Those who continually monitor the risk and compliance environment would have noticed a perceived trend towards over-regulation and over-compliance.  Most organisations have invested considerable money and resources on their risk management strategy and processes, but many have yet to adequately automate their risk management processes. 

Risk Management budgets are not unlimited, and in time will come under pressure, especially at the current rate of change.  What are Risk Managers and CFO's doing now to reduce this future risk?

Enjoy this issue of InTouch.

Tony

• Whilst businesses hope the governance debate will evaporate with improving markets, investors argue that concerns about how companies are run and their responsibility to society are permanent. According to the Australian Council of Superannuation Investors, worldwide reforms have changed the rules for good.

• The debate as to whether Europe will follow US type Sarbanes-Oxley reforms has started.  European Commission officials say that the implementation of European-wide corporate governance regulations makes sense because a significant number of European corporations with listings in the US are already subject to the US laws.

• Directors of Australia's largest listed companies believe the recent  ASX guidelines, along with other changes, have significantly changed the way their company operates.  They now endorse the "if not, why not" framework and find it preferable to the tougher legislative regimes overseas

• The Australian Stock Exchange will now publicly name companies that flout the new corporate governance guidelines during the coming annual reporting season, enforcing the new disclosure regime for the first time.  The ASX will target areas that companies have expressed most concern about, such as director independence, risk management and executive pay.

• CLERP 9 became effective 1 July 2004, but the sequel is already in pre-production. The government has agreed to review over 60 recommendations from a recent parliamentary inquiry into CLERP 9 that were not included in the legislation.

• A recent audit of WA’s public tertiary education sector, The WA Auditor-General found Curtin University could not determine the accuracy of its $9.9m in student fee debts, with $7.7m listed as "possibly unrecoverable". A reconciliation problem was also found between Curtin’s and its bank’s records so an opinion could not be formed on $18.4m in general account cash assets.

• Pressure is increasing on the federal government to release draft legislation implementing new money laundering and anti-terrorism financing standards.  A 28-member Asia-Pacific Group on Money Laundering pledged a new effort to enforce the standards issued by the inter-governmental Financial Action Task Force (FATF) on Money Laundering last June.

• The NSW Supreme Court ruled that Aristocrat Leisure was right to sack its managing director for failure to keep the board and market fully informed.  This means that executives have effectively been put on notice that they risk being sacked if they fail to uphold corporate governance clauses in their employment contracts "to the letter".

• Industry groups warn that tough proposals to ensure only "fit and proper" directors and executives manage Australia's financial services industry will multiply compliance costs and clash with existing regulatory requirements.  The Securities Institute of Australia said the financial services industry was suffering "compliance fatigue".

• Following concerns that some banks have not responded quickly enough to system weaknesses raised by the National Australia Bank's $360 million foreign currency scandal, APRA is conducting its second review in six months of the currency option trading activities of the major banks.

• Although national employers estimate that it costs AUS$20B a year to comply with eight different workers' compensation regimes, the federal government has rejected a proposal by the Productivity Commission to create a national workers' compensation scheme for private-sector employers.

• The importance of capital management in the financial service industry has been emphasised again.  (i) Promina indicated that several business units will not meet hurdle rates, raising doubts about their future in the group,  (ii) APRA has recently sought and received an undertaking from Zurich's parent that it would maintain the capital strength of the local operations,  (iii) APRA has withdrawn approval for NAB to use its own internal model to determine its market risk capital and lifted NAB's capital adequacy ratio to 10per cent of risk-weighted assets,  (iv) APRA is expected to increase capital requirements for lenders' mortgage insurers, to reduce the impact of a housing downturn on the country's financial system.

• Zurich general insurance is being investigated by both the prudential and corporate regulators for past reinsurance arrangements which came to light in the HIH Royal Commission.  Zurich's long serving and well respected CEO has now departed.

• The Insurance Council of Australia has launched a new draft code of conduct.  The new code will cover home and motor insurance as well as commercial classes of insurance.  The industry's first code of practice was developed in 1994 and some of its standards were legislated under the Financial Services Reforms Act, introduced earlier this year.

• Credit ratings agency Standard & Poor's has expressed concern over banks' provisions for loan losses.  In an industry review, it said that loan-loss provision levels were "unsustainably low". In particular, the loan-loss provisioning of Australia's major banks is causing concern in the market amid growing anecdotal evidence of falling residential asset prices.

• An attempted fraud almost stripped $160 million from the Commonwealth Superannuation Scheme (CSS).  JP Morgan, custodian of the $5.5 billion CSS fund, transferred the money into offshore bank accounts after receiving bogus instructions by facsimile. Police continue investigations.

• St George Bank has formed a highly skilled lending assessment arm to scrutinise its no-deposit home loans and other higher risk mortgage exposures to reduce its credit risk.

• Accounting experts warn that new accounting standards  which require companies to account for life and general insurance products separately and to classify life policies as either insurance or investment products, will greatly affect how life and general insurance firms conduct their business. Changes are likely to create confusion and education is the preferred way to deal with the changes.

Want to take the risk out of risk management and compliance? Want to keep your Sarbanes-Oxley, APRA and all other compliance program in the one place?   Take a look at guardian.

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