Australian regulators weekly wrap — Monday, 25 January 2021

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.

  1. Secured borrowing (RBA): the RBA has issued an interetsing paper on the role of collateral in credit markets under stress. The paper shows that the presence of collateral affects reactions to stress and the reactions are different depending on the characteristics of the borrower. When the Lehman Brothers collapse in mid September 2008 caused sudden global financial turmoil, collateralised and uncollateralised interbank markets reacted differently. Collateralised borrowing rose, particularly by borrowers that already held large amounts of collateral prior to the stress. Uncollateralised borrowing did not increase overall, and for riskier borrowers (i.e. those with more non-performing loans (NPL) on their balance sheet), it decreased. The combined outcome of these reactions was that riskier borrowers that held sufficient quantities of collateral switched from uncollateralised to collateralised borrowing. A logical finding, you can consider the paper here.
  2. Cyber attacks (BIS): sticking with research papers, the Bank of International Settlements has released a paper on Covid-19 and cyber risk in the financial sector which you can access here. Key takeaways include that the financial sector has been hit by hackers relatively more often than other sectors during the Covid19 pandemic, and while this has not yet led to significant disruptions or a systemic impact, there are substantial risks from cyber attacks for financial institutions, their staff and their customers going forward. Another point that is made is that financial authorities are increasingly working to mitigate cyber risks, including through international cooperation. It is not a particularly surprising report, or one that has not been warned about by international regulators for some time. As but one example, Singapore’s MAS has just enhanced its guidelines to dealing with cyber risk in the face of COVID-19.
  3. Bankruptcy consultation (Treasury): the Attorney-General’s Department is seeking stakeholder submissions on possible changes to the personal insolvency system to inform the Government’s ongoing response to address the impacts of the coronavirus. Questions under consideration include: how might a default period of one year benefit debtors with business related debts such as sole traders; what reforms, if any– either on a temporary basis or more permanently — should be made to the debt agreement system to respond to coronavirus; what new or expanded offence provisions could respond to concerns about the behaviour of untrustworthy advisors, including pre-insolvency advisors? You can see the paper here, and whatever your view is on the bankruptcy law changes — they are generating controversy — my view is that the Morrison Government’s strong commitment to revisiting legal frameworks in order to increase Australia’s economic recovery is a good thing. Personally, I am in favour of reducing the period of bankruptcy (as well as reforms that make corporate insolvency more flexible). Australia is more risk adverse than its UK and US counterparts, and in part that can be laid at the feet of an insolvency systems that is less dynamic than in those jurisdictions and arguably underpinned by a greater focus on punitive measures.
  4. Superannuation (APRA): APRA has commenced a second round of consultation on revisions to Prudential Standard SPS 250 Insurance in Superannuation (SPS 250). The proposed changes are aimed at improving superannuation member outcomes by helping trustees select the most appropriate insurance policies for their members, and monitor their ongoing relationships with insurers. The key changes to the standard address two recommendations from the financial services Royal Commission1, and reflect Government recommendations that trustees make it easier for members to opt-out of insurance, and ensure that premiums don’t inappropriately erode members’ retirement income. APRA has also released for consultation an updated version of Prudential Practice Guide SPG 250 Insurance in Superannuation (SPG 250), which contains further guidance on the new proposed requirements. Submissions on both the SPS 250 and the accompanying prudential practice guide are open until 5 March 2021. APRA intends to finalise both documents by the middle of the year, with the finalised SPS 250 expected to commence from 1 January 2022. The letter on the consultation is here.
  5. General and personal Advice (ASIC): the Australian Institute of Superannuation Trustees has urged ASIC to provide clearer guidance on the line between general and personal advice and implement a private ruling service to give financial advisers greater certainty about new advice offers. In its submission to ASIC’s consultation on promoting access to affordable advice, the Australian Institute of Superannuation Trustees said the value of general advice to consumers as an affordable and accessible form of advice cannot be overstated. Part of AIST’s submission, which I agree with, states as follows: “While consumers do not often understand the difference between general and personal advice — and may care even less — this does not reduce the value of general advice in serving the best interests of consumers on a wide-scale basis”.

Thought for the future: there will be at 7 different mandatory reporting systems for AFSL and ADIs by the end of the year, including those which have been seriously revamped e.g. AFSL breach reporting. Many of them overlap, they are complicated and there is also personal liability under FAR / BEAR for whomever holds the ‘breach reporting’ role… My firm has been developing an APP to draw all these requirements together and meet them in a efficient way — it is in the beta phase, so I would love experienced legal, risk and compliance people to road-test it if you have 15 mins in the coming weeks. If you are interested, please do reach out!

Australian regulators weekly wrap — Monday, 18 January 2021

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.

  1. Deferred sales model (Treasury): on 10 December 2020 Parliament passed the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020, which included the establishment an industry-wide deferred sales model (DSM) for add-on insurance in response to the recommendations of the Hayne Royal Commission. The DSM will be effective from 5 October 2021. Under section 12DX of the Australian Securities and Investments Commission Act 2001, a class of add-on insurance products may be provided an exemption through regulations. An exemption may be subject to conditions. Treasury has now released a consultation paper which invites stakeholders to provide evidence for any classes of add-on insurance products — aside from CTP and travel insurance, which will be exempted anyway — that represent a very high level of consumer value where it would not be appropriate that they be captured by the deferred sales model. The consultation finishes on 15 February 2021.
  2. Licensing debt management firms (Treasury): On 25 September, the Treasurer announced a suite of reforms to Australia’s consumer credit laws to facilitate more timely access to credit for small businesses and consumers, whilst retaining and strengthening a number of consumer protections. An element of the reforms is protecting consumers from the often predatory practices of debt management firms by requiring them to hold an Australian Credit License when they are paid to represent consumers on matters related to credit activities. In short, The National Consumer Credit Protection Amendment (Debt Management Services) Regulations 2021 (the Regulations) prescribe a new type of ‘credit activity’ for the purposes of section 6 of the NCCP Act, which will require providers of debt management services to hold an ACL and meet the ongoing obligations imposed on credit licensees. These obligations include amongst other things, a requirement to meet the ‘fit and proper person’ test, and to undertake their activities ‘efficiently, honestly and fairly’. Licensees are subject to general conduct obligations and are required to be members of the Australian Financial Complaints Authority (AFCA). A great development to curtail rogue operators, to my mind, especially when the economy is struggling from COVID-19. The draft legislation is here.
  3. Climate disclosure (UK FCA): one I picked up a little late — the UK FCA has published a Policy Statement and final rule and guidance promoting better climate-related financial disclosures for UK premium listed commercial companies. Companies will be required to include a statement in their annual financial report which sets out whether their disclosures are consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD), and to explain if they have not done so. The rule will apply for accounting periods beginning on or after 1 January 2021, meaning the first annual financial reports subject to this rule would then be published in spring 2022. Expect this to land in Australia, before long…
  4. Relief application (ICA): as a result of regulatory relief given to Australia Post by the Government (which gave regulatory relief to temporarily adjust Australia Post’s Performance Standards to reflect the operating constraints and limitations that have resulted from COVID-19), ASIC has issued a no-action position in relation to breaches of the following provisions of the Corporations Act 2001 (Corporations Act) and Corporations Regulations 2001 (Corporations Regulations): section 941D of the Corporations Act — the requirement to provide a Financial Services Guide within five business days of advice being provided in time-critical circumstances; section 1012G of the Corporations Act — the requirement to provide a Product Disclosure Statement within five business days of a product being issued in time-critical circumstances; and, regulation 7.9.15C(5)(b)(i) of the Corporations Regulations — the requirement to provide a document containing dollar disclosure within five business days of a general insurance product being issued. This no-action position applies in certain circumstances and subject to the conditions outlined in ASIC’s letter to the ICA here.
  5. Vatican (AUSTRAC): AUSTRAC has drastically reduced the sum of money it says was sent from the Vatican to Australia, the Vatican says, after it earlier reported a huge figure that raised suspicions of money laundering. The joint Vatican-Australian review showed only $9.5 million was transited between 2014 and 2020, a small portion of the $2.3 billion originally reported by AUSTRAC in December 2020. The Vatican contested the huge figures in December and asked the Australian financial intelligence unit, known as AUSTRAC, to review its calculations. Cardinal George Pell, who was the Vatican’s treasurer from 2014 to 2017 told Reuters: “I was relieved to hear that billions were not laundered through the Vatican while I was head of the Secretariat for the Economy”.

Thought for the future: during the licensing process from ACLs and AFSLs, I have recently noticed ASIC asking queries about how prospective licensees are handling COVID-19. Perhaps, inspired by the UK, in future they will ask queries about how prospective licensees will handle climate-change related challenges?

Australian regulators weekly wrap — Monday, 11 January 2021

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.

  1. Banking Code (ASIC): ASIC has approved variations to the Banking Code of Practice. The main change is that the amended Code specifies situations in which banks may decline to continue dealing with a representative that a customer in financial difficulty has appointed, if the bank reasonably considers that representative is no longer able to act in the customer’s best interests e.g. debt advisers. In addition, there has been a variation to the Code’s timeframes for responding to complaints with the updated timeframes in ASIC’s Regulatory Guide 271 Internal dispute resolution, which is due to commence on 5 October 2021. The instrument is here.
  2. Loan deferrals (APRA): the Australian Prudential Regulation Authority has published the latest monthly data for ADIs’ temporary loan repayment deferrals due to COVID-19, which includes data at both the industry and entity level. The data is available on the APRA website at: Temporary loan repayment deferrals due to COVID-19, November 2020. As at 30 November, a total of $60 billion worth of loans are on temporary repayment deferrals, which is around 2.3 per cent of total loans outstanding. Housing loans make up the majority of total loans granted repayment deferrals, and for the first time in November also have a higher incidence of repayment deferral with 2.4 per cent of SME loans subject to repayment deferral, compared to 2.8 per cent of housing loans. These numbers are better then earlier in the year, when they were double digits.
  3. Trade-based AML (FATF): the global Financial Action Taskforce (FATF) has released a long report on trade-based money laundering. Key findings include that: a) exploitation of trade financing processes was a common theme noted by private sector contributors; b) while financial institutions were aware of the risks associated with third-party intermediaries, the report acknowledges that others in the supply chain, such as legitimate importers or exporters, or those with an oversight role, such as auditors or accountants, may not question why an entirely unrelated third party is involved in the payment settlement process; and c) relevant trade data is held across multiple stakeholders with restrictions about the extent to which this data is shared, both operationally and in bulk. A useful, if dense report, for those in the AML / CTF space.
  4. Squirrel Superannuation (ASIC): ASIC has commenced civil penalty proceedings in the Federal Court against Squirrel Superannuation Services Pty Ltd (Squirrel) for false or misleading representations. Squirrel is a financial technology company that holds an AFSL. ASIC alleges that from around January 2015, Squirrel marketed and sold services helping customers establish and operate self-managed superannuation funds (SMSF) to purchase established residential property. In March 2015, Squirrel first published and distributed a brochure headed ‘How buying established residential property can super charge your superannuation?’. ASIC alleges Squirrel, in its brochure, made misleading representations that:‘… residential property in metropolitan locations doubles in value every 7–10 years and generates a rental return of around 4–5% per annum’ and there is a ‘remarkable’ difference in returns between investing in a regular superannuation fund (7%) and using an SMSF that purchased residential property (14%). The action is a reminder that ASIC is still very focused on investor disclosures, from whichever sector in financial services they are made (4 months ago it was all about funds disclosures).
  5. Liquidity (APRA): the Australian Prudential Regulation Authority has announced a $46 billion reduction in the amount in the Committed Liquidity Facility (CLF) established between the Reserve Bank of Australia (RBA) and certain locally incorporated ADIs that are subject to the Liquidity Coverage Ratio (LCR) from the amount as at 1 December 2020. The LCR is a minimum requirement that aims to ensure that ADIs maintain sufficient unencumbered high-quality liquid assets to survive a severe liquidity stress scenario lasting for 30 calendar days. The LCR is part of the Basel III package of measures to strengthen the global banking system. Expect more helping hands from the prudential regulator as Australia seeks to emerge from the destruction caused by COVID-19 this year…

Thought for the future: What awaits in the year ahead? DDO, BEAR / FAR, breach reporting and more for 2021. I usually do my planning in January, and this year is no different. To assist you with your planning, see this calendar I will keep updated: https://www.linkedin.com/groups/13933881/

Australian regulators weekly wrap — Monday, 4 January 2021

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.

  1. Vatican focus (AUSTRAC): the Vatican and the Australian Catholic Church have both denied knowledge of transfers worth US$1.8 billion which Australia’s financial watchdog says have been sent from Rome to Australia in the past seven years. The figures were made public in December by the AUSTRAC in response to a parliamentary question by Senator Concetta Fierravanti-Wells. They involved about 47,000 separate transfers, according to AUSTRAC and the transfers ranged from yearly totals of US$55.2 million in 2014 to US$448.0 million in 2017. Since the Vatican’s yearly budget is about 330 million euros, the whole matter is deeply strange (even for Vatican finances!), but indicative of AUSTRAC’s broader focus than the banks at the moment e.g. Crown Casino.
  2. Insolvency law changes (Legislation): the insolvency reforms for small businesses came into effect on 1 January 2021. These reforms follow the temporary measures introduced in March 2020 in response to the COVID-19 pandemic. They only apply to eligible incorporated small businesses with liabilities of less than $1 million. The reforms include a new: debt-restructuring process for incorporated small businesses; simplified liquidation process for incorporated small businesses; and ‘class’ of registered liquidator who can only undertake the debt-restructuring process. Subject to some very heated views, it will be interesting to see if these US-inspired insolvency law changes meaningfully assist Australian businesses in their post COVID-19 recovery. At the least, however, credit needs to be given to to the Treasury for taking bold measures.
  3. Temporary restructuring (ASIC): while on the subject of insolvency laws, it is worth recalling that the temporary restructuring relief extends to 31 March 2021.The measures that have been extended include, for companies eligible for temporary restructuring relief: a) increasing the amount that must be owed to a creditor from $2,000 to $20,000 before the creditor can issue a statutory demand for payment on the company; b) increasing the time a company has to respond to a statutory demand from 21 days to 6 months; and, c) providing a director with a temporary safe harbour from personal liability for insolvent trading for debts incurred in the ordinary course of business before any appointment of an administrator or liquidator of the company during the period of safe harbour protection. A company can access temporary restructuring relief if, during the period 1 January 2021 to 31 March 2021, the company directors make the required declaration about the company’s eligibility for temporary restructuring relief, and publish notice of the making of the declaration on ASIC’s website.
  4. IOSCO report (COVID-19): IOSCO’s Retail Market Conduct Task Force has published the Retail Market Conduct Task Force Report: Initial Findings and Observations About the Impact of COVID-19 on Retail Market Conduct. The report outlines key observations of the retail market conduct risks caused or exacerbated by COVID-19 including the: unique market environment emanating from the pandemic; impact on firm and investor behaviour; common drivers of retail misconduct; and, corresponding challenges and opportunities for regulators. In addition, the report identifies a number of common themes experienced during COVID-19 which highlight the vulnerabilities and risks for retail investors, market participants and regulators including: high market volatility; heightened financial and psychological stressors; social distancing and remote work requirements; and, an increase in aggressive advertising, on-line marketing and digital offerings of financial products that may target vulnerable investors. The report also highlights case studies specific to member organisations, for example that Australia experienced a surge in retail investor trading, an increase in predatory scams and unlicensed financial advice. An interesting, if no terribly surprising read, the report suggests practical regulatory tools member organisations can utilise such as: proactive supervisory monitoring including of offerings targeting vulnerable investors; targeted and effective enforcement action; close cross-border cooperation and regulatory coordination; and, leveraging the experience from previous crises to enhance agile regulatory approaches.
  5. FCA / BREXIT (Global): the UK FCA relaxed trading rules hours before Brexit, utilising its temporary emergency powers, allowing firms on both sides of Channel to deal in derivatives worth billions daily. It will let some companies subject to UK rules trade on EU venues, which means UK branches of foreign banks and brokers will be able to transact on behalf of EU clients. The European Securities and Markets Authority had previously said EU banks operating out of London would still be subject to EU regulations when the transition period ends. The EU’s refusal to recognise UK trading venues as properly regulated and supervised had left the London branches of EU-based banks facing overlapping and potentially contradictory instructions from two sets of regulators so, in this instance, the UK FCA blinked…

Thought for the future: the UK’s economy relies so heavily on financial services as an export, though the BREXIT agreement is rather light on the rules regarding this business sector. If equivalence between the UK and EU financial services regulatory regimes cannot be achieved in the near future, expect many more quickfire regulatory oddities like the derivatives exemption to arise going forward.

Australian regulators weekly wrap — Monday, 28 December 2020

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.

  1. Litigation funding (Parliament): the report of the Parliamentary Joint Committee on Corporations and Financial Services into Litigation funding and the regulation of the class action industry has been released. A scathing report, which agreed that the current regulatory overlay of the sector is too light, it contains some major recommendations. These include: a) the Federal Court’s Class Action Practice Notice (PN) be amended to include a requirement that it hold a selection hearing to determine which of the competing or multiple class actions should proceed — this is much the same procedure in the USA, and one I really agree with; b) litigation funders should indemnify a representative plaintiff from adverse costs in every class action; c) legislation should be enacted to clarify the position around ‘common fund’ orders; d) there should be Federal Court approval of litigation funding agreements in order for them to be enforceable, and empower the Federal Court to reject, vary or amend terms of litigation funding agreements in the interest of justice — critically, the committee said that independent financial experts should be appointed to assist the Federal Court’s assessment of litigation funding agreements. I 100% agree!; e) the PN be amended to work in a favorable presumption for the use of contradictors, where there are complex matters at issue in a proposed settlement, or the potential exists for significant conflicts of interest; f) the Australian government to consult on the best way to guarantee a statutory minimum return of the gross proceeds of a class action, including whether a minimum gross return of 70% is best; g) law firms acting on contingency should be subject to similar arrangements as funders e.g. obtaining AFSLs; g) increased disclosures around conflicts of interest e.g. notices to class members need to describe the lawyers and funders duties in this regard — the committee also recommended that the conduct rules for solicitors and barristers be amended to prohibit having a financial or other interest in a third-party litigation funder that is funding the same matter in which the solicitor, law firm or barrister is acting; h) funders should be held to the same standards as parties and lawyers to the litigation i.e. ‘overriding obligation’ to administration of justice ; i) the AFSL and MIS regimes being applied to funders are a step in the right direction, though some tweaking is required. The ASX continuous disclosure laws were amended during COVID-19 by removing the strict liability associated with continuous disclosure such that plaintiffs would be required to prove fault — perhaps most importantly, these changes were recommended to be made permanent by the committee. I think this recommendation, and all the other recommendations, are very sensible. (Shareholder class actions are often economically inefficient, as it is shareholders suing themselves under an unduly onerous disclosure system.) Now to see them put into legislation!
  2. Pandemic clauses (Federal Court): the Full Federal Court delivered its judgment in Rockment Pty Ltd t/a Vanilla Lounge v AAI Limited t/a Vero Insurance [2020] FCAFC 228, rejecting the interpretation of the exclusion clause put forward by the insured, and accepted the insurer’s submission that the exclusion should be given a wide interpretation. It is a win for insurers seeking to rely on their pandemic exclusion clauses, though the decision needs to be treated with caution — each of these cases turns on the specific wording of the clause in question! The insurance clause here was: ‘We will not pay any claim that is directly or indirectly caused by or arises from, or is in consequence of or contributed by: … any biosecurity emergency or human biosecurity emergency declared under the Biosecurity Act 2015 (Cth), its subsequent amendments or successor, irrespective of whether discovered at the premises or the breakout is elsewhere.’
  3. APRA & ASIC (Co-operation): the twin peaks have published their first annual update on engagement. The update fulfils the agencies’ obligation under their 2019 Memorandum of Understanding to report annually on their engagement activities. The statement is available on the APRA website here, and the most interesting part to me is what they will be working on next together. In 2021, APRA and ASIC’s cooperation will be reinforced by the implementation of Hayne Royal Commission Recommendation 6.9 via a statutory obligation to cooperate, share information and notify each other of suspected entity breaches of laws administered by the other. Further, a key regulatory priority of 2021 includes the implementation of the latest consumer credit and superannuation reforms and preparation for the Financial Accountability Regime (FAR). Both regulators have responsibility under that critical regime.
  4. Westpac (ASIC): Following the civil proceedings commenced by AUSTRAC in the Federal Court of Australia on 20 November 2019, ASIC commenced an investigation into matters related to the AUSTRAC proceedings. APRA also commenced an investigation into matters related to the AUSTRAC proceedings and potential contraventions of the Banking Act 1959 (Cth) (including the Banking Executive Accountability Regime) and subsequently delegated certain enforcement powers to ASIC in connection with its investigation. ASIC has informed Westpac that it has concluded the investigation and that it does not intend to take any enforcement action against Westpac or any individuals in connection with the investigation. By way of a recap, the bank admitted to more than 23 million breaches of anti-money laundering and counter-terrorism financing laws. Both the company’s CEO and chair left following the investigation, and in September Westpac agreed to pay $1.3 billion settlement. The most interesting investigation will be APRA’s, under BEAR, given that the first investigation of its kind…
  5. Liquidity (APRA): the prudential regulator has published new frequently asked questions for authorised deposit-taking institutions on minimum liquidity holdings, mortgage warehouse facilities and calculation of collateral outflows. There is some quite good — but very dense technical — information to assist regulated entities in the interpretation of Prudential Standard APS 210 Liquidity, Prudential Practice Guide APG 210 — Liquidity and Reporting Standard ARS 210.0 Liquidity here.

Thought for the future: 2020, from a purely regulatory perspective, is likelier to be easier than 2021 in my view. New breach reporting, Mortgage brokers’ BID regime, FAR, DDO, CDR, RG 165… there are some very large changes in the pipeline.

Australian regulators weekly wrap — Monday, 21 December 2020

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.

  1. Insolvency laws (Treasury): the major insolvency law changes proposed as part of the Federal Budget have passed Parliament. The legislation introduces a new, simplified debt restructuring process that can be accessed by small businesses experiencing distress. This process draws on key features of the Chapter 11 bankruptcy model in the United States and will apply to incorporated businesses with liabilities of less than $1 million — covering around 76 per cent of businesses subject to insolvencies today, 98 per cent of whom who have less than 20 employees. By moving from a rigid one-size-fits-all “creditor in possession” model to a more flexible “debtor in possession” model, the aim is for eligible small businesses to restructure their existing debts while remaining in control of their business. A new simplified liquidation pathway will also be introduced to allow faster and lower-cost liquidation, increasing returns for creditors and employees. These new insolvency processes will be available for eligible small businesses from 1 January 2021, and there are a lot of strong views as to whether it will work — does it make sense to have businesses owners whose actions have gotten to company into trouble lead them out of it? Time will tell, though it does shift the balance in favour of debtors.
  2. FASEA (Treasury): FASEA will be disbanded and have its role divided up between Treasury and ASIC’s Financial Services and Credit Panel (FSCP) — which will become the industry’s long-awaited single disciplinary body — in a raft of changes to the advice industry announced in draft legislation by the Morrison government. Long expected, the FSCP, which currently administers banning orders within ASIC, will have its role expanded dramatically to incorporate advice disciplinary functions as well as take over FASEA’s administration of the adviser exam. Instead of providing clients with an FDS annually and an OSA (or fee renewal notice) every two years, advisers will soon no longer need to provide separate notices. There is also a move from biennial to annual ongoing fee renewals, per Commissioner Hayne’s recommendations. The draft legislation also follows through with Hayne’s recommendation that advisers provide clients with a document outlining their “lack of independence” if they are in receipt of commissions, volume-based payments or “other gifts or benefits” from product issuers. Finally, it also addresses advice fees in superannuation as expected, with trustees to be prohibited from charging members advice fees (other than intra-fund fees) unless they have the member’s consent. If legislated, the new rules will start on 1 July, 2021, with a subsequent 12-month transition period.
  3. Hayne Recommendations (Parliament): as expected, a raft of legislation from the Hayne Royal Commission has passed Parliament. The legislations which has passed Parliament can be categorised as follows: a) strengthening the unsolicited selling (anti-hawking) provisions, including for superannuation and insurance products, to prevent pressure selling to consumers; introducing a deferred sales model for add-on insurance products, to promote informed purchasing decisions and prevent inappropriate sales of add-on insurance; making the handling and settlement of insurance claims a ‘financial service’, which will require insurers to behave honestly, efficiently and fairly and comply with other licensing obligations, to improve claims handling practices; prohibiting the trustee of a superannuation fund from having a duty to act in the interests of another person, other than those arising from their duties as trustee of a superannuation fund; and, allowing provisions in financial services industry codes to be enforceable, with breaches attracting civil penalties, ensuring better adherence by industry and certainty for consumers. (Watch out for the latter one, AFCA is going to have a field day in 2021!) These changes are complemented by providing further clarity regarding the role of the regulators and enhancing the requirements of financial institutions reporting breaches of the law which will ensure significant misconduct is reported and investigated sooner. The breach reporting laws are really draconian, and the Hansard is here. They will come into effect in October 2021 (pushed back from April 2021). See 217 to 261 of the EM for a good overview. Aside from the content we knew already e.g. expanding the laws to the need to have to report anything which is a civil penalty (which almost everything is under the Corporations Act / NCCP) and to Credit Licence holders, there are a few notable additions I had not picked up earlier — getting ASIC to publish data on breach reports lodged by licensees is one…
  4. Design & Distribution (ASIC): ASIC has released a new regulatory guide on the product design and distribution obligations (RG 274), following extensive consultation. Under the regime, which starts in 21 October 2021, product issuers must: make a ‘target market determination’ for each product covered by the regime; take reasonable steps that will, or are reasonably likely to, result in ‘retail product distribution conduct’ (other than certain excluded conduct) being consistent with the determination; notify ASIC of ‘significant dealings’ in a product in relation to a retail client that are inconsistent with the determination; and, review the determination regularly and keep records. Distributors must: not engage in ‘retail product distribution conduct’ unless all reasonable enquiries and determination have been made for the product (or that it is not required); take reasonable steps that will, or are reasonably likely to, result in retail product distribution conduct in relation to the product being consistent with the determination; notify the issuer of ‘significant dealings’ that are inconsistent with the determination; and, keep records. Regulatory Guide 274 Product design and distribution obligations sets out: the financial products to which the design and distribution obligations apply; ASIC’s interpretation of the obligations, and, ASIC’s administration of the obligations. I will be covering the guide in more detail in coming weeks — we have been waiting for it for some time(!) — but one thing that is clear is that it is very principles-based, reflecting Parliament’s intent that industry is best placed to implement the obligations in the context of their existing operations and product offerings. It also reflects the fact that the design and distribution obligations cover most financial products across all sectors of the financial services market. If you have not started your DDO implementation programs, start now — they can be more complicated than expected in my experience.
  5. BEAR / FAR (APRA): The Australian Prudential Regulation Authority released an information paper detailing the findings from its review of the implementation of the Banking Executive Accountability Regime (BEAR) by three of Australia’s largest authorised deposit-taking institutions (ADIs), NAB, CBA and ANZ — Westpac was not included due to an ongoing investigation into potential breaches of the Banking Act 1959 (Cth). APRA’s review found that all three of the large ADIs had designed adequate frameworks to implement the BEAR and that this has helped to deliver: greater clarity and transparency of individual accountabilities at ADIs; sharpened challenge by boards on actions taken by accountable persons to meet their obligations; and, more targeted engagement between APRA and ADIs to deliver prudential outcomes. As at February 2020, APRA considered that CBA had the most developed approach to implement the BEAR, but that all of the ADIs had further work to achieve clearer and more transparent accountability practices. My top read for the week, you can access the paper here. And do not forget — the legislation to introduce BEAR / FAR to general insurers and superannuation firms will come in June 2021…

Thought for the future: both APRA and the UK PRA have lifted the restrictions on banks dividends, which is a good economic sign. Still, with stimulus packages tapering off, and the full economic effect of COVID-19 yet to be felt, not doubt 2021 will be a rocky one.

Australian regulators weekly wrap — Monday, 7 December 2020

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.

  1. Consumer remediation (ASIC): ASIC has released a consultation paper on proposed updates to Regulatory Guide 256Client review and remediation conducted by advice licensees. Consultation Paper 335 Consumer Remediation: Update to RG 256 (CP 335) includes clarification of RG 256’s application to all financial services licensees, credit licensees and superannuation trustees. ASIC is currently monitoring over 100 remediations that could see the return of at least another $3.55 billion in total to over 3.6 million consumers upon finalisation. There are many other remediations that are dealt with by firms without any ASIC involvement. The paper contains some interesting content, for example ASIC is proposing that a remediation must be initiated when a licensee has engaged in a misconduct, error or compliance failure relating to a financial service provided by and covered under the licensee’s relevant licence and caused actual or potential consumer loss to ‘one or more’ consumers, rather than a ‘number of consumers’. It is essentially proposing to remove reference to systemic issues. My top read for the week, the submissions on CP 335 are due by 26 February 2021. It is also worth noting that ASIC has also released Making it Right: how to run a consumer centered remediation, to offer guidance on customer-centered remediations.
  2. Vulnerable customers (ASIC): Sean Hughes, ASIC Commissioner, gave a speech to the to the Financial Services Assurance Forum in which he outlined ASIC’s expectations regarding vulnerable customers. I thought two parts were quite interesting; 1) ‘vulnerability’ per se is not specifically regulated in Australia, but ASIC’s contextual definition is outlined in the ASIC Corporate Plan 2021–24. It is a very broad definition, and extends to those experiencing temporary life problems and business entities; 2) DDO is a big focus for ASIC in this space. Commissioner Hughes that there are a few questions the boards of financial services firms ought to ask their senior executives now, including: a) Are we getting ready for DDOs? b) Do we have the data we need to ask and answer fundamental business questions?; c) Do we know our target market for this product?; d) Does it meet their needs? e) Is this product of value to that target market? f) Do our distribution controls, included our chosen distribution channels, mean it’s getting to our target market? g) Would we know if it wasn’t? I completely agree. Implementing the DDO regime is takes appreciable time, in the experience I have had thusfar, so it is worth getting on with the program.
  3. Litigation funding (Legislation): despite opposition from Labor and cross-bench senators, the Morrison Government’s legislation to require litigation funders to become MIS / AFSL structures has passed into legislation with the help of Pauline Hansen. For more details on the legislation, which have generated significant debate, you can read this article I wrote earlier in the year here.
  4. LIBOR (ASIC): ASIC has released an information sheet providing practical guidance for Australian entities to manage conduct risk during the transition from the London Interbank Offered Rate (LIBOR), which is expected to cease at the end of 2021. ASIC’s expectations include: a) treating clients fairly; b) performance of products and services i.e. clients should be provided with products and services that perform as they were led to believe; c) client communication — ASIC expects entities to use their knowledge to help clients make decisions about the appropriateness of products and services, and not to take advantage of their potential lack of understanding about the transition process; d) risk management framework, with appropriate governance so as to manage conduct risk; e) buy-side entities’ responsibilities — ASIC consider that these entities have a duty to ensure their clients are not disadvantaged during the transition and they have acquired appropriate resources in an environment where there is a potential skills shortage.
  5. Remittance providers (AUSTRAC): A remittance service provider is an individual, business or organisation that accepts instructions from customers to transfer money or property to a recipient. Remittance service providers are also known as ‘money transfer businesses’. One of the more vexed areas of AML / CTF, in my experience, remittance providers must apply to register with AUSTRAC. AUSTRAC has the right to refuse, suspend or cancel registration and can also impose conditions on registration. To assist, AUSTRAC has released new products that make understanding and following AML/CTF obligations simpler. There’s a new video, a detailed guide to developing an AML/CTF program, as well as new fact sheets on risk management, reporting, customer identification and more. It is worth a look here, if you practice in the AML/CTF space.

Thought for the future: with thanks to the reader who picked it up in my update last week, the updated breach reporting regime will commence in October 2021 (instead of April 2021). The proposed reforms include requirements for third-party licensees to report breaches by individual mortgage brokers and financial adviser representatives of other licensees. ASIC intends to consult on an updated RG 78 on breach reporting in early 2021. Next year is shaping up to be a big one for self reporting…

Australian regulators weekly wrap — Monday, 30 November 2020

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.

  1. ASIC v Youi (ASIC): the Federal Court has declared Youi Pty Ltd (Youi) breached its duty of utmost good faith under the Insurance Contracts Act in its handling of a building and contents insurance claim lodged by a policyholder. Following a severe hailstorm in Broken Hill in November 2016, the policyholder made a claim to Youi in January 2017 for damage to their property. Youi took close to two years to ultimately settle the claim — but there was a lot of intervening delays, pauses, scope increases and contractor issues (none of which was Youi’s fault) — and repairs were ultimately not completed until November 2018. At the time the conduct occurred, the Insurance Contracts Act did not impose pecuniary penalties for a breach of the duty of utmost good faith. ASIC therefore sought only declarations that Youi breached the duty. Breaches of the duty of utmost good faith occurring from 13 March 2019 may now also carry pecuniary penalties. In his decision, Chief Justice Allsop found that: a) Youi breached the requirements of s13 of the Insurance Contract Act 1984 (ICA) on five (5) occasions; b) declaratory relief is appropriate, and ASIC is the appropriate party to seek declarations as the statutory regulator; and c) the form of declaratory relief should identify, for the purposes of both the defendant and others in the industry, that conduct of this character is a breach of the important duty of good faith. To me this decision is problematic insofar as how low it sets the bar for the duty of utmost good faith under the ICA, and will be a red rag for AFCA when dealing with insurer complaints. (Full disclosure though; I acted for Youi in the Hayne Royal Commission.)
  2. Payments Systems (Treasury): the Federal Treasury has released an issues paper as part of the review of the regulatory architecture of the Australian payments system which was first announced on 21 October 2020. The review will assess: the current structure of the governance and regulation of the payments system to assess whether it is fit-for-purpose, including whether the regulatory framework adequately accommodates new and innovative systems and the effectiveness of the current structure in implementing government policy; how to create more productivity-enhancing innovation and competition in the payments system, including in relation to the pace and manner in which the New Payments Platform is being rolled out and enhanced by industry; ways to improve the understanding of businesses and consumers of alternative payment methods; whether government payment systems, including payments to citizens, are agile and can take advantage of new payments functionality, to enhance service delivery; and, global trends and how Australia should respond to these trends to ensure that it continues to remain internationally competitive. The review is due to report on by April 2021, and submissions on the issues paper are due by 31 December 2020.
  3. Business interruption case (Insurance): the COVID-19 business interruption test case in Australia, initiated by the Australian Financial Complaints Authority (AFCA) and the Insurance Council of Australia (ICA), has been handed down. The New South Wales Court of Appeal rejected the industry’s argument that policies should not cover COVID-19 pandemic-related losses. The NSW Court of Appeal’s decision comes after large insurers repeatedly insisted that pandemic exclusions should stand. No doubt those insurers are considering an appeal now, following in the footsteps of the UK experience. The UK Supreme Court has only just this week concluded the FCA business interruption hearings, following from the UK High Court’s finding in its judgment that the pandemic and the UK government’s response to it could be considered a single cause of losses. This resulted in establishing coverage for a significant number, though not all, of the policies in this test case.
  4. ASIC Governance (Parliamentary Inquiry): the Australian Securities and Investments Commission appeared before the Parliamentary Joint Committee on Corporations and Financial Services at a public hearing via videoconference. It was a tough appearance, in the wake of Mr. Shipton and Mr. Crennan QC standing aside and down over payments scandals respectively. Acting Chair Karen Chester stated that ASIC could have avoided being embroiled in an overpayments scandal had its former chairman, Mr. Shipton, agreed to change ASIC’s governance. Ms Chester said she was informed of the overpayments “in an opaque way” with little detail by the accountable authority, who at the time was Mr Shipton. It also came out that Mr. Shipn’s expenses were approved by his subordinate, the ASIC CFO. Liberal Senator Paterson asked Ms Chester whether the overpayments were not flagged earlier due to “an issue that goes to Mr Shipton personally and his leadership” rather than being a “broader cultural problem with ASIC” to which she replied “If there had been full disclosure of the payments made to Mr Crennan and Mr Shipton I don’t think I would be having this discussion with you today”.
  5. Cyber security (APRA): the Australian Prudential Regulation Authority has warned that its newly released cyber security strategy set out in CPS 234 requires more intense focus from financial firms. The regulator has ordered insurers, banks, and super funds to conduct urgent audits against the new prudential standard to ensure they’re compliant. APRA’s new five-year cybersecurity strategy extends the regulator’s influence into non-banks, including third-party IT suppliers, fund managers, and payment companies, to defend the financial system from the growing threat of cyber attackers. APRA executive Geoff Summerhayes is quoted in the AFR as stating “Our view that it’s only a matter of time until a major incident occurs hasn’t changed. In light of evidence that boards frequently don’t understand or are not adequately informed about cyber risks, we’re no longer prepared to simply take their words for it — we want compliance independently verified.”

Thought for the future: between the revamped ASIC breach reporting framework arriving in April 2021, expanded Financial Accountability Regime, AUSTRAC’s suspicious matter reporting expectations changing, OAIC data breach regime and APRA breach reporting regime there is likely to be quite a lot of breach reporting happening in 2021. If you haven’t taken the time to cross-stitch these regimes together — they do overlap — feel free to reach out for a document I have prepared in this regard to assist.

Australian regulators weekly wrap — Monday, 9 November 2020

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.

  1. Commonwealth Integrity Commission (Treasury): the Government has committed $147 million to the development and operation of a Commonwealth Integrity Commission (CIC). The process has already started with the expansion of the Australian Commission for Law Enforcement Integrity (ACLEI). ACLEI’S jurisdiction will be expanded from 1 January 2021 to cover four new agencies . The second phase will be the establishment of the CIC, which will subsume ACLEI and cover the remainder of the public sector. The draft legislation comprises two Bills: 1) the draft Commonwealth Integrity Commission Bill, which will establish the CIC as a centralised agency to investigate criminality and corruption in the public sector; and 2) the draft Integrity and Anti-Corruption Legislation Amendment (CIC Establishment and Other Measures) Bill, which makes the necessary consequential amendments to existing Commonwealth legislation to support the introduction of the Commonwealth Integrity Commission Bill. The CIC will have greater investigatory powers than a Royal Commission to look into Federal sector corruption issues. These include the ability to: hold hearings and compel witnesses to testify; enter and search premises; require people to surrender documents and other evidence; use telecommunication interceptions; and, have individuals arrested and confiscate passports. Submissions on the draft legislation closes in February 2021. The key focus is to get the thresholds correct for what constitutes behavior which can trigger an investigation — from my review of the legislation, they look far too broad from a principles-based perspective i.e. ‘misuses their office’. The risk with these types of bodies is that they becomes tools for those with an axe to grind (and powers unto themselves) — the work to be done by the CIC will be critical, and the powers it wields immense, so getting the balance right from the start is important.
  2. Privacy Act (Treasury): the Government has released the terms of reference and issues paper for a wide-ranging review of the Privacy Act 1988 (Cth) (Privacy Act). The Government committed to a review following the Australian Competition and Consumer Commission’s Digital Platforms Inquiry in 2019. The review covers areas including: a) the scope and application of the Privacy Act; b) whether the Privacy Act effectively protects personal information and provides a practical and proportionate framework for promoting good privacy practices; c) whether individuals should have direct rights of action to enforce privacy obligations under the Privacy Act; d) whether a statutory tort for serious invasions of privacy should be introduced into Australian law; e) the impact of the notifiable data breach scheme and its effectiveness in meeting its objectives; f) the effectiveness of enforcement powers and mechanisms under the Privacy Act and how they interact with other Commonwealth regulatory frameworks; and g) the desirability and feasibility of an independent certification scheme to monitor and demonstrate compliance with Australian privacy laws. The review will be conducted by the Attorney-General’s Department and public submissions can be lodged up until 29 November 2020. One to watch — whatever is decided will affect all Australian businesses — you can access the issues paper here.
  3. ASIC Update (ASIC): Sean Hughes, ASIC Commissioner, gave a speech at the 30th Annual Credit Law Conference which is notable for the indications it provides of ASIC’s focus points. He stated that ASIC is prioritising: a) industry engagement on COVID-related issues. ASIC is closely monitoring how lenders are assisting consumers experiencing financial difficulties due to COVID-19. It is also focusing on the potential for unregulated fringe lenders who are using the pandemic to prey on vulnerable people; b) product intervention on continuing credit. ASIC is continuing to take action in this area to protect consumers from being sold high-cost unregulated credit. In September 2019, ASIC made its first industry-wide product intervention order (PIO) in relation to short-term credit, which prevented credit providers and their associates from charging fees and charges which exceed the short-term credit exemption in section 6(1) of the National Credit Code; c) enforcement action in the automotive industry; and, d) debt management firm licensing. This is an area of concern to ASIC, particularly in relation to vulnerable consumers, is the debt-management sector, which also includes services known as ‘credit repair’. My top read for the week, for the fact that it comes off the back of some large recent announcements and shake-ups at ASIC, and the detail it provides as to ASIC’s plans, you can read the speech here.
  4. Responsible lending (Treasury): on the 25 September 2020, the Government announced a suite of changes to Australia’s consumer credit framework contained in the National Consumer Credit Protection Act 2009 aimed at reducing the time it takes for individuals and small business to access credit while maintaining strong protections for vulnerable consumers. One aspect of the reforms amends the existing responsible lending obligations — in place will be a risk-based regime that allows lenders the flexibility to make decisions based on the characteristics of the borrower and the type of credit. Basically, Australia moves from a position where the lender is obligated to protect the customer from poor credit decisions to the reverse. The measures will commence on 1 March 2021, subject to the passing of legislation which is here. Public consultation on the exposure draft and explanatory material will close on 20 November 2020.
  5. Loan deferrals (APRA): Many authorised deposit-taking institutions (ADIs) have granted temporary relief to borrowers impacted by COVID-19, allowing them to defer loan repayments for a period of time. APRA is now publishing some of this data which you can read here. It is rather sobering reading. As at 30 September, data submitted by all ADIs indicates that $179 billion worth of loans have been granted temporary repayment deferrals, which is around 6.7 per cent of total loans outstanding. Housing loans make up the majority of total loans granted repayment deferrals, although SME loans have a higher incidence of repayment deferral with 10.8 per cent of SME loans subject to repayment deferral, compared with 7.4 per cent of housing loans. Exits from deferral continued to outweigh new entries for the third straight month in September, with $66 billion loans expiring or exiting deferral and $17 billion of entries approved or extended. Pace of exits increased significantly over the month, with total exits increasing 169 per cent from $24 billion in August. Happily, the majority of these loans have returned to a performing status.

Thought for the future: next year is going to be a really big one! Design & distribution, Financial Accountability regime, new Breach Reporting regime, Mortgage Brokers’ BID Regime. If you have not prepared your regulatory roadmap yet, now is the time before the Christmas break sets in.

(These views are my own and do not constitute legal advice. These updates are not designed to be comprehensive. Photo credit Tom Wheatley)

Australian regulators weekly wrap — Monday, 2 November 2020

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.

  1. Share transfers (ASIC): ASIC has released updated regulatory guidance to formalise its policy on when it will give Chapter 6 relief for share transfers under s444GA of the Corporations Act. Section 444GA allows shares of a company in administration to be transferred by an administrator as part of a deed of company arrangement. The updated guidance is set out in: Regulatory Guide 6 (RG 6Takeovers: Exceptions to the general prohibition and Regulatory Guide 111 (RG 111Content of Expert Reports. ASIC will generally require explanatory materials to be provided to shareholders, including an Independent Expert Report (IER) prepared on a non-going concern basis in accordance with RG 111 Content of Expert Reports demonstrating that shareholders have no residual equity in the company, and the IER to be prepared by an independent expert (other than the administrator) in accordance with RG 112 Independence of experts. I have seen some healthy debate in the insolvency industry about ASIC’s position that someone independent from administrators prepare the report. One argument is that it adds unnecessary costs, and that administrators are perfectly capable of doing this report. On the other side, the argument goes that administrators are not sufficiently independent enough to prepare the report. I am in the latter camp; for something as critical as share transfers in a distressed scenario, where the information asymmetry is marked, you want the person advocating you transfer your shares i.e. the administrator separate to the person telling you what they are worth i.e. the valuer.
  2. Adelaide & Bendigo (APRA): APRA has increased Bendigo and Adelaide Bank’s minimum liquidity requirement for failing to comply with APRA’s ADI prudential standard on liquidity. The breaches of APS 210 — Liquidity are historical in nature, and Bendigo and Adelaide Bank’s current liquidity position is now above APRA’s minimum regulatory requirements. Bendigo and Adelaide Bank informed APRA in September of multiple breaches of APS 210 stemming from IT coding that incorrectly classified some retail deposits in the most stable category of the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). The breaches raised questions over the bank’s past risk management practices, and ability to accurately calculate and report its liquidity ratios. APRA will require a comprehensive review by an independent third party into the bank’s adherence with APRA’s liquidity requirements. APRA will also require Bendigo and Adelaide Bank to apply a 10 per cent add-on to the net cash outflow component of its LCR calculation, which will remain in place until the independent review is finalised and short-comings have been rectified to APRA’s satisfaction. The matter raises an interesting point — everyone always focuses on breaches of s.912 of the Corporations Act 2001 (Cth) for AFSL holders. Less prominent, but far broader, are breaches of s. 62A(1B) of the Banking Act 1959 (Cth) which is predicated on an ADI breaching a prudential standard. There are lot, as you can see by clicking here
  3. Life Insurance (APRA): APRA has released its Life Insurance Claims and Disputes Statistics publication, covering a rolling 12-month period from 1 July 2019 to 30 June 2020. APRA’s Life Insurance Claims and Disputes Statistics publication presents the key industry and entity-level claims and disputes outcomes for 20 Australian life insurers writing direct business (i.e. excluding reinsurance). The statistics are accessible here, and make for interesting viewing. Claims made through policies which are not taken out via group super have a lesser admittance rate, and a much higher (almost double) claims paid ratio than other policies. Claims paid ratio is the dollar amount of claims paid out in the reporting period as a percentage of the annual premiums receivable in the same period.
  4. CFDS (ASIC): ASIC has made a product intervention order imposing conditions on the issue and distribution of contracts for difference (CFDs) to retail clients. A CFD is a contract between two parties, typically described as “buyer” and “seller”, stipulating that the buyer will pay to the seller the difference between the current value of an asset and its value at contract time. ASIC’s order, which has been in the works for some time and is broadly consistent with other markets, reduces CFD leverage available to retail clients and by targeting CFD product features and sales practices that amplify retail clients’ CFD losses. From 29 March 2021, ASIC’s product intervention order will restrict CFD leverage offered to retail clients to specified maximum ratios; standardise CFD issuers’ margin close-out arrangements; protect against negative account balances by limiting a retail client’s CFD losses to the funds in their CFD trading account; and prohibit giving or offering certain inducements to retail clients (for example, offering trading credits and rebates or ‘free’ gifts like iPads). ASIC also confirmed it will not require issuer-specific risk warnings or other disclosure-based conditions as originally proposed in Consultation Paper 322 Product intervention: OTC binary options and CFDs (CP 322). While ASIC reviews in 2017, 2019 and 2020 found that most retail clients lose money trading CFDs, and no doubt they are a highly risky product, I do feel a bit conflicted on this one. This is not an example of regulatory arbitrage, or an inherently problematic product — it is just a highly risky one that most retail customers are not equipped to handle. If they do, however, should it be a case of buyer beware? I can see very good arguments on both sides…
  5. AUSTRAC Annual Report (AUSTRAC): The AUSTRAC annual report 2019–20 has been released. My top read for the week, it sets out AUSTRAC’s activities in the past year, including: partnering with agencies including the Australian Taxation Office and Services Australia to prevent and detect fraud against, and criminal exploitation of, Australian Government programs introduced in response to COVID-19, such as the early release of superannuation and JobKeeper; the addition of five new Fintel Alliance members, which has supported the AUSTRAC-led public-private partnership to expand its focus to 24 crime types and commence 29 operations in 2019–20; supporting industry with a range of measures to assist industry in complying with their legislative obligations during COVID-19; and collaboration with the Australian Banking Association and the Australian Israeli Chamber of Commerce of NSW, to make a change to an Anti-money Laundering and Counter-terrorism Financing Rule to help Australians fleeing domestic violence and financial abuse. Looking forward, AUSTRAC states that it will use the $104 million funding boost announced as part of the 2020–21 Federal Budget to dedicate more resources to ensuring regulated businesses comply with their anti-money laundering and counter-terrorism financing obligations, increasing the detection of non-compliance as well as the delivery of an enhanced reporting system for its 15,000 reporting entities. Make no mistake, AUSTRAC enforcement hungry approach is not going away. Not with all the praise (and budgetary recognition) it has had in the wake of its results with Westpac, CBA and Tabcorp. Now to see how Crown Casino fares..

Thought for the future: the US Foreign Corrupt Tax Practices Act is a more than 40-year-old law banning companies from bribing foreign officials to win business. It has been wielded fearfully by the US DOJ since the Bush administration; not under President Trump though, who is not a big fan of it. In his Presidency the number of new corporate anti-bribery investigations has fallen, according to data collected by Stanford Law School’s Foreign Corrupt Practices Act Clearinghouse. In 2019, publicly traded companies disclosed that just six new government investigations were initiated in 2019. That compares to an average of 20 investigations initiated per year over the past 10 years, according to the Clearinghouse. If Biden is elected on 3 November, will the trend reverse in 2021?

(These views are my own and do not constitute legal advice. These updates are not designed to be comprehensive. Photo credit Tom Wheatley)