We predicted in the last edition of Regulator that Australia’s membership of the G20 could heighten the risk of our government supporting hardline financial sector reforms for reasons of global politics, not local realities. That scenario inched a step closer this month, with APRA putting its head above the regulatory parapet to propose an overhaul of prudential rules. Of course, the thing about parapets is that once you stick up your head, you risk getting fired upon.
Needless to say, the major banks didn’t waste any time shooting off a few rounds in the direction of APRA. Westpac CEO, Gail Kelly warned that such a move would create systemic risks, including a slowdown in lending. Noting the relative health of Australian banks through the GFC, Ms Kelly argued that our banks should be excluded from such changes. Over at ANZ, CEO Mike Smith invoked the “if it aint broke, don’t fix it” mantra.
It's not difficult to see why the banks are concerned. Australia is a capital importing nation in an extremely competitive global market and with a relatively concentrated marketplace for lenders; any move to tighten prudential rules will affect our lenders disproportionately and impact adversely on their ability to fund the real economy.
It’s a high price to pay for the failures of other regulatory systems. As former Westpac CEO, David Morgan, noted in an Australian Financial Review opinion piece last week: “The fact is 40 or so large global institutions screwed up but most others didn’t (including Australian banks). Now there is a real risk that all banks within the G20 will be saddled with wide-ranging new global standards.”
The prospect of global standards was also canvassed at APEC, during a session entitled “Regulating the Global Economy for Global Growth”, involving government and private sector officials from China, Hong Kong, the US, Pakistan and Korea. According to a summary note published after the session by the Singapore Institute of International Affairs, the participants agreed “that an international regime with broad and uniform regulatory principles is essential to not undermining governance efforts by ensuring that capital operates in a consistent environment globally”.
There is a “one-size-must-fit-all” sentiment to this dialogue that, in our view, does not auger well for Australia. Won't each of our major banks be “systemically significant” and therefore subject to the increased capital and liquidity requirements, and any possible leverage ratios, that will only apply to a smaller proportion of banks in other countries? Won't our companies be subject to the tough corporate governance reform measures enacted internationally, including in relation to executive pay, even though the pay scales of our executives are different?
All the more reason for local market stakeholders to stay closely engaged with the domestic regulatory reform process and continue to have a say in relation to it. While there is a need for global consistency in some respects, as we clearly cannot allow another GFC-style crisis to occur, the Australian market is different and global changes must be implemented with reference to that fact.
Given the import of the global landscape, this edition features analysis and updates covering a range of key territories. Ian Paterson shares his perspectives on the regulation of systemically important banks, Jim Boynton, Betsy-Ann Howe and Andrew Clements report on their recent discussions with regulatory contacts in Europe and the US, Nicola Wakefield Evans and Hayden Flynn provide a round-up of Asian regulatory developments and Malcolm Brennan in our Canberra office writes on recent changes to the Foreign Investment Review Board regime. Closer to home, Shannon Finch reflects on ASIC's review of regulations for capital raisings and Michelle Levy and Michael Mathieson analyse the regulatory framework for default superannuation arrangements. Finally, Tim Bednall contributes this month with an update on the passage through Parliament of the Termination Benefits Bill and finds it characterised by uncertainty in a number of respects.
A heads up that in the December edition we will review the recommendations of the Ripoll Inquiry into financial products and services in Australia. The Joint Committee on Corporations and Financial Services is due to report to Parliament on 23 November.
Readers of Regulator have been active since we launched this publication in sharing their thoughts on the issues we raise - thank you and please keep it coming. This is a fast moving space and our goal is to keep you ahead of the regulatory curve.
Managing Partner (Practice)
Mallesons is celebrating 20 years in Asia this year. We have come a long way since 1989 when we opened an office in Hong Kong with just four legal staff. Today, Mallesons has over 100 lawyers operating in offices in Hong Kong, Beijing and Shanghai. We are now a top 10 law firm in Hong Kong and one of the firms most frequently used by Chinese companies listing on the Hong Kong Stock Exchange.
Mallesons provides strategic legal advice to clients throughout Asia, including mainland China, India, Indonesia, Japan, Korea, Laos, Malaysia, Philippines, Singapore, Taiwan, Thailand and Vietnam.
Our growing reputation as a regional legal adviser has been reaffirmed in the latest edition of Asia Pacific Legal 500. It notes of our Asia team: "Mallesons has excellent industry knowledge and seniority of focus. The partners never disappear from the deal."
Mallesons Wealth Management Seminar
Partner Michelle Levy will lead a discussion on the Cooper Review (phase two), PJC Inquiry report (due 23 November 2009) and offshore investment vehicles.
Friday, 27 November 2009, Melbourne. For more information, click here.
Mallesons Funds Spring Seminar Series: How re-regulation will reshape the funds industry
Sydney M&A partners, Jim Boynton and Damien Richard, together with Canberra-based partner Stephen Jaggers, will focus on the impact of the latest developments in the local and offshore regulation markets.
Tuesday, 1 December 2009, Sydney. For more information, click here.
In Australia, the big four banks in aggregate account for about 75% of the market in personal loans and mortgages, 65% of the market in business loans and 72% in deposits. Each has at least 15% of the market in each of these categories. Each is systemically important to our financial system and the failure of any of them might threaten its stability. Read more
Last month we had more than 60 meetings with clients and law firms in Europe and the US. We also met with the Luxembourg regulator and presented to a meeting of The Association of the Luxembourg Fund Industry. This article contrasts the proposed regulatory reforms in those territories and their potential impact for Asian and Australian managers. It also looks at the types of funds that have been formed recently and why there is likely to be more interest in managing Australian's investments and investing into Australian assets. Read more
In a recent speech to the Corporate Finance World Australia 2009 conference, ASIC Commissioner Belinda Gibson signalled that regulation of capital raising remains firmly on ASIC’s reform agenda.Read more
Recent changes to the Australian foreign investment regime reflect a shift in the focus of the Government (and the Foreign Investment Review Board) from smaller, private, corporate acquisitions to larger or more sensitive acquisitions. Such sensitive acquisitions include those involving Australian resources or foreign government ownership or both.Read more
The regulatory framework for default superannuation arrangements is a matter of keen interest for those with a stake in Australia’s superannuation system. The most recent chapter in this story has been the nomination of default funds in the award modernisation process. Where an employee does not nominate a superannuation fund, their employer must make its superannuation guarantee contributions to a default fund nominated in the relevant award. Read more
There is currently a significant amount of financial regulatory reform occurring in most Asian countries. This is being driven by a number of issues: the global economic crisis, the need to reform the financial sectors of a number of countries to make them more competitive and to make financial and securities legislation more consistent with changes occurring in other markets. Read more
The Senate has finally passed the Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009, with no amendments. Accordingly, the measures introduced by the Bill will come into force imminently, in the form originally proposed by the Government. Read more