Treasury has released a Consultation Paper seeking comments on a proposed industry funding model for ASIC. Under the proposed model, the costs of ASIC’s regulatory activities will be recovered directly from the companies and other entities that are regulated by ASIC – at a direct cost to industry of approximately $260 million. This amount will be collected through a combination of annual supervisory levies (around $196 million) and significant fee increases for fee-for-services activities to reflect ASIC’s actual costs of providing specific on-demand services to individual entities. In this article, we look at the proposed model in more detail.

Are you interested in the financial system and how it is regulated? The Federal Government’s response to the Financial System Inquiry was recently handed down but it can be hard to work out where, exactly, things are heading. We have put together a table that sets out what is likely to happen and when.

The Government released yesterday an exposure draft of the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2015. The Government says the Bill ‘removes the current exemption in the Corporations Act from the ban on conflicted remuneration for benefits paid in relation to certain life risk insurance products’. That statement is not correct. Senior Regulatory Counsel Michael Mathieson explains

The short answer is: it depends on which kind of bank you are. The Financial System Inquiry’s final report and the Government’s response mean a lot for ANZ, CBA, NAB and Westpac, particularly given their significant residential mortgage portfolios. They also mean a lot for Macquarie. As for the rest of the banks, they are likely to see the ramifications for the major banks as their own gain.

The Government’s response to the FSI’s superannuation recommendations is, as with much of the rest of the responses, somewhat safe (and, as a result, arguably disappointing). As with the Inquiry’s recommendations, it shifts from the sublime to the ridiculous – on the one hand it deals with the really central question of what our superannuation system is for, to the other of extending choice of fund to the small number of employees who are currently excluded because they are covered by State awards and enterprise agreements. In between, it is going to ask the industry to sort out retirement incomes (with some legislative loosening) and the Productivity Commission to sort out costs and competition.

The FSI recommended that the Government ‘<em>Introduce an industry funding model for Australian Securities and Investment Commission (ASIC) and provide ASIC with stronger regulatory tools</em>’. This recommendation (No.29) covers two topics that ASIC has pursued on a number of occasions, including in its submissions to the FSI. The first is ASIC’s preference to move to an industry funding model; and the second is ASIC’s recommendation that penalties under ASIC-administered legislation be increased.

The Government yesterday released for consultation draft legislation containing ‘resilience and collateral protection’ measures. Think payment systems, netting and derivatives. But also think superannuation trustees and life companies investing in centrally-cleared OTC derivatives – and restrictions on charging assets. The Government also released a policy paper on how to make the client money provisions more protective. Partners Tom Highnam and Michelle Levy and Senior Regulatory Counsel Michael Mathieson look at some of main points of the new draft legislation.

The FSI report recommended that the Government facilitate rationalisation of legacy products in the life insurance and managed investment scheme industries. The need for ways to close legacy products has been kicking around for at least a decade and, in 2007, Treasury released a very thorough options paper covering product rationalisation in the managed funds sector. Treasury said that sector was represented by life insurance, managed investment schemes and superannuation.

You might be getting tired of all of the talk about ‘innovation’, and keen to see some of it actually happen. The Government’s recent announcements could help, but there is a long way to go before the ‘mining boom’ becomes the ‘ideas boom’.

How many times have you heard someone say ‘FoFA is settled’. Next time you hear that, you should reach for one of the many quotable quotes from The Castle and ‘tell ’em they’re dreamin’. First, there are the so-called ‘Retail life insurance industry reforms’. Then, get ready for remuneration reforms in the mortgage broking industry. After that will come remuneration reforms in the stockbroking industry. And APRA recently set up a taskforce to examine the remuneration of banking executives.

Following on from the reviews conducted by the Parliamentary Joint Committee and the Financial System Inquiry, the Government delivered on its promises by releasing an exposure draft of the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2015 (the Bill) late last year for consultation. As its title suggests, the draft Bill proposes a number of amendments to the Corporations Act to raise the professional standards of financial advisers that are to apply from 1 July 2017. Many of these reforms impose obligations that licensees in the retail financial advice and superannuation trustees should carefully consider and begin making provision for.

The Dodd Frank Act is a bit like the US financial system it is trying to regulate – vast, complex and hard to wade through. It creates a bunch of new regulators on top of what was already a pretty solid cast and gives them wide-ranging powers. They can not only set capital and liquidity requirements for banks and make rules about what they can and cannot do, but they can also shut down or sell off parts of their businesses. But are these regulators smart enough or well enough resourced to identify the risks?

The regulatory law repercussions of the GFC remain endlessly fascinating. As an example, take the Dodd-Frank Wall Street Reform and Consumer Protection Act 2010. It runs to 848 pages. Title VII addresses, perhaps optimistically, ‘Wall Street Transparency and Accountability’. My favourite provision is section 716, headed ‘Prohibition Against Federal Government Bailouts of Swaps Entities’. This heading suggests that, if there is ever another AIG, it can’t be bailed out. Too-big-to-fail solved by legislative prohibition. If only it was that easy.

The High Court of Australia has decided that a third party claimant can join an insolvent or potentially insolvent defendant’s insurer to proceedings to seek a declaration that the insurer is liable to indemnify the defendant. Partner Andrew Maher and Lawyer Shelley Drenth discuss the decision and its implications.

Going into the 2013 election, the present Government promised a review of the regulatory framework for retirement income streams. Today, the Government finally released its report. It has been a long time coming. And while the main outcome – a new category of tax effective pensions and annuities – will be welcomed by many, there are unanswered questions and implementation may take a while.

This year is the 250th anniversary of one of the most famous insurance cases. The judgment of Lord Mansfield in Carter v Boehm in 1766 is frequently cited as establishing the principle that parties to an insurance contract owe each other duties of utmost good faith.

ASIC has released a report looking at the way ‘vertically integrated’ funds management businesses deal with conflicts of interest. The report summarises the findings of ASIC’s recent review of a number of businesses, and sets out some good practice recommendations. Partner Marc Kemp and Senior Associate Simun Soljo look at the report.

In a recent decision, the Full Federal Court has clarified the scope of a ‘professional services’ exclusion in a Directors & Officers insurance policy. Partner Andrew Maher and Senior Associate Andrew Lazzaro report on a case that gives some guidance on the relationship between professional indemnity and D&O insurances.

In its response to the capability review into ASIC, the Federal Government has made a commitment to accelerate the implementation of a product intervention power for ASIC and the product design and distribution obligations for the financial services industry, but it left to one side some other important issues raised by the review. We consider what this might mean for both the regulator and the regulated.

Has talk of a royal commission turned the ASIC Capability Review into an unlikely catalyst for an enhanced enforcement agenda? With Labor pushing hard for a royal commission into the banking and financial services industry and an election looming, the Government moved swiftly to announce broad reform measures to equip ASIC with stronger powers and funding, as well as a new Commissioner with a financial crime prosecution background, to ensure that, in ASIC, Australia has a ‘tough cop on the beat’.