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CQiB > 3. The Regulatory and Legal Environment > Flashcards

3. The Regulatory and Legal Environment Flashcards

1
Q

What are the three key banking regulators in Australia?

A
  1. RBA (Reserve Bank of Australia)
  2. ASIC (Australian Securities and Investments Commission
  3. APRA (Australian Prudential Regulatory Authority)
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2
Q

What is the RBA broadly responsible for?

A

Responsible for monetary policy, overall stability of the financial system and regulation of the payments system.

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3
Q

What is ASIC broadly responsible for?

A

Responsible for market integrity and consumer protection across the financial system.

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4
Q

What is APRA broadly responsible for?

A

Responsible for prudential supervision of banks, building societies, life and general insurance, companies and superannuation funds.

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5
Q

What are the six roles of the RBA?

A
  1. Monetary policy
  2. Financial stability
  3. Financial market operations
  4. Payments and infrastructure
  5. Banking
  6. Banknotes
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6
Q

What are the three goals of the RBA regarding monetary policy?

A
  1. Stability of the currency of Australia
  2. Maintenance of full employment
  3. Economic prosperity and welfare of the people of Australia
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7
Q

What is the CPI target of the RBA?

A

Between 2-3%, on average, over time.

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8
Q

How does the RBA maintain financial stability?

A

The Reserve Bank will use its power and influence to foster the stability of the Australian financial system. This entails the accurate assessment and successful management of domestic sources of systemic risk, as well as assisting the financial system to maintain its resilience to any shocks that might come from abroad.

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9
Q

What is meant by financial market operations.

A

The Reserve Bank operates in domestic and international financial markets in order to achieve its policy objectives. These operations include implementing monetary policy decisions of the Reserve Bank Board, facilitating the smooth functioning of the payments system, managing the nation’s foreign exchange reserve assets and providing banking services to clients (mainly the Australian Government and foreign central banks).

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10
Q

How does the RBA support monetary policy through financial market operations?

A

The Reserve Bank’s operations in financial markets support its monetary policy objectives through the specification of an operational target for the overnight cash rate.

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11
Q

How does the RBA manage foreign exchange reserves?

A

Regular transactions in the foreign exchange market help to manage Australia’s foreign currency reserves.

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12
Q

What are three of the distinct aspects of the Reserve Bank’s role?

A
  • Monetary policymaker
  • Overseer and supervisor for overall stability of banking system
  • Owner and operator of the key national payments infrastructure
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13
Q

What are the three areas the RBA uses its policymaking to influence regarding payments and infrastructure?

A
  • Controlling risk in the financial system
  • Promoting the efficiency of the payments system
  • Promoting competition in the market for payment services
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14
Q

What are the roles of the RBA with respect to other banks?

A

The Reserve Bank acts as banker for the Commonwealth and also provides banking services to a number of overseas central banks and official institutions. Banks hold an Exchange Settlement Account with the Reserve Bank to settle financial obligations arising from the clearing of payments.

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15
Q

How is the RBA involved in managing banknotes?

A

The Reserve Bank works with Note Printing Australia to design banknotes and arrange for their production. Banknotes are distributed to financial institutions by the Reserve Bank, which also monitors and maintains their quality and then withdraws unfit banknotes from circulation. It also monitors and analyses counterfeiting and researches banknote security.

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16
Q

What are five areas in which regulations influence banks?

A
  1. Customers - Maintaining customer accounts, providing an efficient customer service, managing customer information and maintaining confidentiality
  2. Policies and procedures - Governing and managing business operations. This includes dealing with customer complaints.
  3. Risk and reporting - Disclosing and reporting financial information, managing risk and marketing products and services
  4. Payments - Providing payment services such as BPAY and international transfers
  5. Lending - Lending to borrowers and sourcing funds from depositors
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17
Q

What are the two boards outlined by the Reserve Bank Act 1959?

A
  1. Reserve Bank Board
  2. Payments System Board
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18
Q

What are the three aims of the Reserve Bank Board?

A

Ensures that monetary and banking policy contributes to:
- Stability of the Australian currency
- Maintenance of full employment in Australia
- Economic prosperity and welfare of the Australian people

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19
Q

What are the three aims of the Payments System Board?

A

Ensures that the payments system contributes to:
- Controlling risk in the financial system
- Promoting the efficiency of the payments system
- Promoting competition in the market for payment services, consistent with the overall stability of the financial system

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20
Q

What are payments systems?

A

Arrangements which allow consumers, businesses, and other organisations to transfer funds (usually held in an account at a financial institution) to one another.

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21
Q

What are the three types of payments systems?

A
  1. Consumer payment methods
  2. High value clearing system
  3. Clearing and settlement systems
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22
Q

What are some examples of consumer payment methods?

A
  • Cash payments
  • Non-cash payments (e.g., EFTPOS)
  • Electronic credit transfers and direct debits
  • Payment cards (e.g., credit and debit cards)
  • ATMs
    -Third party bill payments (e.g., BPAY)
    Internet payment system (e.g., PayPal)
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23
Q

What does HVCS stand for?

A

High value clearing system

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24
Q

What are high value clearing systems?

A

HVCS manages the exchange of high value payments.

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25
Q

What is the mechanism for HVCS participants exchanging payments with each other?

A

SWIFT (Society for Worldwide Interbank Financial Communication) payment delivery system (PDS)

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26
Q

How are SWIFT payments settled?

A

Each payment is settled individually using the Reserve Bank Information Transfer System (RITS)

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27
Q

What are four of the clearing and settlements systems used in Australia?

A
  1. ASX Clear (Trade)
  2. ASX Clear (Futures)
  3. Austraclear
  4. CHESS (Clearing House Electronic Sub-Register System)
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28
Q

What is the role of ASX Clear (Trade)?

A

Provides central counterparty services for equity, warrants and other equity-related derivatives products traded on the ASX between the hours of 10am-4pm.

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29
Q

What is the role of ASX Clear (Futures)?

A

Provides central counterparty services for the ASX 24 market for a suite of interest rate, equity index and commodity futures products trading on a globally distributed 24 hour platform.

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30
Q

What is the role of ASX Clear (Futures)?

A

Provides central counterparty services for the ASX 24 market for a suite of interest rate, equity index and commodity futures products trading on a globally distributed 24-hour platform.

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31
Q

What is the role of Austraclear?

A

Provides settlement services for the OTC debt market and for derivatives traded on the ASX and ASX 24 markets.

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32
Q

What is the role of CHESS?

A

A settlement system for Australian equities operated by ASX Settlement.

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33
Q

What is the definition between retail and wholesale clients and under which Act? What are the five categories of wholesale clients?

A

The Corporations Act defines all clients as “retail” unless they fall within one of the client categories below:
- Product value
- Individual wealth
- Professional investors
- Large businesses
- Sophisticated investor

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34
Q

What is a product value wholesale client? What is the threshold?

A

The product being invested in, or advised on, has a value exceeding $500,000.

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35
Q

When does the wholesale category for investments over $500,000 not apply?

A

It does not apply in relation to risk-based products (such as life assurance) or to the extent that investment funds are sourced from a superannuation fund.

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36
Q

What are the two requirement categories to qualify for individual wealth?

A

Requires a person to have:
- Net assets of at least $2.5 million; OR
- Gross income for each of the last two financial years of at least $250,000 as certified by an accountant

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37
Q

Give examples of professional investors.

A
  • Australian Financial Services Licence (AFSL) holders
  • A body regulated by APRA
  • A body registered under the Financial Corporations Act 1974
  • A trustee of a superannuation product with more than $10 million in gross assets
  • A listed entity and its related body corporates
  • An exempt public authority
  • A person who carries on an investment business that is offered to the public
  • A foreign entity that would meet one of these requirements had it been established in Australia
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38
Q

What is an AFSL and who regulates it?

A

An Australian Financial Services Licence is a legal licence provided by the Australian Securities and Investments Commission (ASIC) enabling the operation and activities of Australian financial services businesses.

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39
Q

When does the category of a large business apply?

A

This category applies where the product is to be used in connection with a business that is not a small business.

A small business is one that has less than 20 employees, or less than 100 employees if the business is or includes the manufacture of goods.

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40
Q

What is a small business?

A

A small business is one that has less than 20 employees, or less than 100 employees if the business is, or includes, the manufacture of goods.

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41
Q

What are the three requirements for a sophisticated investor?

A

This category includes persons whom the AFSL holder has determined to be experienced in using financial services and:
1. The product is not a general insurance or superannuation product
2. The product or financial service is not used in connection with a business
3. The client has a written acknowledgement in relation to being considered a sophisticated investor

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42
Q

What is the main AFSL obligation under the Corporations Act 2001? Under which regulatory guide?

A

Disclosure documents required at each stage of the investment process for retail clients. Regulatory guide 168.

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43
Q

What are the three disclosure documents AFSL holders are required to provide retail clients?

A
  1. FSG (Financial Services Guide)
  2. SOA (Statement of Advice)
  3. PDS (Product Disclosure Statement)
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44
Q

What were the five amendments to the Corporations Act introduced in 2012?

A
  1. Conflicted remuneration
  2. Best interests duty
  3. Scaled advice
  4. Fees disclosure
  5. Enhanced powers for ASIC
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45
Q

Explain conflicted remuneration as it relates to the amendments made to the Future of Financial Advice Reforms in 2012.

A

A ban on certain remuneration structures such as commissions and volume-based payments, resulting from the distribution and advice about a range of retail investment products.

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46
Q

Explain best interests duty as it relates to the amendments made to the Corporations Act in 2012.

A

A duty for financial advisers to act in the best interest of their clients, and place the best interests of their clients ahead of their own when providing personal advice.

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47
Q

Explain scaled advice as it relates to the amendments made to the Corporations Act in 2001.

A

Advice can be limited in scope (general advice), or more complex (personal advice).

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48
Q

Explain fees disclosure as it relates to the amendments made to the Corporations Act in 2012.

A

An obligation that requires advisers to provide their clients with an annual fee disclosure statement plus a requirement for their client to “opt in” or renew their ongoing fee arrangements every two years.

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49
Q

Explain enhanced powers for ASIC as it relates to the amendments made to the Corporations Act in 2012.

A

Enhanced powers to cancel or suspend an AFSL licence and ban representatives.

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50
Q

What is APRA responsible for and who does it aim to protect?

A

APRA is responsible for ensuring financial institutions remain financially sound and able to meet their obligations for depositors, fund members and policyholders. APRA aims to act in the interests of depositors, policyholders and superannuation fund members to maintain prudential standards.

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51
Q

What are three key secondary bodies involved in regulating the financial services space?

A
  1. ACCC
  2. AUSTRAC
  3. AFCA
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52
Q

What is the ACCC and what is its main role?

A

The Australian Competition and Consumer Commission administers and enforces the Australian competition, fair trading, and consumer protection laws.

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53
Q

What are the three ways that the ACCC aims to promote competition and fair trade in markets:

A
  1. Administering laws protecting consumers from unfair business practices
  2. Prohibiting anti-competitive behaviour and price monitoring
  3. Prohibiting mergers and acquisitions that would have the effect of substantially lessening competition in a market
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54
Q

What additional industries outside of banking does the ACCC also regulate?

A

The ACCC also regulates certain industries such as airports, electricity, gas, telecommunications, and certain industry codes.

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55
Q

What is AUSTRAC? What legislation does it administer?

A

The Australian Transaction Reports and Analysis Centre administers the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and is Australia’s financial intelligence agency with regulatory responsibility for anti-money laundering and counter-terrorism financing.

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56
Q

What transactions are banks required to report to AUSTRAC? What are the penalties of non-compliance?

A

Under current federal legislation, all Australian banks are required to report cash transactions of $10,000 or more (or foreign equivalent), including details of the relevant account holders, to AUSTRAC. Non-compliance of this regulation can result in significant financial penalties.

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57
Q

What is AFCA and what are they responsible for?

A

The Australian Financial Complaints Authority is the industry’s independent dispute resolution scheme. It is a free, fair and independent dispute resolution scheme for customers to access. They consider complaints about financial products and services.

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58
Q

What is AFCA’s service offered as an alternative to?

A

AFCA’s service is offered as an alternative to tribunals and courts to resolve complaints consumers and small businesses have with their financial firms.

59
Q

What is BEAR and what is it responsible for? When did it commence?

A

The Banking Executive Accountability regime commenced in 2018 (for large ADIs) and 2019 (for small ADIs). The intent of the legislation is to improve executive accountability in ADIs, recognising that leadership is key to driving cultural change.

60
Q

What are the key benefits of the BEAR legislation?

A

BEAR provides greater clarity regarding the responsibilities of an ADI’s senior executives and directors and imposes heightened expectations of behaviour in line with community expectations.

Research indicates that the BEAR has produced greater clarity for executives regarding their individual accountabilities and greater understanding of what accountability entails. The study supported a link between accountability and risk culture, with the majority of participants reporting an improvement in organisational culture since the introduction of the BEAR.

61
Q

What are the consequences if BEAR expectations are not met?

A

Where these expectations are not met, APRA can remove or disqualify individuals, ensure ADIs’ remuneration policies result in financial consequences for individuals, and impose substantial fines on ADIs for non-compliance.

62
Q

What does the FAR refer to? Why was it developed and who does it apply to?

A

in response to the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the government proposed to extend the BEAR to a new regime called the Financial Accountability Regime (FAR). The FAR will apply to all financial entities regulated under APRA.

63
Q

What is the aim of FAR?

A

The FAR is intended to increase the transparency and accountability of a wider range of financial entities to improve risk culture and governance. The FAR will also require financial entities to clarify responsibilities attaching to particular officers and positions. As a result, individuals will be held to account for failure to perform their obligations.

64
Q

What does the money laundering cycle refer to?

A

The money laundering cycle describes the typical three-stage process criminals may use to conceal the source of illicit funds and make funds appear legitimate.

65
Q

What are the three stages of the money laundering cycle?

A
  1. Placement
  2. Layering
  3. Integration
66
Q

Describe the placement stage of the money laundering cycle. Provide examples.

A

Introducing illegal funds into the formal financial system (for example, making ‘structured’ cash transactions into bank accounts, ‘cuckoo smurfing’, or lots of small deposits by many individuals).

67
Q

Describe the layering stage of the money laundering cycle. Provide examples.

A

Moving, dispersing or disguising illegal funds or assets to conceal their true origin (for example, using a maze of complex transactions involving multiple bank accounts, or corporations and trusts).

68
Q

Describe the integration stage of the money laundering cycle.

A

Investing these now distanced funds or assets in further criminal activity or legitimate business or purchasing high-value assets and luxury goods. At this stage, the funds or assets appear to have been legitimately acquired.

69
Q

What are three common banking products used in the money laundering cycle?

A
  1. International funds transfers (wire transfers)
  2. Loans
  3. Bearer negotiable instruments (BNIS)
70
Q

What products are included in the class of bearer negotiable instruments?

A
  • Bank drafts
  • Promissory notes
  • Travellers’ cheques
  • Money orders
71
Q

Describe how international funds transfers or wire transfers are used in the money laundering process.

A
  • Main way of moving funds rapidly across international borders
  • Criminals exploit this service to move the proceeds of crime quickly and securely to foreign jurisdictions where they can take advantage of features such as bank secrecy laws to complete the money laundering process
72
Q

Describe how loans are used in the money laundering process.

A
  • Used to layer and integrate illicit funds into other assets such as real estate and motor vehicles
  • They can launder funds by obtaining loans which they then pay out using lump sum cash payments or smaller structured cash amounts
  • The loans are taken out essentially as a cover for laundering criminal proceeds under the guise of repayments
73
Q

Describe how bearer negotiable instruments are used in the money laundering process. Using what funds are BNIs often purchased?

A
  • Bank drafts, promissory notes, travellers’ cheques and money orders offer a profitable and compact way to smuggle high-value assets across international borders
  • Criminals may attempt to purchase BNIs with co-mingled funds (consisting of legitimate business earnings and the proceeds of crime) to camouflage the connection to underlying crimes
74
Q

What is cuckoo smurfing?

A

Cuckoo smurfing involves a money laundering syndicate targeting the bank accounts of people who receive money transfers into Australia. A person who is located overseas wants to send money into Australia. They do this by placing the money with an overseas money transfer business. However, the overseas money transfer business does not send the money to Australia, and instead they ‘swap’ the transfer details to a money laundering syndicate. The syndicate arranges for money from a different transaction—of the same value—to be deposited into the receiving Australian bank account. The replacement money is sourced from illegal activity and the ‘swap’ has allowed it to successfully enter the Australian banking system. The bank account holders are usually unaware that the funds that were transferred into their accounts are the proceeds of crime.

75
Q

What is cuckoo smurfing?

A

Cuckoo smurfing involves a syndicate targeting the bank accounts of people who receive money transfers into Australia. Replacement money for transfers into Australia is sourced from illegal activities and the ‘swap’ has allowed it to successfully enter the Australian banking system. The bank account holders are usually unaware that the funds transferred into their accounts are the proceeds of crime.

76
Q

What are the warning signs of cuckoo smurfing?

A
  • Multiple cash deposits in amounts under $10,000
  • Multiple cash deposits made on the same day or within a short period
  • Cash deposits made across various branches and ATMs, including across different states
  • Cash deposits from multiple third parties
77
Q

Who is a target for cuckoo smurfing?

A

You could be at risk if you are expecting a money transfer from overseas involving a money transfer business. This includes:
- Australian expatriates
- Australian exporters
- International students studying in Australia
- International investors
- Migrants wishing to settle in Australia

78
Q

Define terrorism financing.

A

The financial support, in any form, of terrorism or of those who encourage, plan or engage in terrorism.

79
Q

What are the two broad areas terrorism financing can be divided into?

A
  1. Funding of terrorist attacks
  2. Logistical funding
80
Q

Describe funding of terrorist attacks.

A

Funding the cost of conducting an actual terrorist attack, including the cost of explosive materials, firearms, communications equipment, vehicles, travel and accomodation.

81
Q

Describe logistical funding for terrorism financing.

A

Funding required to support groups or individuals who may plan a terrorist attack, or direct, recruit for and provide training to terrorist groups. The funding may also be used to maintain terrorist infrastructure such as training camps.

82
Q

What are tipping-off provisions?

A

The tipping-off provisions require an AML/CTF reporting entity to not disclose any information to anyone, with the exception of AUSTRAC, when they submit a Suspicious Matter Report (SMR). There are limited exceptions to the tipping-off provisions which relate to certain situations and providers.

83
Q

What are eight types of sensitive information according to the Australian privacy principles?

A
  1. Health
  2. Racial or ethnic origin
  3. Political opinions
  4. Membership of a political association, professional or trade association or trade union
  5. Religious beliefs or affiliations
  6. Philosophical beliefs
  7. Sexual orientation or practices
  8. Criminal record
84
Q

What are five circumstances where the disclosure of personal information is permitted?

A
  1. The individual has consented
  2. The individual would reasonably expect the entity to disclose their personal information
  3. Disclosure is required or authorised by Australian law or a court/tribunal order
  4. A health situation exists in relation to the disclosure
  5. Disclosure is reasonably necessary for enforcement related activities conducted by, or on behalf of, an enforcement body
85
Q

Overview: What are the five key regulators of the Australian banking system? Hint: Four start with an ‘A’

A
  1. RBA
  2. ASIC
  3. APRA
  4. ACCC
  5. AUSTRAC
86
Q

What is the key legislation associated with the RBA?

A

Reserve Bank Act 1959

87
Q

What is the key legislation associated with ASIC?

A
  • Corporations Act 2001
  • Financial Services Reform (FSR) Act 2001
88
Q

What is the key legislation associated with APRA?

A
  • Banking Act 1959 Australian Prudential Regulation
  • Authority Act 1998
89
Q

What is the key legislation associated with the ACCC?

A
  • Competition and Consumer Act 2010
  • Australian Consumer Law
90
Q

What is the key legislation associated with AUSTRAC?

A
  • Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act 2006
91
Q

What are the three key responsibilities of the RBA?

A
  1. Financial stability
  2. Payments
  3. Monetary policy
92
Q

What are the three key responsibilities of ASIC?

A
  1. Financial markets
  2. Intermediaries and products licensing
  3. Disclosure and conduct
93
Q

What are the three key responsibilities of APRA?

A
  1. Banking supervision
  2. Capital adequacy
  3. Date collection
94
Q

What are the three key responsibilities of ACCC?

A
  1. Competition
  2. Fair trading
  3. Consumer protection
95
Q

What are the two key responsibilities of AUSTRAC?

A
  1. Anti-money laundering
  2. Counter-terrorism financing
96
Q

What is the BCBS? What is their mandate?

A

The Basel Committee on Banking Supervision is an international body for cooperation on banking supervisory matters.

Its mandate is to strengthen the regulation, supervision and practices of banks worldwide with the purpose of enhancing financial stability

97
Q

What year was Basel I introduced?

A

1988

98
Q

What year was Basel II introduced?

A

2007/2008

99
Q

What year was Basel III introduced?

A

2010

100
Q

What was the overall objective of Basel I?

A

Establish minimum capital requirements

101
Q

What types of risk were addressed by Basel I?

A

Credit risk

102
Q

What was the overall objective of Basel II?

A
  • Establish a global risk management framework
  • Introduced three pillars
103
Q

What were the three pillars introduced by Basel II?

A
  1. Set out the minimum capital requirements firms are required to meet for credit market and operational risk
  2. Focus on an appropriate level of governance, with firms and supervisors having to take a view on whether the firms should hold additional capital against risks not covered in Pillar 1
  3. Aims to improve market discipline by requiring firms to publish certain details of risks, capital and risk management
104
Q

What types of risk were addressed by Basel II?

A
  • Credit risk
  • Market risk
  • Operational risk
105
Q

What is the overall objective of Basel III?

A

Establish a global framework for bank liquidity, regulation quality, consistency and transparency of capital definitions

106
Q

What were the three additional requirements established by Basel III?

A

Additional capital, liquidity or other supervisory measures to reduce externality created by systematically important institutions, including:
1. Liquidity coverage ratio (LCR)
2. Net stable funding ratio (NSFR)
3. Leverage ratio

107
Q

What types of risk are addressed by Basel III?

A
  • Credit risk
  • Operational risk
  • Market risk
  • Liquidity risk
108
Q

What were the factors contributing to the US banking system instability experienced during the GFC being transmitted globally to other countries?

A

One reason for the severity of the crisis was the excessive levels of debt compared to income in some countries, with many banks holding insufficient liquidity. These weaknesses spread rapidly to the rest of the financial system and the economy as a whole, resulting in a massive reduction in liquidity and credit availability.

109
Q

What were two of the main factors that shielded Australia against the negative impacts of the GFC?

A
  1. Australian banks did not have high exposures to the types of securities that led to many US lenders incurring substantial losses (i.e., mortgage-backed securities and collateralised debt obligations)
  2. Lending standards in Australia had not eased to the extent they had in the US
110
Q

What were the three main components of the GFC that had a significant impact on Australian banks’ ability to source funds?

A
  1. Drying up of liquidity
  2. Upward repricing due to heightened risk
  3. Requirement for more capital to meet business and regulatory requirements
111
Q

What happened to the cost of funds immediately following the GFC and why?

A

Immediately following the onset of the financial crisis, the cost of funds on global wholesale funding markets increased dramatically as investors became reluctant to lend and supply dried up.

112
Q

What was the major bank that collapsed in the US in the GFC?

A

Lehman Brothers

113
Q

What are government guarantees?

A

Actions taken by governments around the world in response to the severe disruption in global financial markets from the GFC.

114
Q

What are four types of government guarantees?

A
  1. Support for domestic depositors in order to maintain confidence
  2. Support for financial institutions to gain access to wholesale borrowing
  3. Prudential requirements
  4. Consumer protection
115
Q

Describe the government guarantee to provide support for domestic depositors in order to maintain confidence.

A

The Financial Claims Scheme guarantees deposits held in Australian Authorised Deposit Institutions (ADIs) up to $250,000 per depositor per institution, administered by APRA.

116
Q

Describe the government guarantee to provide support for financial institutions to gain access to wholesale borrowing.

A

Guarantees on debt issuance so financial institutions could continue to lend to their customers.

However, no Australian financial institution has needed financial support from the guarantees and the government has not bailed out any financial institutions.

117
Q

Describe the most recent reforms involved in government guarantee prudential requirements.

A

In 2010, the Basel Committee on Banking Supervision released a package of reforms to raise the level and quality of regulatory capital in the global banking system (Basel III). Basel III provides a revised set of standards for capital and liquidity to address these lessons.

118
Q

Describe the government guarantee of consumer protection. Who is the sole regulator?

A

The Australian Government assumed responsibility for regulating all consumer credit products with ASIC as the sole regulator.

119
Q

Describe the national licensing regime for providers of consumer credit introduced in 2010.

A

Requires licensees to conduct responsible lending practices, and mandates membership or an external dispute resolution (EDR) scheme. Also extended the scope of regulated credit products to include consumer mortgages over residential investment properties, and regulated margin lending and trustee corporations.

120
Q

What is the Financial Stability Board?

A

An international body that coordinates the work of national financial authorities and international standards setting bodies, and develops and promotes the implementation of effective regulatory, supervisory and other financial sector policies.

121
Q

What is the legal relationship between banks and customers.

A

In general, the relationship between a bank and a customer is considered to be a contractual one, which begins when an account is opened.

122
Q

What is the nature of bank-customer relationships?

A
123
Q

What are three duties of banks to customers in a bank-customer relationship?

A
  1. A duty to honour cheques
  2. A duty to safeguard trust property
  3. A duty of confidentiality
124
Q

What are the two sources of law in the Australian legal framework?

A
  1. Statute law
  2. Common law
125
Q

What is statute law?

A

Legislation developed by the government

126
Q

What is common law?

A

Relies on the principle of precedent. This means that courts are guided by previous court decisions, particularly those with higher authority.

127
Q

What are the roles of statute and common law in Australia? Which one prevails?

A

While statute law is the main source of law in Australia, common law remains a vital and developing part of our legal system. Statute law always prevails over common law if there is a conflict.

128
Q

What is contract law?

A

Law regarding a legally binding or valid agreement between two parties.

129
Q

What six elements are required for an agreement to be considered a contract?

A
  1. Offer and acceptance
  2. An intention between the parties to create binding relations
  3. Consideration to be paid for the promise made
  4. Legal capacity of the parties to act
  5. Genuine consent of the parties
  6. Legality of the agreement
130
Q

What is fiduciary duty? When does it typically apply?

A

A person who holds a legal or ethical relationship of trust with one or more parties. Typically, a fiduciary duty relates to the care of money or other assets for another person.

131
Q

What are the four pillars of fiduciary duty?

A
  1. Principles
  2. Process
  3. Prudence
  4. Consistency
132
Q

What is the ePayments Code?

A

Deals with electronic payment transactions and the rules for determining who is liable for an unauthorised transaction in certain circumstances, for example who is liable if the unauthorised transaction occurs before the account holder reports the relevant circumstances, such as the theft of their credit card.

133
Q

What are the four types of legal business entities?

A
  1. Sole trader
  2. Partnership
  3. Company
  4. Trust
134
Q

What is a sole trader?

A

An individual person trading as the individual legally responsible for all aspects of the business.

135
Q

What are the characteristics of a sole trader?

A
  • Individual has full control of asset and business decisions.
  • Requires fewer reporting requirements and generally a low-cost structure.
  • Use their tax file number to lodge tax returns.
  • Unlimited liability, all personal assets can be seized to recover debts.
  • A separate bank account is not required.
  • Financial records must be kept for at least 5 years.
  • Business owner has the discretion of how and when they pay themselves.
  • Business profits or losses cannot be split with family members and the individual is liable to pay tax on income derived.
  • Compulsory obligations regarding employing people regarding workers compensation, payroll tax and superannuation contributions.
  • Easy to change business structure if business grows or a decision is made to close the business.
136
Q

What is a partnership?

A

A business structure that involves a number of people who operate the business together.

137
Q

What are the characteristics of a partnership?

A
  • Relatively easy and inexpensive to set up.
  • If operating an enterprise, it is possible to apply for an ABN although not compulsory.
  • Tax file number is required.
  • Like a sole trader personally liable for the debts of the business.
  • Individuals have shared control and management of the business with their partners.
  • Partnership does not pay income tax on the income earned and each partner pays tax on the share of the net partnership income they receive.
  • A partnership tax return is required to be lodged with the ATO annually.
  • Each partner is responsible for their own superannuation arrangements if they are not an employee of the partnership.
  • An individual must be registered for GST if the annual income turnover is $75,000 or more.
138
Q

What is a company?

A

A separate legal entity. This means the company has the naming rights as a natural person and can incur debt, sue and be sued. Owners can limit their personal liability and are generally not liable for company debts. Has a complex business structure, with higher set-up and administrative costs due to additional reporting requirements.

139
Q

What are the characteristics of a company?

A
  • Separate legal entity.
  • Limited liability.
  • Higher set-up and operating costs compared with other structures.
  • Must be registered with ASIC.
  • Company officers and directors are required to understand and comply with all obligations under the Corporations Act 2001.
  • Business operations are controlled by directors and owned by the shareholders.
  • Must be registered for GST if turnover is $75,000 or more ($150,000 for non-profit organisations).
  • The money the business earns belongs to the company.
  • An annual company tax return must be lodged with the ATO.
140
Q

What is a trust?

A

An arrangement where a person or a company (the trustee) holds assets (trust property) in trust for the benefit of others (the beneficiaries).

141
Q

What are the characteristics of a trust?

A
  • They can be expensive to set up and operate.
  • They require a formal trust deed which is a legal document outlining trust objectives.
  • Trustee administers the financial assets on behalf of the beneficiaries.
  • The trustee is required to undertake formal yearly administrative and reporting tasks.
  • If the business is a trust, the trustee is legally responsible for its operations.
142
Q

What are the four aspects corporate governance is typically concerned with?

A
  1. Effectiveness and efficiency of a company’s operations
  2. Reliability of financial reporting
  3. Compliance with laws and regulations
  4. Safeguarding of assets
143
Q

What organisation provides regulatory guidance on corporate governance.

A

ASIC provides regulatory guidance on various aspects of corporate governance.

CQiB (7 decks)

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