Regulator December 2010

Welcome to our final edition of Regulator for 2010.

While 2010 has been the year of dialogue, debate and decision in respect of a number of policies affecting all aspects of the global economy, 2011 needs to be the year of implementation. That is why the theme of this edition of Regulator is "Over the Horizon", as we try to predict some of the key issues and developments that will emerge in 2011 and beyond.

We were off to a flying start on Sunday with the Government's announcements in relation to the banking industry, and in particular, its wholesale funding proposals. Our view is that most of the reforms are steps in the right direction, but that a lot of work needs to be done to ensure that the design and implementation of these initiatives meets the Government's policy objectives and does not have an overall negative impact on the financial services sector and the economy more generally. Unfortunately, the same cannot be said about those aspects of the Government's package that relate to the proposed price signalling law and the retail or consumer parts of the industry.

These, together with other initiatives like phase 2 of the consumer credit reforms, need a lot of work, and in their present form risk creating further regulatory and structural impediments to the proper functioning of the broader financial system and the flow of credit to the real economy. Please see our three client alerts Australian banking reforms: Mallesons commentary on announcements by Treasurer Swan, Government releases Exposure Draft Bill to outlaw price signalling and Key implications of the Australian banking reforms on retail financial services for further analysis from our Banking partners.

And that's just in Australia. Global reforms continue in relation to capital and liquidity for banks and we are starting to see some clarity from APRA in relation to their application to Australian banks. Most of the detail of the US Dodd-Frank reforms is yet to emerge, and the impact on Australian and other companies with business operations in the United States cannot be underestimated. IOSCO and the G20 continue to refine their proposals in relation to securitisation, hedge funds and derivatives - a process which is critical given the global nature of capital flows and those businesses.

In Australia, there is continuing debate around corporate governance, executive remuneration and so on. And we can only hope that 2011 brings some conclusions around the reforms to the funds and the superannuation industries.

Last night, the Government released its much anticipated response to the Cooper Review, providing a clearer focus around an emerging Government policy framework for superannuation. In this issue, John Edstein highlights the key themes emerging from the Government's responses to the 177 recommendations made by Cooper and also looks at the prospects for super in the post Henry tax forum forecast for next year.

Also in this edition, we explore the impact of developments in Australia and beyond on our clients and the economy generally. David Olsson considers China's soon to be released new 5-year plan and the role that financial sector reform is playing in driving broader reform. We unpack the raft of regulatory proposals reshaping the funds industry globally, and consider the potential for these developments to drive M&A activity.  Ian Paterson takes a close look at the power of regulators to arrange or compel the recapitalisation of a bank, while Greg Hammond considers whose interests APRA has a duty to protect.  Caroline Coops explores the developing issue of variable interest rates, and the question as to whether unfettered contractual rights for lenders to change rates are inherently unfair. 

The fundamental point is that we need certainty to be the prevailing theme of 2011. That is why we are trying to predict how some of these issues will evolve, so that we can work with you to shape the final regulatory and legal outcomes. That is one of our roles, and we are committed to it.

The team at Mallesons would like to thank each of our clients for their support in 2010, and to wish you and your families all the best for the festive season. We look forward to working with you in 2011.

Best wishes
Stuart Fuller, Managing Partner

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