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Can u paraphrase call the 5 answers for me?


Question 1

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Discuss statutory, co-regulatory and self-regulatory frameworks, including advantages and disadvantages of each

As part of your response provide a relevant example of each framework in practice.

Response is limited to 40 lines.

Statutory Framework

The Statutory framework is where legislation is specific or prescriptive, administered by a regulatory agency and therefore there is little room to 'interpret' or apply in a scaled manner. 

Advantages: Certain and consistent, there is no 'grey areas' for discussion. 

Disadvantages: Costly for smaller entities, it is also less responsive to market needs in an environment subject to rapid change. 

Example: Reserve Bank of Australia (RBA).

RBA is Australia's central bank. It conducts monetary policy, works to maintain a strong financial system and issues the nation's currency. As well as being a policy-making body, the Reserve Bank provides selected banking and registry services to a range of Australian government agencies and to several overseas central banks and official institutions. It also manages Australia's gold and foreign exchange reserves.

The role and functions of the Reserve Bank are underpinned by various pieces of legislation. RBA is a statutory authority, established by an Act of Parliament, the Reserve Bank Act 1959, which gives specific powers and obligations.

In other words, RBA is to ensure all entities in the Banking Industry adheres to the laws passed down by the Act of Parliament, the Reserve Bank Act 1959. Therefore, RBA is a regulator that practices Statutory Framework.

 

Co-regulatory Framework

The co-regulatory framework is where the legislation provides general principles for conduct and protection, and industry then interprets these principles determining benchmarks for codes of conduct, best practice standards. It involves a statute and industry rules.

Advantages: Flexible, it is effective especially if an industry wishes to regulate itself in accordance with stated objectives. 

Disadvantages: Uncertain due to the different rules and practices in different entities when it is relatively easy to change codes of practices. 

Example: Australian Securities & Investments Commission (ASIC)

ASIC is the main regulator of companies within Australia. In addition to regulating Australian companies, ASIC regulates financial markets, financial services organisations and professionals who deal and advise on investments, superannuation, insurance, deposit taking and credit.

As the consumer credit regulator, they license and regulate people and businesses engaging in consumer credit activities (including banks, credit unions, finance companies, and mortgage and finance brokers). They ensure that licensees meet the standards - including their responsibilities to consumers - that are set out in the National Consumer Credit Protection Act 2009.

As the markets regulator, they assess how effectively authorized financial markets are complying with their legal obligations to operate fair, orderly and transparent markets.

ASIC license and monitor financial services businesses to ensure that they operate efficiently, honestly and fairly. The laws, Australian Securities and Investments Commission Act 2001 (ASIC Act), and the Corporations Act 2001 gives them the authority to carry out their work, maintain, facilitate and improve the performance of the financial system and entities in it.

In other words, ASIC allows the Financial Industry to carry out their own rules and practices which adheres to those in ASIC Act and Corporations Act 2001. Therefore, ASIC is a regulator that practices Co-regulatory Framework.

 

Self-regulatory framework

The self-regulatory framework is where the industry/company has determined own rules and enforcement mechanisms but there is no legislative framework or context. 

Advantages: Less costly because of smaller entities because they can now set their own rules and practices. There are unique offerings due to the different rules and practices are done by different entities 

Disadvantages: Uncertainty due to the vast numbers of rules and practices done by different entities in the industry. It may lack credibility and public confidence because it is not backed by the law.

Example: Australian Press Council (APC)

APC is responsible for promoting good standards of media practice, community access to information of public interest, and freedom of expression through the media. The Council is the principal body with responsibility for responding to complaints about Australian newspapers, magazines, and associated digital outlets.

In other words, APC rules and practices are not bounded by any Laws or Acts, therefore APC is a regulator that practices Self-regulatory Framework. 

Comments

Comment:

Clearly defined and explained although some parts were purely copied...otherwise reasonable answer

Question 2

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Question text

Provide details of a regulator who uses a statutory model and one that utilises a co-regulatory model and give an example of how they do, including any relevant documents/resources that they use.

Statutory model

A regulator who uses a Statutory model is the Reserve Bank of Australia (RBA).

The Reserve Bank of Australia (RBA) is Australia's central bank and derives its functions and powers from the Reserve Bank Act 1959. Its duty is to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people. It does this by setting cash rate to meet an agreed medium-term inflation target, working to maintain a strong financial system and efficient payments system, and issuing the nation's banknotes. 

The RBA provides certain banking services as required to the Australian Government and its agencies, and to a number of overseas central banks and official institutions. Additionally, it manages Australia's gold and foreign exchange reserves. 

As mentioned before in question 1, RBA is a regulator who uses statutory model. RBA has to follow specific and detailed laws that were administered by a regulatory agency.

In this case, RBA ensures strictly that all entities in the Banking Industry adheres to the Law, the Reserve Bank Act 1959 passed down by the Act of Parliament, therefore RBA uses a Statutory model.

 

Co-regulatory model

A regulator who uses a Co-regulatory model is the Australian Securities and Investment Commission (ASIC).

The Australian Securities and Investment Commission (ASIC) is the main regulator of companies within Australia. In addition to regulating Australian companies, ASIC regulates financial markets, financial services organisations and professionals who deal and advise on investments, superannuation, insurance, deposit taking and credit.

It is an independent Commonwealth Government body and they are set up under and administer the Australian Securities and Investments Commission Act 2001 (ASIC Act), and we carry out most of our work under the Corporations Act 2001 (Corporation Act).

The ASIC Act requires ASIC to:

·       Maintain, facilitate and improve the performance of the financial system and entities in it

·       Promote confident and informed participation by investors and consumers in the financial system

·       Administer the law effectively and with minimal procedural requirements

·       Enforce and give effect to the law

·       Receive, process and store, efficiently and quickly, information that is given to them.

·       Make information about companies and other bodies available to the public as soon as practicable

·       Take whatever action they can, and which is necessary, to enforce and give effect to the law

As mentioned before in question 1, ASIC is a regulator who uses co-regulatory model. ASIC is set up under and administer Australian Securities and Investments Commission Act 2001 (ASIC Act), and we carry out most of our work under the Corporations Act 2001 (Corporation Act).

In this case, ASIC regulates financial markets, financial services organisations by allowing the entities to set their own rules and practices that adhere to the Laws and Acts, a mixed of the statute and industry rules, therefore ASIC uses a Co-regulatory model.

Comments

Comment:

Well answered

Question 3

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Provide details of three investment based products, what is their purpose and an example of how each would be used by a consumer.

 

 

 

An investment-based product is a product offered to investors based on an underlying security or group of securities that are purchased with the expectation of earning a favourable return.

The three investment-based products are Managed Investments, Superannuation, and Securities.

Managed investments

Managed investments are investments that are managed by a professional investment manager. Their purpose is to help individuals who have some money to invest but are unsure of what to invest; would like to have their investment handled by a professional.

In Australia, one example of a 'Managed Investment Scheme' will be the Managed fund. In a managed fund, individual's money is pooled with other investors. An investment manager then buys and sells shares or other assets on their behalf. Individuals are usually paid income or 'distributions' periodically.

Advantages

·       Diversification because it can access a broad range of assets or markets with a relatively small amount of cash

·       It allows individuals to make regular contributions

·       It is convenient for individuals because it reduces paperwork for them.

Disadvantages

·       Individuals may be charged higher fees than other investment types

·       Inconvenience because individuals may not be able to convert their investment to cash when they want to

·       Investments rely on skills of the investment manager and individuals do not control investment decisions

Superannuation

In Australia, Superannuation is a tax-effective way to save for retirement. Their purpose is to ensure Australian citizens have a comfortable life after retirement.

Superannuation is similar to a managed fund where consumer's money is pooled with other members' money and invested on their behalf by professional investment managers. Employers, government and the individual all can contribute to the Super Fund, and the money in the Super Fund account is invested.

There are a variety of investment options offered and consumers need to choose an investment option that is best for their investment timeframe and tolerance for market fluctuations. Super Fund also has a default level of death, disability, and income protection insurance that the individual will automatically be covered for. All this insurance and investments will help the individuals after their retirement because the money from the Super Fund account can only be retrieved after they are retired.

After retirement, individuals can take the Super Fund as a lump sum, a regular income stream, or even a combination of both. If the individual chooses to take their Super Fund as a retirement income stream, the money in the Super Fund account will continue to earn interest. Hence, it is a good initiative by the Australian Government to implement this to help the citizens have a comfortable life after retirement.

Advantages

·       Lower fees because super fund generally have several members and fund managers have the leverage to negotiate for a lower fee.

·       Guaranteed assurance of comfortable life after retirement for citizens

Disadvantages

·       Limited investment choices as there may be many more choices in the open market

·       Citizens need to wait for a long period of time (i.e. after retirement) to enjoy the money in Super Fund

Securities

A security is a fungible, negotiable financial instrument that holds some type of monetary value. It represents an ownership position in a publicly-traded corporation (stocks), a creditor relationship with a governmental body or a corporation (bonds).

The purpose of securities for the entity that created the securities for sale (the issuer) is to raise new capital. On the other hand, the individuals who buy the securities are expecting to earn a favourable return from this investment.

Securities can be broadly categorized into two distinct types: equities and debts.

Equities represent ownership interest held by shareholders in an entity and are in the form of capital stock/share. Holders of equity securities are typically not entitled to regular payments (though equity securities often do pay out dividends). However, they are able to profit from capital gains when they sell the securities at a value higher than when they bought the securities.

Debts represent money that is borrowed and must be repaid, with terms that stipulates the size of the loan, interest rate, and maturity or renewal date. Debt securities include government and corporate bonds, certificates of deposit and collateralized securities. It generally entitles debt securities holders to the regular payment of interest and repayment of principal. Debt securities can be secured by collateral and debt securities holders can earn through interest rates or received a larger amount than the entity has borrowed after a stipulated duration.

Stocks/shares

Advantages

·       Able to earn passive income through dividends

·       Able to diversify investment choices

·       Flexible because stocks can be easily bought and sold and converted into cash quickly

Disadvantages

·       Volatile in short-term because stock prices can rise and fall sharply, and it makes stocks riskier than bonds

·       Risky because if individual make a wrong choice of stock to buy, he may end up losing the value of the investment

·       Takes time and knowledge to analyze a stock

Bonds

Advantages

·       Investment returns are fixed, individuals know how much their returns will be

·       Less risky compared to stocks because bondholders receive specific investment returns and they are paid first over shareholder in the event of liquidation.

·       Less volatile, fluctuations are lesser than stocks

Disadvantages

·       Investments are fixed which means individuals may forgo higher potential gains that stocks offer

·       A larger sum of investment needed

 

Comments

Comment:

Clearly defined, explained and thoroughly dealt with

Question 4

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Discuss the key differences between the focus of APRA and ASIC i.e. what areas they are most concerned with in relation to the entities that they regulate. Note this question is not about the types of entities e.g. Banks but the focus of regulation.

 

Response is limited to 40 lines

Key difference

Australian Prudential Regulation Authority (APRA) is Australia's financial system prudential regulator and is responsible for promoting prudent management of regulated institutions. On the hand, Australian Securities and Investment Commission (ASIC) is Australia's financial markets conduct regulator. It is responsible for promoting a fair, transparent and efficient financial system for all.

 

Australian Prudential Regulation Authority (APRA)

The Australian Prudential Regulation Authority (APRA) is Australia's financial system, prudential regulator. It is responsible for promoting the prudent management of regulated institutions so that they can meet their financial obligations under all reasonable circumstances. In doing so, APRA's objective is to protect Australian depositors, insurance policyholders, and superannuation fund members, and to promote financial stability more broadly.

APRA supervises banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurance, friendly societies and most of the superannuation industry.

APRA operates under the laws determined by the Australian Parliament. These laws grant APRA the power to set prudential standards that underpin its supervisory approach towards the financial service entities it supervises.

APRA's prudential standards set out minimum capital, governance and risk management requirements, which are legally binding on the entities it supervises Prudential Practice Guides provide guidance on how supervised institutions might satisfy the prudential standards.

APRA promotes financial stability by requiring the institutions it supervises to manage risk prudently so as to minimize the chances of potential financial losses to depositors, policyholders and superannuation fund members. APRA also aim to identify potential weaknesses in its regulated institutions as early as possible to rectify the problem before it gets worse.

 

Australian Securities and Investment Commission (ASIC)

The Australian Securities and Investment Commission (ASIC) is Australia's financial markets conduct regulator. It is responsible for promoting a fair, transparent and efficient financial system for all.

ASIC regulates the conduct of Australian companies, financial markets, financial services organisations (including banks, life and general insurers and superannuation funds) and professionals who deal in and advise on investments, superannuation, insurance, deposit-taking, and credit. ASIC is also responsible for authorisations to operate in industries it regulates.

ASIC is given effect by the Australian Securities and Investments Commission Act 2001 (ASIC Act) and is required under this Act to:

·       Maintain, facilitate and improve the performance of the financial system and entities in it

·       Promote confident and informed participation by investors and consumers in the financial system

·       Administer the law effectively and with minimal procedural requirements

·       Enforce and give effect to the law

·       Receive, process and store, efficiently and quickly, information that is provided to it

·       Make information about companies and other bodies available to the public as soon as practicable

The laws ASIC administers give it the facilitative, regulatory and enforcement powers necessary for it to perform their regulatory role.

These include the power to:

·       Register companies and managed investment schemes.

·       Grant Australian financial services licenses and Australian credit licenses register auditors and liquidators and maintain historical details of this information

·       Maintain publicly accessible registers of information about companies, financial services licensees and credit licensees

·       Establish rules and review them periodically

·       Stop the issue of financial products under defective disclosure documents

·       Investigate suspected breaches of the law

·       Issue infringement notices in relation to alleged breaches of some laws

·       Ban individual from engaging in credit activities or providing financial services where their conduct has been inappropriate

·       Seek civil penalties from the courts

·       Commence prosecutions

 

Conclusion

Both Australian Prudential Regulation Authority (APRA) and Australian Securities and Investment Commission (ASIC) were created to improve Australia's financial market. Although both regulators have the same goal, they have different roles, focus, powers, and functions. APRA is mainly giving guides and ensuring supervised institutions act prudently and reduce risks to protect Australian depositors, insurance policyholders and superannuation fund members. ASIC mainly ensuring and enforcing laws to keep the financial market free from risky and inappropriate institutions by prosecuting them out of the financial market. 

Feedback

Ensure students clearly outline the focus of prudential regulation e.g. finanical/risk managmement and its focus on the robustness of the organisations. Consumer protection should be the focus in relation to ASIC regulation.

75-100% clearly understand the differences

50-75% demonstrate some understanding but examples are weak

Under 50% do not demonstrate an understanding of regimes

Comments

Comment:

Good answer

Question 5

Complete

Mark 9.50 out of 15.00

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Bill Jones is a public servant and he and Mary have recently married. They have decided that they want to purchase their first home together. They have been referred to a mortgage broker - Getting Started Loans, and speak to Fred Smith there. Fred generally uses the ABC bank for his clients as not only do they offer a good interest rate for clients but Fred also receives and additional $1K on top of his normal fees for each loan he introduces there.

 

1) Outline what documents are to be provided to Bill and Mary as part of this process.

2) Identify what Fred's role is

3) Discuss conflicts of interest and whether there are any conflicts identifiable in the scenario - if yes, how should these be handled.

 

 

Response is limited to 40 lines.

Part 1

The document to be provided to Bill and Mary as part of this process is the Australian Credit License (ACL) provided by ABC bank and Fred Smith.

Based on the National Consumer Credit Protection Act 2009 (NCCP Act), ASIC requires entities to have an Australian credit license if they engage in credit activities.

Credit activity includes:

·       Providing credit under a credit contract or consumer lease

·       Benefiting from mortgages or guarantees relating to a credit contract

·       Exercising rights or performing obligations of a credit provider or lessor

·       Suggesting or assisting with a particular credit contract or consumer lease

·       Acting as an intermediary between provider and a consumer (for a credit contract) or between a lessor and a consumer (for a consumer lease)

One of the key provisions of the National Consumer Credit Protection Act 2009 (NCCP Act) was the introduction of a national licensing requirement for entities/individuals that engage in credit activities. The license required is an Australian Credit License (ACL), this is to prove that the entity is licensed to provide credit activities and not breaking the law.

 

Part 2

Fred Smith is the mortgage broker and his role, in this case, is the intermediary between provider and a consumer. He has the knowledge and is an expert in mortgage loans, hence he is acting as the middleman for Bill Jones and Mary to help them secure the most suitable mortgage loan for the couple. Fred Smith is responsible to 'do the right thing', to provide the couple with all the necessary information about the mortgage loan and assist them to make an informed decision.

Fred Smith is also required to undertake three steps:

·       Make reasonable inquiries about the consumer's financial situation, and their requirements and objectives;

·       Take reasonable steps to verify the consumer's financial situation; and

·       Make a preliminary assessment (if providing credit assistance) or a final assessment (if a credit provider) about whether the credit contract or consumer lease is 'not suitable' for the consumer based on the information gathered in the first two steps.

 

Part 3

According to the Regulatory Guide RG 205 Credit licensing: General conduct obligations, the definition of Conflicts of interest states that 'Entities must have in place adequate arrangements to ensure that your clients are not disadvantaged by any conflict of interest that may arise wholly or partly in relation to credit activities engaged in by you or your representatives.'

There are two checklists of conflict of interest stated in the Regulatory Guide RG 205 Credit licensing: General conduct obligations.

Firstly, is to ensure their clients are not disadvantaged. It questions whether the entity has adequate arrangements in place to ensure that their clients are not disadvantaged by any conflict that may arise in relation to themselves or their representatives' credit activities (including managing and monitoring any conflicts that arise).

Secondly, is their product list. It questions how comprehensive the creditor's product list is and if the entity or their representative have thoroughly researched the products on their list and are they reasonably representative of the products available on the market (being the market available to your client).

In this case, there are conflicts of interest identifiable and will be elaborated below.

Firstly, Fred did not choose the most suitable bank that best meets the couple's mortgage requirements but chose ABC bank because he receives addition $1K on top his normal fees for each loan he introduces there. Although ABC bank offer a good interest rate for clients, it may not be the most suitable bank for the Bill Jones and Mary. Hence, the clients are disadvantaged by Fred Smith's own benefit.

Secondly, Fred Smith did not go through the product list of ABC bank and provide Bill Jones and Mary the reasonably mortgage loan. Fred Smith simply goes ahead with ABC bank because he enjoys extra benefits.

The conflicts on interests committed by Fred Smith are penalizable under the NCCP Act. In this case, if Bill Jones and Mary may bring this up to court and prosecute Fred Smith for not performing his rightful duty but to his own interest.

The NCCP Act establishes a civil penalty and consumer remedy framework that promotes strong consumer protections, including a civil enforcement regime and broad civil remedies. The key provisions:

·       Enable ASIC to seek a court contravention for a civil penalty and to seek a pecuniary penalty;

·       Set out the administrative provisions in relation to a civil penalty;

·       Enable the court to grant remedies to consumers for loss or damage suffered as a result of a contravention of the Act, including through varying the contract as well as monetary redress;

·       Enable the court to grant relief to consumers for unlicensed conduct; and

·       Permit infringement notices to be issued by ASIC for strict liability offenses and civil penalties as provided by regulations.

In this case, if Fred Smith is guilty as charged, he will be prevented from continuing to operate. 

Feedback

 

 Response to identify's Fred role as an intermediary - credit assistance provider. Note who the credit provider is.

Cover the issuing of credit guide, preliminary assessment guide to include referral fee and disclosure

Address the process of responsible lending - information collection/verification

Substantial response expected

 

Use discretion here as to whether students have understood process sufficiently - but they must have covered the above to get in the 75-100% range.

Comments

Comment:

The document that needs to be provided is the credit guide....not the licence. This part of the answer about documents identified wrongly and hence the answer is inaccurate

Part 2 answer is accurate but needs elaboration

Conflicts o interest issue reasonably dealt with

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