The Australian regulators weekly wrap is a weekly alerter which quickly sets out five noteworthy developments from the past week. It is designed to help you in keeping up to speed with what is happening in Australian financial services regulation.
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- Production intervention: ASIC is not wasting any time — hot off the heels of its recent consultation paper as to how it should best use its new product invention power (read more about that in the 1 July 2019 alerter here) ASIC has released a consultation paper (CP 316)on its first proposed use of the power. It is looking at the short term credit industry; specifically, where fees are charged under separate contracts which ultimately add up to well over 100% of the loan value. Submissions close by 30 July 2019.
- Culture capital: APRA has increased NAB, ANZ and Westpac’s minimum capital requirements by $500M each (following a $1B capital add-on to CBA last year) citing the “ need to strengthen non-financial risk management, ensure accountabilities are clear, cascaded and enforced, address long-standing weaknesses and enhance risk culture”. This move follows APRA’s release of its information paper on 22 May 2019 on the financial services industry’s self-assessments of governance, culture and accountability. A useful read, that information paper effectively set out that irrespective of size, complexity or industry many institution are having a difficult time identifying, managing and mitigating non-financial risk.
- Consumer credit insurance: ASIC has released a report (REP 622) which found that the design / sale of consumer credit insurance has consistently failed consumers (this may not surprise the many UK practitioners who have had experience with mis-sold PPI products). In particular, the report states that CCI is extremely poor value for money; associated with sales practices which cause harm e.g. CCI was sold to ineligible customers; consumers were charged for deductions where their loan had expired; hardship claims under CCI policies are made without appropriate consumer-focused processes for many lenders. ASIC is undertaking investigations, monitoring remediation schemes and is considering completely banning the sale of CCI by telephone. But further, according to ASIC Commissioner Sean Hughes “If we do not see early, significant and sustained improvement in the design and sale of consumer credit insurance, our next steps may involve the deployment of our new product intervention power where we see a risk of significant consumer detriment”
- AFCA: 58 AFSLs and 217 ACLs who had previously held external membership with an external dispute resolution scheme had not obtained AFCA membership since it commenced operations on 1 November 2018. Following ASIC’s involvement, 35% of those entitles either cancelled their licences voluntarily or had ASIC cancel or suspend it for them. All ASFLs and ACLs are required to obtain AFCA membership; critically, it has a lot more powers than its predecessors e.g. FOS. It has a higher monetary jurisdiction than FOS, a broad and new directions power in respect of “systemic issues” (and is expected to work closely with ASIC here) and expects to be more involved in remediation programs. Watch this space…
- Licence scrutiny: judging by the number of media releases each week, ASIC is doing more work cancelling licences or banning individuals. (Example here.) This appears to fit in with its more hawkish enforcement outlook, as encapsulated in ASIC Chair James Shipton’s statement at this year’s annual forum in May 2019 “… we are looking to use the full extent of our new penalties and powers through the prism of ‘why not litigate’”.
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(These views are my own and do not constitute legal advice. Photo credit Tom Wheatley)