting by market participants to ASX of
gross short sales will continue as will the publication to the market of
aggregate short sales the day after trading. This disclosure regime will operate
until the commencement of the Government's permanent disclosure measures (which
are still to be released).
In the meantime, the position is that:
- covered short sales of financial securities will be permitted from opening of trade from 10am on 25 May 2009; and
- the daily reporting of gross short sales will continue as will the publication to the market of aggregate short sales the day after trading.
For further details on short selling (including to access today's announcement), refer to the ASIC website.
The RBA, APRA and ASIC have today jointly announced the release of the Survey of the OTC Derivatives Market in Australia report (May 2009). The report summarises key findings of a survey conducted by the authorities over recent months and identifies areas in which operational and risk-management practices could be enhanced.
More than 30 firms including key participants in the Australian OTC derivatives market responded to the survey, providing information in three areas:
- institutional details;
- risk management and infrastructure; and
- products and counterparties.
The report identifies a number of positive developments in recent years, including an increasing focus on risk-management issues, greater awareness of the importance of timely completion of industry-standard documentation, the more comprehensive use of collateral, and a gradual shift towards automation of post-trade processes. It also notes that there is scope for further improvements to operational and risk-management practices, particularly in the areas of market transparency, legal documentation, collateralisation, and the use of infrastructure.
APRA, ASIC and the RBA will jointly consult with industry over the next several weeks to discuss possibilities for further enhancement in these areas. (ASIC will also continue in its global leadership role on OTC issues by co-chairing an international stakeholder meeting in Madrid on 29 May as part of IOSCO.)
For further details (including to access a copy of the report), refer to ASIC's website. (Similar information is also available on the RBA and APRA websites.)
ASIC has today released an updated version of Regulatory Guide 175 Licensing: Financial product advisers – Conduct and disclosure (RG 175). The updated RG 175 is a consolidation of guidance previously provided by ASIC (including through ASIC's 'frequently asked questions') and incorporates changes in the law since the regulatory guide was last updated on 28 May 2007. (The attachment to ASIC's media release announcing the update of RG 175 summarises the information that has now been incorporated into that regulatory guide.)
As a result of releasing the updated RG 175, ASIC has confirmed that:
- ASIC Class Order 04/1556 Statements of Additional Advice will be revoked on 1 September 2009 (because it has been superseded by subsequent regulations)
- it has not changed its approach to administering Part 7.7 of the Corporations Act 2001 as part of this update
- it will keep this policy under review, especially in light of changing market conditions, legal developments and other circumstances.
For further details (including to access a copy of RG 175), refer to the ASIC website.
ASIC has today issued the following updated regulatory guides and related class order relief aimed at improving consumer access to dispute resolution schemes so that disputes can be resolved more quickly and efficiently, saving time and money for industry and consumers:
- revised Regulatory Guide 139 – Approval and oversight of external dispute resolution schemes (RG 139);
- revised Regulatory Guide 165 – Licensing: Internal and external dispute resolution (RG 165);
- ASIC Class Order CO 09/339, which provides for ASIC's internal dispute resolution requirements; and
- ASIC Class Order CO 09/340, which names of the external dispute resolution (EDR) schemes that ASIC has approved.
Today's initiatives follow on from the consultation paper, CP 102 Dispute resolution-review of RG 139 and RG 165 (CP 102) which ASIC released in September last year. ASIC has today also issued REP 156, which outlines the submissions received by ASIC in response to the consultation paper (and outlines reasons why ASIC may not have followed some suggestions).
In summary, the updated dispute resolution procedures, which are subject to phased implementation, are as follows.
- With effect from 1 January 2010, all schemes will be required to deal with claims worth up to $500,000, even though they will be allowed to limit the maximum amount of compensation payable per claim to less than that amount, in accordance with their existing rules. Currently, EDR scheme rules bar a complaint involving more than the applicable compensation limit.
- With effect from 1 January 2012, EDR schemes will only be allowed to cap the maximum amount of compensation payable per claim to a minimum of $280,000 (or $150,000 if the claim relates to an insurance broker) with the ability to opt for a higher figure in the rules of the scheme.
EDR schemes will also be able to award interest in addition to compensation awards.
Other significant changes to ASIC's dispute resolution guidance include:
- EDR schemes will have a discretion whether to cancel a member's membership and to continue to handle a complaint where a member ceases to carry on business.
- EDR schemes will be required to publish statistics about the number of complaints received and resolved against individual EDR scheme members.
- Financial service providers will be required to adopt a new definition of 'complaint' (based on the 2006 Australian Standard on dispute resolution (AS ISO 10002-2006)) in their internal dispute resolution processes.
For further details (including to access copies of the updated guides and class orders), refer to the ASIC website. (For details of the earlier consultation paper, refer to our Breaking News for 8 September 2008.)
Chris Bowen (Assistant Treasurer and Minister for Competition Policy and Consumer Affairs) has today released for public comment a consultation paper containing the Government's proposed national unfair contract terms provision. The consultation paper:
- contains the exposure draft of the unfair contract terms provision,
which will be implemented:
- in the (new) Australian Consumer Law (ACL); and
- as part of the Australian Securities and Investments Commissions Act 2001 in relation to financial services;
- provides background to the draft provision; and
- provides an explanation of the draft provision, and clarifies related issues.
The new provision will apply to all:
- new standard-form contracts entered into on or after the commencement date (ie, 1 January 2010)
- contracts that are renewed or varied on or after the commencement date, to the extent of the renewal or variation.
The unfair contract terms provisions will be included in a Bill which is scheduled to be introduced into the Federal Parliament in June 2009. This legislation will also include new enforcement powers for the ACCC.
The Government has already announced that following the passage of the Bill through the House of Representatives, the Government will be referring the Bill to a Senate Committee to allow further scrutiny and consultation.
Australia's consumer enforcement agencies will also issue common national guidance in relation to the enforcement of the unfair contract terms provisions. The national guidance will be available prior to the commencement of the unfair contract terms provisions.
The closing date for submissions on the consultation paper is 22 May 2009. For further details, refer to the media release issued by Minister Bowen (Consultation on National Unfair Contract Terms Provision (11 May 2009)) and also the consultation paper on the Treasury website.
Senator Nick Sherry, Minister for Superannuation and Corporate Law, has today released for public exposure the draft Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009, draft Corporations Amendment Regulations and associated explanatory commentaries. The draft Bill and Regulations, which follow on from the release of the Government's Financial Services and Credit Reform Green Paper in June 2008 and the recently released draft national consumer credit laws, addresses three areas of financial services regulation - margin loans, trustee companies and debentures.
The Government is seeking submissions on the exposure draft legislation and regulations by 29 May 2009. For further details (including to access copies of the materials released today and the Minister's accompanying media releases), refer to the Federal Treasury website. (For further information on the Green Paper and the draft national consumer credit laws, refer to our Breaking News for 27 April 2009.)
Senator Nick Sherry, Minister for Superannuation and Corporate Law, and ASIC today issued media releases regarding the publication of a consultation report by the International Organization of Securities Commissions' (IOSCO) Technical Committee Task Force (which was co-chaired by ASIC) on Unregulated Markets and Products.
The Consultation Report, which focuses the securitisation market and the credit default swap market, examines ways to introduce greater transparency and oversight in unregulated financial markets and products and improve investor confidence in, and the quality of, these markets.
Domestic and international consultation will follow and comments are being sought on issues identified, the scope and relevancy of the recommendations and the discussion of unregulated financial markets and products. The consultation period closes on 15 June 2009. For further details, refer to the ASIC website (which also contains a link to the Minister's media release, the IOSCO media release and the IOSCO consultation report.)
The Corporations Amendment Regulations 2009 (No 4) (Cth), which update the Corporations Regulations 2001 (Cth) to improve the operation of financial services and market regulatory policy, were made on 30 April 2009 and registered today on the FRLI. The new regulations clarify the requirement to segregate client moneys where client accounts are operated in accordance with the rules of a CS facility, confirm that the removal of money from a fidelity fund as part of any change to the compensation arrangements is something which the Minister may approve under the Corporations Act, and replace references to 'licensed financial market' with 'licensed market' (to reflect the terminology used in the Corporations Act).
For further details and to access the regulations and the explanatory material, refer to the COMLAW website.
ASIC has today issued a consultation paper, CP 106 Short selling to hedge risk from market making activities, which sets out proposals to grant relief from the short selling prohibition in section 1020B of the Corporations Act to permit market makers to naked short sell to hedge risk arising from their market making activities. The proposals include:
- permitting market makers to naked short sell to hedge risk where they have arranged a 'hold' over the product at the start of the day;
- requiring market makers who make naked short sales under the proposed relief to report such sales to ASX;
- requiring market makers to acquire or borrow sufficient products by the end of each day to ensure that they can deliver all products sold during the day at the time delivery is due.
The closing date for submissions on the consultation paper is 8 June 2009. For more information, refer to ASIC's website.
Senator Nick Sherry, Minister for Superannuation and Corporate Law, has today released the following package of measures to establish a new national consumer credit regime:
- Exposure draft National Consumer Credit Protection Bill 2009 (and related transitional and consequential provisions Bill)
- Exposure Draft National Consumer Credit (National Credit Code) Regulations 2009 (and related transitional, consequential provisions and infringement notices regulations)
- Explanatory materials.
The purpose of these laws is to introduce simple, standard, national regulation of consumer credit and they follow on from the release of the Government's Financial Services and Credit Reform Green Paper in June 2008 and agreement at the March and July 2008 COAG meetings to transfer the consumer credit regulation to the Commonwealth. Today's package gives effect to phase one of the two-phase Action Plan for consumer credit endorsed by COAG in October 2008.
The new regime, which will replace current State and Territory laws, will be overseen by ASIC and will apply to credit providers (ie, banks, credit unions, finance companies and other lenders) and all credit service providers (ie, credit advisers and mortgage and credit brokers). The new measures include:
- a new national licensing regime, built around the Australian Credit Licence (ACL) – credit providers and credit service providers will need to hold an ACL;
- a responsible lending obligation;
- a new easy to access and low cost dispute resolution mechanism;
- new consumer protection and redress mechanisms;
- extending protections to investment loans for the first time;
- improving generally the existing credit code; and
- an expansion of the access thresholds for mortgage hardship claims.
Industry participants affected by the new laws will transition to the new credit regime in two stages - starting with registration, followed by licensing, when extra requirements must be met. Some credit providers (eg, regulated banks and credit unions), and some credit service providers, will be offered streamlined licensing to further assist in keeping costs low as the new regime is rolled-out.
Anyone who engages in credit activities will need to register online with ASIC between 1 November 2009 and 31 December 2009. They will then have six months to apply for an ACL, between 1 January 2010 and 30 June 2010.
The Government is inviting feedback on the draft legislation and regulations. The closing date for submissions is 22 May 2009.
For further details on the national consumer credit package (including to access the Bills and explanatory materials), refer to the Government's consumer credit website.
ASIC has today released a report, Overview of decisions on relief applications, outlining decisions on recent applications from the corporate finance, financial services and managed investments provisions of the Corporations Act 2001. (Note that as a result of ASIC's short selling ban implemented on 19 September 2008, the report also includes an overview of ASIC's response to the issues arising from the ban.)
The report, which covers applications considered by ASIC between 1 August 2008 and 30 November 2008, provides an overview of the circumstances in which ASIC exercised, or refused to exercise, its discretionary powers to grant relief and also outlines limited instances where ASIC decided to take a no-action position in relation to non-compliance with provisions of the Corporations Act.
FFor further details, refer to the ASIC website. (For details of previous update reports issued by ASIC, refer to our Breaking News for 31 October 2008, which also contains references to earlier relief application reports issued by ASIC.)
Senator Nick Sherry, Minister for Superannuation and Corporate Law, has today announced that, in response to the Council of Australian Governments (COAG) request to progress increased harmonisation of the laws on company director liability, the Commonwealth will conduct an audit of laws that impact on that issue. The Commonwealth will conduct the audit in the second half of this year, with reference to the following principles developed by COAG.
- Where companies contravene statutory requirements, liability should be imposed in the first instance on the company itself.
- Personal criminal liability of a corporate officer for the misconduct of the corporation should generally be limited to situations where the officer encourages or assists the commission of the offence (accessorial liability.
- In exceptional circumstances, where there is a public policy need to go beyond the ordinary principles of accessorial liability, a form of deemed liability could be imposed on a corporate officer only using a designated officer approach (for minor offences) or a modified accessorial approach (for more serious offences).
For further details, refer to the media release on the Minister's website.
ASIC has today:
- released an investor and consumer guide on term deposits, Getting the most out of term deposits (which is available from its consumer website, FIDO)
- announced that it will be conducting a 'health check' of the term deposit market, which will involve a marketing and disclosure review to be completed by the end of May. ASIC will update the investor and consumer guide based on the findings of the review and issue additional guidance as necessary.
ASIC's guidance on term deposits is in response to the significant growth in this area, with ASIC research indicating they are one of the most used investments by investors and consumers.
For further details, refer to ASIC's media release.
ASIC and the ASX have today announced changes to the ASX market rules which will boost retail investor disclosure and protection in relation to 'partly paid securities' (including instalment receipts). The proposed amendments are aimed at ensuring that retail investors are adequately aware of potential liabilities when making investment decisions.
The specific operating rule changes (which will not apply to no liability companies) involve:
- including a new definition of Partly Paid Security in the market rules.
- requiring market participants and retail clients to enter into a Partly Paid Security Client Agreement prior to the retail client buying Partly Paid Securities for the first time.
Further, under the Corporations Act, Senator Nick Sherry (Minister for Superannuation and Corporate Law) has today confirmed that he will allow these changes to the market rules. The new rules are effective from 1 May 2009.
The Corporations Amendment Regulations 2009 (No 3) 2009, which were made on 27 March 2009, were registered today on the FRLI. These new regulations:
- require superannuation trustees (other than self managed superannuation trustees) to provide a statement of long-term returns in periodic member statements;
- insert a new regulation 7.9.20AA to provide specific requirements for the calculation, positioning and effectiveness of the disclosure of the long-term returns;
- remove the requirement for disclosure of the five-year average return in superannuation funds' annual reports; and
- insert a new regulation 7.9.75BA (Fund information made available on a website) to enable superannuation trustees to provide a superannuation fund annual report to members via electronic means.
The regulations commence on 1 July 2009.
For further details and to access a copy of the regulations and the supporting explanatory materials, refer to the COMLAW website.
Senator Nick Sherry, Minister for Superannuation and Corporate Law, has today issued a media release regarding the release of a consultation paper, Regulation of short selling, by the Technical Committee of the International Organisation of Securities Commissions (IOSCO), which identifies four proposed principles for the effective regulation of short selling:
- having appropriate controls to reduce risk via a strict settlement discipline
- enhancing the transparency of short selling activity
- having an effective compliance and enforcement system
- not stifling market activities necessary for efficient market functioning.
Senator Sherry has welcomed the release of the consultation paper (on which IOSCO is seeking feedback by 4 May 2009) and says that IOSCO's proposed regulation of short selling supports the approach adopted by ASIC and the Federal Government for the Australian financial market.
For further details, refer to the media release on the Minister's website.
Senator Nick Sherry, Minister for Superannuation and Corporate Law, has today issued a media release welcoming:
- the endorsement of Australia's regulatory response to credit rating agencies (CRAs) by key international securities body, the International Organisation of Securities Commissions (IOSCO), which was announced by the Government in November 2008; and
- IOSCO's decision to form a permanent standing committee on CRAs to replace the ad hoc Taskforce on CRAs.
For further information, refer to the media release on the Minister's website. (Also, for more information on the Government's earlier announcement on improving controls for CRAs, see our Breaking News for 13 November 2008.)
The Financial Sector Legislation Amendment (Enhancing Supervision and Enforcement) Bill 2009 was introduced today into the House of Representatives. The Bill introduces measures to regulate the non‑operating holding companies (NOHCs) of life insurance companies. It amends the Life Insurance Act 1995 and other Acts to establish a prudential regulation regime (to be overseen by APRA) for those NOHCs, modelled on the existing prudential regulation regime for ADIs and general insurers. These measures were initially announced by the Treasurer in June 2008; a further announcement was made by the Minister for Superannuation and Corporate on 2 March this year. The Bill also introduces measures to harmonise court injunction powers across prudential legislation (the Banking Act 1959, Insurance Act 1973, Life Insurance Act and the Superannuation Industry (Supervision) Act 1993) so that APRA can seek injunctions for conduct relating to the financial health of an entity.
For further details on (and to obtain a copy of) the Bill, refer to COMLAW.
Further to the Prime Minister's announcement on 24 January 2009, 'Building Australia's future - a $4 billion Australian Business Investment Partnership to support Australian jobs', the Government has today introduced the following Bills into the House of Representatives:
- Australian Business Investment Partnership Bill 2009; and
- Australian Business Investment Partnership (Consequential Amendment) Bill 2009
In summary, the Bills will provide for the incorporation of a company, called the Australian Business Investment Partnership Limited (ABIP), whose purposes are to:
- provide for refinancing for loans relating to commercial property assets in Australia in situations where finance relating to those assets is not available from commercial providers (other than ABIP), and the assets would otherwise be financially viable;
- provide for financing arrangements in other areas of commercial lending if circumstances necessitate and provided those arrangements are agreed unanimously by the members of ABIP (which are the Commonwealth of Australia and Australia's four major domestic banks; Australia and New Zealand Banking Group Ltd, Commonwealth Bank of Australia, National Australia Bank Ltd and Westpac Banking Corporation); and
- exempt 'Australian Business Investment Partnership Limited', once incorporated, from the requirement to hold an Australian financial services licence under the Corporations Act.
For further information, refer to COMLAW to access a copy of the Bills and Explanatory materials. (You can also access the Prime Minister's media release from the Prime Minister's website.)
ASIC has today confirmed that the existing ban on covered short selling, which was due to expire on 6 March 2009, has now been extended until 31 May 2009. The following regulatory requirements will continue to apply to short selling in Australia.
- Covered short selling of financial securities is banned.
- Covered short selling of non-financial securities is unaffected by today's announcement and, therefore, is still be permitted.
- Market participants are still required to report gross short sales daily, and ASIC will continue to publish to the market the aggregate short sales by security the day after trading.
- Market participants must comply strictly with the requirements in ASIC regulatory guide 196 Short Selling: Overview of s1020B.
ASIC has confirmed that it will continue to monitor the operation of the ban and will act appropriately if it finds conduct which seeks to circumvent it.
ASIC has today released a consultation paper, CP 104 Internet discussion sites, on the regulation of internet discussion sites (IDSs) that have commentary about financial products. This consultation paper sets out ASIC's position on the legal issues surrounding IDSs and how ASIC proposes to review its current policy (in Regulatory Guide 162 Internet discussion sites (RG 162)); and seeks the views of IDS operators and users.
In particular, the consultation paper proposes that all IDS operators should, at a minimum: maintain the IDS in a fair and efficient manner; have good record-keeping practices; and give appropriate warnings to users of their site.
Under the current law, the activities of IDS operators and users may constitute the provision of financial services, for which an AFSL is required. ASIC proposes to:
- update its policy in RG 162 to give specific guidance on which IDSs are likely to need an AFSL (and ASIC has said that it does not propose to grant IDS operators relief from the financial services licensing and disclosure regimes which means that operators will need to hold an AFSL unless a pre-existing exemption applies to them); and
- provide guidance on the conduct requirements applying to IDS operators, whether or not they hold an AFSL.
The closing date for submissions on CP 104 is 27 April 2009. For further information (including to access the consultation paper and ASIC's current policy in RG 162), refer to the ASIC website.
Federal Government Ministers, Senator Nick Sherry (Minister for Superannuation and Corporate Law) and Chris Bowen (Assistant Treasurer and Minister for Competition Policy and Consumer Affairs) have today announced that the Government will soon introduce legislation to regulate the non-operating holding companies (NOHCs) of life insurers and enhance the Federal Court of Australia's ability to issue injunctions on prudential matters. Under the proposed legislation, the Government will give APRA the power to register and supervise the NOHCs of life insurance companies and enforce their compliance with prudential requirements. The Government envisages that once the legislation is in place, APRA will be able to seek a consistent and comprehensive range of injunctions from the Federal Court of Australia on prudential matters, and this power will apply to ADIs, general insurance, life insurance and superannuation.
For further details, refer to the joint media statement issued by the Ministers on the Treasury website.
Senator Nick Sherry, Minister for Superannuation and Corporate Law, has today welcomed a Parliamentary Joint Committee on Corporations and Financial Services Inquiry into recent corporate collapses in Australia (including Storm Financial and Opes Prime).
The Committee, which is due to report by 23 November 2009, will focus on: the role played by financial advisers; the state of the general regulatory environment; the role played by remuneration models, such as commissions; the role of marketing and advertising in financial product distribution; the licensing arrangements for those who sold the financial products and services; and the consumer protection and insurance arrangements in place. The Committee has confirmed that it will not cover superannuation products and services.
For further information (including the Committee's specific terms of reference), refer to the Minister's media release on the Treasury website.
The Reserve Bank of Australia has today announced changes to its Financial Stability Standard for Securities Settlement Facilities, imposing a new disclosure regime for the equities securities lending market to improve transparency. Key features of the new disclosure regime include the following.
- The ASX will require all transactions related to securities loans to be 'tagged' when they are submitted for settlement - this will be implemented in early October 2009, after the required system changes have been made.
- Participants in the settlement facility will be required to report outstanding securities borrowed and loaned directly to the ASX.
The ASX will publish data on securities loan transactions and the stock of loans outstanding on a daily basis.
There will be a phased approach to implementation of the direct reporting requirement. A pilot will commence at the end of April 2009 (during which the RBA will work with the industry to encourage significant players in the securities lending market to participate in the reporting arrangements), with full implementation required by the end of December 2009.
ASIC has today issued a consultation paper, CP 105 Facilitating equity capital raising (CP 105), which considers measures to facilitate capital raising, building on existing exemptions in the law. ASIC says that its regulatory experience suggests some existing exceptions from these laws may not be not working in the most efficient way and it has developed proposals to refine how the law operates in those cases. In particular, ASIC is proposing to allow:
- listed managed investment schemes to make placements at a discount of more than 10 per cent to the current market price of their units;
- more rights issues and placements using a cleansing notice instead of a prospectus or PDS, even if a listed entity has been suspended for more than the current five day maximum period set out in the law;
- underwriters or large shareholders to participate in rights issues and dividend reinvestment plans even if they exceed the 20 per cent takeover threshold in doing so.
- ASIC says that a primary consideration whether to proceed with the proposed relief will be whether investor protections are maintained.
CP 105 also sets out ASIC's expectations regarding market practices in
effecting placements and other capital raisings, particularly when utilising the
'cleansing notice' exemption from preparing a prospectus or PDS. In particular,
it discusses ASIC's expectations that the issuer of securities during a
placement or other capital raising must take steps to ensure:
the market is fully informed at all relevant times;
- investors are fully informed before they agree to buy securities;
- retail investors are able to participate in equity capital raisings, to the extent possible and at a fair price; and
- there is minimal risk of any unacceptable transfer of control resulting from the equity capital raising.
ASIC has specifically noted that the proposals in CP 105 add to proposals outlined in CP 103, Review of share purchase plan threshold, which contemplate changes to the existing thresholds around share purchase plans relief, further expanding investment opportunities for retail shareholders.
The closing date for submissions on CP 105 is 30 March 2009.
For further information (including to access a copy of CP 105), refer to ASIC's website. Also, for further information regarding ASIC's review of the share purchase plan threshold and the release of CP 103, refer to our Breaking News for 18 December 2008.
The Corporations and Markets Advisory Committee (CAMAC) has today released an issues paper, Aspects of Market Integrity. This paper responds to a request from the Minister for Superannuation and Corporate Law (Senator Nick Sherry) for CAMAC to provide advice by 30 June 2009 on the effect of various market practices on the integrity of the Australian financial market, in particular:
- directors entering into margin loans over shares in their company;
- trading by company directors in 'blackout' periods;
- spreading false or misleading information;
- corporate briefing of analysts.
The paper provides background material on each of these matters, analyses the current legal position in Australia, compares approaches in some overseas jurisdictions, and identifies issues for consideration. While CAMAC is not putting forward any proposals at this stage, the issues paper identifies a number of options for consideration if further action is considered necessary.
The closing date for submissions is 10 March 2009 and CAMAC will prepare its report for the Minister following consideration of submissions received.
For further details (including to access a copy of the issues paper), refer to the CAMAC website.
The Corporations Amendment Regulations 2009 (No 1) (Cth), which amend the Corporations Regulations 2001, were made on 5 February and registered today in the FRLI.
These amending regulations repeal regulations 7.9.79 and 7.9.80A of the Corporations Regulations 2001 (which provide exemptions from the general short selling prohibition in relation to some dealings in the bonds and options markets) in support of schedule 2 of the Corporations Amendment (Short Selling) Act 2008 (the Short Selling Act). Schedule 2 of the Short Selling Act, which received Royal Assent on 11 December 2008, contains amendments to prohibit (principally) naked short sales. ASIC Class Order 09/01051, which was issued on 5 January 2009, continues the operation of the exemptions that were previously contained in regulations 7.9.79 and 7.9.80A.
For further information, access the COMLAW website to obtain a copy of these amending regulations and relevant explanatory materials. (For further details on the relevant ASIC class order relief, refer to our Breaking News for 7 January 2009.
ASIC has today confirmed that the existing ban on covered short selling, which was due to expire on 27 January 2009, has now been extended until 6 March 2009. The following regulatory requirements will continue to apply to short selling in Australia.
- Covered short selling of financial securities is banned.
- Covered short selling of non-financial securities is unaffected by today's announcement and, therefore, is still be permitted.
- Market participants are still required to report gross short sales daily, and ASIC will continue to publish to the market the aggregate short sales by security the day after trading.
- Market participants must comply strictly with the requirements in ASIC regulatory guide 196 Short Selling: Overview of s1020B.
ASIC has noted that its current reporting and disclosure regime will continue, pending the commencement of the Government's permanent measures. Also, ASIC has said it will continue consultations with relevant stakeholders and other regulators in Australia and overseas and, if appropriate, will lift the ban earlier than 6 March (and will make any further decisions about extending the 6 March deadline closer to that date).
For further details, refer to ASIC's website.
Senator Nick Sherry (Minister for Superannuation and Corporate Law) has today announced that the Government's Financial Services Working Group will this week begin consultations with industry on a new, national margin lending regulatory regime, which will include new short form, plain English product disclosure documents.
The proposal is to have standard, national regulation and supervision of margin lending (under Chapter 7 of the Corporations Act) by 1 July 2009 which means that all margin lending providers will be required to:
- hold an Australian Financial Services Licence;
- comply with general conduct standards, including to deal with investors efficiently, honestly and fairly;
- undertake appropriate disclosure to an investor, including provision of a product disclosure statement, statement of advice and ongoing reporting;
- have adequate arrangements for the management of conflicts;
- ensure representatives are adequately trained and competent to provide those services; and
- be subject to enforcement measures regarding market manipulation, false or misleading statements, inducing investors to deal using misleading information, and engagement in dishonest, misleading or deceptive conduct.
All margin lending providers will also be subject to responsible lending conduct provisions as part of broader consumer credit reforms covering all credit providers.
For further details, refer to the media release on the Minister's website.
ASIC has today confirmed that some existing naked short selling exemptions under the current Corporations Regulations will continue after the Federal Government's legislative ban on naked short selling comes into effect from 8 January 2009. From that date, the Corporations Amendment (Short Selling) Act 2008 will remove all but one of the current exceptions contained in the Corporations Act. However, pursuant to its powers under section 1020B(2) of the Corporations Act to grant relief from the naked short selling prohibition, ASIC has today issued class order CO 09/01051 to ensure that the following exemptions currently in the Corporations Regulations continue to apply:
- The giving or writing of some exchange traded call options - without relief, a person cannot write or give a call option without holding the underlying security or entering into a securities lending agreement because of section 1020B(7).
- Unobtained financial products - this exemption allows the seller to obtain the relevant financial products by exercising an exchange traded option. (This exemption varies slightly from existing relief under the Corporations Regulations in that it also extends to unobtained financial products (not just shares).)
- Some corporate bonds, debentures and government bonds.
The relief under CO 09/01051 is contingent on, and will not take effect until, the relevant current regulations are omitted (which is expected to occur in the first part of 2009).
ASIC has today also issued class order CO 09/01052, which makes consequential amendments to ASIC class order CO 08/751. As the new short selling legislation will remove naked short selling provisions currently in the Corporations Act, references to these provisions in CO 08/751 will become obsolete. Accordingly, CO 08/751 will be varied to remove those anomalies and the variation will apply from 8 January 2009 (when the amendments to the Corporations Act banning naked short selling take effect).
For further details (including to access copies of the class orders), refer to ASIC's website.
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