Australia: Corporate Law News - August 2007

Prudential regulation of DOFIs– discussion paper

APRA has released a discussion paper outlining proposed amendments to the general insurance framework relating to Direct Offshore Foreign Investors (DOFIs).

Refinements to the General Insurance Prudential Framework details how APRA intends to modify it's prudential framework to regulate DOFIs based on their risk profile. These changes follow the announcement that DOFIs will be now subject to prudential regulation under the Insurance Act 1973 No. 76 (Cth).

A separate discussion paper addressing data collection from Discretionary Mutual Funds (DMFs) will be released in late 2007.

Refinements to the General Insurance Prudential Framework can be accessed via the following link:
http://www.apra.gov.au/Policy/upload/Refinements-to-the-general-insurance-prudential-framework-July-2007.pdf

APRA has published final draft prudential standards on credit risk and operational risk for authorised deposit-taking institutions (ADIs), accompanied by a response paper to submissions received on the draft standards during the consultation process.

The paper contains APRA's response to public comments received in relation to its implementation of the operational and credit risk components of the Basel II capital adequacy framework. The final draft standards, APS 112 Capital Adequacy: Standardised Approach to Credit Risk and APS 114 Capital Adequacy: Standardised Approach to Operational Risk, incorporate amendments proposed by a number of these submissions.

Submissions on the final draft standards and response paper are invited and must be received by 3 September 2007.

Response to Submissions – Implementation of the Basel II Capital Framework: 4. Standardised approaches to credit risk and operational risk can be accessed via the following link:
http://www.apra.gov.au/ADI/upload/Response-to-submissions-Standardised-approaches-to-credit-risk-and-operational-risk.pdf

The final draft of APS 112 Capital Adequacy: Standardised Approach to Credit Risk can be accessed via the following link:
http://www.apra.gov.au/ADI/upload/Prudential-Standard-APS-112-Capital-Adequacy-Standardised-Approach-to-Credit-Risk-July-2007.pdf

The final draft of APS 114 Capital Adequacy: Standardised Approach to Operational Risk can be accessed via the following link:
http://www.apra.gov.au/ADI/upload/Prudential-Standard-APS-114-Capital-Adequacy-Standardised-Approach-to-Operational-Risk.pdf

APRA has released a prudential package on its proposed approach to regulating the determination of market risk by authorised deposit-taking institutions (ADIs) under the Basel II Framework.

The package, consisting of draft prudential standard APS 116 Capital Adequacy: Market Risk, draft prudential practice guide APG 116 Market Risk and a discussion paper, outlines APRA's proposed changes to it's regulation of an ADIs market risk capital. The draft standard aligns the valuation and allocation of positions in the trading book with the requirements of the Basel II Framework, and permits an ADI to employ its own internal risk measurement model, if APRA considers the model robust enough to accommodate the complexity, nature and scale of the ADI's operations.

The draft APS 116 Capital Adequacy: Market Risk can be accessed via the following link:
http://www.apra.gov.au/ADI/upload/Prudential-Standard-APS-116-Capital-Adequacy-Market-Risk.pdf

The draft APG 116 Market Risk can be accessed via the following link:
http://www.apra.gov.au/ADI/upload/Prudential-Practice-Guide-APG-116-Market-Risk.pdf

Discussion Paper – Implementation of the Basel II Capital Framework: 8. Market risk can be accessed via the following link:
http://www.apra.gov.au/ADI/upload/Implementation-of-the-Basel-II-Capital-Framework-8-Market-risk.pdf

Life Insurance Act – consultation package

In response to recent proposed amendments to the Life Insurance Act 1995 No. 4 (Cth) (Act) by the Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007 (Cth) (Bill), APRA has released a consultation package outlining its continued prudential regulation of life companies and friendly societies once the Bill's amendments come into effect.

The package, which consists of a discussion paper, draft prudential standards and instructions, addresses gaps that may be left in the regulatory framework following the proposed repeal of certain sections of the Act by the Bill. Specifically, there are new standards in relation to the repealed actuary, auditor and reinsurance provisions, the reissuing of Life Insurance Actuarial Standards Board standards as APRA standards, and technical changes to governance and 'fit and proper' obligations.

Submissions on the consultation package are invited and must be received by 31 August 2007.

The Life Insurance Act Consultation Package can be accessed via the following link:

http://www.apra.gov.au/Policy/Life-Act-Project.cfm

The Life Insurance Act 1995 No. 4 (Cth) can be accessed via the following link:
http://www.comlaw.gov.au/ComLaw/legislation/actcompilation1.nsf/0/7FE5C815068EDDCFCA25730F000B0C3E/$file/LifeInsurance1995_WD02.pdf

The Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007 (Cth) can be accessed via the following link:
http://www.comlaw.gov.au/comlaw/Legislation/Bills1.nsf/0/2D759FB337FE7E25CA257306000791CA/$file/07125b.pdf

APRA has made Superannuation Industry (Supervision) Modification Declaration No. 2 of 2007 (MD02), granting relief to registered superannuation entity (RSE) licensees from regulation 7.04 of the Superannuation Industry (Supervision) Regulations 1994 No. 57 (Cth), which requires the return of a member's contributions within 30 days if the member has not provided their Tax File Number (TFN), and their only interest in the fund is an insurance risk interest. MD02 provides that members have until 31 December 2007 to provide their TFN to the trustee, otherwise the trustee must return that member's contribution by this date.

Superannuation Industry (Supervision) Modification Declaration No. 2 of 2007 can be accessed via the following link:
http://www.comlaw.gov.au/ComLaw/Legislation/LegislativeInstrument1.nsf/0/E4482E8427FB2D79CA25732900071C01/$file/SISModificationDecNo2of200731July2007SIP01476301.pdf

The explanatory statement can be accessed via the following link:
http://www.comlaw.gov.au/ComLaw/Legislation/LegislativeInstrument1.nsf/0/E4356E74A701480ECA25732900071BD7/$file/ESMD2of2007.pdf

Following public submissions and review, ASX has released an updated edition of its corporate governance guidelines for listed companies.

Corporate Governance Principles and Recommendations (CGPR) incorporates a number of changes proposed during the consultation process, including:

• the removal of the phrase 'best practice' from the CGPR entirely;

• refining the original ten Principles to eight current Principles;

• the deletion of Recommendation 9.4;

• outlining 'relationships affecting independent status' for directors in guidance for Principle 2;

• a recommendation for the prohibition of unvested options hedging under Principle 3; and

• recognising financial and non-financial material business risks in Principle 7. Corporate Governance Principles and Recommendations can be accessed via the following link:

On 25 July 2007, the Federal Court imposed penalties of more than $9.1 million on 11 companies and 18 individuals for a series of bid-rigging and price fixing cartels in commercial air conditioning.

The ACCC took action against the cartels, which existed between 1991 and June 2003. It related to companies tendering for commercial air conditioning and mechanical services projects in Western Australia agreeing on which would submit the lowest price for particular jobs and therefore be likely to win the tender.

The companies and individuals involved in the cartels had covert meetings and telephone conversations over many years concerning the outcome of competitive tenders that totalled some $129 million…The individuals subject to penalties were directors or senior managers of the corporate respondents..

The penalties imposed by the court are set out on the ACCC website, and can be accessed via the following link:
http://www.accc.gov.au/content/index.phtml/itemId/793552/fromItemId/2332

On 27 July 2007, judgement was handed down by Justice Sackville in the long running Seven Network case, in which Seven alleged that it was forced to close the C7 business because News Ltd, PBL and Telstra amongst others engaged in anti-competitive conduct in contravention of sections 45 and 46 of the Trade Practices Act 1974 No. 51 (Cth). The court dismissed Seven's claims.

Among other conclusions, the court found that the defendants' conduct in acting to deprive C7 of AFL broadcasting rights and NRL pay television rights did not have the likely purpose or effect of substantially lessening competition, given that, without the allegedly infringing conduct, Optus' pay television operations would have ceased operating and a lessening of competition in the retail television market would have occurred in spite of the absence of the defendants' conduct.

A summary is available, as well as the entire 1120 page judgment.

Seven Network Limited v News Limited [2007] FCA 1062 can be accessed via the following link:
http://www.austlii.edu.au/au/cases/cth/federal_ct/2007/1062.html

On 2 August 2007, it was reported that the federal government will finally, in the spring session of parliament, introduce legislation allowing criminal penalties to be imposed for cartel conduct. The Dawson review recommended in April 2003 that criminal penalties be available for "hardcore" cartel conduct. Although the government accepted that recommendation, the implementing legislation has not yet been introduced. A bill to facilitate the change by amending the Federal Court's jurisdiction is also proposed.

Legislation proposed for introduction in the 2007 spring session can be accessed via the following link:
http://www.dpmc.gov.au/parliamentary/docs/proposed_legislation.rtf

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