Banking Review

Plan your compliance

Business continuity and price signalling are two issues at the top of compliance watch lists in 2011

BY DAVID JACOBSON

GFC or not, the volume of new legislation, and its complexity, increases every year.

As evidence, look at the calendar of compliance changes scheduled this year at the end of this article. These need to be factored into the year’s compliance calendar.

But compliance cannot be run by a calendar alone. Unplanned events (such as a computer system breakdown, a regulatory investigation or a natural disaster) show the need for compliance to be integrated with risk management. Compliance requires ongoing planning at a high level rather than being given a low priority and adopting a tick-the-box approach.

Regulators view business planning as an essential corporate governance obligation.

Business continuity: the Queensland floods
Having a business continuity and disaster recovery plan is not just good business; it is also mandated for APRA-regulated businesses as a key prudential and compliance issue.

While Queensland and northern NSW are used to cyclones and annual flooding, the 2010_2011 Queensland floods highlighted major risks for financial service providers: water and mud damage to property, not being able to access premises (both branches and head office), no power to premises and computer servers, Internet banking disruption, land line and mobile phone disruption, staff not being available, ATMs being damaged or not operating and customers not being able to access cash or account information.

And there is also the risk that the disaster recovery centre could also be flood affected (as happened to CUA in Brisbane).
Organisations need a communications plan to deal with staff, customers, regulators, the market and service providers.

In the short to medium term, there is the risk of existing customers being out of work and needing hardship relief for loan repayments at the same time as new business slows down.

Are staff members entitled to be paid if they cannot attend work or if work premises are flooded? Can they work remotely? What are your policies on compassionate leave? Do you pay employees who want to volunteer to do emergency community service?

Once the clean-up has occurred and operations have been restored, then the legal issues need to be addressed: insurance claims for damage and business disruption, claims by you against others for their inability to perform contracts and claims against you for your inability to perform contracts, are your key service contracts still in force, do securities need to be re-valued?

And your business continuity and disaster recovery plans will need to be reviewed to see how well they worked.

Regulations to watch
The key regulation issue this year for the financial sector will be implementation of the Government’s Competitive and Sustainable Banking System Package, including the future of deposit guarantees.

Whether the Government will ban price signalling is also an important issue.

The Government has released an exposure draft of its proposed Competition and Consumer Amendment Bill (No.1) 2011. The exposure draft legislation sets out the proposed amendments to the Trade Practices Act 1974 (referred to as the Competition and Consumer Act 2010 from 1 January 2011) to address anti-competitive “price signalling” and information exchanges.

The draft prohibits both the private disclosure of pricing information between competitors and disclosures that take place in the public domain and/or are related to information other than pricing information if they were made with the purpose of substantially lessening competition.

The practical issue is how the industry can distinguish innocent communication from market manipulation. The Treasurer recently indicated that discussions among banks in relation to a moratorium on foreign ATM fees in Queensland’s flood declared postcodes would not breach the proposed laws.

The law, if passed, will apply initially to the banking sector, but the Government has indicated it may apply it to other sectors in the future.

Consequences for breach of the legislation by a corporation would cost the greater part of $10,000,000 or _ if the court can determine the total value of the benefits that have been obtained _ three times that total value. However, if the court cannot determine the total value of those benefits, the cost would be 10 per cent of the annual turnover of the body corporate during the period (the turnover period) of 12 months ending at the end of the month in which the act or omission occurred.

Submissions to Treasury have now closed.

Compliance Calendar

January 2011

• Responsible lending (ADIs and registered finance companies) starts

• Commencement of paid parental leave scheme

• Australian Consumer Law starts

• Draft exit fees legislation

• Diversity policy required for ASX listed companies

March 2011

• Exposure draft mortgage facts sheet legislation

• Exposure draft covered bonds legislation

• AML/CTF 2010 annual compliance report due 31 March

April 2011

• New National Business Names Register to start 30 June 2011

• Deadline for issue of ACL licences for pre-1 July 2010 credit providers

• Stage 2 credit reform ongoing

• Trusts taxation law amendments

• Bank Account Portability Feasibility Study due 1 July 2011

• Exit fees ban commences

• Director and executive remuneration and governance legislation to start

• SuperStream administration changes start (including use of tax file numbers as primary account identifiers)

• Inclusion of standard ACL wording in contracts for repair

• Revised EFT code

• Privacy reforms: new credit reporting code of conduct being developed

• New life insurance prudential standards commence

October 2011

• New Personal Property Securities Register to start

David Jacobson is partner with Langes+ Lawyers, a specialist financial services practice.