Regulator - December 2011

​Welcome to our December issue of Regulator.

The rate of regulatory reform this year has been extraordinary. We have seen the introduction of controversial legislation such as the Minerals Resources Rent Tax, the Carbon Tax,  the Executive Remuneration changes (including the two strikes rule) and Price Signalling laws to name a few. There have also been sweeping reforms across the financial services sector with  APRA moving full steam ahead with its new rules for capital products and liquidity guidelines and the government’s introduction of the Future of Financial Advice Reforms that are expected to transform the financial planning industry. The funds and superannuation industry has also undergone significant reform with the Government’s Stronger Super package now well underway.

In other developments, the Banking Act was revised to allow Australian banks and other authorised deposit-taking institutions to issue covered bonds. This has been a welcome development and there have already been two successful issues by Westpac and ANZ.

Over the past 12 months ASIC has introduced new rules covering the conduct of operators and participants as well as guidelines for prospectus disclosure. These developments, among others, feature in ASIC’s Annual Report for the 2010/ 2011 financial year. In this edition of Regulator Kate Johnson and I provide a short overview of the report’s key highlights.

As our faithful Regulator readers would know, we have been tracking the carbon debate since the tax was first proposed and offering our views on its implementation and implications. Now that the emissions trading scheme has become law, Scott Farrell looks at how the carbon market will take shape in 2012 and the impact on the Australian financial services framework.

The proposed Basel III liquidity standards will have far reaching effects on the banking sector and we have been advising our clients on how to manage and respond to the new rules. In previous editions of Regulator we have examined various aspects of the Basel III framework and, in this edition, Greg Hammond and Heidi Machin provide an update on a recent consultation paper issued by ASIC which proposed relief to facilitate the issue of term deposits which are only breakable on 31 days’ notice in response to the Basel III liquidity standards.

Another significant issue in the area of financial services reform this year has been the debate over the central clearing of over-the-counter derivatives (OTC) transacted in the Australian financial markets. The industry has been divided on how to best centrally clear the $5.9 trillion Australian interest rate derivatives market. With the recent collapse of MF Global, the issue of protecting client money in OTC derivatives has surfaced as a key concern. In response, Treasury has released a discussion paper focused on improving client money protections for OTC derivative transactions with retail clients. In their article, Scott Farrell and Heidi Machin give an overview of the reform options outlined in the paper.

While the major structural reforms that Australia has undergone in recent years have been primarily focused on improving domestic markets, these changes have also helped to position Australia in an ideal place to take advantage of Asia’s rapid economic development. In his article, David Olsson stresses the importance of Australia’s promotion of its sound regulatory framework and high performing financial institutions if it is to become an active player in the Asian market and enhance its sphere of influence in the region.  

It’s not just the Australian market that is experiencing unprecedented reform, Hong Kong regulators have also been tightening controls on the financial sector during the last 12 months and this trend looks set to continue in 2012. In their article, Richard Mazzochi and Urszula McCormack examine the regulatory blueprint over the next 12 to 24 months which will have significant impacts on the legal and financial industry in the Asian region as well as offshore.

As always, we welcome your feedback or suggestions for future editions of Regulator.