The Australian Securities and Investments Commission and the Australian Prudential Regulation Authority have published new information to help insurers and superannuation trustees prepare for the commencement of the Financial Accountability Regime.

The FAR already applies to the banking industry, and takes effect for the insurance and superannuation industries from 15 March 2025. It imposes a strengthened responsibility and accountability framework to improve the risk governance cultures of APRA-regulated entities, their directors and most senior executives.

The Federal Court found that Firstmac Limited breached the new design and distribution provisions by failing to take reasonable steps that would have resulted in, or would have been reasonably likely to have resulted in, the distribution of one of its investment products being consistent with its target market determination for the product. This is the first finding by a court of a contravention of these provisions.

The Court found Firstmac implemented a ‘cross-selling strategy’ of marketing investments in its High Livez investment product to 780 consumers who held existing term deposits with Firstmac. In doing so, it breached its design and distribution obligations (DDO) when it sent product disclosure statements (PDS) for the Firstmac High Livez product to those existing term deposit holders, without first taking reasonable steps to ensure consistency with its TMD for the product. The conduct occurred between from October 2021 to September 2022.

ASIC Deputy Chair Sarah Court said ‘ASIC took this case because we were concerned that customers were exposed to the risk they might obtain a financial product that was not appropriate to their needs and objectives. This should act as a deterrent to anyone engaged in cross-selling financial products who fails to consider their design and distribution obligations before sending product disclosure statements,’ Ms Court said.

The Federal Court has declared a term used by PayPal Australia Pty Limited (PayPal) in its standard form contracts with small businesses to be unfair.

The Court found that the term was unfair because its effect was to allow PayPal to retain fees that it had erroneously charged if the small business failed to notify PayPal of the error within 60 days of the fee appearing on its account statement.
The declarations affect small businesses who opened a PayPal Business Account between 21 September 2021 to 7 November 2023. As of 30 June 2023, there were over 600,000 small businesses with PayPal Business Accounts. PayPal agreed that the term was unfair and consented to the declarations, having voluntarily removed the term from its contracts on 8 November 2023.

Deputy Chair Sarah Court said, ‘ASIC is dedicated to protecting consumers and small businesses from unfair contract terms and ensuring that all financial services providers use fair contract terms.’ 

‘Today’s decision serves as a reminder to all businesses that unfair contract terms contained within standard form contracts with small businesses will not be tolerated, and that ASIC will take decisive action where appropriate to protect the rights of consumers and small businesses.’   

The Australian Prudential Regulation Authority (APRA) has enhanced a core prudential standard governing strategic planning and member outcomes in superannuation.

The updated Prudential Standard SPS 515 Strategic Planning and Member Outcomes (SPS 515) and related guidance reinforce trustees’ duty to act in the best financial interests of members. The changes ensure members’ interests are front-and-centre in trustees’ strategic and business planning, financial resource management, implementation of the retirement income covenant and fund transfers.

Deputy Chair Margaret Cole said: “By strengthening this core strategic planning standard, APRA is setting a clear expectation for trustees to put members front of mind in every decision they make and the way they run their businesses every day.”

Putting customers at the centre of banking

Speech by ASIC Chair Joe Longo at the Australian Banking Association (ABA) Conference, 27 June 2024.

KEY POINTS

• Banks have a serious impact on the lives of Australians. When the customer is at the heart of their operations, that impact is for the good.
• Following consultation, ASIC has approved the new February 2025 Banking Code of Practice. As self-regulatory initiatives, industry codes have the potential to deliver real benefits to consumers, small businesses and subscribing entities.
• ASIC will continue to remain focused on the need for enhanced consumer protections, including in relation to proactively identifying customers eligible for basic bank accounts, the proactive identification of consumer vulnerability, and protections for loan guarantors.

ASIC has approved a new version of the Australian Banking Association’s (ABA) Banking Code of Practice, which includes enhancements to key protections. The new Code will commence on 28 February 2025.

ASIC is calling on market intermediaries to strengthen their supervisory arrangements for recording and monitoring representatives’ business communications to prevent, detect and promptly address misconduct and contraventions of financial services laws.

The Australian Prudential Regulation Authority (APRA) has published a speech delivered by Chair John Lonsdale to the Australian Banking Association Conference in Melbourne.

In “A view from the other side”, Mr Lonsdale spoke about the importance of a strong, stable and resilient banking system to protect the community and taxpayers, as well as supporting a thriving economy.

The Australian Prudential Regulation Authority (APRA) has released a letter to RSE licensees outlining key observations from the SPS 530 Valuation Governance Framework Self-Assessment Survey.

The survey of unlisted asset governance practices was conducted by APRA in late 2023 to assess the implementation of the enhanced requirements contained in Prudential Standard SPS 530 Investment Governance and related guidance.

The Australian Prudential Regulation Authority (APRA) has written to all APRA-regulated entities emphasising the critical role of data backups in cyber resilience. This communication is part of APRA’s ongoing commitment to supervising cyber resilience across industry, as outlined in its Interim Policy and Supervision Priorities update.

The letter details the common issues observed in backup practices that could hinder system restoration during an incident. APRA expects regulated entities to review their backup arrangements and address any identified gaps promptly.

ASIC Commissioner Simone Constant addressed investor relations professionals at the 2024 Australasian Investor Relations Association (AIRA) Annual Conference regarding compliance with regulatory changes affecting listed entities.

‘It comes down to three really important but simple principles – transparency, accountability and consistency in meeting the fair expectations of your stakeholders,’ Commissioner Constant said.

Opening Statement by ASIC Chair Joe Longo at the inquiry into the opportunities and impacts for Australia arising out of the uptake of AI technologies in Australia.

I am pleased to appear before the Committee today and to provide this short opening statement.

My name is Joseph Longo and I am the Chair of ASIC.

I am joined by Executive Director of Markets, Calissa Aldridge and our Digital and Legal Transformation Lead, Graham Jefferson.

ASIC is supportive of the safe and responsible use of AI by Australian businesses.

We believe that effective AI tools may bring enormous benefits to businesses and end-users. On the other hand, irresponsible or malicious use of AI tools may cause considerable harm to consumers.

This is why we are extremely interested in the use and impact of AI technologies in the financial system, so much so that we have made it a key priority for ASIC.

The report, Hardship, hard to get help: Lenders fall short in financial hardship support (REP 783) outlines findings from ASIC’s review of 10 large home lenders. The review found they should be doing more to support Australians who were struggling to meet their repayments.

The report highlights failures of lenders to identify customers in financial stress, use of ‘cookie-cutter’ approaches to dealing with hardship requests, as well as onerous assessment and approval processes.

ASIC is also concerned lenders have inadequate arrangements for supporting vulnerable Australians including those experiencing family violence.

ASIC Commissioner Alan Kirkland, whose remit includes support for vulnerable consumers, said lenders were not “putting customers front and centre” in their approach to financial hardship.

“Many lenders aren’t taking their customers’ unique situations into account, instead providing a standardised ‘one-size-fits all approach’, which is not meeting customers’ needs,” Commissioner Kirkland said.

ASIC has outlined an expanded program of work to enhance the integrity and quality of financial reporting and auditing in Australia in achieving the broader goal of confident and informed investors.

This included ASIC’s focus areas for 30 June 2024.

ASIC continues to encourage voluntary climate reporting and urge directors and assurance

On 2 May the Attorney-General announced the second stage consultation on reforming Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime. This stage includes the Attorney-General’s Department (the Department) releasing consultation papers, which outline a series of detailed proposals for reforming the AML/CTF regime. These papers were developed following feedback from the first round of consultation, which ran from April to June 2023.

The Australian Government is committed to protecting Australians and preventing criminal abuse of our financial system. This includes efforts to ensure Australia’s AML/CTF regime continues to effectively deter, detect and disrupt money laundering and terrorism financing, responds to the constantly evolving threat environment and meets international standards.

The Australian Prudential Regulation Authority (APRA) has published remarks by Member Suzanne Smith to the All Actuaries Summit on the Gold Coast.

In “Think Bigger: The Power of a Thriving Insurance Industry”, Suzanne highlighted how a flourishing insurance landscape supports the wellbeing of our society, as well as examining how to address current challenges and sustainability concerns in the life insurance sector.

APRA and ASIC held Superannuation CEO Roundtables on Wednesday, 27 March and Thursday, 28 March 2024. The theme of these discussions was resilient and member-focused fund operations.

Hosted by Simone Constant, Commissioner, ASIC and Carmen Beverley-Smith, Executive Director, APRA, the Roundtables were attended by 20 superannuation chief executive officers (CEOs) and other executives, representing a broad cross-section of the industry across two separate roundtables.

The work on operational resilience is foundational and necessary for supporting robust fund operations, and both agencies encouraged trustees to maintain a strong focus on the interactions members have with their funds in undertaking this work. Regulatory changes under the Financial Accountability Regime (FAR) and Prudential Standard CPS 230 Operational Risk Management (CPS 230), in addition to the current Prudential Standard CPS 234 Information Security (CPS 234), will strengthen trustees’ ability to swiftly respond in times of stress.

The Australian Prudential Regulation Authority (APRA) has published remarks delivered by Member Therese McCarthy Hockey to the Customer Owned Banking Association CEO and Director Forum in Sydney.

In her opening remarks ahead of taking questions, Ms McCarthy Hockey outlined the steps APRA is taking to minimise regulatory burden and enhance the proportionality of its prudential framework while also ensuring banks are prepared to respond to risks.

Her comments included:

• “At a time when the global financial system is evolving rapidly, the array of risks banks need to identify and manage is growing in both scope and severity. This time last year, we saw a banking crisis in the United States emerge and spread internationally with unprecedented speed, facilitated by social media and online banking.”
• “Enhancing the proportionality of the framework isn’t the only way we’ve sought to reduce the regulatory burden. As part of our corporate planning process in 2021, we also set about looking at our prudential rule book and considering whether it remained fit for purpose.”
• “We will continue to evolve our approach and prudential framework in response to new risks and changes in the operating environment. Your challenge as mutual banks is much the same: to understand the risks to your businesses from factors such as new rivals, technological innovation and evolving consumer preferences – and make sure you are equipped to respond.”

• Complying with directors’ duties may be difficult, but ASIC expects you to do it, it can be done, and there are benefits.
• Developments in AI, cyber threats, sustainable finance and ESG mean greater complexity in the business environment.
• Directors need to ask themselves the right questions: Are you acting honestly? Are you putting the company first? Do you have a continuous curiosity to understand the business and associated risks? And are you challenging management and getting professional advice?

The Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) have published further information to help banks, insurers and superannuation trustees prepare for the commencement of the Financial Accountability Regime (FAR).

The FAR, which takes effect for banks from 15 March 2024 and one year later for the insurance and superannuation industries, imposes a strengthened responsibility and accountability framework to improve the risk governance cultures of APRA-regulated entities, their directors and most senior executives.