Keeping on top of the latest financial services regulatory & compliance trends?
Investing time in your professional development within a rapidly changing financial services industry is challenging. To meet that challenge, the Australian regulators weekly wrap is designed to keep you at forefront of your practice by quickly setting out the top 5 developments from the past week, analysis and practical considerations for the future.
- Statutory unconscionable conduct (ACCC): in Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd  FCAFC 40 the Full Federal Court upheld an appeal by the ACCC and declared that Quantum had engaged in an unconscionable system of conduct in its dealings with investors regarding the National Rental Affordability Scheme, in breach of the Australian Consumer Law. The case is significant because the Full Court found that it is not necessary to establish that the business engaging in the conduct has exploited some disadvantage or vulnerability on the part of the consumers or small businesses affected. All that need occur is for the Court to identify that there is a sufficient departure from the norms of acceptable commercial behaviour as to be against conscience or to offend conscience. In effect, the intention element of unconscionable conduct need not be proved.
- New ADIs (APRA): APRA has released the discussion paper setting out APRA’s approach to new entrant authorised deposit-taking institutions and an information paper ADIs: New entrants — a pathway to sustainability. These papers outline revisions to APRA’s approach to licensing and supervising new entrant ADIs. Written submissions on the information paper are due by 30 April 2021. There are several key themes here, in the wake of Xinja handing back its licence and 86400 getting purchased by NAB. They include focusing applicants and new entrants on longer term sustainability rather than the short-term ambition of receiving a licence and becoming an ADI; benefiting all stakeholders by providing clear and consistent expectations for appropriate levels of capital and effective capital planning to support and grow a new entrant’s business; and, focusing applicants on adequate downside scenario planning including exit planning. I think these are very useful resources, in particular the capital outlays set out in the information paper e.g. $3M plus 3 months of operational expenses for a new Restricted ADI.
- Financial advice (ASIC): the Financial Sector Reform (Hayne Royal Commission Response №2) Act 2021passed earlier this month. It devolves certain legislation powers to ASIC, which it has now exercised setting the requirements for: 1) the written consent that a fee recipient must obtain from a client before deducting, or arranging to deduct, advice fees from a client account as part of an ongoing fee arrangement; 2) the disclosure of lack of independence that an AFSL or authorised representative must give clients where they would breach s923A of the Corporations Act 2001 (Cth) (restriction on use of certain words or expressions) if they used words such as “independence”, “impartial”, or “unbiased”; and 3) the written consent that a superannuation trustee must obtain from a member before deducting advice fees from a superannuation account under a non-ongoing fee arrangement.
- AGMs (ASIC): Corporations (Coronavirus Economic Response) Determination (№3) 2020 operated to facilitate the holding of meetings (including AGMs) by temporarily removing legal uncertainty around the validity of virtual meetings. It expired on 21 March 2021, together with a determination which facilitated the electronic executions under the Corporations Act 2001 (Cth). Given the lapsing, ASIC will shortly (and sensibly) adopt a temporary “no action” position in relation to the convening and holding of virtual meetings. The position will not apply to electronic executions.
- ASIC v Mayfair 101 (ASIC): in Australian Securities and Investments Commission v Mayfair Wealth Partners Pty Ltd (No 2)  FCA 247, the corporate regulator has succeeded in its action for misleading and deceptive conduct against the embattled fund manager. Mayfair 101 used sponsored link internet advertising through Google AdWords and Bing Ads, so that the websites for Mayfair’s debenture products appeared as sponsored links when consumers searched for “bank term deposit” or “term deposit” online. Mayfair’s promotional material also used words such as: “term deposit alternative”; “term investment” and “fixed term”; “certainty” and “confidence”; and, “first-ranking”, “unencumbered” and “dollar-for-dollar” security in relation to the secured promissory notes. Unsurprisingly, Justice Anderson stated: “I am satisfied that the Mayfair Products have been, in fact, designed by the Defendants to produce a result which is uncertain for investors and could not on any reasonable view be described as an investment with no risk of default.”
Thought for the future: China has just released its “Outline of the 14th Five-Year Plan (2021–25) for National Economic and Social Development and Long-term Objectives Through 2035”. From the perspective of financial services, China will be developing its own digital currency, encouraging lenders to focus on financing R&D companies, “greatly develop” its green finance capabilities, further open up its banking, securities, insurance, funds, futures and other financial sectors and enhance its financial regulatory and supervisory framework e.g. increasing the transparency around related-party transactions. Given the behemoth that China is, and how quickly it can get things done when it puts its mind to it, it is going to be interesting to see the evolution of the Chinese financial services market in the next decade.