Providing licensing compliance training solutions and CPD courses for banking and financial workplaces.

As part of its 2022-23 priorities, ASIC will focus on improving the operation of the reportable situations regime.

The new regime, which applies to Australian Financial Services (AFS) Licensees and Credit Licensees, commenced on 1 October 2021.

The lodgement of reports by licensees under the reportable situations regime provides a critical source of intelligence to enable ASIC to identify emerging trends of non-compliance in the industry. It also allows detection of significant non-compliant behaviours early, facilitating prompt regulatory action where appropriate.

ASIC Commissioner Sean Hughes said, ‘We are aware that the regime has led to a number of implementation challenges. However ASIC remains committed to the successful implementation of this regime and we have developed a comprehensive plan of work to ensure that it meets its objectives for ASIC, industry and consumers.

Related Learning: Breach Reporting CPD short course

Superannuation trustees are being urged to review their internal dispute resolution (IDR) arrangements after the first stage of an ASIC surveillance found indicators of significant compliance issues.

‘Dispute resolution is an essential part of the consumer protection framework in Australia,’ ASIC Commissioner Danielle Press said. ‘A trustee’s approach to dispute resolution is a meaningful measure of whether they are focused on the interests of their members. It also indicates the maturity of the trustee’s approach to risk. When done well, dispute resolution can benefit trustees by helping build members’ trust and confidence.

‘However, the first stage of ASIC’s surveillance about internal dispute resolution practices of trustees has identified some problem areas that need fixing. We want trustees that have fallen behind to strengthen their internal dispute resolution arrangements to make sure that member complaints are handled in an effective, fair and timely way,’ Ms Press said.

Related Learning: Complaints Handling and dispute resolution RG 271

The Australian Prudential Regulation Authority (APRA) has released final reporting standards to support the updated capital adequacy and credit risk capital requirements for authorised deposit-taking institutions (ADIs).

The package published today responds to the consultation released in April 2022 on APRA’s proposed new and updated reporting standards. It will accompany the new bank capital framework, which is designed to embed unquestionably strong levels of capital and align Australian standards with the internationally agreed Basel III requirements.

APRA has made changes to these new collections to better meet data needs, simplify reporting requirements, and reduce the need for future data collections and ad hoc requests.

The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance and superannuation industries.

The responses to the survey from 64 medium to large institutions, suggest APRA-regulated entities are generally aligning well to APRA’s guidance, especially in the areas of governance and disclosure. Climate risk, however, remains an emerging discipline compared to other traditional risk areas, with only a small portion of survey respondents indicating that they have fully embedded climate risk across their risk management framework.

ASIC has placed interim stop orders on three financial firms in response to deficiencies in the target market determination (TMD) for their products. These actions are ASIC’s first use of the stop order powers under the design and distribution obligations (DDOs), which took effect on 5 October 2021.

‘The design and distribution obligations were created to deliver better consumer outcomes,’ ASIC Deputy Chair Karen Chester said. ‘Under the law, firms must embed a consumer-centric approach. They need to design financial products that meet the needs of consumers in their intended target market, and distribute those products in a targeted way. Where firms are not doing the right thing and there is potential for consumer harm, ASIC can now take quick action to disrupt poor conduct and prevent harm,’ Ms Chester said.

ASIC has made product intervention orders by way of legislative instruments imposing conditions on the issuing of short term credit and continuing credit contracts to retail clients.

ASIC Commissioner Sean Hughes said ‘ASIC identified significant detriment and harm especially to vulnerable consumers. ASIC has again exercised its powers to prevent borrowers being charged excessive fees to obtain these products.

South Australian authorities have launched an independent review of Adelaide’s SkyCity casino, in light of similar inquiries into casinos interstate.

Key points:

• Retired Supreme Court judge will lead the inquiry
• It follows similar inquiries into casinos interstate
• SkyCity says it will fully cooperate with the review

Last year, SkyCity revealed it was being investigated by financial crime watchdog AUSTRAC over serious non-compliance relating to money-laundering and counter-terrorism financing laws in its Adelaide operations.

The Federal Court has ordered Squirrel Superannuation Services Pty Ltd pay a $55,000 penalty for false and misleading marketing regarding investing in residential property via self-managed superannuation funds (SMSF).

ASIC Deputy Chair Sarah Court said ‘The SMSF sector holds an estimated total value of assets of just over $876 billion. Misleading information about SMSFs can greatly impact the sector so it is important that clear and accurate information is provided to those looking to set up an SMSF.

ASIC does regulate the marketing of financial products, including financial advice. For further information, see ASIC’s RG 234: Advertising financial products and services (including credit): Good practice guidance.

In a recent article published in the international Behavioural Economics Guide 2022, ASIC shares how regulators and financial services firms can use behavioural insights to get better outcomes for consumers.

• ASIC has shared its insights on how consumer outcomes are being influenced in a recent article published in the Behavioural Economics Guide 2022.
• The article revealed how some firms have exploited or ignored consumers’ behavioural vulnerabilities in the choice architecture of their products.
• ASIC reminds firms to design and distribute their products appropriately to meet consumer needs.

ASIC has published the updated ePayments Code (the Code) to provide enhancements to and clarity on a number of existing protections for consumers.

In addition to extending the Code to cover payments made using the New Payments Platform, ASIC has also updated the following areas of the Code:

• compliance monitoring and data collection;
• mistaken internet payments;
• unauthorised transactions;
• complaints handling; and
• facility expiry dates.

The changes strengthen the Code’s protections by removing ambiguity and, where appropriate, expanding protections.

“The ePayments Code plays an important role in reinforcing consumers’ confidence and trust in making electronic payments. These updates will ensure the Code remains relevant now and for the foreseeable future” said Commissioner Sean Hughes.

ASIC is urging directors, preparers of annual and half-year reports and auditors to assess whether companies’ 2022 annual and half-year financial reports provide useful and meaningful information for investors and other users, as it highlights key focus areas for reporting by companies for the reporting period ending 30 June 2022.

The Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) have issued a new set of frequently asked questions (FAQs) on the implementation of the retirement income covenant (the covenant) introduced by the Australian Government.

The FAQs published follow the joint letter released in March 2022 containing APRA’s and ASIC’s expectations of registrable superannuation entity (RSE) licensees in response to the covenant, and they aim at assisting RSE licensees with the development of their retirement income strategies.

A fit-for-the-future banking sector.

“The Australian financial system is strong and will play a critical role in assisting households and businesses weather the challenges ahead, such as the legacy of the pandemic, the resurgence of global inflation and ongoing geopolitical tensions. Mr Byres also remarked on some of APRA’s regulatory and supervisory priorities, focusing on housing, climate and digitisation.”

The Federal Court has ordered Westpac Banking Corporation pay a $1.5 million penalty for mis-selling consumer credit insurance with its credit cards and Flexi Loans to customers who had not agreed to buy insurance policies.

ASIC Deputy Chair Sarah Court said, ‘ASIC has identified consumer credit insurance to be a poor value product that leads to poor outcomes for consumers. In this case, customers were charged for insurance policies they had not agreed to buy and therefore were unlikely to use. The sale of these products benefitted the bank and not the consumer.”

How consumer credit insurance works

From 5 October 2021, salespeople can tell you about CCI when you apply for credit or a loan. But they must wait until four days after your credit or loan is approved before selling it to you. This gives you time to consider if you need it.

In “Regulating the technological revolution in finance”, Mr Byres delivered an update on APRA’s regulatory approach to major technological developments that are impacting the financial and payments systems, such as crypto currencies, stablecoins and central bank digital currencies.

Regulation of the financial system exists because history has taught us that, left to its own devices, the system is prone to bouts of instability and considerable harm to society. But equally we know a dynamic and innovative financial system – with participants able to take risk and innovate to deliver better products, services, and ways of doing business – generates important and long-lasting economic benefits for society. Finding that Goldilocks point for regulation – not too much, not too little – so as to allow the digitisation of finance to generate maximum economic benefit, but doing so within society’s risk tolerance, is what we strive for.

That, of course, is much easier said than done.

Chairman Wayne Byres – Senate Economics Legislation Committee, Canberra.

The importance of preparing for the future has been emphasised over the past fortnight in speeches by my colleagues. APRA Executive Director, Policy and Advice, Renée Roberts, addressed the issue of crisis readiness most directly in a speech focused on APRA’s development of two new prudential standards focused on recovery and resolution planning. Ms Roberts’ key message was that industry leaders cannot just improvise when faced with a sudden shock; they need to have already thought seriously about possible crisis scenarios, come up with a credible plan and tested their ability to execute it. Crucially, they should understand that relying on APRA or taxpayers to step in to solve the problem is not an acceptable strategy.

In “failing to plan is a plan to fail”, Ms Roberts described how APRA balances the need for appropriate risk-taking by financial institutions while minimising the potential for disorderly failures that might harm bank depositors, insurance policyholders or superannuation members.

Her comments included:

• “Australia needs a financial system that harnesses the creative power of risk-taking, and the innovation and efficiencies derived from risk taking. On the other hand, it cannot have a system that is brittle and overly prone to failure – particularly catastrophic failure. Failure always involves pain and cost, but that cost must be acceptable.”
• “APRA seeks to ensure that any failures that do occur will be orderly failures. An orderly failure is one where a regulated entity hasn’t reached its intended destination, but where the entitlements of protected beneficiaries and the stability of the financial system remain intact.”
• “Leaders need to have thought seriously about financial stress scenarios, come up with a credible plan, and then tested their institution’s ability to execute this plan. If you are going to step up to the controls of one of our institutions, it is your responsibility to assure yourself that you can land it safely in the unlikely event of an emergency.”
• “The essence of financial contingency planning is our expectation that institutions must be ready to manage their own destiny in all reasonable circumstances. Boards of APRA-regulated institutions must be aware that it simply isn’t acceptable to rely on ordinary insolvency or APRA stepping in to solve the problem.”

In “Banking on a successful future for the mutual sector”, Mr Lonsdale stressed the importance of improving governance, and highlighted board tenure, capabilities, composition and performance assessment as areas with the greatest scope for improvement.

His comments included:

• “APRA considers good governance to be a precondition to sustainable success.”
• “APRA has articulated its concern about excessive tenure within the prudential framework… And yet, directors are remaining on mutual boards far longer than their ASX 200 counterparts. The boards of 19 out of the 60 mutuals regulated by APRA have an average director tenure of at least 10 years.”
• “Under CPS 510 [Governance], boards of APRA-regulated institutions are required to have a majority of independent directors at all times. If the 12-year rule for independence were applied, more than a quarter of mutuals would be non-compliant.”
• “The composition of mutual boards is often a product of history. In a number of cases, mutuals are bound by longstanding constitutional rules that require a majority of directors to be from the ‘bond’ – the customer cohort – or from a particular geographic area. In the interests of their customers and good governance, boards should consider consigning to history outdated provisions in their constitutions that undermine their ability to operate effectively.”