Regulatory updates and industry trends

Regulatory updates and industry trends

With financial services practice now more dynamic than ever, we help professionals to remain compliant and future ready at all times.

Please find below a selection of recent regulatory updates we have found informative.

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November 2019

ASIC wins appeal against Westpac subsidiaries

The Full Federal Court has ruled in ASIC’s favour, finding that in calls to 14 of 15 customers in two telephone campaigns conducted by members of Westpac’s Super Activation Team, the Westpac staff did provide them personal advice, in breach of the Australian financial services licences of two Westpac subsidiaries. The Full Court also found that by providing personal advice to their customers, the Westpac entities failed to comply with other financial services laws in the Corporations Act, including the ‘best interests duty’.

While not exactly the death knell for general advice, this case highlights some important issues for market intermediaries, such as how telesales are designed and closed, customer relationships of trust and what acting in ‘best interest’ means, ethical use of techniques such as social proofing, and the timing and nature of regulatory requirements such as general advice warnings and other disclosures. With implementation of Royal Commission recommendations well underway, design and distribution obligations being phased in, and long awaited review of RG 146 looming, the whole industry should keep an eagle eye on developments in this area.

ASIC gives guidance on companies’ whistleblower policies

ASIC has issued RG 270 Whistleblower policies to help companies establish policies that support and protect whistleblowers. The Regulatory Guide sets out the components that a whistleblower policy must include to comply with the law, and provides good practice guidance to assist companies develop and implement policies that are tailored to their operations.

As part of corporate sector whistleblower reforms, public companies, large proprietary companies, and proprietary companies that are trustees of registrable superannuation entities must have a whistleblower policy available to their officers and employees by 1 January 2020, supplementary to whistleblower protections in the Corporations Act that took effect for all companies from 1 July 2019.

ASIC action leads to CommInsure refunds for unfair life insurance telephone sales

Following concerns raised by ASIC about unfair telephone sales of life insurance, The Colonial Mutual Life Assurance Society Limited (trading as CommInsure) has conducted a remediation program expected to be finalised by the end of 2019. Refunds exceeding $12 million are to some 30,000 policyholders who were Commonwealth Bank customers between 2010 and 2014 and were sold a range of life insurance products via telemarketing calls by Aegon. CommInsure has also pleaded guilty to 87 counts of offering to sell insurance products in the course of unlawful, unsolicited telephone calls, contrary to s992A(3) of the Corporations Act – conduct colloquially known as ‘hawking’.

While CommInsure progressively ceased all outbound telemarketing of life insurance by December 2014, ASIC Deputy Chair Daniel Crennan QC commented on the conduct in question, saying “ASIC is concerned that the way in which these products were sold was manifestly unfair, with customers given insufficient information to make an informed decision”. ASIC identified concerning sales practices by CommInsure in its report released in August 2018, REP 587 The sale of direct life insurance.

REP 632 Disclosure: Why it shouldn’t be the default

A joint publication by ASIC and the Dutch Authority for Financial Markets has explored the effectiveness of disclosure and warnings in influencing consumer behaviour.

ASIC, in collaboration with its Dutch counterpart, spotlight the multiple cases where disclosure has been less effective than intended, ineffective or has actually backfired. The report identifies key limits of disclosure, supported by 33 case studies. A timely examination of this issue in the wake of the Financial Services Royal Commission and passing of design and distribution obligations legislation.

ASIC warns trustees on new rules for Putting Members’ Interests First

ASIC has called on superannuation trustees to improve the standard of communication to fund members about important reforms impacting member insurance arrangements. As a result of the recent Putting Members’ Interests First reforms, by 1 December 2019 superannuation trustees are required to write to members with a balance of less than $6,000. These members must be notified that their insurance cover may cease from 1 April 2020 unless they opt-in to continue this cover. By 1 April 2020, insurance is not to be provided to members who have an account balance less than $6,000 or for members under-25 years old, unless the member has elected in writing to take out or maintain insurance.

ASIC expects trustees to help their members understand the impact of the reforms on them and make good decisions by:

  • providing balanced and factual communications, that include appropriate context about the reforms, and
  • tailoring communications to the needs of their members.

Dirty money spotlight on estate agents

An afr story revisits the Financial Action Taskforce’s latest report on Australia, which found that Australia is falling short on some counts, particularly in relation to real estate agents, lawyers and accountants still being only partially regulated under current AML/CTF rules. Regulatory reform has been slow, considering it has been proposed since 2013. Meanwhile, New Zealand, UK, Canada, Singapore, Hong Kong, and Malaysia are among regions introducing laws to cover these sectors, currently classified as ‘designated non-financial businesses or professions’ under global AML/CTF standards.

AUSTRAC releases mutual banking sector risk assessment

AUSTRAC has urged Australia’s mutual banking sector to take note of its latest money laundering and terrorism financing risk assessment report specific to the sector. The financial crime watchdog finds that while the mutual banking sector has a high level of vulnerability to financial crime, particularly as a target for such fraudulent activity as identity theft and scams, tax evasion, and welfare fraud, the overall money laundering and terrorism financing risk is Medium.

European Securities and Markets Authority and ASIC to co-operate on benchmarks

The European Securities and Markets Authority (ESMA) and ASIC announced that they have signed a Memorandum of Understanding setting out cooperation arrangements in respect of Australian benchmarks. In July 2019, the European Commission recognised Australia’s legal and supervisory framework applicable to the administrators of certain financial benchmarks as equivalent to the corresponding requirements under EU Benchmarks Regulation, and deemed that those requirements are subject to effective supervision and enforcement.

The MoU signed will allow benchmarks declared significant by ASIC (BBSW, S&P/ASX 200, Bond Futures Settlement Price, CPI, and Cash Rate) to be used in the EU by EU-supervised entities.

ASIC’s Vision for a Fair, Strong and Efficient Financial System for all Australians

Keynote address by ASIC Commissioner Sean Hughes at the ARCA National Conference, Gold Coast, 14 November 2019

ASIC Commissioner, Sean Hughes, discussed the following at the Australian Retail Credit Association conference:

  • Why does responsible lending matter?
  • Why is ASIC updating its guidance, and why now?
  • What does an update to the guidance mean and what will it achieve?
  • Some misconceptions about responsible lending.

Read the full speech here.

October 2019

ASIC runs ruler over non-financial risk

ASIC Chair James Shipton launched a report on director and officer oversight of non-financial risk at a recent Australian Institute of Company Directors event.

The report was a write-up of the first in a series of reviews via which ASIC’s Corporate Governance Taskforce will examine corporate governance practices. Consistent with its overall supervisory approach, ASIC says practical insight into what actually goes on inside companies facilitates the identifying of problems before they become breaches; and heightens engagement, assessment and feedback loops between regulated entities and ASIC.

Improving governance and accountability is one of ASIC’s seven key strategic priorities for the year ahead.

Why shouldn’t I, shouldn’t I be famous?

We can answer that. Being good is no longer good enough, with Treasury recently wrapping up consultation on beefing up ASIC’s licensing, banning and information gathering powers.

Most notably, the ‘good fame and character’ requirement for AFS licensees looks set to be replaced by the ongoing requirement that they be a ‘fit and proper person’ – a test that already applies to Australian Credit licensees and APRA-regulated institutions.

Changes will also expand the grounds on which ASIC can issue banning orders as well as their scope.

Soon your organisation will really need to be careful about why someone’s picture ends up in the paper.

Treasury homes in on mortgage pricing

The Federal Government has directed the ACCC to immediately commence an inquiry into home loan pricing. The ACCC is to investigate a wide range of issues, including:

  • the rates paid by new versus existing customers
  • how the cost of financing for banks affects their rate setting decisions
  • why RBA cuts aren’t always passed on in full
  • the information consumers use to choose their loan supplier
  • barriers to more consumers switching to cheaper home loans.

The inquiry comes a week after banks denied existing customers were paying a “loyalty tax” and will build on the ACCC’s Residential Mortgage Inquiry, which handed its final report in December 2018.

The ACCC is expected to produce a preliminary report by the end of March 2020, with a final report due 30 September 2020.

Non-major lenders can’t rest easy, though, with the House of Representatives standing committee on economics calling up a few to face questioning over their implementation of Financial Services Royal Commission recommendations at the end of November.

Lid closing on funeral expenses policies consultation

Treasury has released for consultation:

  • draft regulations to remove the exemption for funeral expenses policies from the definition of financial products for the purposes of the Corporations Act; and
  • draft legislation to ensure that it is clear that the consumer protection provisions of the ASIC Act apply to funeral expenses policies.

As a result, from 1 April 2020 funeral expenses policy providers could be subject to a variety of obligations including:

  • the requirement to hold an Australian financial services licence;
  • the general conduct obligation to act efficiently, honestly and fairly; and
  • anti-hawking provisions.

Consultation on the changes, which address recommendation 4.2 of the Financial Services Royal Commission, closes 18 October 2019.

Consumer watchdog sinks teeth into Banking Code amendments

The ACCC is ruminating on the Australian Banking Association’s Banking Code of Practice to ensure the revised Code will benefit low-income consumers and drought-affected farmers.

Among other measures, revisions aim to improve basic bank accounts and low or no-fee accounts by prohibiting informal overdrafts unless requested by the customer, and dishonour fees.

However, the ACCC contends that basic bank accounts could still be overdrawn without the customer’s agreement in some circumstances, with banks able to continue to charge interest on overdrawn amounts.

Therefore, it wants to strengthen the changes by imposing conditions that would:

  • not allow interest to be charged in these cases
  • require any such interest charges to be repaid to the customer.

ASIC points high beams on add-on financial products

ASIC is now consulting on its proposal to use its product intervention power to reform the sale of add-on insurance and warranty products by car yards.

ASIC wants to apply a deferred sales model and additional obligations to the offering of add-on insurance products and warranties where finance is also arranged for purchase of a motor vehicle.

Consultation on the measures, which would cover car dealers, finance brokers and salary packaging firms, closes 12 November 2019.

Question, tell me what you think about an SMSF

ASIC is urging consumers to properly evaluate whether an SMSF is appropriate for their circumstances.

While potential benefits might stem from using an SMSF, ASIC and Productivity Commission research finds that this strategy might not be suitable for people who want a simple superannuation solution, particularly those that have low financial literacy or limited time to manage their own financial affairs.

Recent ATO figures again reveal that total assets held in SMSFs remain larger than those in either industry or retail funds.

ASIC faces fight to curb alleged predatory lending

ASIC used its product intervention power to ban a model of lending whereby a short-term credit provider and its associate charge fees under separate contracts.

One of the affected entities, Cigno, immediately sought Federal Court review of ASIC’s decision, in a bid to have the Product Intervention Order Instrument quashed.

With retail OTC derivatives also in ASIC’s crosshairs, there’s further argy bargy to come as more industry sectors scrutinise the regulator’s exercising of its new powers.

Short bites

September 2019

ASIC update on Royal Commission implementation 19-249 MR

Wednesday 11 September 2019

ASIC has provided its second update on its actions in response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Royal Commission).

The Update outlines a number of measures across the organisation by which ASIC is implementing the seven priorities highlighted in its Corporate Plan 2019-23, one of which is to prioritise the recommendations and referrals from the Royal Commission.

ASIC suing mid-tier banks for use of unfair contract terms

True to a pledge that it’ll be less reticent to metaphorically don the wigs and robes going forward, ASIC has commenced proceedings in the Federal Court against Bank of Queensland and Bendigo and Adelaide Bank concerning unfair contract terms in small business contracts.

ASIC alleges that certain terms used by both institutions were unfair, as the terms:

  • cause a significant imbalance in the parties’ rights and obligations under the contract;
  • were not reasonably necessary to protect the banks’ legitimate interests; and
  • would cause detriment to the small businesses if the terms were relied on.

Responsible lending

ASIC has concluded its Responsible Lending hearings in Sydney and Melbourne. Areas that licensees commonly appeared to want new or revised guidance on included:

  • Evaluating serviceability, including classifying income and expenses; use of benchmarks; and the extent to which it can be assumed that a borrower does willingly and wilfully change their lifestyle post loan approval (see also ASIC’s response to Westpac case judgement)
  • What constitutes an assessment versus a recommendation, and the documenting of each.

Stay tuned for ASIC’s reply, particularly an updated RG 209 by the end of this year.

New whistleblower rules

ASIC has called for public input on its proposed guidance on companies’ new obligation to implement a whistleblower policy.

Public companies, large proprietary companies and corporate trustees of registrable superannuation entities must implement a whistleblower policy and make it available to their officers and employees by 1 January 2020.

This requirement was introduced as part of the reforms to the corporate sector whistleblower regime that commenced on 1 July 2019. Don’t hold your breath for too long; consultation is only open for another week until 18 September 2019.

Regulator intervention in retail OTC derivatives

ASIC is consulting on a proposal to use its new product intervention power to ban the sale of binary options to retail clients, and to apply restrictions on the sale of CFDs. While most measures align Australia with action taken by other jurisdictions, unique ones relating to real-time disclosures have served as hair-raising warnings to the sector. Comments close 1 October 2019.

Coincidentally, ASIC has released a related report, REP 626 Consumer harm from OTC binary options and CFDs.

Jury still out on financial advice and home loan experiences

ASIC has released consumer research, REP 627 Financial advice: What consumers really think, which focused on the overall use of financial advisers, motivators and barriers to seeking personal advice, and consumer attitudes towards the financial advice industry.

While Australians believe financial advisers can offer significant expertise on financial matters, ASIC’s research shows that many don’t seek advice because they are put off by assumed high costs, significant distrust of the industry, and a perception that financial advice is only for the wealthy.

This report was soon followed by REP 628 Looking for a mortgage, which sets out findings from research ASIC commissioned to better understand consumer experiences and expectations when taking out home loans.

Xinja wins duel for full banking licence

After seemingly slow starts and fierce operational decision-making over whether to get a full banking licence, take the interim restricted ADI route, or piggy-back ride on an existing bank, consumers should expect a flurry of product launches from neobanks soon.

With Volt graduating to a full licence in January 2019, and Judo and 86 400 being awarded theirs in recent months, Xinja earning its this month should see challenger banks racing each other to join the likes of Up and Douugh in offering new transaction accounts and loans to consumers and small business.

APRA closes consultation on proposed approach to product responsibility

In a consultation letter, APRA has outlined its proposed approach to implementing end-to-end product accountability under the Banking Executive Accountability Regime. The proposal aims to enhance customer experience and outcomes by addressing a Financial Services Royal Commission recommendation that ADIs should assume responsibility for all steps in the design, delivery and maintenance of all products offered to customers, and any necessary remediation of customers in respect of any of those products.

Consider APRA’s approach complementary to product governance provisions included in the design and distribution obligations that ASIC-licensed financial services organisations will soon be subject to.

Treasury consults on various dedicated and cross-industry measures

It’s been a busy month for Treasury’s inbox, with submissions likely flooding in as it consults on a number of topical issues, including:

  • Digital Platforms Inquiry
  • Mandatory Comprehensive Credit Reporting and Hardship Arrangements
  • Mortgage broker best interests duty and remuneration reforms
  • Regulation of mortgage brokers as financial advisers (which could create an environment in which a stronger case can be made for FEP to deliver a mortgage and finance broking qualification)
  • Reforms to the sale of add-on insurance products.


Here’s a refresher on other key matters, in case you didn’t find them all that gripping the first time around:

August 2019

ASIC’s Corporate Plan 2019-2023

Wednesday 28 August 2019

ASIC’s Corporate Plan 2019-20 to 2022-23 sets out our change agenda and regulatory priorities. It explains how we will act strategically to address misconduct in the financial system and improve consumer outcomes.

The BEAR gets bigger

On 1 July, the Banking Executive Accountability Regime (BEAR) commenced for all medium and small authorised deposit-taking institutions, including banks, credit unions and building societies. The purpose of the BEAR is to drive a strong risk culture from the top down by ensuring directors and executives in ADIs are held appropriately accountable for their actions and decisions.

APRA strengthens rules to combat contagion risk within banking groups

20 August 2019

The Australian Prudential Regulation Authority (APRA) has released a strengthened prudential standard aimed at mitigating contagion risk within banking groups. The updated Prudential Standard APS 222 Associations with Related Entities (APS 222) will further reduce the risk of problems in one part of a corporate group having a detrimental impact on an authorised deposit-taking institution (ADI). The new APS 222 will come into effect from 1 January 2021. Copies of APRA’s Response Paper, the updated prudential standard and reporting standards are available at:

Financial Services Royal Commission Implementation Roadmap

On 19 August 2019, the Government released its Financial Services Royal Commission Implementation Roadmap setting out how it will deliver on its comprehensive response to the Royal Commission. The Roadmap provides timelines for implementing the Government response, giving clarity and certainty to consumers, industry and regulators.

Further consultation on Credit Licensing: Responsible lending conduct

ASIC has concluded its Sydney round of public hearings on responsible lending. The line-up included a mix of major banks, non-bank lenders, industry associations and ancillary service providers. Next stop Melbourne.

APRA fines Westpac for failing to meet legal reporting requirements

8 August 2019

APRA is reminding regulated entities to adhere to legal reporting requirements, with Westpac and two of its subsidiaries set to pay a hefty cumulative penalty for failing to report data by the required deadlines.

Consumer Data Right legislation has finally passed

1 August 2019

Financial services and other industries must now come together to make Open Banking implementation purposeful and beneficial for consumers. Under Open Banking, consumers will be able to access and safely transfer their banking data to trusted parties.


FASEA has been working with ACER to ensure the exam registration process is streamlined, accessible and effective and exam sitting opportunities are optimised.

APRA’s response to the Capability Review report

On 17 July 2019, the Australian Government released a Capability Review report examining APRA’s ability to continue to meet its mandate into the future.

Design and Distribution Obligations (DDO) and Product Intervention Powers (PIP) regime underway

The Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019 received Royal Assent on 5 April 2019. Generally, it applies to financial products and credit products that are issued and distributed to retail customers. Who could it affect in the short term, and what might it mean for your organisation?

Codes of practice

The new Banking Code of Practice came into on 1 July 2019. The Code is a set of enforceable standards that customers, small businesses, and their guarantors can expect from Australian banks.

BEAR and BEAR-like accountability regimes

BEAR provides an important new framework for promoting stronger accountability in the banking sector, but more than the BEAR alone is needed if financial institutions truly wish to demonstrate accountability.

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