- Written by Jessica Houston
The fundamental driver of the increased compliance requirements across the financial services industry has been customer disclosure, i.e. disclosure of fees, services, rates, risks and contractual conditions.
The history of the last 20 years on the lending side provides valuable insight into the disclosure and compliance trends. Prior to the introduction of the Uniform Consumer Credit Code (UCCC) in 1996 consumer protection was governed by the Credit Acts that applied in each state and territory. The Acts were substantially the same, but importantly there were differences.
These Acts regulated personal loans and credit cards only and importantly they allowed different interest charging regimes, e.g. Monthly Actuarial, Rule of 78 and Modified Rule of 78, whereas under the UCCC daily interest calculation with monthly charging is in essence all that is allowed. Chairmont personnel both project managed, and worked on, one of the largest Credit Act cases in Australian history when the NSW State Bank breached this Act in NSW, Queensland, Victoria and ACT. The experience gained in retail banking provided insight into where compliance was heading in financial services, which was invaluable.
Based on our experience of the Credit Act, Chairmont was appointed to run a number of the UCCC projects that were established before its implementation on 1 November 1996. We were also appointed to the Australian Bankers’ Association (ABA) UCCC Taskforce. The UCCC extended the scope of products covered to include home loans and generally all credit for personal, domestic and household use. This template legislation was adopted pretty much consistently across all states and territories. There were also other significant changes in respect to standardising Loan Contracts, Advertising and Fee disclosure.
The National Consumer Credit Protection Act (NCCPA) extended the scope of the UCCC to include lending for investment purposes, notably investment properties and was part of a wider licensing change where providers of Credit Assistance must now have an Australian Credit Licence (ACL).
In the investment area of financial services there has been similar changes to the Corporations Act over a number of years, and Chairmont has been involved in many projects in this area. There was the Managed Investment Act that was closely followed by the Financial Services Reform Act (FSR). Chairmont project managed, and advised, on a number of these projects for its clients and helped bring about solid and constructive changes. For example, for a Property Asset Fund Manager that previously structured its deals on buying assets Chairmont’s advice paved the way for them to change their deals to be transaction structured driven so that they could in the future easily buy/sell structures with the assets either embedded or not.
This convergence of legislation governing lending and investments is a trend that will continue and has been acknowledged by the Australian Securities and Investment Commission (ASIC). ASIC is responsible for financial market integrity, business conduct and disclosure, and consumer protection in the financial system, as outlined under the Corporations Act. ASIC effectively encourages financial services companies to have both an ACL and an Australian Financial Services Licence (AFSL), as Chairmont does. Consistent with this ASIC allows disclosure documents like the Financial Services Guide (FSG) and Credit Guide (CG), to be combined within the same document.
Chairmont has also been involved in other regulatory projects including Privacy Act, Good and Services Tax (GST), Euro, National Trustee Legislation, etc. Chairmont’s work was aimed at leveraging business opportunities that arose from the regulatory changes, for our clients through making constructive and synergistic amendments to business models. These regulations were seen as opportunities for our clients rather than treating them as impositions because of their compliance nature.
A number of these pieces of legislation have required organisations to apply for licenses. In addition, to getting its own license Chairmont has assisted financial institutions get their licenses.
Despite what successive Governments say about reducing red tape, it is Chairmont’s experience that the cost of doing business because of compliance is increasing with the flow on effect that the barriers to entry are also increasing. This cost is ultimately worn by the consumer.