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This
webpage
provides
a
very
brief
snapshot
of
some
recent
legal
and
regulatory
developments
impacting
the
financial
services
industry.
This
is
provided
as
general
information
only,
and
can
not
be
relied
upon
as
legal
advice
(or
used
as
a
substitute
for
legal
advice).
Emergence
Consulting
accept
no
responsibility
for
the
accuracy
or
currency
of
the
information
included
herein.
Financial
Services
Regulation
Refinements
…
Regulations
to
implement
the
refinements
to
financial
services
proposed
last
year,
were
implemented
recently
(December
2005).
Further
amendments
are
still
under
consideration,
so
watch
this
space!
Many
of
the
changes
aim
to
clarify
certain
requirements
or
provide
an
option
to
reduce
the
compliance
burden
for
industry
participants.
ASIC
have
indicated
that
in
the
initial
stages,
at
least,
they
will
adopt
a
‘reasonable
and
pragmatic
approach’
to
compliance
expectations,
enabling
the
industry
to
adjust
to
the
changes.
Financial
Services
Guides
…
The
changes
implemented
recently
enable
the
following:
Licensees
(or
authorised
representatives)
with
multi-channel
operations
can
issue
separate
Financial
Services
guides
for
particular
financial
services
or
product
offerings,
if
they
so
choose.
Further,
shorter
form
Financial
Services
Guides
can
now
be
issued
to
clients
in
certain
situations.
The
regulations
pertaining
to
inclusion
of
remuneration
and
conflicts
of
interest
information
in
Financial
Services
Guides
are
largely
unchanged,
despite
the
original
intention
to
remove
overlaps
with
the
Statement
of
Advice
information,
although
now
vary
slightly
depending
on
whether
personal
advice
is
to
be
provided
or
not.
However,
generally
speaking,
where
ascertainable,
remuneration,
commissions
and
other
benefits
should
be
included
in
the
Financial
Services
Guide.
Where
this
is
not
possible,
the
Financial
Services
Guide
must
contain
either
particulars
(ranges/rates
etc)
of
the
remuneration
calculation
method
OR
general
information
about
the
manner
and
calculation
methodology
of
remuneration
and
a
statement
that
the
amount
or
method
will
be
disclosed
upon
the
provision
of
personal
advice.
Statements
of
Advice…
There
have
been
further
changes
to
the
treatment
of
Statements
of
Advice
and
situations
where
additional
personal
advice
is
provided
to
clients.
The
concept
of
‘further
market-related
advice’
has
now
been
replaced
with
the
‘further
advice’
concept,
requiring…
Information
about
remuneration
and
conflicts
of
interest
disclosure
may
now
be
provided
verbally
or
in
writing
(or
a
combination).
Previously
it
was
required
in
writing.
However,
good
business
practice
would
probably
suggest
that
licensees
should
continue
including
this
important
information
in
writing,
to
clearly
demonstrate
that
it
has
been
properly
provided
to
clients.
Where
the
recommendation
entails
a
change
or
replacement
of
product,
advice
of
the
losses/consequences
relating
to
such
advice
can
be
detailed
in
the
Statement
of
Advice
or
under
separate
disclosure
(with
a
brief
summary
in
the
Statement
of
Advice).
Statements
of
Advice
will
no
longer
be
required
to
detail
alternative
products
or
services
considered
(and
the
related
obligations).
Product
Disclosure
Statements
…
The
key
change
in
this
area
is
the
allowance
of
‘short
form’
statements
to
be
issued
to
clients.
These
would
contain
a
summary
of
the
key
risk,
benefit,
costs
etc
information
currently
contained
in
the
longer
version.
However,
a
longer
version
must
still
be
produced
and
provided
to
clients
where
requested.
Again,
in
a
practical
sense,
for
those
licensees
who
have
managed
to
produce
lean,
concise
disclosure
documentation
(as
per
ASIC’s
regularly
stated
plea)
this
option
should
not
be
of
great
relevance.
Please
note
that
the
short-form
option
PDS
will
still
require
full
information
about
fees
and
costs,
for
managed
funds
and
superannuation
products.
Basic
Deposit
Products
…
Recent
changes
clarify
that
Product
Disclosure
Statements
are
not
mandatory
in
relation
to
the
provision
of
basic
deposit
products,
although
certain
information
relating
to
costs
must
still
be
provided
to
clients
(and
full
information
provided
to
clients
where
so
requested).
Please
note
that
certain
disclosures
may
be
made
verbally,
rather
than
in
writing.
The
exemption
for
issuing
Product
Disclosure
Statements
has
not
been
extended
to
cash
management
trust
products,
although
Financial
Services
Guides
and
Statements
of
Advice
will
not
be
required
for
this
product
going
forward.
General
Insurance
Products
…
Key
changes
introduced
in
this
product
area
include:
-
the
18month
transition
period
which
applies
to
the
new
general
insurance
PDS
content
requirements
commences
from
20
December
2005;
-
issuers
have
the
option
of
issuing
a
supplementary
PDS
or
replacement
PDS
on
renewal
of
a
general
insurance
product
contract;
-
Statements
of
Advice
will
not
be
required
for
the
provision
of
certain
insurance
products,
such
as
motor
vehicle
insurance,
home
building
and
home
contents
insurance,
travel
insurance
etc.
However,
details
of
remuneration,
commissions
and
conflicts
of
interest
must
still
be
disclosed
to
clients.
Retail/Wholesale
Distinction
…
Key
changes
resulting
from
implementation
of
the
recommendations
made
last
year
include
measures
to
enable
related
bodies
corporate
to
avail
the
wholesale
client
categorisation,
by
determining
status
of
the
corporate
group
as
a
whole.
Accounting
Certificates
will
only
need
to
be
provided
every
2
years,
rather
than
6
months,
going
forward
(provided
circumstances
do
not
change
in
the
meantime).
APRA
–
reporting
requirements
for
superannuation
entities….
As
from
1
July
2004,
all
trustees
of
superannuation
entities
including
public
offer
superannuation
funds,
approved
deposit
funds,
eligible
rollover
funds
and
pooled
superannuation
trusts
are
required
to
hold
a
Registerable
Superannuation
Entity
(RSE)
Licence.
A
transition
period
is
operating
until
30
June
2006
to
enable
current
approved
trustees
to
apply
for
the
new
licence,
whilst
new
superannuation
trustees
require
the
licence
from
1
July
2004.
The
requirements
apply
to
all
superannuation
trustees,
with
the
only
exclusions
from
licensing
available
to
self-managed
superannuation
funds
regulated
by
the
ATO,
and
public
sector
superannuation
schemes.
The
changes
require
superannuation
trustees
to
meet
ongoing
minimum
standards
of
fitness
and
propriety,
maintain
risk
management
strategies
and
complete
risk
management
plans
for
each
fund
under
their
control.
Enforcement
powers
and
penalty
provisions
have
also
been
strengthened,
including
provisions
with
a
fault
and
a
strict
liability
component.
APRA
have
released
a
number
of
guidelines
on
the
proposed
operating
standards
and
regulations,
covering
the
following
areas:
·
Fit
and
proper
operating
standard
·
Outsourcing
operating
standard
·
Adequate
resources
operating
standard
·
Risk
management
requirements;
and
·
Capital
requirements
-
Net
Tangible
Assets.
Superannuation
entities
are
advised
to
close
their
funds,
appoint
a
licensed
trustee
or
prepare
and
lodge
their
RSE
and
Fund
Registration
applications
as
a
matter
or
urgency
at
this
stage,
if
they
wish
to
ensure
compliance
prior
to
expiration
of
the
transition
period.
Relief
for
Superannuation
investment
strategy
product
disclosure…
ASIC
have
extended
the
interim
relief
for
superannuation
trustees,
delaying
the
commencement
of
the
product
disclosure
requirements
from
30
June
2005
until
30
June
2006,
pursuant
to
Class
Order
05/346.
Under
the
Corporations
Act,
superannuation
trustees
will
need
to
provide
a
Product
Disclosure
Statement
to
members
and
prospective
members
about
some
types
of
underlying
investments,
and
particular
financial
products
which
may
be
acquired
through
the
investment
strategy
of
the
fund.
Licensing
of
Property
investment
advisers…
The
Joint
Committee
of
Corporations
and
Financial
Services
issued
a
report
in
2005
proposing
the
regulation
and
licensing
of
those
who
provide
property
investment
advice.
The
report
recognises
that
there
a
range
of
operators
providing
advice
and
promoting
property
investment
which
are
unregulated,
some
of
which
engage
in
unscrupulous
practices
and
behaviours,
to
the
detriment
of
consumers
and
honest
service
providers.
At
this
stage
there
is
no
dedicated
specialist
industry
association
imposing
codes
of
conduct
or
providing
training
for
such
property
investment
advisers.
The
paper
discusses
whether
responsibility
for
supervision
of
the
industry
should
fall
with
the
ACCC
or
ASIC,
with
the
latter
being
the
likely
regulator.
Neither
self-regulation
nor
state-based
regulation
were
considered
to
be
an
appropriate
solution.
Key
recommendations
include
the
following:
·
That
property
investment
advice
be
regulated
in
line
with
other
financial
product
advice
under
the
Corporations
Act;
·
That
property
investment
advisers
be
required
to
hold
an
Australian
Financial
Services
Licence;
·
That
ASIC
hold
prime
responsibility
for
enforcement;
·
That
ACCC
hold
certain
powers
to
exercise
against
spruikers
who
contravene
the
Trade
Practices
Act;
·
That
ASIC
conduct
targeted
advertising
and
education
programs
to
alert
consumers
to
the
risks;
Anti-Money
Laundering
and
Counter-Terrorism
Financing
Bill
2005…
A
draft
bill
addressing
Australia’s
response
to
global
initiatives
and
requirements
to
prevent
money
laundering
and
terrorism
financing
activities
was
released
in
December
2005
for
comment
(until
April
2006).
The
requirements
focus
on
a
range
of
services
(designated
services)
and
the
customer
identification,
reporting
and
compliance
obligations
of
designated
service
providers
(reporting
entities).
This
will
impact
a
wide
range
of
financial
services
providers
and
the
gambling
sector.
There
are
64
designated
services
including
the
following:
·
Opening
accounts
and
conducting
transactions
with
banks
and
ADIs;
·
Provision
of
loans
(including
guarantee),
finance
leases
and
hire
purchase;
·
Issuing/cashing
travellers
cheques,
credit/debit
cards,
stored
value
cards
and
money/postal
orders;
·
Involvement
in
funds
transfers;
·
Issue/sale/advice
regarding
securities,
scheme
interests,
foreign
exchange
or
derivatives;
·
Issue/advice
re
life
policies,
pensions,
annuities
or
superannuation;
·
Provision
of
custodial/deposit
service;
·
Exchange/collection/delivery
of
currency;
·
Purchase/sale
of
bullion;
and
·
Provision
of
a
gambling
service.
The
designated
service
provider
will
be
a
reporting
entity
if
the
designated
service
is
provided
at/through
a
permanent
establishment
in
Australia
or
by
an
Australian
resident
(or
subsidiary)
at/through
an
overseas
branch.
Some
key
proposed
obligations
are
summarised
below:
1.
Know
your
customer
requirements:
·
must
know
your
customer;
·
assign
each
customer
a
risk
classification
(to
be
updated
periodically);
and
·
monitor
the
transactions
of
each
customer.
·
Risk
factor
based
on
assessment
of
customer,
transactions,
jurisdiction,
volume/size
etc.
2.
Identification
requirements:
·
compliance
with
prescribed
identification
procedure
·
exemptions
for
certain
existing
customers
(continuous
relationship)
(unless
risk
triggers
occur);
·
low-risk
services
·
special
circumstances
enabling
identification
process
to
be
carried
out
within
5
business
days
of
providing
the
service
eg
non
face-to-face
services,
securities/derivatives
transactions,
life
policies.
·
Delegation
of
identification
procedure
to
third
parties
(agents
or
other
reporting
entities)
·
Must
demonstrate
reasonable
precautions
were
taken
and
due
diligence
exercised.
3.
Customer
information:
·
Individuals
–
name,
home
address,
date
&
place
of
birth,
residencies
and
citizenship.
Verification
through
100
point
check,
referees
or
electronic
verification.
·
Companies
–
name,
address
of
principal
place
of
business,
ABN,
country/date
of
incorporation,
directors/company
secretary
names,
substantial
shareholders/controlling
shareholders,
and
evidence
of
authorisation
to
deal
with
reporting
entity.
·
Additional
information
for
enhanced
due
diligence
might
include
occupation,
business
activities,
purpose
of
transaction,
expected
nature/level
of
transactional
behaviour,
income/assets
available,
source
of
funds,
financial
position,
ownership
&
control
structure,
beneficial
ownership
of
funds
and
transactions,
destination
of
funds
and
related
parties.
4.
Transaction
monitoring:
·
Implement
a
transaction
monitoring
program
·
Identify
unusual
transactions
by
reference
to
expected
behaviour
·
Identify
suspicious
matters
5.
Transaction
reporting:
·
Suspicious
matters/transactions
·
Obligation
may
arise
with
potential
client
enquiries
·
Report
to
AUSTRAC
within
3
business
days
or
within
24
hours
(terrorist
financing)
·
Rules
set
out
24
matters
to
be
considered
in
forming
suspicion
·
Cannot
alert
customer
to
suspicion
or
report
·
Good
faith
suspicious
reports
are
exempt
from
civil
suit
(unless
negligent)
·
Transfer
of
physical
or
e-currency
of
$10,000
or
more
(within
10
business
days)
·
International
funds
transfer
instructions
(within
10
business
days)
6.
Record
keeping:
·
Transaction
documentation
·
Information
re
provision
of
services
·
Customer
identification
records
and
verification
information
·
Correspondent
banking
reports
7.
AML/CTF
Program:
·
Implement,
maintain
and
comply
with
program
·
Take
action
to
identify
and
materially
mitigate
risk
of
involvement
or
facilitation
of
money
laundering
or
terrorist
financing
·
Information
re
provision
of
services
·
Risk-based
assessments
·
Identify
changes
in
risk
categorisation
·
Risk
awareness
program
for
staff/training
·
Third
party
due
diligence
·
Employee
screening
·
Compliance
program
·
Assess
all
new
services/methods/technologies
·
Board
and
senior
management
responsibility
·
Regular
independent
review
of
effectiveness
and
compliance
with
program
Much
of
the
detail
will
be
contained
in
the
yet
to
be
drafted
Regulations
and
AML/CTF
Rules
to
be
issued
by
AUSTRAC,
which
will
have
the
force
of
law.
AUSTRAC
will
also
consult
with
industry
to
produce
a
set
of
Guidelines
(which
will
not
have
the
force
of
law)
to
assist
reporting
entities
in
the
interpretation
of
their
obligations,
and
provide
a
‘best
practice’
approach
for
compliance.
Funds
Management
-
pricing
discretion…
ASIC
have
recently
issued
Class
Order
05/1236(which
amends
Class
Order
05/26)
enabling
responsible
entities
to
exercise
limited
discretions
when
calculating
unit
prices.
Responsible
entities
of
both
listed
and
unlisted
schemes
have
until
1
May
2006
to
implement
procedures
facilitating
their
compliance
with
the
conditions
of
the
Class
Order
relief.
Where
a
scheme
constitution
specifies
a
formula
or
method
for
determining
unit
prices,
rather
than
set
dollar
amounts,
the
Responsible
Entity
can
exercise
discretion
in
certain
areas,
providing
relief
from
the
strict
application
of
s601GA
of
the
Corporations
Act,
providing
certain
conditions
are
satisfied.
Anticipated
discretions
to
be
exercised
include:
-
Estimating
an
allowance
in
transaction
costs
-
Selection
of
valuation
method
-
Determining
entry
or
exit
fees
-
Determining
total
NAV
of
the
scheme
-
Allocating
assets,
liabilities,
revenue
&
expenses
between
classes
-
Rounding
off
the
issue
price
or
withdrawal
amount
-
Determining
time
for
issue
price
to
be
calculated
-
Determining
time
at
which
asset
values
and
liabilities
will
be
calculated.
The
conditions
of
the
relief
placed
on
Responsible
Entities
include:
-
To
act
reasonably
in
exercising
the
discretion
-
To
exercise
the
discretion
in
accordance
with
normal
commercial
practice
-
To
exercise
discretion
in
accordance
with
documented
policy
(and
advise
cclients
that
it
is
available
to
members
upon
request);
and
-
To
retain
relevant
documents
for
7years
All
Product
Disclosure
Statements
prepared
(and
issued)
after
1
May
2006
must
contain
a
statement
advising
clients/potential
clients
that
a
written
policy
regarding
this
discretion
exists
and
that
a
copy
can
be
provided
upon
request.
Shorter
Prospectuses…
ASIC
have
just
released
draft
guidelines
for
issuers
and
advisers
on
the
preparation
of
prospectuses.
Entitled
‘Better
Prospectus
Disclosure’
there
is
a
focus
on
producing
documents
which
are
shorter,
more
readable
and
concise.
Issuers
should
explain
the
practical
implications
of
the
offering,
rather
than
a
‘mass
of
legal
and
financial’
detail.
There
should
be
a
balanced
portrayal
of
risk
and
return,
and
risk
disclosures
should
be
specific
not
voluminous.
Key
recommendations
include:
·
Brevity
&
plain
english;
·
Omission
of
extraneous
information;
·
Highlight
critical
information;
·
Logical
presentation
&
navigation
of
information;
and
·
Incorporation
of
technical
detail
by
reference.
Comments
on
the
draft
guidelines
are
due
to
ASIC
by
7
April
2006.
Superannuation
advertising…
ASIC
have
just
released
a
warning
to
superannuation
funds
to
avoid
claims
about
fees
and
costs
and
omit
critical
information.
Information
must
be
comprehensive
and
explicitly
detail
any
exclusions.
A
report
has
been
released
detailing
ASIC’s
review
of
superannuation
advertising
since
2004,
summarising
trends
in
advertising.
ASIC
have
raised
concerns
about
certain
funds
which
advertise
single
fees
and
do
not
reference
other
costs,
hence
potentially
misleading
clients.
A
particular
focus
of
the
non-disclosure
of
costs
regards
transaction
costs
–
buy/sell
spreads
when
investments
are
bought
or
sold
by
a
fund.
Non-Cash
payment
facilities…
In
November,
ASIC
released
a
new
policy
statement
PS
185
on
the
regulation
of
non-cash
payment
(NCP)
facilities,
in
recognition
that
certain
such
facilities
do
not
necessitate
full
regulation.
The
policy
statement
details
ASIC’s
approach
and
class
order
relief
for
low
value
NCP
facilities,
gift
voucher/cards,
prepaid
mobile
phone
accounts,
loyalty
schemes
and
e-road
toll
devices.
A
further
policy
proposal
paper
was
issued
in
December
2005
which
canvasses
ASIC’s
approach
to
regulation
of
NCP
facilities
on
an
ongoing
basis,
relief
criteria
and
low-value
facilities.
APRA/ASIC
guide
to
unit
pricing…
In
November,
ASIC
and
APRA
released
a
joint
publication
guide
to
good
practice
in
unit
pricing,
applicable
to
life
insurance,
superannuation
and
managed
funds.
The
guide
focuses
on
a
wide
range
of
areas
including
board/senior
management
oversight,
strategic
control
over
unit
pricing
calculation
methodology,
resourcing
unit
pricing,
legal
compliance,
risk
management,
unit
pricing
policies
&
procedures,
maintenance
of
appropriate
systems
and
controls,
accountability,
current
technology,
timely
communication
to
clients,
and
monitoring/identification/reporting/resolution
of
unit
pricing
errors.
The
over-riding
principle
is
to
ensure
you
act
honestly,
diligently
and
impartially
and
in
the
best
interests
of
all
unitholders.
New
ASIC
licence
application
process…
In
November,
ASIC
introduced
a
revised
AFSL
application
process,
which
now
requires
only
a
few
core
proofs
(business
description,
Responsible
Officer
and
organisational
competency
information,
and
financial
statement)
to
be
lodged
with
the
initial
application.
The
remaining
proofs
are
then
to
be
provided
(as
requested
by
ASIC)
in
the
requisition
period
whilst
ASIC
are
assessing
the
application.
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