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.

July 2020

All the wonderful things internal dispute resolution should do

30 July 2020

ASIC has released updated requirements for how financial firms deal with consumer and small business complaints under their Internal Dispute Resolution (IDR) procedures. The publication of RG 271 Internal dispute resolution follows extensive consultation with consumer and industry representatives, and will be complemented by a legislative instrument that clarifies the enforceable IDR standards and requirements.

ASIC has given industry until 5 October 2021 to comply with the new IDR standards and requirements, at which time RG 165 Licensing: Internal and external dispute resolution will be withdrawn. Licensees should also remain on the look-out for consultation on the IDR data reporting regime, which was recommended by the Ramsay Review into dispute resolution and complaints framework and passed into legislation in 2018.

Westpac communicates update on Threshold Transaction Report filings

28 July 2020

Westpac has provided an update on a reporting issue related to Threshold Transaction Reports (TTRs), described in its 2020 Interim Financial Results on 4 May 2020. The TTR issues include approximately 175,000 transactions that were not reported to AUSTRAC and approximately 365,000 TTRs that were reported to AUSTRAC but may have contained incomplete or inaccurate information.

Westpac has a dedicated website covering its response to AUSTRAC’s civil proceedings, and has previously announced the setting of aside $900 million to cover the penalty it could face. The scandal has already unleashed a management shake-up in the country’s oldest bank, where the chair, CEO, and other senior executives have been replaced.

The fight for the right to data is won

1 July 2020

There were rounds of applause all around when Open Banking commenced on 1 July 2020. The big four banks are now required to share some customer data, including in relation to deposits, transaction accounts and credit and debit cards, with accredited third parties upon request by the customer. However, there are currently only two accredited data recipients able to receive this data from the big four banks: personal financing fintech Frollo, which boasts Volt Bank among its corporate partners, and customer-owned Regional Australia Bank.

Some institutions, though, are taking a direct to consumer route; Up, a subsidiary of Bendigo and Adelaide Bank, has announced the beta release of the Up API, with aspirations to support third party apps in the future.

Three years in the making, Open Banking is underpinned by four principles – being for and about the consumer, encouraging competition, creating business opportunities, and being efficient and fair for all. With the technical side of things now pretty much sorted, the big job ahead is educating consumers about why and how to get on board.

June 2020

Heat still on some superannuation funds

30 June 2020

APRA has published the first update to its MySuper Heatmap to reflect changes in superannuation fees and costs in the six months since the tool was launched. It found that fund administration fees have largely remained static or risen slightly. Further, the majority of funds that underperformed on fees and costs in the December 2019 Heatmap continued to have relatively high fees despite APRA having intensified its supervision of them.

On the plus side, more than 40 per cent of MySuper members have seen a reduction in fees over the reporting period. The prudential regulator advised that it had not yet updated the sections of the Heatmap focused on investment performance and sustainability because material changes in those areas were expected to take longer to manifest.

ASIC publishes new regulatory guidance for mortgage brokers

24 June 2020

ASIC has published regulatory guidance to assist in the application of the new best interests duty for mortgage brokers. From 1 January 2021, mortgage brokers will be required to act in the best interests of consumers and to prioritise consumers’ interests when providing credit assistance.

ASIC releases guidance on the administration of its product intervention power

17 June 2020

Following consultation, ASIC has released a new regulatory guide on the administration of its product intervention power, together with a report on that consultation

APRA publishes frequently asked question on standardised approach to credit risk-weighted assets

17 June 2020

APRA has published the following frequently asked questions (FAQs) to provide authorised deposit-taking institutions (ADIs) with up-to-date guidance on supervisors’ expectations, during the period of disruption driven by COVID-19.

Investment funds told to correct advertising and disclosure

15 June 2020

ASIC puts responsible entities (REs) of all managed investment schemes (MISs) ‘on notice’ that they must ensure their investment fund advertising provides clear, balanced and accurate information. This follows ASIC’s risk based surveillance  of advertising material, website disclosure and product disclosure statements from managed funds during the COVID-19 pandemic.

Societe Generale Securities Australia Pty Ltd accepts additional AFS license conditions

15 June 2020

ASIC has imposed additional conditions on the Australian financial services (AFS) licence of Societe Generale Securities Australia Pty Ltd (SGSAPL) to ensure compliance with client money regulations. The need for additional conditions arose after SGSAPL reported to ASIC that it had deposited client money into unauthorised bank accounts between December 2014 and September 2018. Client funds must be deposited with Australian authorised deposit-taking institutions or an account prescribed by client money regulations.

ASIC amends financial advice and capital raisings COVID 19 instruments

12 June 2020

ASIC has registered an amending instrument to specify an end date for three COVID-19 related instruments. ASIC had publicly stated that these relief measures were temporary and ASIC would repeal the instruments following the COVID-19 crisis. However, following feedback from the Senate Standing Committee for the Scrutiny of Delegated Legislation, ASIC has decided to amend these instruments to include specific end dates.

ASIC’s Interim Corporate Plan for 2020-21

11 June 2020

ASIC has published its Interim Corporate Plan, which sets out five priorities to tackle the challenges presented by the COVID-19 pandemic:

    • protecting consumers from harm at a time of heightened vulnerability
    • maintaining financial system resilience and stability
    • supporting Australian businesses to respond to the effects of COVID-19
    • continuing to identify, disrupt and take enforcement action against the most harmful conduct, and
    • continuing to build our organisational capacity in challenging times.

Major reforms to Australia’s foreign investment framework

5 June 2020

The Morrison Government is today announcing the most significant reforms to the Foreign Acquisitions and Takeovers Act 1975 since its introduction. These reforms will ensure that our foreign investment framework keeps pace with emerging risks and global developments, including similar changes to foreign investment regimes in comparable countries. The Government will release exposure draft legislation for consultation in July, with the reforms scheduled to commence on 1 January 2021.

Westpac releases findings into AUSTRAC Statement of Claim issues

4 June 2020

Westpac announced the results of its investigation into the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) compliance issues, as well as releasing the Advisory Panel Report into Board Governance of AML/CTF Obligations and the Promontory Assurance letter on management’s accountability review.

May 2020

28 May 2020

The Government is making it easier for fintech businesses to trial new products by finalising regulations that will establish an enhanced regulatory sandbox. The sandbox creates a safe environment for fintech firms to test the viability of new products and services without first holding licences. Innovative firms now have 24 months to test their products with customers in the sandbox before obtaining a financial services licence or a credit licence from the Australian Securities and Investments Commission (ASIC). The enhanced sandbox will be available from 1 September 2020.

25 May 2020

Given the impact of the Coronavirus crisis and the uncertainty it continues to generate, it has been considerably more difficult for companies to release reliable forward-looking guidance to the market. Therefore, the Government will temporarily amend the Corporations Act 2001 (the Act) so that companies and officers’ will only be liable if there has been “knowledge, recklessness or negligence” with respect to updates on price sensitive information to the market.

22 May 2020

The Morrison Government is ensuring that litigation funders are subject to greater regulatory oversight by requiring them to hold an Australian Financial Services Licence (AFSL) and comply with the managed investment scheme regime. These changes complement the inquiry being undertaken by the Parliamentary Joint Committee on Corporations and Financial Services into litigation funding and the regulation of the class action industry which is due to report by 7 December 2020.

ASIC defers commencement of mortgage broker reforms and design and distribution obligations

8 May 2020

ASIC will defer the commencement date for the mortgage broker reforms until 1 January 2021. ASIC will defer the commencement date for the design and distribution obligations until 5 October 2021. The deferral of these reforms follows, and is consistent with, the Government’s announcement today to defer by six months the implementation of commitments associated with the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry as a result of the significant impacts of COVID-19.

8 May 2020

The Morrison Government has today announced a six month deferral to the implementation of commitments associated with the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry as a result of the significant impacts of the coronavirus.

The deferral will enable the financial services industry to focus their efforts on planning for the recovery and supporting their customers and their staff during this unprecedented time.

ASIC warns consumers: Investment advertising is not always ‘true to label’

ASIC warns consumers about investment advertising that compares fixed-term investment products to bank term deposits. A surge in such marketing of fixed-term investment products in recent months has prompted ASIC to caution consumers to take care making investment decisions based on such advertising. “Be wary of investments that claim to be ‘like’ a ‘term deposit’, ASIC Deputy Chair Karen Chester said.

Brush up on your RG234 obligations with our Marketing Financial Products short course.

APRA publishes frequently asked questions on loan repayment deferrals and residential mortgage lending

The Australian Prudential Regulation Authority (APRA) has published guidance for authorised deposit-taking institutions (ADIs) on supervisors’ expectations during the period of disruption driven by COVID-19.

The frequently asked questions (FAQs) cover the following topics:

  • The regulatory capital approach for loan repayment deferrals
  • Clarification of APRA’s guidance for serviceability assessments in Prudential Practice Guide APG 223 – Residential Mortgage Lending.

The FAQs will be updated periodically over coming months, and are available on the APRA website at: Banking COVID-19 frequently asked questions.

April 2020

APRA commences new data collection to assess temporary early release of superannuation scheme

Complementing the Government’s announcement that super members facing financial hardship during the COVID-19 pandemic could be eligible for early access to some of their funds from 20 April 2020, APRA launched a new data collection initiative.

Registrable superannuation entity (RSE) licensees have been asked to gather and submit a range of information, including the number and value of early release benefits paid to superannuation members and the processing times of those payments. The first Early Release Initiative (ERI) data collection was due on 29 April 2020 for information as at 26 April 2020, with RSEs to submit ERI data collection forms weekly until further notice.

Statistics reported by the Australian Financial Review indicate that at least 100,000 requests had been lodged by members of retail super funds in the first few days since the scheme commenced. Link Administration Services, which is processing withdrawal applications on behalf of more than two-dozen funds mainly from the industry super sector, had handled 280,000 requests – roughly 62 per cent of the overall applications made through the ATO at the time. Later analysis from the Association of Superannuation Funds of Australia (ASFA) suggested that around 855,000 payments totalling some $7.1 billion had been made from super funds to individuals by the end of April.

APRA intends to publish official data at both the industry and fund level, with the first report having been released on 4 May 2020.

Government looks to bend Super rules

Treasury recently closed consultation on “Improving flexibility of superannuation for older Australians”.

The exposure draft Bill and Regulations are intended to give effect to the measure: Superannuation – improving flexibility for older Australians announced in the 2019-20 Budget, which the Government is targeting becoming effective from 1 July 2020.

The amendments to the SIS Regulations and corresponding changes to the Retirement Savings Accounts Regulations will allow people aged 65 and 66 to make voluntary contributions without meeting the work test, and people aged 70 to 74 to receive spouse contributions.

ASIC enforcement update July to December 2019

ASIC has released REP 660 ASIC enforcement update July to December 2019.

As well as outlining key actions taken over the past six months to enforce the law and support its enforcement objectives, the report covers ASIC’s ongoing areas of focus, including a foreword from Deputy Chair Daniel Crennan QC discussing the Office of Enforcement’s strategy and priorities for 2019 to 2021.

ASIC commences proceedings against Youi Pty Ltd

ASIC has commenced proceedings in the Federal Court against Youi Pty Ltd (Youi) for alleged breaches of section 13 of the Insurance Contracts Act 1984, in relation to Youi’s duty of utmost good faith in handling a building and contents insurance claim made by a policyholder.

ASIC alleges that Youi, which was an Insurance Case Study detailed in Volume 2 of the Final Report of the Financial Services Royal Commission, failed to meet the standard imposed by the duty in handling the claim as it took nearly two years to settle. The policyholder first made an insurance claim in January 2017 following a severe hailstorm in their home town of Broken Hill in November 2016, but repairs to the home took until November 2018 to finally be completed.

With the Government recently consulting on Exposure Draft legislation to regulate insurance claims handling as a financial service, ASIC looks forward to the changes, if passed, enhancing its ability to promote fair, transparent and timely claims handling.

Betting over S&P/ASX 200 index highlights failures in controls

In mid-April ASIC intervened after betting agency Sportsbet launched a product earlier that month which enabled punters to bet each day on whether the S&P/ASX 200 Index would end the session higher or lower.

ASIC said the bets constituted binary option-style trades, a financial product Sportsbet was not licensed to offer and which the regulator had recently consulted on banning the sale of.

After Sportsbet suggested that having many staff operating under work-from-home arrangements posed challenges in implementing its control framework, ASIC reminded firms to ensure that their business continuity plans and alternative working facilitated them maintain robust monitoring and supervision controls to ensure financial services were provided efficiently, honestly and fairly.

ASIC grants relief to industry to provide affordable and timely financial advice during the COVID-19 pandemic

In the wake of the Government introducing measures to allow individuals facing particular financial hardship to access their superannuation early, ASIC announced temporary relief measures to assist industry in providing consumers with affordable and timely advice during the COVID-19 pandemic.

The relief measures relating to consumers’ early access to superannuation comprise:

  • allowing advice providers not to give a statement of advice (SOA) to clients when providing advice about early access to superannuation;
  • permitting registered tax agents to give advice to existing clients about early access to superannuation without needing to hold an Australian financial services (AFS) licence; and
  • issuing a temporary no-action position for superannuation trustees to expand the scope of personal advice that may be provided by, or on behalf of, the superannuation trustee as ‘intra-fund advice’.

Additionally, financial advisers were granted temporary relief to provide a Statement of Advice up to 30 business days after time-critical advice is given (instead of the usual 5 business days), and to provide a Record of Advice in place of an SOA to existing clients in certain circumstances.

Regulators release feedback on financial institutions’ preparation for LIBOR transition

In a joint media release, ASIC, APRA and the Reserve Bank of Australia announced that they had released feedback on responses received from selected major Australian financial institutions which were requested, via a ‘Dear CEO’ letter, to detail their current state of preparation for the end of London Interbank Offered Rate (LIBOR).

ASIC said it was vital that Australian institutions were aware of any business practices or systems that depend on LIBOR and were taking appropriate actions. Market participants are encouraged to assess the extent of their use of LIBOR and to start their transition to alternative rates.

Institutions are also being urged to communicate and highlight the potential impacts of LIBOR transition to their stakeholders, including end consumers, to raise awareness of the issues more broadly. LIBOR is set to be phased out globally by the end of 2021.

Fighting financial crime together – SMRs during the COVID-19 pandemic

AUSTRAC is warning reporting entities to be on the lookout for shifts in the risks that criminals may pose to the financial system and the community as a result of the COVID-19 pandemic. Areas of criminal exploitation identified by AUSTRAC where the financial system may be more vulnerable include:

  • Targeting of government assistance programs through fraudulent applications and phishing scams
  • Movement of large amounts of cash following the purchase or sale of illegal or stockpiled goods
  • Out of character purchases of precious metals and gold bullion
  • Exploitation of workers or trafficking of vulnerable persons in the community
  • An increase in the risk of online child exploitation following restrictions on travel
  • A rise in extremist views either against members of the community or the government.

Reporting entities are encouraged to monitor for new and emerging threats and to submit suspicious matter reports (SMRs) to AUSTRAC.

March 2020

APRA outlines changes in reporting obligations for ADIs and RFCs in response to COVID-19

The Australian Prudential Regulation Authority (APRA), along with the Reserve Bank of Australia (RBA) and Australian Bureau of Statistics (ABS) (the agencies), announced changes to the reporting obligations of ADIs and RFCs. These changes are intended to balance the need for entities to dedicate time and resources to maintaining their operations and supporting customers, against the increased need for timely, accurate data for use in the rapidly changing environment.

ASIC takes steps to ensure equity market resiliency

Monday 16 March 2020

As part of the Australian Government’s response to the novel coronavirus (COVID-19), ASIC has taken steps to ensure Australian equity markets remain resilient.

In addition to increasing volumes, Australia’s equity markets have seen exponential increases in the number of trades executed, with a particularly large increase in trades last Friday, 13 March. While there was no disruption to market operations on Friday, there was a significant backlog of work required to be undertaken over the weekend by the exchanges and trading participants. If the number of trades executed continues to increase, it will put strain on the processing and risk management capabilities of market infrastructure and market participants.

Westpac and AUSTRAC still progressing but still some way off settlement, court hears

The Sydney Morning Heald is reporting that AUSTRAC and Westpac are moving towards a settlement that includes some admissions by the bank over its alleged 23 million breaches of its obligations under AML/CTF legislation.

After the court ordered the regulator and Westpac to produce a partial statement of agreed facts and admissions, AUSTRAC pushed back on the grounds that various matters remained in dispute.

However, Chief Justice Allsop found in favour of Westpac counsel that there was a large body of underlying primary factual material that the bank and regulator could agree to, and gave notice that the parties should assume this case was on for a hearing during summer 2020-21.

AUSTRAC and Westpac have been in mediation for some time and that mediation remains ongoing, the SMH reports.

Treasury and the consultation factory

Document handlers at Treasury have been kept busy in recent months, with consultation open on several initiatives, including many arising from the Financial Services Royal Commission. Our top picks are:

  • Financial Services Royal Commission – Enhancing consumer protections and strengthening regulators – the grandaddy of recent consultations addressing all manner of matters covering breach reporting, enforceability of financial services industry codes, ongoing fee arrangements and disclosure of lack of independence, and the governance and selling of superannuation and insurance
  • Financial Accountability Regime (FAR) – the Government announced it would implement recommendations 3.9, 4.12, 6.6, 6.7 and 6.8 of the Financial Services Royal Commission to extend the Banking Executive Accountability Regime (BEAR) to all APRA regulated entities and provide joint administration to ASIC as the conduct regulator
  • Enhancements to Unfair Contract Term Protections – with the Government having undertaken a review of unfair contract term protections for small business contracts two years after they were first introduced in 2016, Treasury is seeking feedback on policy options to address issues identified by the UCT Review; and views on whether any enhanced UCT protections for small business contracts should also be extended to consumer and insurance contracts to ensure consistency in the wider operation of the protections.

ASIC sheds light on funeral expenses reform

ASIC has issued Information Sheet 243 Licensing requirements for providers of funeral expenses facilities for providers of funeral expenses facilities. Recent changes to the Corporations Regulations mean that entities who sell funeral expenses facilities will generally be required to hold an Australian financial services licence (and therefore meet associated obligations) from 1 April 2020.

The Financial Services Royal Commission had recommended that the exemption for funeral expenses policies from being a ‘financial product’ under the Corporations Act and the Corporations Regulations should be removed, after identifying harm to vulnerable consumers.

ASIC consults on proposals about advice fee consents and independence disclosure

ASIC has issued CP 329 Implementing the Royal Commission recommendations: Advice fee consents and independence disclosure. CP 329 seeks feedback on:

  • draft legislative instruments that deal with advice fee consents and independence disclosure; and
  • a proposal to issue more guidance in RG 245 Fee Disclosure Statements to help industry meet obligations around ongoing fee arrangements, including renewal notices and fee disclosure statements.

ASIC’s response complements action Treasury has undertaken, namely consulting on exposure draft legislation to implement Recommendations 2.1, 2.2 and 3.3 of the Royal Commission.

ASIC’s consultation on CP 329 closes 7 April 2020 in order to ensure that the form of the proposed ASIC instruments is settled ahead of the proposed 1 July 2020 commencement of the law reform. ASIC also anticipates making updates to RG 245 in mid-2020.

February 2020

APRA sets out policy and supervision priorities for 2020

APRA has set out its policy and supervision priorities for the next 12 to 18 months with an emphasis on fulfilling the four strategic goals of its Corporate Plan:

  • maintaining financial system resilience
  • improving outcomes for superannuation members
  • improving cyber-resilience in the financial sector
  • and transforming governance, culture, remuneration and accountability (GCRA) across all APRA-regulated institutions.

More specifically, its supervision priorities include using entity self-assessments to drive greater accountability and compliance, and encouraging underperforming superannuation funds to urgently improve member outcomes or exit the industry.

ASIC update on enforcement and regulatory work

ASIC has published the latest six monthly update on its enforcement and regulatory work since September 2019. The update covers ASIC’s implementation of the recommendations of the Financial Services Royal Commission (FSRC), progress on referrals and case studies arising from the FSRC, its enhanced supervision program and how it is using its new regulatory tools and powers to identify and address misconduct and poor consumer outcomes.

ASIC consults on draft guidance on the new best interests duty for mortgage brokers

ASIC commenced a four week consultation on draft guidance about the new best interests duty for mortgage brokers. The new obligations were legislated by Parliament in response to Recommendation 1.2 of the Financial Services Royal Commission.

Consistent with the legislation, the draft guidance outlined in CP 327 Implementing the Royal Commission recommendations: Mortgage brokers and the best interests duty is high-level and principles-based, but also incorporates practical examples. ASIC plans for the guidance to explain the obligations introduced by the Government, but not prescribe conduct or impose additional requirements.

With consultation having closed 20 March 2020, ASIC intends to publish final guidance before the obligations commence on 1 July 2020.

ASIC and APRA welcome law reform on superannuation regulator roles

ASIC and APRA have jointly welcomed the proposed legislative reforms increasing the role of ASIC in superannuation in line with recommendations from the Financial Services Royal Commission.

The reforms, circulated by Treasury for consultation on 31 January 2020, include expanding ASIC’s role as conduct regulator while retaining APRA’s important role as the prudential and member-outcomes regulator in superannuation.

The changes to ASIC’s role will be accompanied by an enhancement in the close co-operation and collaboration between the two regulators, already strengthened by updates to their Memorandum of Understanding undertaken in November last year.

It’s no fun reading super trustees’ PYSP communications

ASIC’s recent review of superannuation trustees’ communications about changes introduced through the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 (PYSP) has found that the material sent to members did not provide sufficient context for the reforms nor adequately explain what the changes meant for them.

The PYSP reforms were designed to benefit members with low superannuation balances (below $6,000) and those with accounts that have been inactive for 16 months. In REP 655, ASIC suggests that some communications used complex language, promoted a particular option that may not have been suitable for the member, or failed to include relevant information about the member’s existing superannuation arrangements that would have been helpful.

ASIC Commissioner Danielle Press urged super trustees to “take a member-centric approach to designing and delivering their PYSP communications. They must ask themselves: ‘Will this approach help my members make decisions in their interest?’”

AMP to pay $5.175 million penalty

The Federal Court has ordered AMP to pay a $5.175 million penalty after it found AMP failed to take reasonable steps to ensure its financial planners complied with the best interests duty and related obligations under the Corporations Act.

ASIC alleged that a number of AMP’s financial planners engaged in ‘rewriting conduct’, i.e. advice that results in the cancellation of the client’s existing insurance policies and the taking out of similar replacement policies by way of a new application rather than through a transfer. Through this practice, clients were exposed to a number of significant risks and the planners received higher commissions than they would have by simply transferring the policies.

While proceedings focused on the conduct of one particular planner, the court agreed with ASIC’s contention that with AMP having offered no evidence that it had ascertained the extent of breaches by other planners as requested by ASIC, the practice of rewriting conduct may have been more widespread.

January 2020

APRA sets out policy and supervision priorities for 2020

Thursday 30 January 2020

The Australian Prudential Regulation Authority (APRA) has set out its policy and supervision priorities for the next 12 to 18 months with an emphasis on fulfilling the four strategic goals of its Corporate Plan: maintaining financial system resilience; improving outcomes for superannuation members; improving cyber-resilience in the financial sector; and transforming governance, culture, remuneration and accountability (GCRA) across all APRA-regulated institutions.

APRA Chair Wayne Byres said it was essential that both APRA, and the industries it regulates, continue to adapt to changing circumstances and new challenges.

“As a risk-based and preventative regulator, APRA must continually reassess its priorities not just in response to past events, but also to risks and vulnerabilities that may be on the horizon”. Read more

October 2019

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

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

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.

July 2019

July 2019

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.

November 2019

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.

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