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.

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.

ICYMI

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: http://apra.gov.au/revisions-related-parties-framework-authorised-deposit-taking-institutions

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.

MEDIA RELEASE

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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