AFMA LEARNING. INSIDE THIS ISSUE April Policy News AFMA Learning Market Convention Changes... 8

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1 INSIDE THIS ISSUE April 2015 Policy News... 2 FATF Mutual Evaluation Released 2 Re:think A First Step towards Real Tax Reform 2 Financial System Inquiry Final Report Good Effort but More to Do 2 Future Direction for Clearing Cash Equities 3 Proposed Resolution Regime for Financial Market Infrastructures 4 OBU Exposure Draft Legislation Welcome but Not Bold Enough Reform 4 ATO Disclosure of Taxpayer Information 5 Government Consults on Professional Standards in the Financial Services Industry 5 RBA Consults on the Central Clearing of Repos in Australia 5 Move to T + 2 Settlement for the Australian Fixed Income Market 5 Australian Financial Markets Report Process Simplification and Improvement 6 Proposal to Change the Leap Second System 6 AFMA Learning... 7 Changes to the Financial Markets Accreditation and Operations Professionals Programs 7 Market Convention Changes... 8 Foreign Exchange and Foreign Currency Options Conventions 8 Bank Bill Swap (BBSW) Benchmark Rates Conventions 8 New Credit Product Conventions 8 Interest Rate Derivative Conventions 9 AFMA s Roundup... 9 Market & Operations s... 9 Policy & Business Line s Policy Calendar May Australian Financial Markets Association SECRETARIAT secretariat@afma.com.au EDUCATION & TRAINING education@afma.com.au MEMBERSHIP QUERIES membership@afma.com.au GENERAL MEMBER FEEDBACK memberfeedback@afma.com.au EDITOR kbarrett@afma.com.au Level 25 Angel Place 123 Pitt Street GPO Box 3655 Sydney NSW 2001 Tel: Fax: Web: DISCLAIMER The AFMA POLICY & MARKETS BRIEF is intended to provide general information in summary form on a number of topics, current at the time of production. The information provided should not be treated as advice and no reliance should be placed on its contents. The AFMA POLICY & MARKETS BRIEF may not be circulated outside of AFMA member organisations without permission from AFMA. AFMA LEARNING For all AFMA events and training initiatives, click here for a link to the upcoming events calendar.

2 POLICY NEWS FATF Mutual Evaluation Released The Financial Action Task Force (FATF), the inter-governmental body that monitors and reviews countries antimoney laundering and counter-terrorism financing regimes, has released its evaluation of Australia. It is available here. AFMA is engaging with both AUSTRAC and the Attorney-General s Department regarding specific matters detailed in the report. Please contact Rob Colquhoun if you would like any further information. Re:think A First Step towards Real Tax Reform On 30 March 2015, the Federal Government issued the long-awaited Tax Discussion Paper, titled Re:think Better Tax, Better Australia. This paper is the first step in the Government s White Paper process. It is a comprehensive document, spanning 203 pages, and canvasses a number of issues and policy options relevant to the AFMA membership. The paper addresses many of the macro issues confronting the current structure of the taxation system, and its resilience in light of changing technologies and economic circumstances. To that end, it does not focus on the amount of revenue raised, but rather the manner in which it is raised and the effects on the wider economy. The paper s broad principle is that a good tax system is one that raises the necessary revenue without imposing unnecessary costs on the economy. Notwithstanding its apparent breadth, AFMA is concerned that a number of observations made in the Final Report of the Financial System Inquiry have not been specifically referenced in the Tax Discussion Paper, and hence are in danger of being left out of the consultation process. AFMA will be working to ensure this does not happen. In terms of process, submissions close in early June and will be followed later in the year by a preliminary policy proposals paper, with a formal White Paper to be provided in early 2016, ahead of the next federal election. To assist with the formulation of the AFMA submission, we have invited the Treasurer s recently appointed Chief of Staff Tax, Robert Jeremenko, to meet with AFMA on 1 May to discuss the content of the paper and the process for formulation of policy proposals. Please contact Rob Colquhoun if you require any further information or would like to participate in AFMA s submission to the Tax Discussion Paper. Financial System Inquiry Final Report Good Effort but More to Do AFMA made a submission on 31 March in response to some of the recommendations in the Financial System Inquiry (FSI) Final Report. We noted that the FSI has made a valuable contribution to thinking about the future development of the Australian financial system, and that many of the Final Report s recommendations are consistent with AFMA s objective of promoting an efficient and competitive financial system, and fair and effective financial markets. At the same time, AFMA noted that the Final Report falls short of providing a comprehensive strategy for guiding the future development of the financial system, including its role in the Australian economy and its integration with the rest of the world, particularly the rapidly growing trade in financial services in the Asia region. Accordingly, we have recommended that the Government formulates and embraces a coherent strategy p.2 April 2015

3 for the future development of the Australian financial services industry, and its integration with Asia and the global economy. AFMA also made recommendations on the following issues: supporting the Final Report s call for the development of harmonised international reporting standards for capital adequacy the continued adoption of a cautious stance towards greater use of bail in securities to increase lossabsorbing and recapitalisation capacity, and the monitoring of international experience with these instruments retaining section 67A of the Superannuation Industry (Supervision) Act 1993 in respect of limited recourse borrowings to acquire listed and widely held assets or units, as defined in the taxation legislation that the establishment of an Inspector General of Regulation is a better approach than the proposed Financial Regulator Assessment Board an improved system of regulator accountability and oversight establishing long term funding agreements with ASIC and other regulators to provide more predictability and certainty in Government funding, but without a change to an industry funding model any legislative obligation in relation to product design and distribution will need to recognise the existing statutory roles and responsibilities of product issuers compared to licensees who provide financial advice to retail consumers raising concerns about the proposed product intervention power if the Government decides to adopt the Inquiry s recommendation in relation to corporate bonds, AFMA and its members will take a leadership role in the development of standard terms and conditions, and appropriate disclosure. A number of the taxation observations noted in Appendix 2 of the Final Report have not been reflected in the Tax Discussion Paper released on 30 March 2015, while others have been raised in only a cursory manner. AFMA has asked the Government to provide clarity to stakeholders about the appropriate forum to ensure that all observations in Appendix 2 of the Final Report in relation to tax are appropriately consulted upon. Future Direction for Clearing Cash Equities AFMA has submitted feedback on the Council of Financial Regulators Consultation Paper, Review of Competition in Clearing Australian Cash Equities. This Consultation Paper was the planned government review after two years of the policy moratorium stopping competition with ASX Clearing. AFMA member feedback has indicated concern with the lack of competitive pressure and a desire for change to promote market user interests. Market dynamics are considered to be an important driver of competition in cash equities clearing and, without change, the possibility of competition is considered to be low in the foreseeable future. While the current arrangements under the Code of Practice for Clearing and Settlement of Cash Equities in Australia have provided welcome scope for dialogue, they do not provide a means for effectively handling the challenges of an ongoing monopoly situation, particularly with regard to pricing. The CHESS system is considered to be essential utility infrastructure in which users have the highest level of interest from a governance perspective in order to guide its development. p.3 April 2015

4 AFMA s view is that greater governance independence for the ASX s clearing and settlement services is desirable and should enable the interests of markets users, in addition to shareholders, to be taken into account. Proposed Resolution Regime for Financial Market Infrastructures The Government is consulting on legislative proposals to establish a special resolution regime for clearing and settlement (CS) facilities and trade repositories (TRs), together referred to as financial market infrastructures (FMIs), consistent with international standards. Some of the legislative proposals in the consultation paper relating to directions powers and international regulatory cooperation also extend to operators of domestically incorporated and licensed financial markets. Overall, AFMA supports the objective of this consultation paper to establish a robust statutory framework for the resolution of FMI to enable the regulators to either return an FMI to viability, or facilitate its orderly wind-down consistent with global principles in the context of a systemic crisis. In relation to CS facilities, the establishment of a resolution regime is an important step for increasing market confidence and legal certainty in the event of a failure of such infrastructure. While the policy case for introducing a special resolution regime for CS facilities has been established, the same cannot be said for market operators or TRs. The failure of the latter, while disruptive or inconvenient, would not fundamentally affect legal rights or system stability. In AFMA s view, as far as possible, normal insolvency law arrangements should be allowed to prevail without the need for intervention by the authorities. AFMA reiterated its longstanding concern about the effect of temporary stays on netting certainty. These stays should be as short as possible, with a maximum of 48 hours and not subject to discretionary extensions by the authorities. OBU Exposure Draft Legislation Welcome but Not Bold Enough Reform On 8 April 2015, AFMA and the Australian Bankers Association lodged a joint submission with Treasury in relation to the proposed reforms to the offshore banking unit (OBU) regime, as set out in an Exposure Draft. Members may be aware that reforms to the OBU regime have been the subject of previous Government announcements, and it is expected that the current reforms will be enacted prior to their start date of 1 July While many of the reforms are welcome, and indeed have been advocated for some time, the submission expresses disappointment that the reforms are not as far-reaching as they may have been in terms of placing the OBU regime on a competitive level with similar regimes in other jurisdictions. To that end, we have undertaken to continue the engagement with Government regarding enduring reform of the regime. Please contact Rob Colquhoun if you would like to discuss the submission or the OBU regime, and the opportunities the regime provides, more generally. p.4 April 2015

5 ATO Disclosure of Taxpayer Information The ATO recently issued a consultation paper regarding how it would discharge the requirement to disclose certain tax disclosures for large corporate taxpayers in respect of the 2014 income year. AFMA lodged its submission to the ATO on 10 April The requirement for the ATO to disclose taxpayer information is somewhat controversial, and AFMA has previously expressed concern from a policy perspective about the basis for the disclosures. We are pleased that the ATO has adopted a judicious approach to discharging its requirements, including providing public officers with the ability to confirm the numbers prior to their publication, and providing the public with contextual information as to reasons why effective tax rates may deviate from the statutory 30%. Please contact Rob Colquhoun if you have any concerns regarding how these disclosures may affect your business or to discuss AFMA s submission to the ATO in more detail. Government Consults on Professional Standards in the Financial Services Industry The Government has released a consultation paper on the recommendations of the Parliamentary Joint on Corporations and Financial Services inquiry into proposals to lift the professional, ethical and education standards in the financial services industry. AFMA is engaging with our private wealth, compliance and retail committees to gather feedback about the proposals. Any interested member who would like to provide input should contact Tracey Lyons, Head of Policy by Friday 1 May. RBA Consults on the Central Clearing of Repos in Australia As communicated in the March edition of the Policy and Markets Brief, AFMA will be making a submission to RBA s Consultation Paper on the central clearing of repos in Australia. This consultation is in response to a Financial Stability Board recommendation and to support RBA s evaluation of the costs and benefits of the central clearing of repos in Australia. The main question that RBA is seeking to answer through this consultation process is whether the capacity of the Australian repo market to safely, efficiently and continuously support the funding and liquidity needs of the Australian financial system would be improved by the availability of a repo central clearing party (CCP). Members wishing to contribute to this consultation are invited to contact Murray Regan. Move to T + 2 Settlement for the Australian Fixed Income Market AFMA, in consultation with its members, is working to reduce the settlement cycle of domestic fixed income products from T+3 to T+2. This includes all secondary market-traded securities, but not primary market products. With the support and mandate of the RBA to ensure that this change is undertaken and completed as expediently as possible, the market is working together to understand the related requirements and issues. An initial meeting was held recently and comprised a broad section of the financial markets community consisting of both AFMA members and non-members. p.5 April 2015

6 The subject matter expert work streams have been formed and will convene once all feedback has been received and analysed. Rationale for T + 2 There is support in the industry at senior levels to move to T+2 for risk management and balance sheet reduction reasons, as well as aligning with international standards and the introduction of best practice in the industry. Shortening the cycle for fixed income securities to T+2 will complement ASX s ongoing initiative to introduce a T+2 settlement cycle for the cash equities market. It is an important move towards harmonisation with offshore financial market regimes, a number of which have moved, or are currently moving to, a T+2 or shorter settlement cycle. Implementation issues Led by AFMA s senior committees, the industry is assessing practical transition issues and costs that might be associated with this change. It is evident from a dialogue with dealers through AFMA's committees that some technical issues need to be resolved. The time frame for any change will be determined once the implications are understood. International harmonisation is key and AFMA is keen to ensure that our offshore counterparts have clear sight of the scope, impacts and timeframes of this change when they are available. Members wishing to participate in this change program are invited to contact Michael Go, Head of Markets, at secretariat@afma.com.au Australian Financial Markets Report Process Simplification and Improvement To ensure that the AFMR remains the leading source of information on the Australian financial markets and to help simplify the collection process, the 2015 collection process and report have undergone significant change. AFMA has engaged with its members via the Operations and Market Governance s to discuss ways to improve the survey and ensure that the collection templates and the data collected are as simple to use and accurate as possible. AFMA has produced a simplified template, reduced the overall data collected by half while including new data sets for collection that are relevant in today s market (including efficiency, collateral and AUD/RMB). Contributors for the 2015 AFMR will be contacted by AFMA soon. If you have any questions about the AFMR, please contact Lisa Striegl or Michael Go at afmr@afma.com.au. Proposal to Change the Leap Second System The Department of Industry and Science is seeking input by 27 May on proposals to change the leap second system. p.6 April 2015

7 Leap seconds, which are extra seconds added to atomic clocks periodically, keep the world s clocks aligned to the variable rotation of the Earth, but can cause problems for computer systems and for users of precise time such as financial markets. The leap second must be introduced at the same instant all around the world, and in the past has caused issues for computer networks and in financial markets. The next leap second will be introduced at midnight on 30 June Coordinated Universal Time (UTC), which is 10 am on 1 July AEST (a trading day). Consequently, market operators and traders must account for the leap second for correct market operations. The National Measurement Institute (NMI) is running workshops for those who are unsure of the impact of this issue on their organisation and would like to learn more. If you wish to provide feedback or would like to attend a workshop, please contact the NMI by 30 April AFMA LEARNING Changes to the Financial Markets Accreditation and Operations Professionals Programs AFMA is pleased to announce exciting changes to the Financial Markets Accreditation Program and Operations Professionals Program. These changes will come into effect from May 2015 and have been implemented to assist member organisations when utilising these industry benchmark training standards. 1. Change of program name From May 2015, the Financial Markets Accreditation Program will be known as the Financial Markets Program. 2. Merger of the Financial Markets Program and the Operations Professionals Program The Operations Professionals Program will be folded into the Financial Markets Program. All individuals who register for the program will complete the same Financial Markets Core module, but will undertake different assessment tasks, depending on the stream that they are enrolled in. 3. Introduction of three streams to the Financial Markets Program From May 2015, staff who register for the Financial Markets Program will be required to elect a stream through the program. The three streams available are: Advising stream for staff in client advisory roles who need to comply with ASIC requirements for giving advice Dealing stream for staff in front office roles who do not provide advice, but require skills and knowledge in trading, dealing, risk management or compliance Operations stream for staff who work in operations roles in financial institutions who require skills and knowledge for operations processes. All streams attend the same Core workshop and receive the same study material. The differences are in the assessment tasks they are required to complete. All three streams lead to AFMA Accreditation for eligible staff. p.7 April 2015

8 New learning and assessment design for the Financial Markets Core module In response both to member feedback and the shift across the higher education sector to incorporate online learning methodologies, AFMA has made significant changes to the learning and assessment design for the new edition of the Financial Markets Core module, which will be launched on 1 May. All learning materials are online. Students are not issued with a printed study manual. Instead they will watch videos of lectures and work through a series of online lessons, completing short quizzes as they progress. The quizzes are marked automatically, providing students with immediate feedback and also enabling AFMA to track students progress and identify students who may need extra support. After completing all of the lessons and quizzes, students participate in a mandatory workshop. The module is assessed using both formative assessment (utilised during the learning process in order to diagnose and remedy learning issues to improve student attainment) and summative assessment (utilised at the end of the learning process to evaluate student attainment). All students are expected to complete the module within 12 weeks. The module framework includes a comprehensive student support and engagement strategy, designed to enhance student motivation and to identify and assist students who are struggling. To find out more about either the Financial Markets Program or the Financial Markets Core, contact Jason Sheil, Learning Services Manager, on or jsheil@afma.com.au. MARKET CONVENTION CHANGES Foreign Exchange and Foreign Currency Options Conventions These Conventions represent the joint endeavour of AFMA and the Australian Foreign Exchange (AFXC) to provide Australian foreign exchange market conventions. As communicated in March, the AFXC has collaborated with a number of global foreign exchange committees in the adoption of a statement with regard to Codes of Best Market Practice and Shared Global Principles, which represent the common high-level themes that promote best practice globally. Links embedded within the Foreign Exchange and Foreign Currency Options Conventions have now been upgraded to direct parties to the comprehensive 30 March 2015 statement. Bank Bill Swap (BBSW) Benchmark Rates Conventions The revised governance structure is now reflected in the Conventions, In addition, data tables and charts in the Guide to the Bank Bill Swap (BBSW) Benchmark Rate have been updated. New Credit Product Conventions Further to the November Policy & Markets Brief, the Credit Trading have now approved a new conventions document (subject to final circulation), which will cover both non-government bonds and credit derivatives. This will go live on AFMA s website around end-april, and will replace the current Credit Derivative Conventions and Debt Capital Market Conventions. p.8 April 2015

9 Interest Rate Derivative Conventions The Swaps have agreed the following minor changes to the Interest Rate Derivative Conventions, subject to final review by members and final approval by the Markets Governance in June: Expansion of the product description section Changes to description of dealing and electronic dealing Change to standard transaction size for >10 years bills/libor transactions Minor corrections to redundant tables, amalgamating credit conventions and a spelling error. AFMA COMMITTEES ROUNDUP AFMA s Market and Operations s and Working Groups play a vital role in the efficient operation of the OTC markets by developing and managing the conventions, practices and documentation that enable the conduct of OTC transactions on common terms and understandings. Market s are elected by their peers and are subject to oversight by the Market Governance. AFMA also has a range of Policy s that facilitate industry discussion and action on policy and regulatory issues. Upcoming committee meetings are summarised in the Policy Calendar. Member firms that do not have a representative on a particular committee may suggest items for inclusion on meeting agendas by contacting the AFMA Secretariat. The summary below gives a snapshot of the issues considered and initiatives undertaken by AFMA s over the past month. Note that there were fewer meetings than usual over the past month due to school holidays. MARKET & OPERATIONS COMMITTEES Electricity Regulatory Working Group 18 March Discussed the AEMC Financial Resilience Review Final Report Discussed issues related to AUSTRAC regulatory changes Credit Trading 19 March Repo 19 March Swaps 31 March Reviewed and approved the new Credit Product Conventions Re-convened to consider the issues within the Reserve Bank s consultation paper on central clearing of repos in Australia. Agreed to complete AFMA s survey of repo market participants to determine the domestic sentiment towards the central clearing of surveys, which will form the basis for AFMA s response on behalf of industry to the RBA. Discussed alternative data frameworks for AFMAData for Swaps Discussed initiatives to support the development of a long-term OIS curve Agreed on various minor change to conventions p.9 April 2015

10 POLICY & BUSINESS LINE COMMITTEES Risk Management 16 March Discussed the Bank for International Settlements (BIS) Fundamental review of the Trading Book Discussed the application of the Volcker Rule, noting that while proprietary trading activity is acceptable in Commonwealth Government debt securities, such activity in semi-government debt contravenes the Volcker Rule. p.10 April 2015

11 POLICY CALENDAR MAY 2015 Mon Tue Wed Thu Fri Sat Sun Electricity AFMA-WiBF Research Subcommittee Debt Market Operations Accreditation Board Repo 20 Debt Securities Retail Compliance 21 Equity IT Derivative Operations NTI 25 Operations Education Capital Raising 26 GST Equities Compliance 27 Retail Broking Inflation Products 28 Equity COO DCM Legal Working Group Documentation Operations Equities Steering Debt Origination Market and Operations Technical s Policy and Business Line s AFMA Governance s External p.11 April 2015