Greg Hammond provided his independent review report, titled Reforms for Cooperatives, Mutuals and Member-Owned Firms, to Treasurer Scott Morrison on 31 July.
The report made made 11 recommendations, the first of which was for government to support the ability of mutual banks to issue CET1 instruments, such as bonds.
Today, the Turnbull government released Mr Hammond’s report, and said that it supports “all the recommendations”.
On 17 March 2016, the Senate economics references committee investigated the role, importance and overall performance of co-operative, mutual and member-owned firms and tabled its report. The Senate committee made 17 recommendations across a range of policy areas.
On 24 March 2017, the Turnbull government announced that it would be conducting consultation on potential reforms to support cooperatives, mutuals and member-owned firms in Australia.
Mr Hammond was appointed to facilitate this process and consult with stakeholders to assist the government in further developing its response to the Senate economics references committee report.
The 11 recommendations that have been endorsed by government are:
- Government support (i) the ability of mutually owned ADIs to directly issue CET1 instruments, and (ii) APRA giving priority to the consideration of amendments to its prudential standards to permit them to do so;
- Government support (i) the ability of mutual friendly societies and mutual private health insurers to directly issue CET1 instruments, and (ii) APRA considering the amendment of its prudential standards to permit them to do so;
- Government encourage APRA to facilitate the issue of capital instruments by prudentially regulated mutuals by (i) assisting industry to develop standard template forms for member equity interests (MEIs), other capital instruments and documentation, and (ii) developing minimum service standards (including an agreed process, framework and timetable) for the timely assessment of capital instruments proposed to be issued, and accountability mechanisms for the service standards;
- Government encourage ASIC to facilitate the issue of capital instruments by unlisted transferring financial institutions by developing minimum service standards (including an agreed process, framework and timetable) for the timely consideration of applications for exemption from the demutualisation provisions in the Corporations Act (and under the demutualisation guidelines under the Banking Act), and accountability mechanisms for the service standards;
- Government consider the continued effectiveness of Part 5 of Schedule 4 of the Corporations Act and the demutualisation guidelines implemented under the Banking Act, and the exercise of ASIC’s discretions under them, to determine whether any amendments to legislation or regulations are necessary or desirable;
- Government encourage ASIC to have further dialogue with the affected mutually owned ADIs and industry to determine whether the use of an offer information statement with enhanced disclosure would be appropriate for small scale offers of converting capital instruments;
- Tax regulations be promptly amended to treat Tier 2 Capital instruments convertible into MEIs in the same manner as Tier 2 Capital instruments convertible into ordinary shares;
- The Corporations Act be amended to expressly permit mutuals registered under the act to issue capital instruments without risking their mutual structure or status;
- In committing to amend the Corporations Act to expressly permit mutuals registered under the act to issue capital instruments, government also commit to including a definition of a mutual company;
- Government encourage ASIC to provide regulatory guidance on the duties of directors of mutuals; and
- Government encourage ASIC to review the policy basis for the dual regulation of certain offers of securities by state and territory co-operatives with a view to implementing legislative changes to eliminate this barrier to the raising of capital by those co-operatives.
More to come.
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James Mitchell is the editor of the Wealth and Wellness suite of platforms at Momentum Media including Investor Daily, ifa, Fintech Business, Adviser Innovation and Wellness Daily.