A new chapter in the history of insurance in Australia began on 1 January 2022 when the claims handling and settling service reforms came into full force. Persons who provide claims handling and settling services are now required to hold an AFS licence. This means that they must comply with the obligations owed by a person licensed to provide financial services. This includes ensuring those financial services are provided in an efficient, honest and fair manner.

ASIC will take over administration of the financial adviser exam from the Financial Adviser Standards and Ethics Authority from 1 January 2022 following the commencement of the Financial Sector Reform (Hayne Royal commission Response – Better Advice) Act 2021.

The first exam sitting of 2022 will be held from 17 February until 21 February 2022. ASIC publishes information relevant to financial advisers on their Financial Adviser Hub

The Government is committed to ensuring that Australians have access to high quality, affordable and accessible financial advice. Consistent with recommendations 2.3, 2.5 and 2.6 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission), the Government has released for feedback and stakeholder views draft Terms of Reference for the ‘Advice Review’.

The Advice Review will consider whether measures that have been implemented by government, regulators and financial services entities have improved the quality of financial advice, whether further reforms or other changes are needed, and whether any measures or obligations are redundant or can be streamlined. The review will also consider how to ensure the regulatory settings support Australians getting access to affordable financial advice.

In 2017, the Government introduced professional standard reforms for ‘relevant providers (financial advisers). This included setting up the Financial Adviser Standards and Ethics Authority (FASEA) to set education and training requirements for financial advisers.

On 1 January 2022, the Minister for Superannuation, Financial Services and the Digital Economy will assume responsibility for setting the education and training standards. The Government has released a policy paper seeking feedback on the education standards and whether they remain fit for purpose including by ensuring that they adequately recognise on-the-job experience of advisers. Unless the standards made by FASEA are amended or replaced, the existing standards continue to set the requirements for financial advisers.

ASIC welcomes the following appointments to the Operations group:

• Mrs Zak Hammer as Executive Director, Operations (commencing January 2022);
• Mr Peter Dunlop, Chief Financial Officer; and
• Ms Nicole Collins, Chief People Officer.

Reporting to Chief Operating Officer, Mr Warren Day, these appointments bring extensive technical expertise and industry experience to ASIC, drawn from the private and public sectors.

‘The combined knowledge and experience of Zak, Peter and Nicole will support ASIC to deliver our priorities to achieve a fair, strong and efficient financial system for all Australians’, ASIC Chair Joe Longo said.

‘They will help us better identify and seize opportunities to enhance ASIC’s capabilities to work more efficiently and effectively in an environment that supports our people internally and our stakeholders externally’, he said.

The Australian Prudential Regulation Authority (APRA) has provided an update on the implementation of APS 220 Credit Risk Management, to assist authorised deposit-taking institutions (ADIs) in meeting their new requirements.

Consistent with prior communications, ADIs will be required to meet the requirements of Prudential Standard APS 220 Credit Risk Management (APS 220) from 1 January 2022. The final standard was released by APRA in December 2019 and is available on the Federal Register of Legislation.

The Australian Prudential Regulation Authority (APRA) has published remarks delivered yesterday evening by APRA Chair Wayne Byres to the AMF-BCBS-FSI High-level meeting on the post COVID-19 banking system.

Lessons from the pandemic for financial regulation and supervision

Lesson 1: A strong foundation is essential
The first lesson is a statement of the obvious, but one that always bears repeating: preserving a strong and resilient financial system in good times is valuable insurance for when a crisis hits.

Lesson 2: Be prepared for the unexpected
The second lesson is another fairly obvious one: be prepared for the unexpected.

Lesson 3: Third-party suppliers are increasingly critical to operational resilience
My third lesson relates to the need to better understand operational resilience, and particularly the potential vulnerabilities that emerge from third-party relationships.

Lesson 4: The value of data and transparency
My fourth lesson is on the value of good quality data and transparency.

Lesson 5: Have the courage to act counter-cyclically
Lesson five relates to the willingness and ability to act counter-cyclically in bad times.

Lesson 6: Don’t lose sight of bigger trends
My last lesson is perhaps more of a note of caution… Technology, digitisation and new forms of finance have evolved considerably while we have had ‘all hands to the pump’ responding to the pandemic. Indeed, in many ways COVID-19 turbo-charged the digital shift already underway (retail payments being a particular case in point).

APRA has released a new set of frequently asked question (FAQs) on Prudential Standard APS 210 Liquidity (APS 210) and Reporting Standard ARS 210.0 Liquidity (ARS 210.0).

The new FAQs and updates to the existing FAQs published today clarify the liquidity treatment of certain types of deposits, specifically, the treatment of intermediated deposits, personal investment entity deposits and deposits from government or governmental entities under APS 210 and ARS 210.0.

ASIC has released a consultation paper, Product Intervention Orders: Short Term Credit and Continuing Credit Contracts, on its proposed use of its product intervention powers to address significant consumer detriment in the short term credit and continuing credit contracts industries.

ASIC invites stakeholder feedback on two proposals:

• Proposal D1 – Make the short term credit product intervention order
• Proposal D2 – Make the continuing credit product intervention order

Any feedback should be sent by 21 January 2022

ASIC has commenced civil penalty proceedings in the Federal Court against Australia and New Zealand Banking Group Ltd (ANZ) for failing to provide certain benefits it had agreed to give customers with offset transaction accounts or a ‘Breakfree’ package.

ASIC’s investigations reinforce that financial services institutions must:

• Always put their customers first
• Fulfil any promises made to their customers
• Ensure all consumers are treated fairly
• Ensure that they do not take advantage of vulnerable consumers
• Put in place the correct and legal compliance processes to monitor their activities, and
• Maintain the appropriate governance, oversight, and systems over those compliance processes.

This proceeding also marks the final civil case for ASIC arising from the Financial Services Royal Commission.

Today ASIC released its latest report on the cyber resilience of firms operating in Australia’s financial markets. Report 716 Cyber resilience of firms in Australia’s financial markets: 2020–21 (REP 716) provides an update on organisations’ cyber resilience in the two years since the publication of Report 651 Cyber resilience of firms in Australia’s financial markets in November 2018-19.

ASIC Commissioner Cathie Armour said, ‘firms operating in Australia’s markets continue to be resilient against a rapidly changing cyber threat environment. The COVID-19 pandemic has increased opportunities for threat actors to target remote workers, and access remote infrastructure and supply chains critical to the delivery of products and services. However, the response from firms has been robust.’

The two proposed standards are aimed at ensuring entities are prepared to deal with threats to their viability, thereby reducing the negative consequences resulting from failure.

• CPS 190 Financial Contingency Planning (CPS 190) would ensure all APRA-regulated entities have plans for responding to severe financial stress. These plans would set out actions that an entity would take in stress to restore financial resilience or exit the industry safely, while protecting depositors, insurance policyholders and superannuation fund members. Smaller entities will be subject to less onerous requirements, in line with their size, complexity and business models.
• CPS 900 Resolution Planning (CPS 900) would require large or complex APRA-regulated entities to take pre-emptive actions so that, in the event of their failure, APRA can resolve them with limited adverse impacts on the community and the financial system. This includes ensuring that critical financial services can continue to be provided with minimal disruption.

APRA is finalising requirements for the four major banks to maintain additional loss-absorbing capacity (LAC). The purpose of the adjustment is to ensure that, in the unlikely event of a failure, a major bank could be recapitalised using a large pool of private, rather than taxpayer, funds.

APRA wrote to the major banks confirming that the final setting for loss-absorbing capacity will be an increase in minimum Total Capital requirements of 4.5 percentage points of risk-weighted assets, to be met from 1 January 2026. The major banks have already made significant progress towards meeting this requirement, having met interim targets put in place following the consultation in 2018.

ASIC Commissioner Danielle Press said, ‘ASIC recognises that many consumers prefer to seek limited and specific advice rather than comprehensive advice. We also understand that industry faces some barriers to providing limited advice, including a lack of clarity about the regulatory requirements.’

‘We expect this guidance will provide regulatory certainty to industry and help reduce compliance costs. It will assist financial advisers in their efforts to make these forms of advice more available to consumers and assist them in delivering quality advice in a timely, affordable, and compliant manner.’

INFO 267: Tips for giving limited advice

ASIC’s Commissioner Sean Hughes speaks at the 3rd Australian National Whistleblowing Symposium.

“Investigating misconduct revealed by whistleblowers is just one touchpoint ASIC has with the whistleblower protection regime. We do more than just:

1. investigate misconduct and
2. enforce breaches of the protections.

We also promote and foster compliance with the whistleblower protection regime.”

He outlines:

1. the Corporations Act reforms
2. the scope of ASIC’s review and our findings
3. what we are asking Australian CEOs to do.

APRA has outlined the framework it uses when assessing whether macroprudential intervention is appropriate, and which tool or combination of tools would best achieve its intended objective.

The paper covers:

• the risk factors APRA uses to identify emerging threats to financial stability
• the policy tools APRA can choose from, and
• the importance of consulting with other members of the Council of Financial Regulators as part of the decision-making process.

Victoria’s Crown Royal Commission released its final report, affirming findings made by a similar inquiry conducted in NSW. The report alleges that Crown Melbourne “had engaged in…conduct that was variously illegal, dishonest, unethical and exploitative”.

The Commission recommended that a Special Manager should be appointed for a two-year period to report on what has occurred and how the results of inquiries conducted in NSW, Victoria and WA have been responded to by Crown. The regulator will then decide whether it is ‘clearly satisfied’ that Crown Melbourne has returned to suitability and is therefore eligible to retain its casino licence.

Findings included that Crown Melbourne may have breached several anti-money laundering obligations. AUSTRAC’s enforcement team, which has been reviewing Crown as a result of an AML compliance assessment commenced in September 2019, will examine the inquiry reports as part of its investigations.

All regulated entities should ensure that they are familiar with and adequately training all staff on relevant AML-related matters. You can follow industry-specific guidance provided by AUSTRAC on its website.

APRA has published its analysis of the performance of choice superannuation products ahead of releasing its first Choice Product Heatmap in late 2021.

APRA Executive Board Member Margaret Cole said the findings demonstrate the importance of exposing and addressing underperformance among choice products. “With the annual performance test for choice products coming into effect next year, trustees of products that show up bright red across the heatmap would be well advised to quickly rectify any weaknesses.”

Chair Wayne Byres discussed APRAs role as a forward-looking prudential supervisor, needing to not only address the challenges of today but also ensure be prepared for those of tomorrow. Ensuring bank deposits are safe, that insurers have the capacity to pay claims when they are made, and that superannuation funds are managed in members’ best financial interests, remains at the heart of what we do.

ASIC published its quarterly update covering the period July to September 2021. The focuses of its activity included supporting licensees’ transition towards law reform in several areas, such as:

• Hawking reforms
• Breach reporting
• Deferred sales model for add-on insurance
• Design and distribution obligations
• Licensing of insurance claims handling and debt management services.

ASIC Chair Joe Longo said the regulator was taking a reasonable, common-sense approach to implementing law reforms that commenced in October 2021. However, he reminded licensees that it continues to pursue appropriate enforcement, regulatory and remediation action to penalise misconduct, deter further breaches and protect Australian investors and consumers.