8. Dealing with regulators

8.1 Implement ‘up front’ payment option for ASIC annual fees

The existing Corporations (Review Fees) Regulations 2003 require an annual payment to ASIC of $212 by a proprietary company, $1000 by a public company or a registered scheme and $40 by a special purpose company. The annual payment of fees may be seen as a ‘nuisance’ for companies.

An approach would be to allow a discounted lump sum payment to cover a company’s obligations to pay annual statement fees for an extended fixed period, for example 10 years. The calculation of the discounted lump sum payment could be based on a net present value formula: for example at an interest rate of 5 per cent over 10 years, once off payments would be required of $1,636 from a proprietary company, $7,720 from a public company or a registered scheme and $309 from a special purpose company.

Consultation Issue Comments are sought on whether companies should be able to elect to make a lump sum payment to cover their obligations to pay annual statement fees for an extended fixed period, for example 10 years.

 

8.2 ASIC/APRA information exchange

The APRA and ASIC licensing regimes require a significant number of financial institutions to apply to both regulators for licences. These licences are directed at quite different regulatory objectives.

The ASIC licensing regime focuses on the provision of quality financial products and services to consumers. The APRA licensing regime focuses on the ability of financial institutions to manage risk, meet their obligations and, ultimately, provide for the stability of Australia’s financial system. While the regulatory purposes underlying the separate licences serve very important public policy goals, there is scope for examining the practical realities of the compliance requirements and whether or not they can be refined.

Under the ‘two regulators’ structure, continuing effort needs to be made with reducing the amount of duplication and excessive compliance costs for industry in providing information during the licensing processes and later under ongoing reporting requirements. A significant amount of the information gathered by the regulators is either identical or very similar. It would simplify business operations if information provided to one Government agency were transferred to another in order to discharge a company’s reporting obligation in relation to such information.

Consultation Issue Comments are sought on the nature and extent of duplicated information currently required and on the most efficient way for businesses to provide information to ASIC and APRA collectively.

 

8.3 Enhancing communication with ASIC

Currently the Australian Securities and Investments Commission (ASIC) plays a multifaceted role in supporting activity in the financial sector. This includes compliance and enforcement, business facilitation, consumer and business education, and ensuring market efficiency. To assist ASIC in performing these roles it would be desirable for there to be in place enhanced mechanisms for liaison and receiving feedback from the community.

Consultation Issue Comments are sought on appropriate mechanisms to enhance communication between business, consumers and ASIC.

 

8.4 Breach reporting requirements

There are currently inconsistencies between the breach reporting requirements in the Corporations Act, Banking Act 1959, Insurance Act 1973, Life Insurance Act 1995 and Superannuation Industry (Supervision) Act 1993 (SIS Act), resulting in additional compliance costs, especially for conglomerates. Key differences relate to the thresholds as to when regulated entities need to report breaches to the regulators, the timeframe within which they need to be reported and the risk management procedures entities need to have in place.

For example, section 29JA of the SIS Act requires a registrable superannuation entity licensee to report breaches of licence conditions to APRA within 14 days of becoming aware of the breach. There is no materiality test applying to this requirement. In contrast, under the Corporations Act, holders of an Australian Financial Services Licence are required to report only a ‘significant’ breach, or likely breach, of the SIS Act to ASIC within five business days of becoming aware of the breach (or likely breach).

Consultation Issue Comments are sought on the most appropriate way to address inconsistencies between legislation referring to breach reporting requirements to ASIC and APRA.

 

8.5 Product Disclosure Statement in-use notices

A Product Disclosure Statement (PDS) contains key information on a financial product sold to investors. For most classes of PDSs, section 1015D of the Corporations Act requires an in-use notice to be lodged with ASIC by the issuer at the latest five business days after it is first given to a client.

According to ASIC it received approximately 12,000 such notices in 2004. The notices cannot be used systematically by ASIC for regulatory purposes. The logic of the current arrangements is therefore questionable.

The main flaw in the current system is that it does not provide any means for informing ASIC when a PDS is out of date and when a product is withdrawn from the market. Therefore, a revised approach is warranted that minimises the compliance burden on industry while still allowing ASIC to monitor financial products that are actively being promoted in the market.

Consultation Issue Comments are sought on an active product monitoring mechanism for ASIC to replace the in-use notice system.

 

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