Arm’s length pricing and multinational banks : an old fashioned approach in a modern world

In “Arm’s Length Pricing and Multinational Banks: An Old Fashioned Approach in a Modern World”, Kerrie Sadiq, describes the high level of integration of multinational financial institutions and argues that treating each element within a given operation as a separate entity for transfer pricing purposes is not economically or legally realistic. She proposes instead formulary apportionment as a device for managing this complexity.

Financial Markets, Institutions and Money [3rd ed.]

"The financial system is a key influencer of the health and efficiency of an economy. The role of the financial system is to gather money from people and businesses that currently have more money than they need and transfer it to those that can use it for either business or consumer expenditures. This flow of funds through financial markets and institutions in the Australian economy is huge (in the billions of dollars), affecting business profits, the rate of inflation, interest rates and the production of goods and services. In general, the larger the flow of funds and the more efficient the financial system, the greater the economic output and welfare in the economy. It is not possible to have a modern, complex economy such as that in Australia, without an efficient and sound financial system. The global financial crisis (GFC) of late 2007–09 (and the ensuing European debt crisis), where the global financial market was on the brink of collapse with only significant government intervention stopping a catastrophic global failure of the market, illustrated the importance of the financial system. Financial Markets, Institutions and Money 3rd edition introduces students to the financial system, its operations, and participants. The text offers a fresh, succinct analysis of the financial markets and discusses how the many participants in the financial system interrelate. This includes coverage of regulators, regulations and the role of the Reserve Bank of Australia, that ensure the system’s smooth running, which is essential to a modern economy. The text has been significantly revised to take into account changes in the financial world."---publisher website Table of Contents 1. The financial system - an overview 2. The Monetary Authorities 3. The Reserve Bank of Australia and interest rates 4. The level of interest rates 5. Mathematics of finance 6. Bond Prices and interest rate risk 7. The Structure of Interest Rates 8. Money Markets 9. Bond Markets 10. Equity Markets

Transfer pricing and multinational financial institutions : the case for replacing arm’s length price with a unitary approach

The international tax system, designed a century ago, has not kept pace with the modern multinational entity rendering it ineffective in taxing many modern businesses according to economic activity. One of those modern multinational entities is the multinational financial institution (MNFI). The recent global financial crisis provides a particularly relevant and significant example of the failure of the current system on a global scale. The modern MNFI is increasingly undertaking more globalised and complex trading operations. A primary reason for the globalisation of financial institutions is that they typically ‘follow-the-customer’ into jurisdictions where international capital and international investors are required. The International Monetary Fund (IMF) recently reported that from 1995-2009, foreign bank presence in developing countries grew by 122 per cent. The same study indicates that foreign banks have a 20 per cent market share in OECD countries and 50 per cent in emerging markets and developing countries. Hence, most significant is that fact that MNFIs are increasingly undertaking an intermediary role in developing economies where they are financing core business activities such as mining and tourism. IMF analysis also suggests that in the future, foreign bank expansion will be greatest in emerging economies. The difficulties for developing countries in applying current international tax rules, especially the current traditional transfer pricing regime, are particularly acute in relation to MNFIs, which are the biggest users of tax havens and offshore finance. This paper investigates whether a unitary taxation approach which reflects economic reality would more easily and effectively ensure that the profits of MNFIs are taxed in the jurisdictions which give rise to those profits. It has previously been argued that the uniqueness of MNFIs results in a failure of the current system to accurately allocate profits and that unitary tax as an alternative could provide a sounder allocation model for international tax purposes. This paper goes a step further, and examines the practicalities of the implementation of unitary taxation for MNFIs in terms of the key components of such a regime, along with their their implications. This paper adopts a two-step approach in considering the implications of unitary taxation as a means of improved corporate tax coordination which requires international acceptance and agreement. First, the definitional issues of the unitary MNFI are examined and second, an appropriate allocation formula for this sector is investigated. To achieve this, the paper asks first, how the financial sector should be defined for the purposes of unitary taxation and what should constitute a unitary business for that sector and second, what is the ‘best practice’ model of an allocation formula for the purposes of the apportionment of the profits of the unitary business of a financial institution.

Financial institutions using social media – do consumers perceive value?

Purpose The purpose of this paper is to examine consumer perceptions of value of financial institutions using social media to interact with consumers; if overall perceived value predicts a consumer’s intention to adopt, and if intention predicts self-reported adoption of social media to interact with a financial institution; and if perceptions of value in using social media to interact with a financial institution changes over time. Design/methodology/approach Self-administered surveys were run at two time points; 2010 and 2014. Data were analyzed using multiple and mediated regressions, and t-tests. Comparisons are made between the two time points. Findings Perceived usefulness, economic value, and social value predicted overall perceived value, which in turn predicted a consumer’s intention to adopt social media to interact with a financial institution. At Time 2, adoption intention predicted self-reported usage behavior. Finally, there were significant differences between perceptions across Time 1 and 2. Research limitations/implications The implications of the research highlight the importance of overall perceived value in the role of adoption intention, and that at Time 2, adoption intention predicted self-reported adoption to read and share content. A reduction in perceptions of value and intentions from Time 1 to Time 2 could be explained by perceptions of technology insecurity. In future studies, the authors recommend examining inhibitors to adoption including hedonic value. Practical implications The findings suggest that consumers will use social media if the sector creates and clearly articulates consumer value from using social media. The sector also needs to address technology security perceptions to increase usage of social media. Originality/value This paper is one of the first to investigate the consumer’s perspective in social media adoption by financial institutions, by exploring the role of value in consumer adoption and usage of social media.

Financial liberalization and sectoral reallocation of capital in South Africa

We examine the impact of financial reforms on efficient reallocation of capital within and between sectors in South Africa using firm-level panel data for the period 1991–2008. The measure of efficient allocation of capital is based on the Tobin’s Q. We find that financial reforms are associated with improvements in within-sector, but not between-sector allocation of capital. These results imply that for South Africa to unleash the potential for take-off that is often associated with reallocation of resources from the primitive to modern sectors, reforms that focus beyond the financial sector are necessary. While more research is necessary to determine what would fully constitute such additional reforms, our analysis shows that reforms that improve the quality of economic institutions may be a step in the right the direction.

The regulation of insurance intermediaries in the Australian financial services market

The insurance industry discharges a critical role in the Australian economy and is a significant part of the Australian financial services market. The industry relies upon intermediaries, the principal types being brokers and agents, to promote, arrange and distribute their products and services in the market. The pivotal role that they play in this context and sensitivities associated with the consumer oriented products, such as house and contents insurance, has ensured close regulatory attention. Of particular importance was the passage of the Insurance (Agents and Brokers) Act 1984 (Cth), a comprehensive attempt to address the responsibilities of intermediaries as well as particular problem areas associated with the handling of money. However, with the introduction of financial services and market reform early in the new millennium this insurance intermediary specific regulatory approach was abandoned in favour of a market-wide strategy; that is, market reform was based upon across-the-board licensing, disclosure, conduct and fairness standards, and all financial products and services are now regulated at a generic level under Ch 7 of the Corporations Act 2001 (Cth). This article briefly explores the categories of insurance intermediaries and the relevant distinctions between them but focuses mainly upon the regulatory context in which they operate. This context transcends a strictly legal framework as the regulatory body, the Australian Securities and Investments Commission (ASIC), has sought to inform and guide the market through Policy Statements and Regulatory Guides. The usefulness of these guides as an adjunct to the legislation in explaining the scope and operation of regulatory framework is examined. In addition, the article looks at the self-regulatory and dispute resolution practices in this area and their impact. In conclusion an assessment of this across-the-board regulatory regime is advanced.

‘I can’t get no satisfaction’...or can I? A study of satisfaction with financial planning and client wellbeing

This paper reports findings from an ongoing collaborative research project with the Financial Services Council (FSC), which contributed funding and facilitated the survey of financial planners’ clients through FSC member organisations. The article draws on the report to the FSC that was prepared by the QUT researchers, reporting findings on the initial exploratory stage of the project.1 The lyric in the title of this paper has become a catchcry for consumers dissatisfied with a range of financial services and products, and, as recent Federal Government inquiries have revealed, there is some truth to the claim. But as financial planning undergoes a series of reforms, including increased professionalism (FPA 2009) and improved quality of advice (Australian Government 2011), there are good reasons to explore the conditions under which clients report satisfaction with their financial planners; not least because the provision of effective financial planning and advice, delivered in accordance with, or transcending, the rules and norms of industry best-practice has the potential to benefit clients, not just financially, but across a number of life domains. In this paper, we report findings from an exploratory study investigating whether financial planning and advice contribute to client well-being, beyond effects on financial well-being. While anecdotal evidence supports psychological benefits such as a sense of security, little research has explored these links in any systematic or theoretically driven way. However, theory and research from cognate disciplines, such as psychology, indicate clear links between planning, goal setting and well-being that are likely to arise in the financial planning domain. Surveyed clients were asked to indicate their satisfaction with their financial advisers, the planning process and the advice they received. Clients responded to items designed to reflect key areas for financial planners in the shift towards increased professionalism, improved disclosure and greater client focus (e.g. FPA 2009). Clients also reflected on their financial situations before and after seeing their advisers, and considered the impact of their financial situations on a number of life areas including family relationships, mental health and well-being, and overall life satisfaction.

Financial planners and philanthropic planning

This article reports findings from a survey of Canadian financial planners. The focus of the study is learning more about the depth and breadth of philanthropic planning that is included in their advising services to their high-net worth clients. The findings indicate that a minority of financial planners (1) regularly broach the topic of philanthropy in their counseling, (2) believe their clients are interested in philanthropy, and (3) feel sufficiently knowledgeable to assist their clients with philanthropic planning. The implications of these findings and recommendations for improvement are discussed.

The Best interests duty in the future of financial advice reforms : striking a balance between certainty and flexibility

Presentation delivered to the Australian and New Zealand Consumer Law Roundtable held at the University of Melbourne Law School on Friday, 16 November 2012. The paper covers the background to the 'Future of Financial Advice' reforms and their context. In addition to this the scope of best interests duty is discussed. The paper concludes with an assessment of the likely effectives of best interest duty as a consumer protection measure.

The ACEN Student Scholarship: a profile of financial hardship and Work Integrated Learning

An increasing emphasis on embedding Work-Integrated Learning (WIL) in the curriculum has impacted on teaching and learning approaches in Australian higher education institutions (Higher Education Base Funding Review: Final Report, 2011). Yet whilst the benefits and costs of these approaches have been identified (Bradley, Noonan, Nugent, & Scales, 2008; Patrick et al., 2009) insufficient attention has been paid to financial costs experienced by students studying subjects with a Work Integrated Learning component. In 2010 the Australian Collaborative Education Network (ACEN) responded to this issue by offering three modest student scholarships based on evidence of hardship. Data collected from over 1000 applicants between 2010 and 2012 indicate travel, accommodation, food, clothing, equipment and loss of income are of major concern especially for students on lengthy placements involving relocation. At the same time the Australian Federal Government’s review of base funding has recommended a detailed assessment of the costs of providing student placements across all disciplines - in particular health and education (DEEWR, 2011, p.94). This paper considers costs from the student perspective and highlights major concerns identified through ACEN scholarship applications over a three year period. The implications for ACEN are described and recommendations documented which outline ACEN’s role in ensuring that these issues are given greater consideration across the sector.

National consumer credit laws, financial exclusion and interest rate caps : The case for diversity within a centralised framework

Australia is going through a major reform of consumer credit regulation, with the implementation of a proposal to transfer regulatory responsibility from the State and Territory Governments to the Commonwealth Government. While the broad policy approach is supported, the reform process has missed a significant opportunity to engage directly with issues of financial exclusion and with the potential role of regulation to reduce financial exclusion. The imposition of an interest rate cap can limit the impact of financial exclusion. However, the future of the existing interest rate caps is uncertain, given the diversity of approaches, and the heated debate that surrounds this issue. In the absence of support for regulatory initiatives to increase the availability of low cost, small loans, permitting regulatory diversity on this issue of interest rate caps, within an otherwise centralised regulatory framework., can minimise the impact of financial exclusion on consumers.

Financial incentives and advanced construction procurement systems

Construction clients often use financial incentives to encourage stakeholder motivation and commitment to voluntary higher-order project goals. Despite the increased use of financial incentives, there is little literature addressing means of optimizing outcomes. Using a case study methodology, the examination of a successful Australian construction project demonstrates the features of a positively geared procurement approach that promotes the effectiveness of financial incentives. The research results show that if the incentive system is perceived to be fair and is applied to reward exceptional performance, and not to manipulate, then contractors are more likely to be positively motivated.

Financial planning and well-being

The aim of this paper is to provide a review of the theoretical and research literature on the ways in which financial planning can enhance well-being. In reviewing the literature, the paper develops a conceptual framework for thinking about the extended value of financial planning, beyond financial outcomes, by examining the process of planning in the financial domain and its relationship to life satisfaction, living an intentional life, attainment of life goals, and the development of a sense of mastery. An essential element of psychological well-being is engagement in life tasks and roles. Planning can be considered a life management strategy that enables individuals to control and structure their lives. Having meaningful goals and the plans to achieve those goals enable individuals to experience higher levels of life engagement and well-being (MacLeod et al., 2008). Recent research on well-being suggests that domain-specific behaviours contribute to domain-specific satisfactions, which in turn contribute to an individual’s overall satisfaction with life (Easterlin, 2003; 2006). Thus changes in domain satisfaction, such as financial satisfaction, are likely to effect changes in life satisfaction.

Framework for assessing financial literacy and superannuation investment choice decisions

There is a worldwide trend towards rapidly growing defined contribution pension funds in terms of assets and membership, and the choices available to individuals. This has shifted the decisionmaking responsibility to fund members for managing the investment of their retirement savings. This change has given rise to a phenomenon where most superannuation fund members are responsible for either actively choosing or passively relying on their funds’ default investment options. Prior research identifies that deficiencies in financial literacy is one of the causes of inertia in financial decision-making and findings from international and Australian studies show that financial illiteracy is wide-spread. Given the potential significant economic and social consequences of poor financial decision-making in superannuation matters, this paper proposes a framework by which the various demographic, social and contextual factors that influence fund members’ financial literacy and its association with investment choice decisions are explored. Enhanced theoretical and empirical understanding of the factors that are associated with active/passive investment choice decisions would enable development of well-targeted financial education programs.