Policy & Markets Brief
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Policy & Markets Brief is the AFMA monthly e-newsletter – a comprehensive guide to our current activities in policy advocacy and promoting the effective regulation of Australia's financial markets. Below you will find a summary of this month’s edition.
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Policy News - December
More Consultation on Financial Market Infrastructure Reforms Needed
AFMA’s submission to the Council of Financial Regulators’ consultation paper, Review of Financial Market Infrastructure Regulation, suggests that any reform to the regulatory framework for financial market infrastructure (FMI) in Australia needs to be measured and fully developed to avoid uncertainty for both regulators and market stakeholders. The Council’s review of FMI, which includes licensed financial markets and clearing and settlement facilities, was initiated following the Government’s rejection of the proposed merger between ASX and Singapore Exchange Limited (SGX) earlier this year.
The Council has indicated that the key objective of the proposed reforms is to preserve the integrity of Australia’s financial infrastructure and the ability of supervisors to maintain robust oversight and appropriate control in all market conditions, including in the advent of a range of different ownership structures for FMIs of systemic importance to the Australian financial system. The Council has held preliminary bilateral meetings with AFMA and members to discuss the paper. A key message put forward in AFMA’s submission is that a five week consultation period is much too short to properly deal with the important issues raised.
The proposals have major implications for the regulation of markets and clearing and cuts across work in other areas such as OTC derivatives clearing, certainty in relation to close-out netting and the review of market licensing arrangements.
AFMA Develops Market Soundings Best Practice
In late November, AFMA released new guidance, Best practice guidelines for handling confidential and price-sensitive information and market soundings, which outlines best practice in the handling of confidential information received by members and in how market soundings are conducted, in each case in relation to potential equity capital markets and mergers and acquisitions transactions involving the financial products of entities with their primary listing on a financial market in Australia.
The Guidance is designed to:
- establish information barrier measures to ensure confidential information received by members is suitably protected;
- minimise leaks which may prejudice markets and undisclosed transactions;
- preserve market integrity and efficiency through the timely and authorised release of confidential and potentially price-sensitive information;
- minimise the risk of insider trading;
- assist members comply with applicable licensing conduct rules; and
- protect and enhance the reputation of members and their clients.
AFMA’s experience over many years is that industry standards provide important benefits to market participants including greater operational efficiency, cost savings and better regulation. AFMA’s Guidelines have been developed by our Capital Raising Committee, in close consultation with ASIC.
Parliament to Review FOFA Bills
The two Future of Financial Advice (FOFA) bills were introduced into Parliament in November. As is usually the case with this kind of new legislation, the bills have been referred for inquiry to the Parliamentary Joint Committee on Corporations and Financial Services, and to the Senate Economics Legislation Committee. AFMA will be making a submission about the very extensive reach of the legislative reforms, which in our view go well beyond the issues identified in the Ripoll Report and the recommendation that report made. The submission will also set out the clear need for a transition period, as it will be practically impossible for the financial services industry to be ready to fully implement FOFA on 1 July 2012, given that the bills will not be passed until the March sittings of Parliament.
Financial Transactions Tax Rejected in Australia
AFMA came out firmly in support of the Treasurer, Wayne Swan, and Assistant Treasurer, Bill Shorten, when they rejected a call for the introduction of a financial transactions tax (FTT) made at the ALP’s National Conference in early December. AFMA has made a number of representations to the Government on the economic harm that an FTT would cause. Australia was amongst a number of countries, including the US, who opposed a global FTT at the G20 summit in November.
The Henry Tax Review rejected the FTT option because it is an inefficient tax that would pose a risk to financial stability and impede economic activity. AFMA’s analysis of an FTT demonstrates that it would impose a significant cost on the Australian community, adversely affecting many ordinary Australians and the businesses that employ them. An FTT would increase the cost of transacting on our financial markets and increase the cost of capital for Australian businesses. An FTT would make financial markets less effective in achieving what they are designed to do – to provide low cost finance and price signals that lead to the most productive allocation of our capital resources.
Transfer Pricing Rules Under Scrutiny
AFMA has responded to a Treasury consultation paper on a review of Australia’s transfer pricing rules. Amongst other things, the paper invited comment on the desirability of a change in the approach taken to the taxation of permanent establishments (PEs) or branches. AFMA has sought better alignment of Australia’s taxation of PEs with international standard practice and asked for PEs to be taxed on a separate entity basis, for both foreign banks with branch operations in Australia and domestic banks with offshore branch operations.
On other matters, AFMA sought a four year period for amending tax assessments for transfer pricing matters rather than the current open-ended arrangement. We also argued that proposed law amendments announced in a related ministerial media release should not apply on a retrospective basis.
NSW Government Announces Professional Services Industry Action Plan
The NSW Government has established a series of Taskforces to prepare Industry Action Plans including one on Professional Services which includes Financial Services. AFMA has been invited to contribute to the formation of the Plan. We are encouraged that the Government is engaging on the development of the State’s most significant industry at this early stage and has made a submission, urging the Government to draw inspiration from the most successful international Government finance industry development programs including those in London, Dublin and Luxembourg.
Repo Conventions Changes
The Repo Committee has amended the Repo Conventions to address an RBA out-of-cycle change to the official cash rate. In the event that the RBA makes such an announcement, the market conventions are:
- On-the-day (OTD) repos are assumed to have been dealt subject to a spread to the RBA official cash rate and should reflect the cash rate target published as at 9.30am
- Open dated/at call repos should reflect the new cash rate on a T+1 basis
- Term repos (including T/N trades) should remain as previously negotiated
- All trades previously negotiated on a spread to cash basis will be reset on the date of a change to the official cash rate and should reflect the cash rate target published as at 9.30am.
The changes to the Repo Conventions were fast-tracked, given concerns around the fragile state of the global economy. The Committee’s objective was to seek to ensure the smoothest and most coordinated operation of the market. The amendments to the Repo Conventions were effective from 15 December.