The Franchising Code aims to strike a balance in relation to disclosure by franchisors and the rights of franchisees.

The report contains a total of 18 recommendations to Government.

The recommendations in relation to disclosure include a requirement for a franchisor to disclose the rights of the franchisor and franchisee to conduct and benefit from online sales, including any ability of the franchisor to conduct online sales.

There are recommendations relating to an obligation to act in good faith being inserted into the Code, and the introduction of civil pecuniary penalties for breaches of the Code.

There are also a number of recommendations aimed at addressing specific problematic areas, for example, the issue of franchisor failure.

No recommendation has been made that franchisees receive an exit payment or goodwill payment at the end of the term of their franchise agreement. However, a recommendation has been made that any restraint of trade clauses in the franchise agreement which prevent the franchisee from carrying on a similar business in competition with the franchisor, are not enforceable by the franchisor against the franchisee in certain circumstances.

The Government has not yet indicated its response to the recommendations.

National Consumer Credit Protection Amendment Regulation 2013 (No. 2) was registered on 21 May 2013.

From 22 May 2013 credit licensees must use the prescribed method to make projections of their home equity (ASIC’s reverse mortgage calculator) and to give those projections to consumers in the prescribed way.

From 1 June 2013 the Regulation:

• introduces additional responsible lending obligations so that a credit licensee’s assessment of whether or not a reverse mortgage is unsuitable must include reasonable inquiries about the borrower’s potential future needs;
• introduces a presumption that a reverse mortgage is unsuitable if it involves a loan to value ratio (calculated by dividing the amount of credit owed under the credit contract for the reverse mortgage by the value of the reverse mortgaged property x 100) above those prescribed (depending upon the borrower’s age);
• prescribes the reverse mortgage information statement (which must be given to all consumers before the licensee makes a preliminary assessment in connection with a reverse mortgage);
• prescribes the form of disclosure that must be given to a borrower if a credit contract for a reverse mortgage does not provide protections for persons who are not borrowers to reside in the mortgaged property; and
• prescribes how credit providers must keep records of nomination and withdraws of a borrower’s consent for a person to reside in the mortgaged property.

The AML/CTF Act and Rules set a minimum baseline for reporting entities to know their customers and beneficial owners.

Potential reforms discussed in the paper include:
• amend the AML/CTF Rules to explicitly require reporting entities to identify and take reasonable steps to verify the identity of beneficial owners for all categories of customer that are legal persons or legal arrangements, and clarify that the term ‘beneficial owner’ means the natural person(s) (individual(s)) who ultimately owns or controls a customer.
• where a customer is acting on behalf of a person amend the AML/CTF Rules to explicitly require a reporting entity to take appropriate steps to determine whether the customer is conducting a transaction on behalf of another person or third party, and accordingly identify the beneficiaries and the destination of the transaction.
• amend the AML/CTF Rules to explicitly require a reporting entity to identify and verify the settlor of a trust.
• amend the AML/CTF Rules to define the meaning of “politically exposed person”, require reporting entities to introduce appropriate risk-based controls to identify whether their customer (and beneficial owners) may be a foreign, domestic or international organisation PEP, include provision for the conduct of explicit enhanced CDD measures where the customer is a PEP, and prescribe specific measures to be taken to perform a range of enhanced CDD measures for high-risk situations.
• amend the AML/CTF Rules to include an explicit requirement that Part A of a reporting entity’s AML/CTF program must include appropriate risk-based systems and controls to ensure that the reporting entity has a reasonable understanding of the nature of the customer’s business or occupation.
• introduce a general obligation for reporting entities to keep CDD information up to date and relevant, and that risk-based systems be used to determine what CDD information should updated or verified and at what intervals.

Currently reporting entities must have in place AML/CTF programs to identify, mitigate and manage risks that a designated service it provides may involve or facilitate money laundering or terrorism financing. Before providing a service, reporting entities are required to have appropriate CDD programs in place to:
• enable them to ‘know their customers’ (KYC)
• perform ongoing customer due diligence
• monitor transactions, and
• report suspicious matters to AUSTRAC.

The proposals do not affect fundraising by charities in the form of donations.

The Consultation Paper proposes to either:

• remove existing exemptions available to charities that raise investment funds under Regulatory Guide 87 Charities (RG 87) from 28 June 2014 (Option A), or
• retain existing exemptions on the basis that they are only available to organisations that satisfy both existing and new conditions to the exemptions (Option B).

ASIC is proposing that in order to fundraise charities must hold 75% of their assets in assets that directly relate to their charitable purpose; and where the fund is offered to retail clients:

• have an Australian financial services licence, and
• meet minimum capital and liquidity requirements.

ASIC has chosen 28 June 2014 for Option A because it aligns with the date that APRA proposes in its discussion paper issued 19 April 2013 as the date from which amendments to current exemptions under the Banking Act for RCDFs would become effective.Background

The exemptions in Option B would only be of assistance to a debenture issuer if it obtained any exemption required from the Banking Act. APRA has proposed for discussion that from 28 June 2014 it will no longer give an exemption for RCDFs, a number of which are also charitable investment fundraisers, where the RCDF accepts retail investments.

ASIC proposes to roll over relief that is currently available to schools for school enrolment deposits without amending the terms of the relief.

If Option B is adopted the amendments to the existing exemptions will be phased in over several years and be subject to a transition period.

COSL has proposed that a credit reporting bureau (CRB) or the credit provider (CP) should not deal with any agent of a consumer who is charging a fee to the consumer for access/repairing their credit record.

The agencies obtain the authority of the consumer to access the relevant credit records and then make a complaint to the CRB or the credit provider that certain credit entries are incorrect and should be removed.

The credit agencies often also approach the various Ombudsmen, whose services are available to consumers free of charge, to have the entries removed. About a third of all complaints COSL receives about alleged incorrectly listed credit defaults are from credit repair agents.

Due to very low demand and the availability of alternative options, the ITSA National Service Centre will no longer be offering services for “across the counter” registrations and amending finance statements.

Although APRA has a list of current credit unions the Australian Credit Union Archives has a helpful PDF list of past current unions available in their Register of Australian Credit Unions.

There is also a search engine.

He pointed to the 4 banks’ annual combined profit of more than $24billion; yet smaller ADI’s had to provide up to 3 times as much capital for housing loans.

Whilst he acknowledged that mutuals had the same disadvantage, he avoided putting regional banks and credit unions in the same category (after all BOQ has assets of $42bn).

Separately, APRA is yet to respond to submissions from mutuals for capital instruments that would meet the Basel III capital requirements.

Background

The key elements of the draft legislation are:

• the new unfair contract terms regime will apply to general insurance contracts on an equivalent basis to the regime applying to other financial products or services in the Australian Securities and Investments Commission Act 2001. The new regime is modified appropriately for contracts of general insurance;
• consumers and the Australian Securities and Investments Commission (ASIC) will be able to take action for unfair terms in a standard form consumer contract of general insurance, such as seeking a court declaration that a term is unfair. A court will have access to a range of remedies in such circumstances;
• an insurer found by a court to have an unfair term will be in breach of the duty of utmost good faith and will not be able to rely on the term;
• ASIC will be given powers to enforce unfair contract terms for general insurance contracts by reference to the enforcement and investigation powers it has in the Australian Securities and Investments Commission Act 2001;
• the amendments will apply to standard form consumer contracts of general insurance entered into, or renewed, on or after the commencement day, and to terms varied on or after the commencement day. The commencement day will be 12 months after the day the Act receives Royal Assent, giving general insurers a transition period to review their standard form consumer contracts for unfair terms.

The draft legislation will apply to:

• standard form consumer contracts of general insurance which are entered into, or renewed on, or after, commencement; and
• a term in a standard form consumer contract of general insurance that is varied on or after commencement.

Insurers will be given a 12 month transition period to review their standard form consumer contracts for unfair terms before the commencement of the changes.

Related article: ACCC unfair contract terms report
ACCC Guide to unfair contract terms law

      

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The proposed CPS 220 will replace the existing industry-specific risk management standards for general insurers and life insurers, and will include the risk management requirements for ADIs that are currently spread across a number of ADI prudential standards.

CPS 220 will not apply to the superannuation industry. Instead, RSE licensees must comply with the superannuation-specific risk management prudential standard due to commence on 1 July 2013.

The most important changes contained in CPS 220 are the requirements for:

• a Chief Risk Officer (CRO) who is independent from business lines, the finance function and other revenue-generating capabilities. The CRO must not be the Chief Executive Officer, the Chief Financial Officer, Appointed Actuary or Head of Internal Audit; and
• the establishment of a separate Board Risk Committee that provides objective non-executive oversight of the implementation and on-going operation of the institution’s risk management framework. The Committee must be chaired by an independent director who is not the chair of the Board.The chair of the Board Audit Committee may also chair the Board Risk Committee.

APRA is proposing that the Risk Committee must operate under a different charter than the Board Audit Committee, although APRA’s composition requirements will not prohibit the same people sitting on both committees.

The Board Risk Committee is required to provide prior endorsement for the appointment or removal of the CRO. If the CRO is removed from their position, the reasons for removal must be discussed with APRA as soon as practicable, and no more than 10 business days, after the Committee’s endorsement is agreed upon.

The Board Risk Committee must invite the CRO to attend all relevant sections of meetings of the Committee.

APRA proposes that the chair of the Board and the chair of the Board Risk Committee make an annual attestation as to the adequacy and effectiveness of its risk management framework.

Prudential Standard CPS 510 Governance will also be changed to require the Board Audit Committee to provide prior endorsement for the appointment or removal of the APRA-regulated institution’s auditor and Head of Internal Audit. If the auditor or Head of Internal Audit is removed from their position, the reasons for removal must be discussed with APRA as soon as practicable, and no more than 10 business days, after the Committee’s endorsement is agreed upon.

APRA expects to finalise the proposed CPS 220, updated CPS 510 and a prudential practice guide prior to their implementation date of 1 January 2014.

      

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