Markets Group contributes to Australia’s continuing economic development and the wellbeing of its people by fostering a well functioning market economy, a secure financial system, and foreign investment consistent with Australia’s national interest. Improving the operation of markets works to enhance consumer and investor confidence, and foster a secure financial system and sound corporate practices.
The efficient operation of Australia’s product and services markets is supported by a combination of laws, institutions, policies and administrative practices. The Treasury provides advice to the Government on developing and implementing policies to maintain and improve markets, so that investors and consumers can have confidence and certainty in making decisions that are well-informed and free from market distortions and impediments. The Treasury also provides advice to remove impediments to competition in product and services markets, and safeguard the public interest in matters such as consumer protection.
The Treasury also supports the operations of the Australian Government Actuary, the Takeovers Panel and the Financial Reporting Panel.
A key focus for the Treasury in 2010-11 was providing policy analysis and advice to improve Australia’s productivity and international competitiveness, and deepen the supply potential of the economy in the wake of the global financial crisis and global recession. These policies focused on promoting economic growth and supporting employment, ensuring the financial system remained robust and dynamic, and ensuring that regulatory frameworks promoted macroeconomic stability and market confidence.
The Treasury also continued to monitor and provide advice on the general prudential framework applying to the banking sector, insurers and superannuation funds. The Treasury participated actively in international forums, such as the G20 and Financial Stability Board, to enhance the regional and global financial architecture. In addition, the Treasury provided advice on foreign investment and trade policy, and continued to participate in negotiating free trade agreements. During 2010-11, the Treasury continued to pursue sound regulatory and structural reforms to foster well functioning markets in key infrastructure, energy, housing, financial and labour markets. This included work to further the COAG reform agenda to reduce the regulatory burden on business, including a national approach to consumer policy and consumer credit; housing supply and affordability; and Standard Business Reporting (SBR).
The multi-agency SBR program was delivered on time and within budget on 1 July 2010. During 2010-11, the program focused on management of take-up targets, and the ongoing operation, maintenance and governance of the SBR solution. Participating SBR agencies include the ABS, APRA, ASIC, the ATO, and all State and Territory government revenue offices.
Markets Group’s key deliverables are to provide advice on:
- measures to promote competition, macroeconomic stability and market confidence, including providing advice on the prudential frameworks applying to the banking, insurance and superannuation sectors;
- financial sector reform options, including fostering the efficient flow of funds into, and within, the Australian economy;
- how to best influence and implement G20 decisions to strengthen the financial regulatory system;
- international cooperation in financial system regulation, corporate governance, financial reporting, auditing and corporate insolvency;
- financial services and corporate reform addressing emerging issues in investor protection, corporate governance and reporting, and market integrity;
- further reforms to executive remuneration arrangements, including simplifying remuneration reports;
- initiatives to position Australia as a leading financial services centre in the Asia-Pacific region, arising from the Government response to the Australian Financial Centre Forum’s report, Australia as a Financial Centre: Building on Our Strengths;
- key planks in the COAG reform agenda designed to reduce the regulatory burden facing business including a national law for consumer policy, national consumer credit law and as the lead agency in the multi-agency SBR initiative;
- assisting the implementation of the National Broadband Network, including on structural reforms to maximise competition in the national telecommunications market;
- implementation of the Government’s Clean Energy Future package impacting on the energy sector;
- managing incoming foreign investment to ensure that the national interest is protected and encourage free flows of investment;
- representation of Australia’s interests on investment and financial service issues in negotiating free trade agreements and the Doha Round and, in relation to investment, in multilateral forums such as the OECD and APEC;
- issues relating to the availability and affordability of insurance and reinsurance, and implementing the Government’s response to the Natural Disaster Insurance Review; and
- actuarial matters through the Australian Government Actuary which provides actuarial services to government, the Treasury and other agencies.
Markets Group’s key outcomes for 2010-11 were:
- implementing the Super System Review to optimise retirement benefits, improve competition, lower costs and fees and foster confidence in superannuation;
- advancing a Housing Supply and Affordability Reform agenda, involving the examination of a range of factors that influence housing supply and demand in Australia;
- leading key reforms of the COAG Business Regulation and Competition Working Group to progress reforms in some of the 27 areas where duplicate and inconsistent regulation across jurisdictions imposes an unnecessary burden on business;
- developing legislative amendments to implement the Government’s commitment to reform the unconscionable conduct and mergers and acquisitions provisions of the Competition and Consumer Act 2010, which were introduced as part of the Competition and Consumer Legislation Amendment Bill 2011 on 15 June 2011;
- developing draft prohibitions on anti-competitive price signalling and information disclosures to the Competition and Consumer Act 2011, which the Government has stated will initially apply to the banking sector, introduced into the Parliament in the Competition and Consumer Amendment Bill (No. 1) 2011 on 24 March 2011;
- implementing the Australian Consumer Law, which replaces provisions in 20 Commonwealth, State and Territory laws with a single national consumer law that commenced on 1 January 2011. A range of resources were developed to support the implementation process;
- fostering competition and stability in the banking industry by implementing the Government’s Competitive and Sustainable Banking System package;
- developing legislation to amend the National Consumer Credit Protection Act 2009 to give effect to the Government’s credit card reforms announced in December 2010;
- implementing the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act 2011, which commenced on 1 July 2011, and associated regulations to strengthen Australia’s remuneration framework;
- implementing the Corporations Amendment (Sons of Gwalia) Act 2010, which commenced on 18 December 2010. The legislation reversed the effects of the High Court decision in Sons of Gwalia and Margaretic;
- implementing the Corporations Amendment (No.1) Act 2010, which commenced on 13 December 2010. The legislation made reforms to expand ASIC’s information-gathering powers and better regulate access to company registers and unsolicited offers to purchase finance products off-market;
- implementing the Government’s decision to transfer res
ponsibility for supervision of Australia’s domestic licensed financial markets from market operators to ASIC, which took effect on 1 August 2010;
- implementing the Government’s decision to support financial market competition in Australia; providing advice, in consultation with ASIC, on granting a licence on 4 May 2011 to the first potential market operator proposing to provide competition for trading shares listed on the Australian Securities Exchange;
- implementing the Future of Financial Advice reforms to improve the quality of financial advice provided to Australians through the removal of conflicts of interest and ensuring financial advisers act in the best interests of clients;
- progressing the Government’s initiative to position Australia as a leading financial services centre in the Asia-Pacific region, including work to develop an Asia Region Funds Passport;
- progressing proposals considering natural disasters and insurance, particularly in relation to establishing a standard definition of ‘flood’ and developing a key facts sheet for home building, and home and contents insurance policies;
- providing advice, in consultation with the Foreign Investment Review Board, on significant and high profile foreign investment cases of national interest and trade policy matters, dealing with global investment, trade flows and trends, foreign government investment and trade policy responses and the implications for Australia;
- contributing to free trade agreement negotiations with Japan, China, Korea, Malaysia, the Gulf Cooperation Council and the Trans-Pacific Partnership Agreement (which involves Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, the United States and Vietnam);
- achieving closer economic integration through initiatives that further progress the development of a single economic market between Australia and New Zealand. In August 2009, the Australian and New Zealand Prime Ministers agreed on principles for developing cross-border economic initiatives and a range of shared practical outcomes in the areas of insolvency law, financial reporting policy, financial services policy, competition policy, business reporting, corporations law, personal property securities law, intellectual property law, and consumer policy;
- leading the ongoing governance of SBR, including the strategic direction, stakeholder take-up, architectural leadership and international collaboration. SBR aims to provide a quicker and easier way for businesses to fulfil their government reporting requirements; and
- continuing to provide advice relating to the currency system and maintaining successful operations of the Australian Government Actuary and the Financial Reporting Panel.
Analysis of performance
Markets Group worked with Revenue Group in providing advice on the Government’s response to the recommendations of the review into the governance, efficiency, structure and operation of Australia’s superannuation system (Super System Review). Further details are on page 55.
The Treasury provided advice on the Government’s investment in infrastructure projects announced in the 2010-11 Budget. The Secretary to the Treasury is a member of Infrastructure Australia, the Government’s key advisory body on nationally significant infrastructure. The Treasury is engaged in the activities of the COAG Infrastructure Working Group, including the Private Public Partnership sub-group.
The Treasury provided advice on the interaction of the Government’s climate change policies and the Australian energy market. The Treasury was actively engaged in the work of the Standing Committee of Officials of the Ministerial Council on Energy/Standing Council on Energy and Resources which provides advice on ongoing energy market reforms.
The Treasury worked with the Department of Infrastructure, Transport, Regional Development and Local Government to progress COAG reforms in the transport sector to improve market-based frameworks and promote greater competition.
The Treasury provided advice to Ministers on a number of matters arising under the National Access Regime in Part IIIA of the Competition and Consumer Act 2010. Ministers received recommendations on five certification matters and one declaration matter during 2010-11.
The Treasury continues to work with the Department of Broadband, Communications and the Digital Economy, the Australian Competition and Consumer Commission (ACCC) and other central agencies on implementing the Government’s National Broadband Network policy, and providing advice on reform in the national telecommunications market.
The Treasury also continued to work with the Department of Broadband, Communications and the Digital Economy on ensuring the efficient allocation of radio-frequency spectrum, including through the switchover to digital television.
The Treasury leads key activities of the COAG Housing Supply and Affordability Reform Working Party, which is responsible for reporting to COAG through the Ministerial Council for Federal Financial Relations on issues such as planning and zoning, infrastructure charges and an audit of underutilised land.
The Treasury also contributed to the Government’s National Urban Policy paper, Our Cities, Our Future: A national urban policy for a productive, sustainable and liveable future. The Treasury advised the Government on funding for housing measures in, and announced after, the 2011-12 Budget.
The Treasury contributed to key outputs in the Government’s competition policy legislative reform program.
The Treasury provided advice to the Government on draft prohibitions on anti-competitive price signalling and information disclosures to the Competition and Consumer Act 2010, which the Government has stated will initially apply to the banking sector, introduced into the Parliament in the Competition and Consumer Amendment Bill (No. 1) 2011 on 24 March 2011.
The Treasury provided advice to the Government on clarifications to the mergers and acquisitions provisions of the Competition and Consumer Act 2010 to address creeping acquisitions, introduced into the Parliament as part of the Competition and Consumer Legislation Amendment Bill 2011 on 15 June 2011.
The Treasury provided advice on key competition and regulatory reforms of the COAG Business Regulation and Competition Working Group. This included progressing reforms in some of the 27 areas where duplicate and inconsistent regulation across jurisdictions unnecessarily burdens business. It also included supporting the Parliamentary Secretary to the Treasurer in his role as chair of the Business Regulation and Competition Working Group Competition Sub-Committee, which oversights the eight competition reform areas, including national transport, road pricing, national energy markets and access to infrastructure.
The Treasury provided advice to the Government on improving the competitiveness of Australia’s national telecommunications sector, including in relation to legislation that encourages the structural separation of Telstra and that establishes NBN Co. as a wholesale-only supplier.
The Treasury coordinates the Productivity Commission’s work program and advises departments and the Government on preparing terms of reference for reviews. In 2010-11, the Productivity Commission commenced three public inquiries and four commissioned studies.
The Treasury represents Australia at international forums on competition policy, and is a member of the OECD Competition Committee. The Treasury is also a member of the APEC Economic Committee and coordinates the competition policy work stream.
In 2010-11, the Treasury provided advice to the Government on the consumer policy framework including implementation of the Australian Consumer Law.
The Treasury developed legislation to implement the Australian Consumer Law. The Austral
ian Consumer Law replaces provisions in 20 Commonwealth, State and Territory laws with a single national consumer law and commenced on 1 January 2011.
The Australian Consumer Law Act includes a single set of provisions about unfair practices and fair trading, national unfair contract terms, new consumer guarantees provisions, new provisions dealing with unsolicited consumer agreements, simple national laws for lay-by agreements, a new national product safety regime and new provisions on information standards that will apply to services as well as goods. The Australian Consumer Law also includes new civil penalties, enforcement powers and consumer redress options.
The Treasury worked with both national and State and Territory regulators during 2010-11 to implement a new policy and enforcement framework for the Australian Consumer Law.
The Treasury also provided advice to the Government to clarify the unconscionable conduct provisions of the Competition and Consumer Act 2010.
The Australian Consumer Survey, commissioned by the Treasury on behalf of the Standing Committee of Officials of Consumer Affairs, benchmarked consumer and business awareness, knowledge and experience of Australia’s consumer laws prior to the implementation of the Australian Consumer Law. This national survey collected sufficient data to establish a suitable evidence base for future consumer policy and research.
The Treasury represents Australia in international forums on consumer policy. The Treasury is a member of the OECD Committee on Consumer Policy. The Treasury contributed to the development of the OECD’s Consumer Policy Toolkit, which was published in July 2010. The Treasury also developed a Companion to the OECD Consumer Policy Toolkit, which placed the OECD work in an Australian context. The Treasury also contributed to the establishment of the OECD’s Working Group on Consumer Product Safety.
The Treasury continued to provide secretariat support to the Ministerial Council on Consumer Affairs and to the Commonwealth Consumer Affairs Advisory Council.
National regulation of credit
The National Consumer Credit Protection laws came into force on 1 July 2010. The legislation gives effect to the COAG agreement of October 2008 to transfer responsibility for consumer credit regulation to the Australian Government.
The National Consumer Credit Protection laws:
- replace the State and Territory administered Uniform Consumer Credit Code with a nationally consistent consumer credit framework;
- introduce a national credit licensing system with both entry standards and ongoing conduct requirements for all persons engaging in credit activities; and
- require lenders, and those intermediaries who provide credit assistance, to meet responsible lending obligations, so that borrowers are not provided with products that are unsuitable.
During 2010-11, the Treasury commenced consideration of Phase 2 of the National Credit Reforms with the release, in July 2010, of the Phase 2 Green Paper, National Credit Reform: Enhancing Confidence and Fairness in Australia’s Credit Law.
The Treasury developed legislation to enhance the regulation of credit card lending announced under the Competitive and Sustainable Banking System reforms. The National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011, introduced a number of reforms including bans on unsolicited credit limit offers and ‘over limit’ fees unless consumers expressly consent to them, and a requirement for lenders to apply repayments to higher interest debts first.
Financial system reform
Financial sector crisis management
A key focus of activities during 2010-11 was providing policy analysis and advice to improve Australia’s productivity and international competitiveness, and deepen the supply potential of the economy in the wake of the global financial crisis and the global recession. These policies focused on promoting economic growth and supporting employment, ensuring the financial system remained robust and dynamic, and the regulatory framework promoted macroeconomic stability and market confidence.
Treasury officials continued to participate in the work of the G20, contributing to the development of key global reforms to financial regulation, including strengthened standards for capital and liquidity. The Treasury also contributed to the work of other international bodies to foster international cooperation in financial system regulation, corporate governance, financial reporting, auditing and corporate insolvency.
Regulation of particular market sectors addressed in those forums included hedge funds, credit rating agencies and over-the-counter derivatives.
In the case of financial reporting, the Treasury worked with the Financial Reporting Council on regional and international initiatives to promote convergence to International Financial Reporting Standards.
Domestically, the Treasury progressed further initiatives to address regulatory concerns emerging from the crisis.
On 12 December 2010, the Government released the Competitive and Sustainable Banking System reform package to foster competition and stability in the banking sector. The package introduced three broad streams of reforms: to empower consumers to get a better deal; to help smaller lenders put more competitive pressure on the big banks; and to secure Australia’s financial system, providing a sustainable flow of credit to households and businesses.
The Treasury worked with Australia’s financial regulators to develop the reforms and is currently undertaking consultations and working on legislation to introduce these reforms.
The Treasury also provided advice on Australia’s financial sector crisis management arrangements, including the operation of the Guarantee of Large Deposits and Wholesale Funding (Guarantee Scheme), and the Financial Claims Scheme (FCS).
The Guarantee Scheme enabled Australian authorised deposit-taking institutions to continue to raise funds and to provide credit throughout the crisis. The Government closed the Guarantee Scheme on 31 March 2010 following advice from the Council of Financial Regulators (comprising representatives of the Treasury, APRA, ASIC and the RBA) that it was no longer required.
The FCS provides depositors and insurance policyholders with timely access to funds if a financial institution fails. Depositor claims are currently capped at $1 million, a level which reflected the need to reassure depositors and the market at the time it was set. The Government has committed to review these arrangements by October 2011.
On 12 December 2010, the Government confirmed that the FCS would remain in place permanently. The Government also announced that it had been working with the Council of Financial Regulators to review the cap on the scheme.
On 27 May 2011, the Government released an FCS consultation paper which considered whether amendments would be required to the FCS in the new, post-crisis environment. The Council of Financial Regulators advised the Government that the FCS in its current form is largely appropriate to the post-crisis landscape. However, it has suggested some narrowing of the scheme from the settings that were put in place during the crisis, particularly in relation to the cap on the size of protected deposits and refinements to the existing framework. On 11 September 2011, the Government announced a new cap of $250,000 will apply from 1 February 2012.
The Treasury continued to participate in the work of the Council of Financial Regulators and liaised with other government agencies to monitor developments in the global and domestic financial markets and provide policy advice. It continued to monitor developments in key overseas financial markets to inform policy considerations.
Financial market infrastructure
On 8 April 2011, the Deputy Prime Minister and Treasurer referred a number of issue
s relating to financial market infrastructure regulation to the Council of Financial Regulators. The Treasury is chair of this working group, which also comprises representatives of APRA, ASIC and the RBA. The working group is considering potential measures which could be introduced to ensure Australia’s regulatory system for financial market infrastructure continues to protect the interests of Australian issuers, investors and markets participants, including under a scenario where the Australian Securities Exchange is part of a foreign-domiciled group.
Market supervision and competition
On 1 August 2010, the Corporations Amendment (Financial Market Supervision) Act 2010 and the Corporations (Fees) Amendment Act 2010 commenced, giving effect to the Government’s decision to transfer responsibility for the supervision of Australia’s domestic licensed financial markets from market operators to ASIC. The associated Regulations and ASIC’s Market Integrity Rules, which together provide the detail of the new regulatory framework, also commenced at that time.
In 2010-11, the Treasury progressed the Government’s decision, announced in March 2010, to support financial market competition in Australia. This included working closely with ASIC to develop the ASIC Market Integrity Rules (Competition in Exchange Markets) 2011. Following advice from the Treasury and ASIC, on 4 May 2011, the Assistant Treasurer and Minister for Financial Services and Superannuation granted a licence to ChiX Australia Pty Ltd as an alternative securities exchange to boost competition in Australia’s financial market. The Treasury also assisted in the development of a cost recovery framework for market supervision in a multi-market operator environment.
Financial services reforms
Financial advice reform
In April 2010, the Government announced the Future of Financial Advice reforms, which focused on improving the quality of advice and enhancing retail investor protection. The reforms included a ban on conflicted remuneration structures, the introduction of a best interest’s duty for people providing personal advice, and a compulsory renewal obligation for ongoing advice relationships. The reforms are designed to tackle conflicts of interest that have led to high profile corporate collapses such as Storm Financial, Opes Prime and WestPoint.
Following the initial public information sessions held in July 2010, the Treasury held a series of targeted meetings with stakeholders and a second round of public information sessions in February and March 2011. On 28 April 2011, the Government released an information pack outlining further details of the reforms, particularly in relation to the compulsory renewal obligation and the payment of insurance commissions.
The Government is moving ahead with the implementation of the reforms and expects to introduce legislation into Parliament before the end of 2011.
Statutory Compensation Scheme Review
As part of the Future of Financial Advice reforms, a review of the cost and benefits of a statutory compensation scheme for financial services is being undertaken by Mr Richard St. John. In April 2011, Mr St. John released a consultation paper seeking feedback on a range of options including more rigorous administration of the professional indemnity insurance arrangements, a strengthening of capital requirements and introduction of a last resort scheme. Mr St. John is expected to report to government on these issues in 2012-13.
Reforming flood insurance: Clearing the waters
On 4 April 2011, in response to the number of natural disasters, the Government released the proposals paper Reforming flood insurance: Clearing the waters. The Treasury is in the process of developing two of the key proposals from the paper, the introduction of a standard definition of ‘flood’ and a key facts sheet for home building, and home and contents insurance policies. The two proposals being developed are expected to reduce the adverse outcomes faced by consumers when a natural disaster strikes. This will occur through increased consumer knowledge and awareness regarding insurance policies.
Shorter Product Disclosure Statements
In 2008, the Minister for Finance and Deregulation and the then Minister for Superannuation and Corporate Law created the Financial Services Working Group, comprising officials from the Treasury, the Department of Finance and Deregulation and ASIC. The Group officially completed its main project in June 2010 by introducing simplified and shortened product disclosure statements for margin loans, superannuation funds and simple managed investment schemes.
Shorter Product Disclosure Statements (SPDS) for margin loans are four pages, while for both superannuation products and simple managed investment schemes, SPDS’s are reduced to only eight pages.
An SPDS for margin loans came into operation from 1 January 2011, with regulated superannuation and simple managed investment scheme SPDS’s transitioning to the new regime from 22 June 2011. SPDS’s provide retail clients with short and simple to read disclosure documents which still contain the key information consumers need to be aware of before choosing to acquire an investment product.
Australian Financial Centre Forum
In September 2008, the Government commissioned a panel of experts — the Australian Financial Centre Forum — to identify the key priority areas necessary to position Australia as a leading financial centre in the Asia-Pacific region.
The Australian Financial Centre Forum’s report, Australia as a Financial Centre: Building on Our Strengths, was released in January 2010. On 11 May 2010, the Government announced its response to the recommendations, providing in-principle or direct support for nearly all 19 recommendations. This included recommendations on the taxation of financial services, such as the Board of Taxation reviewing Islamic financial products and collective investment vehicles, and regulation of financial services such as the development of an Asia Region Funds Passport and a financial services regulatory online gateway for potential overseas investors.
The Asia Region Funds Passport was discussed at an APEC policy dialogue in Kuala Lumpur in October 2010, leading to endorsement of continued work by the APEC Finance Ministers at their meeting in Kyoto in November 2010. Further work, led by the Treasury, is continuing amongst APEC economies on the technical design of the Passport model.
Financial sector trends and structures
The Treasury continues to advise the Government on emerging market trends and structures by assessing market developments and new products, monitoring trends affecting competition and efficiency in the financial sector, and considering potential developments which may affect the effectiveness of existing policy settings. In addition, the Treasury has advised government on developments in banking fees and charges; the affordability and availability of insurance; and the operation, structure and cost of the superannuation system.
Corporations regulation reforms
Following the Government’s announcement in April 2010 that it would introduce a package of reforms to strengthen Australia’s remuneration framework, the Treasury developed and implemented these reforms through the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act 2011 and associated Regulations. The reforms address many of the recommendations made by the Productivity Commission in its inquiry into Australia’s executive remuneration framework.
Unsolicited share offers
In September 2010, the Government reintroduced the Corporations Amendment (No. 1) Bill 2010. The Bill includes measures to address unsolicited share offers by changing rules regarding the access and use of information held on share registers. It also amended ASIC’s search warrant powers and its a
bility to access information obtained through telecommunications intercepts in relation to serious offences.
Sons of Gwalia
In September 2010, the Government reintroduced the Corporations Amendment (Sons of Gwalia) Bill 2010. The Bill reversed the effects of the High Court decision in Sons of Gwalia and Margaretic, which provided that shareholder compensation claims did not rank below the claims of unsecured creditors.
On 2 June 2011, the Parliamentary Secretary to the Treasurer and Attorney-General jointly released an options paper, A Modernisation and Harmonisation of the Regulatory Framework Applying to Insolvency Practitioners in Australia. The options paper examines reforms to address possible misconduct in the insolvency profession and to improve the value for money for recipients of insolvency services.
In 2010-11, in consultation with industry and the States and Territories, the Treasury continued to implement the national regulation of trustee companies. The Corporations and Other Legislation Amendment (Trustee Companies and Other Measures) Act 2011 came into effect in April/May 2011.
The former Chairman of the Financial Reporting Council released a Treasury consultation paper Audit Quality in Australia: A Strategic Review on 5 March 2010 for a two-month consultation period.
The Treasury’s paper identified the key drivers of audit quality in Australia with a view to assessing whether any measures should be taken to address any real or perceived threats to these drivers of audit quality.
The Treasury’s consultation paper has been well received by stakeholders who have endorsed the Treasury’s key finding that Australia’s audit regulation framework is robust and stable, that the framework is in line with international best practice and that no fundamental changes to the framework are required.
After undertaking an analysis of the submissions, the Treasury completed its consultations with key stakeholders by holding roundtable discussions with stakeholders during November 2010. The consultative process identified a number of important reforms to enhance audit quality which the Government is now progressing through draft legislation.
Advice on, and processing of, individual foreign investment proposals
Foreign investment proposals that fall within the scope of Australia’s foreign investment policy or the Foreign Acquisitions and Takeovers Act 1975 (the Act) are examined to determine whether they are contrary to Australia’s national interest.
Foreign persons are required to notify the Deputy Prime Minister and Treasurer when entering into an agreement to acquire an interest in certain types of Australian real estate or a substantial interest1 in an Australian business or corporation valued above $231 million2. All foreign governments and their related entities should notify and get prior approval before making a direct investment in Australia, regardless of the value of the investment. Foreign governments and their related entities also need to notify and get prior approval to start a new business or to acquire a real estate interest (except when buying land for diplomatic or consular requirements).
During 2010-11, the Foreign Investment Review Board (a non-statutory body which advises the Deputy Prime Minister and Treasurer on foreign investment matters) provided advice to the Deputy Prime Minister and Treasurer on major proposals. The General Manager of the Foreign Investment and Trade Policy Division is the Executive Member of the Foreign Investment Review Board.
Proposals are initially examined by the Treasury, in its role as secretariat to the Foreign Investment Review Board. Under the Deputy Prime Minister and Treasurer’s authorisation, senior Treasury officers make decisions on less complex proposals that are not highly sensitive; this accounts for the majority of proposals. The Treasury also undertakes associated compliance work.
In examining large or otherwise significant proposals, the Treasury consults with Commonwealth and State government departments and authorities with responsibilities relevant to the proposed activity, to assist in assessing the implications of proposals. While the majority of proposals proceed without objection, the Deputy Prime Minister and Treasurer has powers under the Act to prohibit proposals that are contrary to the national interest, or to raise no objections to them subject to conditions that are considered necessary to ameliorate national interest concerns. Most proposals are decided within the 30 day statutory period.
Additional information on Australia’s foreign investment screening arrangements, including statistics on foreign investment, is provided on the Foreign Investment Review Board’s website at www.firb.gov.au.
Advice on investment and trade policy
The Treasury provides advice to the Government on general foreign investment and trade policy matters. This includes advice on global investment and trade flows and trends, foreign government investment and trade policy responses, and the implications for Australia. The Treasury also provides advice on Australia’s participation in multilateral, regional and bilateral investment and trade agreements.
Representation in international forums
The Treasury provides policy input on international investment issues in multilateral forums such as the World Trade Organization and the OECD, in regional forums such as APEC, and bilaterally through free trade agreements, Investment Promotion and Protection Agreements, and other bilateral partnerships. The Treasury is involved in negotiating investment, financial services and competition related provisions in free trade agreements.
Trade agreements/closer economic cooperation
The Investment Protocol to the Australia-New Zealand Closer Economic Relations Trade Agreement was signed on 16 February 2011. The Investment Protocol is an extension of the Closer Economic Relations Trade Agreement and complements existing bilateral initiatives that are designed to establish a single economic market. The Treasury was the lead agency in the negotiations.
The Treasury was active in developing the Association of Southeast Asian Nations (ASEAN)Australia-New Zealand Free Trade Agreement Economic Cooperation Work Program, including investment policy reviews for interested ASEAN countries.
The Treasury continued its involvement in Australia’s ongoing free trade agreement negotiations with Japan, China, Korea, Malaysia, the Gulf Cooperation Council and the Trans-Pacific Partnership Agreement (which involves Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, the United States and Vietnam). The Treasury participated in these negotiations together with the Department of Foreign Affairs and Trade and a range of other Australian Government agencies.
In November 2010, Indonesia and Australia agreed to commence negotiation of an Indonesia-Australia Comprehensive Economic Partnership Agreement and in May 2011, India and Australia launched negotiations to conclude a Comprehensive Economic Cooperation Agreement. Formal negotiations have not yet begun but the Treasury has assisted with preparatory work.
In addition to participating in negotiations, the Treasury provides specialised advice to the Department of Foreign Affairs and Trade on Australia’s involvement in the World Trade Organization Doha round of negotiations on the General Agreement on Trade in Services.
OECD Investment Committee
Australia is represented at OECD Investment Committee meetings by a senior executive of the Foreign Investment and Trade Policy Division. The committee enhances the contribution of internationa
l investment to growth and sustainable development worldwide, by advancing investment policy reform and international cooperation.
The committee also oversees the operation of the OECD Guidelines for Multinational Enterprises, a voluntary code providing recommendations for responsible business conduct in labour relations, human rights, the environment, bribery, tax and consumer welfare. As a member of the OECD, the Government promotes and implements the guidelines. This responsibility rests with the Treasury and is performed by the Australian National Contact Point, who is a senior executive of the Foreign Investment and Trade Policy Division. During 2010-11, a consultation process took place with stakeholders with a view to revising the guidelines, a revision of the guidelines supported by Australia was endorsed by OECD Ministers in late May 2011. A key outcome of the review was the addition of a human rights chapter in the guidelines. A strategy is being put in place to publicise the new guidelines to Australian multinational enterprises.
In 2010-11, the Australian National Contact Point received three specific instance complaints under the guidelines. One involved the operations of an Australian multinational operating in Mozambique. This matter was transferred to the United Kingdom National Contact Point as the corporation involved is dual listed on the Australian Stock Exchange and the London Stock Exchange with the corporate responsibility for the Mozambique corporation being in London. The second matter concerned the industrial and employment practices of a multinational mining corporation in Australia. This matter was finalised when, despite the offer of the Australian National Contact Point to mediate, the mining corporation declined to meet with trade union officials on a face-to-face basis regarding the complaint. The third matter, concerning an Australian-based mining corporation operating in Argentina, is still in the discovery phase.
The Treasury represented Australia’s interests in APEC as a member of APEC’s Investment Expert’s Group, the key focus of which is to encourage APEC members to enhance the environment for investment in their economies and improve transparency.
The 2010-11 work program included:
- continuing analysis of reform of investment policies;
- APEC funded projects, sponsored and managed by Australia, which are designed to benchmark performance improvement in removing barriers to investment (notably a project undertaken by the World Bank for APEC entitled Investing Across Borders which is a benchmarking report on foreign direct investment regulation across APEC and other countries); and
- developing, then getting APEC ministers and leaders to endorse, a number of action plans within the overarching APEC Investment Facilitation Action Plan. Australia also undertook a revision of the Investment Facilitation Action Plan for APEC’s Investment Experts Group.
The Treasury also participated in investment reform capacity-building projects targeting APEC economies undertaken by the Australian APEC Study Centre and Melbourne APEC Finance Centre.
The Treasury is also a member of the APEC Economic Committee and coordinates the competition policy work stream.
International Financial Reporting Standards regional policy forum
The fifth International Financial Reporting Standards (IFRS) Regional Policy Forum, which was held in Indonesia in May 2011, was attended by many jurisdictions from the Asia-Oceania region. Australia actively participated in the forum through representatives from the Treasury, the accounting standard setters, the auditing standard setters and professional accounting bodies. The theme of the forum was ‘Towards One Global Standard: The Challenges and Opportunities of IFRS Adoption in the Asia-Oceania Region’.
Coordination of business law with New Zealand
In August 2009, the Australian and New Zealand Prime Ministers agreed to principles and a range of shared medium-term practical outcomes for developing the Single Economic Market. The principles are:
- persons in Australia or New Zealand should not have to engage in the same process or provide the same information twice;
- measures should deliver substantively the same regulatory outcomes in both countries in the most efficient manner;
- regulated occupations should be able to operate seamlessly between each country;
- both Governments should seek to achieve economies of scale and scope in regulatory design and implementation;
- products and services supplied in one jurisdiction should be able to be supplied in the other;
- the two countries should seek to strengthen joint capability to influence international policy design; and
- outcomes should seek to optimise net Trans-Tasman benefits.
The range of shared outcomes include insolvency law, financial reporting policy, financial services policy, competition policy, business reporting, corporations law, personal property securities law, intellectual property law and consumer policy.
A Trans-Tasman Outcomes Implementation Group comprising senior officials from the Australian and New Zealand Governments has been tasked with overseeing and, wherever possible, accelerating the progress of the reform agenda. The Treasury and the Ministry of Economic Development currently co-chair the group. In 2010-11, completed Single Economic Market Outcomes proposals included:
- for-profit entities that are publicly accountable (including both groups and individual subsidiaries) are only required to prepare a single set of financial statements;
- financial reporting standards bodies in Australia and New Zealand have functional equivalence; and
- cross-membership between the ACCC and the New Zealand Commerce Commission at associate member level.
Trans-Tasman Accounting and Auditing Standards Advisory Group
The Trans-Tasman Accounting and Auditing Standards Advisory Group comprises representatives from the accounting and auditing standard setters, the professional accounting bodies, and the policy makers of both Australia and New Zealand. The Trans-Tasman Accounting and Auditing Standards Advisory Group’s focus is to ensure that the financial reporting and auditing frameworks of both countries do not unnecessarily impede Trans-Tasman business activity. During 2010-11, the group progressed a range of reforms designed to ensure greater commonality and alignment between the two frameworks.
Trans-Tasman Council on Banking Supervision
The Trans-Tasman Council on Banking Supervision reports to the Deputy Prime Minister and Treasurer and the New Zealand Minister of Finance on promoting a joint approach to deliver a seamless regulatory environment for banking services. The Secretaries to the Treasuries of Australia and New Zealand jointly chair the council, its membership also includes senior officials from the financial system regulators.
The Treasury has pursued the council’s work program, focusing on improved cooperation on crisis management.
OECD Insurance and Private Pensions Committee
The Treasury has provided the Australian representative to the OECD Insurance and Private Pensions Committee, which also includes the Working Party on Private Pensions and the Working Party on Government Experts on Insurance. In 2010-11, the committee focused on issues arising in the financial crisis that were relevant to insurance sectors and private pension funds across member countries. These included crisis resolution options, corporate structures, consumer protection and accounting standards. It also undertook further work on the OECD guidelines on insurer corporate governance in cooperation with the International Association of Insurance Supervisors.
Standard Business Reporting International Forum
The SBR International Forum is jointly chaired by the Treasury’s SBR General Manager and a representative from the Net
herlands Government. In May 2011, officials from Australia, the Netherlands, Taiwan, the UK and Singapore, along with representatives of the software development community and several major accounting firms, met at an SBR International Forum in the Netherlands. This Forum brought together countries that are developing, or are interested in developing, an SBR program. Members explored the latest developments in SBR and shared their respective country’s experiences.
The Takeovers Panel contributed to well functioning securities markets in Australia by dealing with 28 applications, which are essentially disputes relating to takeovers made under the Takeovers Chapter of the Corporations Act 2001 and other control transactions. The panel, a peer review body with regulatory functions, has 52 members who are specialists in mergers and acquisitions either as investment bankers, lawyers, company directors or other professionals. In resolving disputes, the panel helps to ensure that acquisition of control over voting shares in listed and widely-held companies occurs in an efficient, competitive and informed market, security holders and directors are given enough information and security holders have a reasonable and equal opportunity to participate in any benefits of a proposal. The panel also publishes guidance notes to help foster market confidence and efficiency.
In 2010-11, the panel:
- considered a number of applications alleging association including Viento Group Limited, Brockman Resources Limited, CMI Limited and Bentley Capital Limited;
- considered a number of high profile applications including Leighton Holdings Limited; and
- updated three existing guidance notes and amended the guidance note on Frustrating Action to include a modified ‘put up or shut up’ exception.
Financial Reporting Panel
The Financial Reporting Panel is an alternative dispute resolution body which determines contested issues between ASIC and reporting entities concerning the application of accounting standards in financial reports. The panel provides an alternative to legal action, which is potentially both a costly and lengthy process. In 2010-11, ASIC referred four matters to the panel for determination.
The matters were each concluded in about two months, at minimal expense to the companies and ASIC. The panel’s written determinations were publicly released in October 2010. The panel ruled in favour of ASIC in two of the matters and in favour of the firms in the other two.
Standard Business Reporting
SBR is a multi-agency initiative to reduce the business-to-government reporting burden. Led by the Treasury, participating agencies include the ABS, APRA, ASIC, the ATO and all State and Territory government revenue offices. The government side of SBR was implemented on 1 July 2010 and 2010-11 has focused on leading the ongoing governance of SBR, including the strategic direction, stakeholder take-up, architectural leadership and international collaboration.
SBR has been co-designed by Australian and State and Territory government agencies in partnership with business, software developers, accountants, bookkeepers and other business intermediaries across Australia. It aims to simplify financial reporting to government, and make it a natural by-product of accounting and financial software.
SBR has established ongoing communication and collaboration with the Netherlands, New Zealand, Singapore, Taiwan, the United States, the United Kingdom and the European Union, recognising the need to ensure, where possible, that its business-to-government reporting definitions are consistent with other countries.
Governments across Australia have endorsed SBR. It formed part of COAG’s broader agenda for deregulation, under the oversight of the Business Regulation and Competition Working Group chaired by the Minister for Finance and Deregulation and the Minister for Small Business.
During 2010-11, the program supported, maintained and extended the main components of the SBR solution:
- taxonomies (the single language used to enable business software to send reports to government agencies);
- core services (the system which ensures that a report from business software is delivered to the relevant agency, and receipts and messages are returned); and
- the single secure sign on for businesses, AUSkey. AUSkey is positioned to be the single key for businesses to access government online services.
SBR commenced on 1 July 2010 with participating agencies able to accept lodgments of reports. During 2010-11, SBR engaged with key software developers to encourage and support the development of SBR-enabled financial/accounting and payroll software products for use by businesses and reporting professionals.
A number of recommendations have been made regarding the potential expansion of SBR to other business areas. These recommendations appear in the review into Australia’s Future Tax System, the report into the reform of Australian Government administration, the review into Australia’s superannuation system and Productivity Commission reports on the review of the regulatory burdens of business and the contribution of the not-for-profit sector. SBR has commenced working with several government agencies to explore the potential re-use of SBR to further reduce the business-to-government reporting burden.
The Treasury provided advice to Treasury portfolio ministers on a range of currency-related matters. It chaired the Royal Australian Mint Advisory Board to assist the Mint to develop its policy and administer its initiatives. The Treasury also assisted the Perth Mint in relation to its currency determinations (legislative instruments) which are tabled in Parliament before the release of numismatic (collector) coins.
Statutory and other procedural requirements
Financial sector levies
During 2010-11, the Treasury, in conjunction with APRA, consulted with industry and provided advice to the Government on the determination of financial sector levies which primarily support APRA’s operations.
Review of need for Terrorism Insurance Act 2003
On 1 July 2003, the Government established a terrorism insurance scheme to minimise the wider economic impacts that flowed from the withdrawal of terrorism insurance following the terrorist attacks of September 2001. The Terrorism Insurance Act 2003 requires the Act be reviewed at least once every three years, if it is to continue in operation. The 2009 Review recommended some minor refinements to the scheme. Following the Government’s agreement, the Treasury is working with the Australian Reinsurance Pool Corporation to implement the review’s recommendations. The Act will be reviewed again in 2012.
The Treasury advised ministers on appointments to a range of statutory portfolio bodies.
The Treasury provided secretariat services to the Ministerial Council for Corporations (MINCO), which met once during 2010-11. The Treasury also assisted ministers to fulfil the Government’s obligations under the Corporations Agreement 2002. A streamlining project initiated by COAG in 2011 resulted in changes to the ministerial council system. MINCO now operates as the Legislative and Governance Forum for Corporations (meeting as the Ministerial Council for Corporations). Most work priorities and operational arrangements are continuing as with the former MINCO. However, work performed by MINCO that did not fall within the new terms of reference, ceased or was transferred to other agencies.
The Treasury provided secretariat support for the Financial Reporting Council, which met four times during 2010-11. This statutory body provides strategic oversight of the accounting and audit standard-setting processes, including the Australian Accounting Standards Board (AASB) and the Auditing and Assurance Standards Board (AUASB), and monitors the ef
fectiveness of Australia’s auditor independence requirements. The AASB deals with the setting of accounting standards for the public and private sectors of the Australian economy, while the AUASB focuses on the development and formulation of Australian Auditing Standards. The Treasury provided secretariat support to the Financial Sector Advisory Council, which brings together a range of senior financial market participants to provide advice to the Government on policies to facilitate the growth of a strong and competitive financial sector.
The Treasury also provided secretariat support for the COAG Business Regulation and Competition Working Group Competition sub-committee, which is chaired by the Parliamentary Secretary to the Treasurer. The sub-committee oversights the eight competition reform areas under the National Partnership to Deliver a Seamless National Economy and met four times in 2010-11.
Australian Government Actuary
The Australian Government Actuary operates in a competitive and contestable market for actuarial services. Income from consultancy services relative to total costs is, therefore, a primary indicator of performance. The Australian Government Actuary operates a special account to ensure its financial operations are managed properly and transparently. At 30 June 2011, the account was in a sound financial position.
Demand for service was again high during 2010-11.
Australian Government Actuary consultancy services typically involve analysing uncertain future financial flows using financial modelling techniques, documenting the analysis and presenting the results to clients.
Departments which sought advice included Defence; Attorney-General’s; Education, Employment and Workplace Relations; Families, Housing, Community Services and Indigenous Affairs; Health and Ageing; Finance and Deregulation and Veterans’ Affairs. Centrelink and the ATO also sought advice.
Feedback from these agencies indicates they were generally satisfied with the advice received, and its value as an input in achieving their objectives.
Services to the Treasury
The Australian Government Actuary contributed its technical expertise on policy issues, including the superannuation system and insurance matters. The Australian Government Actuary was appointed to assist the Natural Disaster Insurance Review in March 2010.
The Treasury funded this work which accounted for around 10 per cent of the office’s total revenue for the year.
The office operates under the direction of an internal advisory board comprising three senior officers from the Treasury, including the Australian Government Actuary. The board reviews financial performance and oversees the strategic direction of the office.
1 A substantial interest is defined as an interest of 15 per cent or more for an individual foreign person, or an interest of 40 per cent or more for two or more foreign persons, and their associates.
2 Under the Australia-US Free Trade Agreement, higher thresholds apply for US investors. From 1 January 2011, the threshold is $1,005 million except for acquisitions involving a US government entity or in prescribed sensitive sectors.