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Offshore banking reforms to boost financial services exports

by Robin Christie

Reforms to the Offshore Banking Unit (OBU) regime that were introduced to parliament yesterday are set to help the Australian financial services sector to compete on the international stage.

Commenting on the new reforms, the Australian Financial Markets Association (AFMA) said that the OBU regime is a key pillar of Australia’s push to export financial services. In a statement issued yesterday, the AFMA noted that the revised OBU regime will allow Australian financial institutions to compete for internationally mobile financial business with neighbouring regional financial centres such as Singapore and Hong Kong. This international competitiveness, it states, will bring both income and employment to Australia.

The introduction of the OBU reforms is the culmination of a process that began back in 2010 with the release of the Australian Financial Centre Forum’s report ‘Australia as a financial centre: Building on our strengths’ – otherwise known as the Johnson Report. According to the AFMA, yesterday’s reforms largely seek to enact the recommendations of the Johnson Report, and will enhance the effectiveness of the OBU regime and resolve a number of operational legacy issues.

Key reforms

The government committed to exploring these issues further in November 2013, when it announced that it intended to push ahead with certain reforms to the OBU regime. In particular, it sought to address a number of integrity concerns with the existing regime, while ensuring that it targeted mobile financial sector activity.

These reforms were listed as follows:

Limit the availability of the OBU concession in certain circumstances where it could otherwise be used to convert ineligible activity into eligible activity by trading in a subsidiary.
Limit the availability of the OBU concession in certain circumstances where it could otherwise be used to convert ineligible activity into eligible activity by trading in a subsidiary.
Codify the ‘choice principle’ to remove uncertainty for taxpayers.
Introduce a new method of allocating certain expenses between the operations of a taxpayer’s domestic banking unit and the OBU.
Modernise the list of eligible activities.
Treat internal financial dealings (for example, between an Australian bank and its offshore branch) as if they were on an arm’s length basis.
Further action required

While the AFMA has welcomed the reforms’ passing into parliament – particularly those that relate to the expansion of the range of eligible activities and amendments to the methodology to allocate expenses to OBUs – its official position is that further changes are required.

“AFMA maintains that further reform is necessary to place the OBU regime on a competitive footing with comparable regimes in other jurisdictions. In particular, we have continued to advocate for a more principles-based regime that can respond nimbly to financial market developments and the adoption of a holistic approach to eligibility that ensures that all aspects of a transaction lifecycle can be offered from Australia,” says the statement.

“Today’s initiatives are a solid foundation for future improvement of the regime and we encourage the government to continue the dialogue with industry to optimise the regime in a manner that both protects revenue integrity and supports the growth of our financial services exports.”

Domestic amendments in the pipeline

The news comes as the Treasury looks for feedback on its latest round of proposed banking law amendments. Having announced in March that it was planning to make several changes to the country’s unclaimed money provisions, the government has now released draft proposals for consultation, which include:

Extending the required period of inactivity before bank accounts and life insurance policies can be deemed unclaimed to seven years.
Exempting foreign currency accounts and children’s accounts from the unclaimed moneys provisions.
Ensuring that accounts that satisfy the legislative ‘notification requirements’ after being deemed unclaimed, but prior to being transferred to the Australian Securities and Investments Commission (ASIC), do not have to be transferred to ASIC.
Removing the requirement for ASIC to publish an annual Unclaimed Moneys Gazette, while still ensuring that data can be made available and searchable on ASIC’s MoneySmart website.
Introducing secrecy provisions to limit access to information in the unclaimed moneys database to those to whom the information relates, or their agent.

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