Council of Financial Regulators Annual Report – 2002 Appendix D

Main Developments in Regulation/Supervision of the Australian Financial System: 2002


An ASIC survey of financial statements to 30 June 2001 identifies a number of problems in the application of the new accounting standard AASB 1018 Statement of Financial Performance. ASIC reviews the financial reports of 80 listed companies to assess their compliance with AASB 1018 and finds that, while many companies had made genuine attempts to comply with both the spirit and the letter of the new standard, there had been confusion in interpretation of the standard. ASIC recommends to the AASB that the standard be clarified.

ASIC protects consumers in an internet chat room by obtaining final court orders requiring the removal of false and misleading information from an Internet website. It is believed that ASIC's action in relation to giving investment advice on websites and in any chat rooms without holding the appropriate licence is the first such action in the world by a securities regulator.


APRA releases new prudential standards for general insurance companies in Australia. Scheduled to come into force on 1 July 2002. The prudential standards cover issues such as capital adequacy, assets in Australia, liability valuation, risk management, reinsurance and the transfer and amalgamation of insurance business. A transitional standard also gives APRA capacity to approve the appointment of auditors and actuaries under the new prudential framework before 1 July.

ASIC releases its Financial Services Licensing Kit, and the eLicensing design model as part of its implementation of the Financial Services Reform Act 2001.


APRA releases the first results of a new data collection providing detailed information about the face-to-face and electronic service points made available to the Australian community by authorised deposit-taking institutions (ADIs). This information substantially improves the quality of information available to both policymakers and commentators. The data collection was developed as part of the Federal Government's response to the report Regional banking services: money too far away?, prepared by the House Standing Committee on Economics, Finance and Public Administration.

ASIC and the RBA sign a Memorandum of Understanding covering their respective responsibilities under the Corporations Act 2001 in relation to licensed clearing and settlement facilities. The MOU sets out a framework for co-operation between ASIC and the RBA to help prevent unnecessary duplication of effort and to minimise the regulatory burden on licensed facilities.

ASIC releases Policy Statement 172: Australian market licences: Australian operators, which sets out ASIC's role in, and approach to, financial market regulation under the financial services reform legislation.

ASIC releases a draft of updates to Policy Statement 25 on misleading statements in takeovers to deal with ‘last and final statements’ to reflect legislative amendments, recent experience and current enforcement practice.


ASIC releases a report and announces the finalisation of its national investigation into solicitors' mortgage schemes that were unable or unwilling to make the transition from the previous regulatory regime to the Managed Investments Act 1998 under ASIC.


APRA releases a new prudential standard on outsourcing by ADIs, effective from 1 July 2002. The standard sets best practice principles to ensure that the boards and managements of ADIs have policies and procedures to manage effectively the risks arising from outsourcing material business activities. The standard provides for access by APRA to service providers, including the ability to conduct on-site visits.


APRA issues a prudential standard prescribing a minimum capital requirement for life insurance companies under the Life Insurance Act 1995. The standard seeks to preserve the current minimum capital requirement of $10 million applicable to life insurance companies under Actuarial Standard AS6.01.

APRA's new prudential standards for general insurance companies come into effect from 30 June 2002 and must be complied with by all general insurance companies.

APRA announces that most general insurance companies in Australia have been authorised under the General Insurance Reform Act 2001, having successfully met the new requirements. APRA's re-authorisation process involved a rigorous assessment of a general insurer's situation and business practices and plans.

ASIC releases its report, International Cold Calling Investment Scams, into international scams by unlicensed overseas telemarketing firms that cheated many thousands of Australians of an estimated $400 million.

ASIC extends existing interim relief relating to foreign collective investment schemes under Policy Statement 65 and Pro Forma 71 and for registered schemes given relief from s601FC(4) of the Corporations Act 2001, for investment in certain kinds of unregistered foreign schemes under Class Order 98/55.

ASIC releases a guide promoting improved disclosure of transaction fees for retail payments and deposit products (transaction accounts) offered by banks, credit unions and building societies. The guide sets out five principles of good disclosure.

The Treasurer announces the next phase of the CLERP process (CLERP 9), a review of corporate reporting and disclosure laws, dealing with audit reform, the disclosure framework, and shareholder participation.

ASIC releases a discussion paper on disclosure for on-sale of financial products, that sets out the key issues relating to the disclosure requirements under the onsales provisions in the Corporations Act 2001 and ASIC's proposals to address these issues.

ASIC reviews the adequacy and appropriateness of the current arrangements for regulating Managed Discretionary Accounts in light of the changes to the Corporations Act 2001, arising from the Managed Investments Act and the Financial Services Reform Act 2001 (for more information, see information release 02/11 at ASIC's website).


ASIC releases The hawking prohibitions: an ASIC guide, a guidance paper on the hawking prohibitions in the Corporations Act 2001, which provides industry with guidance and clarification on issues to consider when complying with the hawking prohibitions.

ASIC announces an accounting surveillance project directed at areas of accounting abuse of the type recently uncovered in the United States. The surveillance is to cover capitalised and deferred expenses, recognition of revenue and recognition of controlled entities and assets. It relates to the full-year financial reports of selected listed companies for the financial year ended 30 June 2002.

ASIC issues a consumer alert on the pitfalls investors may face when considering unexpected offers to buy their shares.

ASIC releases a guidance paper aimed at assisting financial advisers completing their Australian Financial Services (AFS) licence applications.


Following a decision by the Payments System Board, the RBA releases its final reforms to credit card schemes in Australia. These reforms have been developed over a three-year period during which there has been extensive consultation with a wide range of interested parties.

APRA announces an upgraded internal rating system, the Probability And Impact Rating System (PAIRS), which will be used to assess the 3,500 financial institutions (excluding small APRA superannuation funds) that are subject to its prudential regulation. PAIRS assesses both a regulated entity's probability (based on risk) of failure and the potential impact (based on size) of failure. In developing PAIRS, APRA has drawn upon and refined international rating models to ensure that it is up to world best practice.

APRA announces proposed regulatory arrangements for a new class of ADIs specialising in credit card services. Known as Specialist Credit Card Institutions (SCCIs), the new entities will be authorised to issue credit cards and acquire credit card transactions from merchants, and will be eligible to participate in credit card schemes designated by the RBA. APRA will authorise and supervise SCCIs under the Banking Act 1959 to ensure they meet their obligations to other participants within the credit card scheme.


At the request of the Commonwealth, the RBA revokes measures enacted in 2001, under the Banking (Foreign Exchange) Regulations 1959, to prohibit transactions involving persons or entities identified by the United Nations and United States as being linked to terrorism. Such measures are superseded by the Charter of the United Nations (Anti-terrorism Measures) Regulations 2001.

APRA provides its submission to the HIH Royal Commission on Future Policy Directions for prudential regulation of the general insurance industry. This is APRA's response to a request by the Commission to provide its views on improvements in the regulation of insurance. The three main areas where APRA proposes further improvements are consolidated supervision, disclosure, and corporate governance and risk management; proposed improvements in the latter area include personal attestations by directors and senior executives, peer review of actuarial reports and whistle-blowing protection. In addition, APRA recommends amendments to legislation to increase its enforcement powers, operational independence and ability to deal with insurance-type activities that do not presently come under the Insurance Act 1973.

ASIC releases a policy statement on the use of prospective financial information, including financial forecasts, in prospectuses, disclosure documents and product disclosure statements, with the aim of improving the quality of disclosure in prospectuses and other fundraising documents.

The Federal Treasurer releases the Government's CLERP 9 paper, Corporate disclosure: strengthening the financial reporting framework.

ASIC releases a discussion paper on the use of information about the past performance of investments in advertisements and other promotional material, with the aim of ensuring that past performance information is used responsibly in advertising and is not misleading.


APRA announces that it has engaged Corporate Governance International Pty Ltd (CGI) to provide it with rating and analysis of large regulated banks, insurance companies and fund managers listed on the ASX. APRA's supervisors will also analyse corporate governance more broadly across the 3,500 entities (excluding small APRA superannuation funds) that are subject to its prudential regulation.


The RBA is directed by the Commonwealth Government to take steps under the Banking (Foreign Exchange) Regulations 1959 to implement financial sanctions against certain ministers and senior officials of the Government of Zimbabwe. These measures form part of the package of sanctions against the Mugabe Government announced by the Minister for Foreign Affairs.

The RBA releases, for public consultation, draft financial stability standards that apply to licensees of clearing and settlement facilities in Australia under Part 7.3 of the Corporations Act 2001. The objective of the standards is to ensure that licensees of clearing and settlement facilities identify and properly control the risks associated with their operations.

APRA outlines the criteria superannuation funds have to satisfy to gain a licence under its new licensing regime, while emphasising that the burden of maintaining the licence rests with fund trustees. Under the Government's announced policy on superannuation reform, all APRA-regulated superannuation funds will require a licence.

APRA releases updated prudential standards for ADIs, governing capital adequacy, large exposures and associations with related entities. The changes, to facilitate the supervision of ADI conglomerates, are effective from 1 July 2003. At the same time, APRA finalises revised requirements for ADIs deducting investments in subsidiaries from capital to avoid double counting for regulatory purposes. The new deduction rules will be implemented to coincide with the introduction of the new Basel Capital Accord on 1 January 2007.

ASIC releases its Principles for cross border financial services regulation, which address issues relating to the regulation of foreign markets, products and services across international borders. The Principles play an integral role in guiding all aspects of ASIC's development of policy and action in relation to cross-border financial services regulation.

ASIC also releases two policy proposal papers addressing the regulation of certain cross-border financial activity. The first, Australian market licences: Overseas operators, addresses the way ASIC proposes to regulate overseas markets that wish to operate in Australia. The second, Foreign collective investment schemes (FCIS), addresses the way that ASIC intends to regulate FCIS operators seeking to attract Australian investors.


ASIC releases a policy proposal paper on advisers' conduct and disclosure obligations. The paper, Licensing: Financial product advisers – Conduct and disclosure, considers how certain conduct and disclosure obligations under the Corporations Act 2001 apply to the provision of financial product advice to retail clients.

ASIC releases revisions to Practice Note 50, External administrators: reporting and lodging to provide general guidance to external administrators on their reporting obligations, and effective lodgement of reports and documents with ASIC.

ASIC releases stage one results of its accounting surveillance project confirming its belief there is no reason to believe that the type of accounting abuses identified in the United States pose a material risk in Australia, and that, overall, the level of compliance with existing accounting standards is high.

ASIC releases a discussion paper seeking stakeholders' views on whether it should issue guidelines on the new socially responsible investing disclosure requirements for products with an investment component (investment products) and, if so, what these guidelines should contain.

ASIC releases a policy proposal paper, Licensing: Discretionary powers – Foreign financial services providers to seek comments on the way ASIC plans to use its powers under the Corporations Act 2001, and to facilitate the entry into the Australian market of foreign financial services providers that are regulated by overseas regulatory authorities.