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Focus: Financial Services – August 2006

A simpler regulatory system – corporate and financial services

In brief: Following the release on 7 April 2006 of its Corporate and Financial Services Regulation Review consultation paper, the Federal Government yesterday announced the next stage for implementation of the reform proposals. This will occur through a combination of regulation and legislative changes (to be implemented in the short term) and further consultation on the more substantive issues raised in the consultation paper. Senior Associate Justine Woodford reports on the latest developments.

Background

In April this year, we reported on the release by the Federal Government of the Corporate and Financial Services Regulation Review consultation paper (the consultation paper) (see AAR Focus: Corporate and financial services reform, April 2006). The consultation paper contained 56 issues relating to proposed reforms to company reporting obligations, corporate governance measures, a number of aspects of financial services regulation and dealings with regulators, on which the Federal Government sought feedback principally from consumer and industry organisations. The overall purpose of these proposed reforms is to build on the Government's commitment to facilitate a simpler corporate and financial services system of regulation in Australia that achieves continued consumer protection, reduced compliance costs for business, greater ability for companies to attract investment, and accountability of those charged with the responsibility for overseeing compliance.

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Implementation of the proposed reforms

As a result of the feedback received on the consultation paper, the Federal Government has now prioritised implementation of the issues with a view to ensuring that the reforms are progressed in an appropriate and timely manner. (Note: issues that did not receive support for further development have not been included in this next stage of the reform process – see below for a summary.)

In summary, the Government has identified three categories for progressing the reform proposals, as follows:

Category A
Type Draft regulations for consultation
Details These will deal with issues that the Government has identified as minor technical changes. They relate to financial services regulation refinements and include:
  • repetition of information in a statement of advice (SOA);
  • issuing of a financial services guide (FSG) or SOA when the product/advice is rejected;
  • provision of an FSG by a third party custodian/administrator;
  • combining a FSG and prospectus;
  • updating of FSGs for non-material information;
  • standardised FSGs for some representatives;
  • treatment of superannuation trustees and some employers (for wholesale test purposes);
  • categorisation of 'bundled' general insurance products;
  • rules for 'badging' of disclosure documents;
  • jurisdictional issues (including in relation to offshore branches);
  • dollar disclosure requirements for general insurance products;
  • incorporation by reference in disclosure documents;
  • exemption from FSR retail client obligations for secondary services providers;
  • reducing oral disclosure requirements for FSGs and SOAs for products with a cooling-off period; and
  • sickness and accident insurance.
Timing Regulations will be released soon for consultation. There is no indication of the length of the consultation period, although it is expected to be short given the nature of the changes.
Category B
Type Proposals to be included in a consultation paper
Details The majority of reforms are included in this category. They will ultimately be implemented through legislation, but details of the proposals (which the Government plans to develop in consultation with the Australian Securities & Investments Commission (ASIC )) will first be set out in a consultation paper. The issues in this category include:
  • some of the financial services regulation refinements (specifically: situations where a SOA will not be required; changes to the scope of 'general advice'; exemption from the requirement to provide a FSG in a 'public forum'; threshold requirements for SOAs; possible accreditation for retail investors as 'sophisticated investors'; cross-endorsement issues in relation to authorised representatives; streamlining of training requirements in ASIC's policy statement 146);
  • company reporting obligations (specifically: concise reporting requirements; executive remuneration disclosure requirements; thresholds for financial reporting of large proprietary companies; removal of duplication in notification of changes to officeholders and maintenance of the registered office address; share and member reporting requirements; removal of annual review fees for companies approved for voluntary deregistration; and parent entity financial statement details);
  • auditor independence (anomalies arising from CLERP 9 and how to deal with them);
  • corporate governance (related party transactions);
  • fundraising (specifically: removal of the obligation to prepare a prospectus for rights issues of quoted securities; review of the legislative fundraising provisions to facilitate small-scale securities offerings; review of secondary sale disclosure rules; employee share ownership plans for unlisted companies; and prospectus advertising and publicity);
  • takeovers (telephone monitoring during takeover bids); and
  • dealing with regulators (specifically: up-front lump sum payment option for ASIC annual fees; mechanisms to enhance communications between businesses, consumers and ASIC; addressing inconsistencies in breach reporting requirements; and monitoring of product disclosure statement in-use notices.
Timing The Government plans to release the consultation paper in September 2006. Once the details of these proposed reforms are settled, the Government will release the Simpler Regulatory System Bill.
Category C
Type Focused projects for further separate consultation
Details The Government has identified some issues that it considers require a more focused approach because of the scope and complexity of the policy issues they raise. These include:
  • financial services regulation refinements (ie the overlap of the requirements in the Corporations Act and ASX Market Rules, and the proposed public register of financial services providers (individuals) who have been penalised by ASIC);
  • company reporting obligations (CEO/CFO sign-off);
  • corporate governance (the removal of some directors' duties for single-director companies and the extension of the 'business judgment' rule);
  • collective investments (product rationalisation and regulation of investor-directed portfolio services); and
  • dealing with regulators (provision of information to ASIC and the Australian Prudential Regulation Authority)
Timing They will be progressed as separate focused projects in parallel with the work on the Simpler Regulatory System Bill.

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Further details

For more specific details of the proposals covered within each category (including, in relation to category C, how and by whom topics are being, or are proposed to be, progressed), refer to the list categorising how the consultation paper topics will be handled, which was issued as part of the Federal Government's latest announcement.

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What was left out

According to the Federal Government, some topics that were included in the consultation paper did not receive support (presumably as part of the consultation process) for further developments and, therefore, are not included in any of the above categories. These issues are:

  • in relation to financial services regulation refinements: the 'small business test' (which considered amending the current test to include asset and/or turnover criteria) and group licensing under FSR (to look at making it a more viable option); and
  • in relation to corporate governance, the possibility of making some of the more detailed provisions about the conduct of company meetings into replaceable rules (rather than specific requirements in the Corporations Act).

We will keep you informed of the main developments as they unfold. See Focus: Financial Services - December 2006

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