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ASIC Licence conditions
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ASIC is increasingly using licence conditions and enforceable undertakings to impose compliance systems on licensees. It has, for example, recently imposed licence conditions on 2 licensees requiring them to appoint an independent professional consultant to conduct reviews of their compliance systems, to provide copies of the reviews to ASIC and to take appropriate action in response to any adverse findings by the consultant. It has also entered into an enforceable undertaking to similar effect with another licensee. See media releases 02/427 and 02/396

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New Austrac acceptable referee form
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Austrac has released a new 'acceptable referee' form for use under section 21 of the Financial Transaction Reports Act.

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New APRA Prudential Standards
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The Australian Prudential Regulation Authority (APRA) has released updated prudential standards for Authorised Deposit-taking Institutions (ADIs). The revised standards, which represent minimum compulsory requirements for ADIs under the Banking Act 1959, are effective 1 July 2003.

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Unsuitable directors
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APRA has called on company boards in the banking, insurance and superannuation industries to retire directors who do not meet its stringent "fit and proper" standards. APRA General Manager for Enforcement, Dr Darryl Roberts, said that some directors were not meeting the high standard expected of those entrusted with safe-guarding the community's finances. Although APRA is confident that the vast majority of directors comply with APRA standards, almost every serious situation APRA has come across in the financial services sector can be traced back to management and, ultimately, a weak board", Mr Roberts said.

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Farm Management Deposits: tax problem?
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In Senate Estimates hearings on 20 November 2002, a potential tax problem regarding Farm Management Deposits (FMDs) was raised. The FMD scheme is managed by the ATO and operates such that, basically, primary production income deposited in FMDs is deductible in the year deposited and assessable in the year in which funds are withdrawn. That is, when an FMD deposit is made, it is not included in taxable income in the period in which it is earned. When an FMD withdrawal is made, the amount withdrawn is subject to tax in the period in which the withdrawal is made. Funds must be invested for a minimum of 12 months. The potential problem apparently revolves around whether certain FMD products offered by some financial institutions comply with the law.

The Department of Agriculture, Fisheries and Forestry says it appears that some financial institutions have been, "in terms of the pricing of farm management deposits, pricing for periods less than 12 months" ie FMDs are being offered for periods of less than 12 months. The Department says it is seeking a ruling on the issue from the ATO. The issue apparently goes back to July 2001 and the ATO is still working on the ruling.

Source: Senate Estimates Hansard, Rural and Regional Affairs and Transport Legislation Committee, 20 November 2002 [pp 57-58, proof copy]

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FSR Update
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Revised Policy Statements

ASIC have released revisions of four Policy Statements and two guidance papers relating to financial services reform
(FSR) requirements.

The revised Policy Statements (PS) are:

** PS 164 Licensing: Organisational capacities;

** PS 166 Licensing: Financial requirements;

** PS 167 Licensing: Discretionary powers and transition; and

** PS 169 Disclosure: Discretionary powers and transition.

The revised guidance papers are:

** Licensing and disclosure: Making the transition to the FSR regime

** Licensing: The scope of the licensing regime: Financial product advice and dealing.

The updated documents take account of the FSR regulations which came into effect before 1 November this year, other relevant and/or recently published ASIC documents (such as Version 2 of the AFS Licensing Kit), and relief that ASIC has given in light of the FSR legislation.

They incorporate ASIC's operational experience, as well as contributions by industry participants and consumer representatives.

A summary of the main revisions in each document is set out in ASIC's full release

ASIC has also released 'marked-up' copies of these revised publications to identify the amendments that have been made.

Hawking: not on Sundays

Corporations Regulation 7.8.22 has been amended to extend the prohibition on the hawking of financial products by telephone to all Sundays. The amendment was Gazetted on 6 November 2002 as Corporations Amendment Regulations 2002 (No 8) and has immediate effect. The previous regulation limited prohibition on hawking on Easter Sunday only. Therefore, the prescribed hours during which hawking of financial products by telephone can take place (subject to specified conditions) are from 8am to 9pm on a day in the State or Territory in which the person to whom the offer is made is located, excluding: (i) Christmas Day; (ii) Good Friday; and (iii) any Sunday.

ASIC has released an update of The Hawking Prohibitions: an ASIC Guide.

Travellers' cheques and confirmations of transactions

This Class Order disapplies the confirmation requirements in s1017F of the Act in relation to transactions involving travellers' cheques. This relief is provided on the basis that as a matter of standard practice, receipts are provided to customers when they purchase or dispose of travellers' cheques.

PS 146 TRAINING REGISTER DATABASE

ASIC has released the PS 146 Training Register as a searchable database. The register includes information about:

* courses

* specialist knowledge

* tiers, and

* where and how the course is delivered.

You can search the database by knowledge category, delivery location, training provider and tier. This
should make it easier for you to find information about appropriate courses that meet the requirements of PS 146.

Find out more about the PS 146 Training Register.
Search the register.

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FSR Update
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The Australian Securities and Investments Commission (ASIC) has released Version 2 of the eLicensing system, and the Australian Financial Services (AFS) Licensing Kit, as part of ASIC's ongoing implementation of the Financial Services Reform Act (FSRA).

More

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ASIC v Whitlam
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The former president of the NRMA, Nick Whitlam, has been banned from being a company director for five years.

The New South Wales Supreme Court imposed the ban and fined Whitlam $20,000 for breaching the corporations law at an NRMA meeting almost four years ago.

Previously the court found Whitlam deliberately sought to disenfranchise almost 4,000 NRMA members when he failed to sign a proxy election paper.

Justice Ian Gzell said Whitlam lacked contrition and found there was a likelihood of a repetition of the conduct.

Whitlam has subsequently resigned all his directorships.

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ACCC v Commonwealth Bank
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The Australian Competition and Consumer Commission has instituted Federal Court proceedings against the Commonwealth Bank of Australia alleging false, misleading or deceptive advertising in one of its home loan campaigns.

The ACCC has alleged that the clear impression conveyed by the advertisements was that customers applying for these home loans who met standard home loan requirements (such as creditworthiness) would not incur an establishment fee.

In fact, to obtain a home loan without paying an establishment fee prospective home loan customers had to either currently hold, or take out, an additional two or three bank products such as a credit card, deposit account, combined home and contents insurance policy or mortgage protection insurance.

See the ACCC press release

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FSR Update
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Credit Union Complaints Scheme

ASIC has approved the Credit Union Dispute Resolution Centre as a consumer complaints resolution scheme under Policy Statement 139. See media release 02/310

ASIC FAQ re basic deposit product

Does training for basic deposit products have to be Tier 2 level? ASIC has confirmed its training requirements for Tier 2 products as set out in PS146.

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FSR Update
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Network Law is providing workshops and advice to clients on applying for AFS licences and FSR compliance plans.

For more information contact your local Network member.

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New Code of Banking Practice
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The Australian Bankers' Association has released the new Code of Banking Practice. The Code is the banking industry's code of conduct on best banking practice standards.

It will replace the original Code of Banking Practice which was developed in 1993. The new Code will not become operational until August 2003 because banks need adequate time to change documentation, computer systems, update procedures and ensure staff are properly trained to ensure compliance with the Code.

This will be conducted simultaneously with banks' preparations for compliance with the Financial Services Reform Act which takes full effect on 1 March 2004.

Changes to the Code deal with credit assessment, guarantees and procedures for branch closures. The scope has been extended to cover any small business that employs less than 20 employees, as well as a goods manufacturing business that employs less than 100 employees as well as individuals.

Download the Code

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Credit Code Mandatory Comparison Rate Draft Regulations
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Draft regulations for the Consumer Credit (Queensland) Amendment Act 2002 dealing with mandatory comparison rates have been released for comment.

The Act requires a comparison rate to be included in any advertisement for a fixed term credit product that contains an annual percentage rate. The regulation sets out how that rate is calculated. The calculation will include retained ascertainable credit application and establishment fees but not fees such as redraw fees or fees for early repayment.

While the Act requires credit providers, finance brokers and linked suppliers to display and have available copies of a comparison rates schedule, the draft regulation gives agents such as schools and community centres an exemption if the agent does not possess authority to fully conduct the credit provider's business.

The closing date for comment is 27 September 2002. The target date for commencement of the Act and regulation is 1 July 2003.

Download the Draft Regulations and the Explanatory Notes.

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FSR WORKSHOP ADVANCE NOTICE
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We will be conducting an FSR National Workshop in Perth, Adelaide, Melbourne, Sydney and Brisbane between 17 and 23 September.

This half day workshop has been developed in response to the interest expressed by Credit Unions and other financial service providers for further compliance assistance following our successful FSR conference in February. It will focus on Disclosure, Licensing, Training and Conduct issues relevant to Basic Deposit Products, Deposit Products and Third Party Products.

Format
The workshop will run for 3 hours and during that time we will develop the requirements of a fictional Credit Union. This will be a Credit Union with the following products:

· Deposit products: at call products and term deposits (6 months, 12 months, 2 and 3 year terms);
· Non-cash payment products including direct debit, direct credit, cheque, debit card and Bpay facilities.
· Third party insurance products: Motor Vehicle Insurance; Home Building and Contents Insurance; and Consumer Credit Insurance; and
· Referrals to financial planning services.

We will also consider the particular issues affecting financial institutions which provide services through subsidiaries.

Outcomes
After completing the workshop participants will take with them a product matrix to categorise and identify their financial services, and a recommended timetable for obtaining their AFS licence. They will be able to assess their licensing, training and disclosure requirements and will be aware of ongoing compliance issues.

A brochure detailing venues and cost, and a registration form, will be distributed soon.

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ASIC Hawking Guide
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ASIC has released "The hawking prohibitions: an ASIC guide", a guidance paper on the hawking prohibitions in the Corporations Act 2001. Under the hawking prohibitions, a financial institution must not offer financial products for issue or sale in the course of, or because of, an unsolicited meeting or telephone call with a retail client. The hawking prohibitions aim to prevent pressure selling of financial products to retail clients (such as badgering and boiler-room practices).

Download the guide

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ADI Director Qualifications
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Amendments to the Banking Act currently before Parliament allow APRA to remove directors and senior managers of ADIs. APRA may disqualify a person if it is satisfied that the person is not a fit and proper person to be or act as a director or senior manager. A disqualified person would be prohibited from acting as a director or senior manager. APRA will also have the power to determine that a person is not a disqualified person.



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More NRMA Cases
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NRMA v Snodgrass, [2002] NSWSC 590

On 20 June 2002 Mr Snodgrass requisitioned a general meeting to remove 8 directors (from one faction). Separately Mr Dupree requisitioned a meeting to remove the other 6 directors (from the other faction). There is dissatisfaction over increases in fees and reduction in services, amongst other things.

NRMA made an application to have both meetings at the same time and that the time for holding the meetings be extended until the 2002 AGM in November 2002 as the cost of holding a separate meeting was $2.6 million, compared to $1.4 million for a meeting on the same day as the AGM.

Section 249D of the Corporations Act requires that the directors must call and arrange a general meeting requisitioned by at least 100 members within 21 days after the request is given and the meeting must be held not later than 2 months after the request is given.

Whilst Judge Windeyer found it extraordinary that a general meeting of a company with over 2 million members can be summoned by requisition of only 100 members, he could not take that into account. He noted that on the evidence it would take at least 2 months for the notice of meeting to be prepared and sent out and was therefore prepared to give some extensions of time.

He decided that it was not suitable for factional removal resolutions to be debated at or on the same date as an AGM in a non-election year. He also rejected a meeting being held on the day before the AGM as it was possible that all directors would be removed, throwing the AGM into disarray.

He ordered that the meeting be called by 10 September to be held by 17 October.

Read the decision

ASIC v Whitlam

On Friday 19 July Mr Justice Gzell of the Supreme Court of New South Wales announced his decision in ASIC's civil penalty action against then NRMA Limited President Mr Nicholas Whitlam.

The Court found that Mr Whitlam had breached his duties as an officer of NRMA Limited under the Corporations Law.

The breaches related to NRMA Limited's 1998 Annual General Meeting, when Mr Whitlam as Chairman failed to vote certain proxy votes against a resolution relating to the remuneration of the company's directors.

Mr Whitlam was found to have breached section 232(2) (duty to act honestly), s. 232(6) (improper use of position) and s. 250(A) (duty as a proxy holder) of the Corporations Law.

The Court also found that Mr Whitlam had failed to exercise due care and diligence (in breach of s. 180(1) of the Corporations Act) when he amended the proposed minutes of the August 2000 Board meeting of NRMA Insurance Group Limited. However, the Court exercised its discretion to relieve Mr Whitlam from any penalty for this breach.

ASIC has claimed banning orders and pecuniary penalties against Mr Whitlam. A penalty hearing will be held on 13 August.

Mr Whitlam subsequently resigned as President of NRMA but remains a director.

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Consumer Credit Code Update
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Download an article on the recent amendments to the Code

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Disclosure of transaction banking fees
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ASIC has released a guide promoting improved disclosure of transaction fees for retail payments and deposit products (transaction accounts) offered by banks, credit unions and building societies.

The guide provides an easy reference for institutions to current disclosure requirements contained in legislation and codes of practice as well as ASIC's views on what constitutes good transaction fee disclosure.

Download the guide

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