Skip to content.

Home

Allens

Focus: Corporate and financial services reform – April 2006

A simpler regulatory system – corporate and financial services

In brief: The Federal Government has again acted to reduce further the regulatory and compliance burden for financial services and associated industries in Australia, with a consultation paper released on 7 April 2006. Senior Associate Justine Woodford summarises the latest proposals which, like previous reforms in these areas, are aimed at implementing the Government's broad objective of achieving a simpler regulatory system for business and consumers and reducing unnecessary regulatory burden.

Background

Significant reforms affecting financial services industry regulation came into full effect on 20 December 2005 (see AAR Focus: Financial Services Reform, January 2006). Following on from those changes to the Corporations Regulations (FSR refinements regulations), the Federal Government has now released a consultation paper, Corporate and Financial Services Regulation Review (consultation paper), outlining 56 issues that the Government hopes will generate discussion on a number of the practical aspects of corporate and financial services regulation, and from which it then hopes to develop possible policy measures to address the issues.

In conjunction with the release of the consultation paper, the Government also released on 7 April its interim response to some of the issues raised in the report of the Taskforce on Reducing the Regulatory Burden on Business, the aims and proposed outcomes of which complement a number of the consultation paper proposals. The Government intends to release a final comprehensive response by the end of July 2006, which will presumably also take account of feedback provided in response to the consultation paper.

Return to top

The issues in brief

The consultation paper outlines issues focusing on the following broad areas. For the most part, the proposals are sensible and welcome. Some are potentially significant, such as the suggestions that changes be made to allow rationalisation of outdated managed fund and life insurance products, to facilitate group licensing and that the business judgment rule for directors be extended.

Further refinements to financial services regulation

This area forms a significant part of the proposals paper, with 27 proposals outlining options to reduce existing financial services regulatory requirements. As with the FSR refinements regulations, the further proposed refinements show how very complicated and technical financial services regulation has become. Briefly, the areas covered are:

  • disclosure documents (eg what information need not be included and when incorporation by reference is appropriate, when they should be given, who needs to provide them, updating requirements, badging issues, and combining of some disclosure documents);
  • tests for determining who is a retail/wholesale (sophisticated) investor and what is a small business, and related issues regarding application of those tests to some products (including insurance products) and service providers (particularly secondary services providers);
  • jurisdictional issues;
  • insurances matters (including specific dollar disclosure requirements for general insurance, refining the authorised representative cross-endorsement requirements and other issues that overlap with other topics within this area);
  • the scope of general and personal advice;
  • reducing oral disclosure requirements in relation to financial services guides and statements of advice for products with a cooling-off period;
  • a review of the group licensing provisions (to make them a more viable option);
  • possible rationalisation to reduce overlap in some areas between the Corporations Act 2001 (Cth) and the Australian Stock Exchange (ASX) Market Rules requirements;
  • a new public register of financial services providers (individuals) who have been penalised by the Australian Companies & Securities Commission (ASIC); and
  • the streamlining of the training and competency requirements under ASIC policy statement 146.
Company reporting obligations

The main issues relate to making reporting and notification obligations more concise, particularly in the following ways:

  • reducing the information required to be included in concise reports;
  • harmonising the existing Australian Accounting Standards and Corporations Act and Regulations disclosure requirements for directors and executives remuneration;
  • removing the current specific CEO/CFO declaration requirements from the ASX Corporate Governance Guidelines and instead include in those guidelines a cross-reference to the similar Corporations Act requirements;
  • removing the duplication of notification requirements in relation to a change of officeholders;
  • consolidating the notification process in relation to updating a company's service address and registered office details;
  • removing the requirement for public companies to notify ASIC of their top 20 members as part of the annual review process (as this information is also available from a company's members' register); and
  • allowing parent entities to lodge a summarised version of their financial information (where their operations are consolidated in the financial statements of a corporate group).

The other issues relate to:

  • increasing the revenue and asset thresholds for financial reporting by 'large proprietary companies' (so that fewer companies will need to prepare financial and directors' reports); and
  • removing the annual review fee for companies that have applied (and been approved by ASIC) for voluntary deregistration.
Auditor independence

Changes are proposed to address some anomalies and unintended consequences that have arisen under the auditor independence rules (an example given is that Qantas' audit firm could not fly with the airline).

Corporate governance

Briefly, the main issues relate to:

  • related party transactions;
  • removal of directors' duties provisions for single-director companies;
  • extension of the business judgement rule to provide more protection to directors; and
  • allowing greater flexibility when holding company meetings.
Fundraising

The main issue is disclosure documents and whether (or the extent to which) they are required for some types of fundraising. These include proposals to remove the need for prospectus rights issues of quoted securities and a review of the secondary sale disclosure rules. The Government is also considering whether the advertising and publicity requirements for the product disclosure statement and prospectus regimes should be more consistent.

Takeovers

The Government is questioning whether the telephone monitoring requirements during takeover bids are necessary, as they do not appear to have increased consumer protection sufficiently to justify the costs they impose.

Collective investments

There are  two issues. The first is the possibility of introducing 'a simplified mechanism' to allow issuers to rationalise outdated superannuation, managed fund and life insurance products. The second is amending the Corporations Act so that Investor Directed Portfolio Services products (eg wrap platforms) are regulated in their own right (rather than by ASIC class order).

Dealing with regulators

The main issues focus on the overlap and inconsistencies of the jurisdictions of the different regulators (for example, breach reporting). A review of the product disclosure statement in-use notice regime is also proposed.

(For further information, refer to our table, which contains a more detailed description of the issues covered under each broad category, as outlined in the consultation paper.)

Return to top

Consultation process and timetable

The Government is interested in receiving comments on the consultation paper from both consumers and business, particularly directed at whether the proposed changes are required and, if so, how the Government can best achieve them.

Written responses must be submitted to Treasury by 19 May 2006.

We will keep you informed of the main developments. In the meantime, if you have queries about the paper, please contact one of our experts.

Return to top

For further information, please contact:

Return to top

Share with

What are these?

 

 

Recent Funds Management publications