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

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.”

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.

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.

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.”

In “Bridging the sustainability chasm”, Ms Cole warned of a growing sustainability gap between those funds that are well-placed to deliver strong member outcomes in to the future, and those – often smaller – funds on a declining trajectory.

Her comments included:

• “APRA’s analysis of sustainability in superannuation clearly demonstrates that larger funds are, in general, better equipped to deliver their members higher net returns and lower fees over the long-term. It shows the gap between the big and small ends of the industry is getting wider, making it ever harder for small funds to keep pace with rivals that enjoy far greater efficiencies and economies of scale.”
• “The reality is that no fund with under $10 billion in assets is going to become a $50 billion plus fund through business efficiencies alone. The only way to make that kind of jump is through a merger – ideally with a well-performing fund.”
• “We did find a sub-set of small funds that consistently bucked the sustainability trend, and were managing to grow. These funds generally provided specialised offerings, such as environmental, social, governance (ESG) focused products.”

“In the nine months since I took up my role at APRA, one of the observations to have struck me most sharply is the disparity in board capability across the sector. I have seen boards with very high-quality members operating effectively and focused on the best financial interests of members, and others where capabilities and practices are not to the standard required in this industry.”

ASIC has commenced a surveillance into the marketing of managed funds, to identify the use of misleading performance and risk representations in promotional material.

ASIC is scrutinising traditional and digital media marketing of funds, including search engine advertising, targeting retail investors and potentially unsophisticated wholesale investors, such as some retirees.

ASIC is concerned that, in the current highly volatile and low-yield environment, consumers seeking reliable or high returns are being misled about the performance and risks of the funds they are investing in. This surveillance follows on from ASIC’s ‘True to Label’ initiative, which examined whether representations in fund labels may have misled consumers about the funds’ characteristics and underlying assets.

Following an ASIC investigation, it is alleged that between August 2019 and June 2020, National Advice Solutions made unsolicited calls to 11 consumers and encouraged them to roll over their superannuation into different superannuation products.

Reforms to the anti-hawking regime were made under the Financial Sector Reform (Hayne Royal Commission Response) Act 2020, which commenced on 5 October 2021. These reforms were designed to tackle consumer harms arising from consumers being approached with unwanted products through cold-calls or other unsolicited contact.

ASIC Commissioner Cathie Armour said, ‘The way investors access information is changing. It is crucial that influencers who discuss financial products and services online comply with the financial services laws. If they don’t, they risk substantial penalties and put investors at risk.’

In 2021, the ASIC young people and money survey found that 33% of 18-21 year olds follow at least one financial influencer on social media. The survey found a further 64% of young people reported changing at least one of their financial behaviours as a result of following a financial influencer.

Information sheet (INFO 269) is for social media influencers who discuss financial products and services online. It sets out how financial services laws apply to you – it is your responsibility to ensure that any content you post complies with the law.

ASIC Chair Joe Longo spoke at the Australian Institute of Company Directors Governance Summit.

Key points include:

• DDO moving from surveillance period to enforcement.  ASIC position:  Industry has been given sufficient time to bed down implementation to regime
• Governance failures relating to non-financial risk that result in significant harm to consumers and investors. Corporate culture and governance are not matters that you can ‘set and forget’; they are enduring priorities for boards.  Non-financial risk is key!!!
• Cyber governance and resilience failures. This is illustrated by current proceedings brought by ASIC against RI Advice Group, where we allege that it failed to have adequate policies, systems and resources to appropriately manage risk in respect of cyber security and cyber resilience.
• Climate–change disclosure for listed companies – ASIC is following developments closely and continues to participate in IOSCO’s sustainable finance taskforce, alongside our peer regulators. In light of this, it is important for directors to adopt a proactive approach.  Greenwashing very much in ASIC’s sights
• Whistleblowers  – ASIC says the majority of the whistleblower policies we reviewed were deficient, and three of the most prevalent and concerning deficiencies we saw were:
  • incomplete or inaccurate information
  • obsolete and out-of-date policies
  • policies without oversight arrangements.

Your business is at the frontline of Australia’s anti-money laundering and counter-terrorism financing efforts. Each year, most regulated businesses are required to lodge an annual compliance report to AUSTRAC.

The 2021 compliance reporting period is open. You must submit your compliance report by 31 March 2022.

Based on what businesses told us in last year’s compliance reports, here are our three top tips to help you meet your AML/CTF obligations.

• Ensure your ML/TF risk assessment and staff training are up-to-date
• Strengthen how your business identifies and manages high risk customers
• Use a strong transaction monitoring program to detect suspicious activity

AUSTRAC has identified compliance concerns following a period of engagement with the Australian-based Bell Financial Group. Members of the Bell Financial Group are regulated by AUSTRAC and provide stockbroking, foreign exchange, loans, investment and financial advisory services.

The external auditor must report to AUSTRAC within 180 days of being appointed and will examine the three entities’ compliance with:

• The requirement to have an AML/CTF program and comply with Part A of that program
• The requirement to have an ongoing customer due diligence program
• Suspicious matter report reporting obligations
• Maintenance of enrolment details within required timeframes.