Australian regulators weekly wrap — Monday, 22 July 2019

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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  1. APRA capability report: Graeme Samuel’s external review of APRA was released and contained some sharp observations, the sum of which was that APRA’s internal culture and regulatory approach need to change (and it needed to have a more forceful supervision and enforcement approach). It also made bold recommendations. The eye-catching ones were that APRA should engage in more in-depth governance and culture reviews (like it did for CBA), have powers to veto the appointment of directors and executives of regulated firms and that its penalties framework should be revisited. APRA has supported all 19 recommendations — if you read one regulatory development this week, make it this one. It will be with us for some time…
  2. Life insurance / CCI: ASIC has proposed to ban unsolicited telephone sales of life insurance and consumer credit insurance stating that “such a ban would prevent the sale of complex insurance products which consumers do not need, want or understand.” It has released a consultation paper (CP 317), which is directed to insurers and ASFLs who sell these products without providing personal advice (within the statutory meaning). This move should be no surprise given the Hayne Royal Commission’s legislative recommendations to this effect and ASIC’s recent research report (REP 622), which you can read about in last week’s update; still, it shows that ASIC is not prepared to waste any time getting things done. The consultation period ends on 29 August 2019.
  3. Hayne Royal Commission: according to the Australian Financial Review (18 July 2019) the Federal Government says that there only a chance at best that all the relevant 76 recommendations from the Hayne Royal Commission will be legislated by the end of the year. The Morrison Government has already legislated some of the recommendations, most notably to increase penalties for corporate misconduct. But there are many yet to come through, which is perhaps understandable given the inherent complexity i.e. BEAR was effected through a change to the Banking Act 1959 (Cth); how will it be efficiently transposed to all AFSL’s as promised? Labor’s exhortations to get on with the process aside, rushed lawmaking rarely ends well (and the consultation periods seem to be getting shorter), so my personal view is that taking time to get things right is fine.
  4. Ratings downgrades: following APRA’s move to increase the capital requirements on Westpac, ANZ and NAB due to improvements required in the management of their non-financial risks, Fitch Ratings downgraded its outlook for both Westpac and ANZ. It moved them from “stable” to “negative” stating APRA’s decision “indicates material shortcomings in operational risk management…’, however, noted that these outlooks may revert if operations and compliance risks could be resolved without a substantial negative impact to earnings.
  5. AUSTRAC: Australia’s anti-money laundering and counter-terrorism financing regulator has a significant part of its activities financed through an industry contribution levy (IC levy). The IC levy is supposed to raise revenue equivalent to AUSTRAC’s appropriation whilst minimising the regulatory impact on small business; there is a $100 million domestic earnings threshold. AUSTRAC has just released a review of its financing activities, which noted that many stakeholders had complained the current arrangement was inequitable and that the threshold should be lowered. AUSTRAC’s position was that there was no strong argument to change the status on equitable grounds, however, it will collect earnings data from smaller firms to better consider the issue at a later point in time.

Do you think I overlooked something or would like more information? If so, please send me a message!

(These views are my own and do not constitute legal advice. Photo credit Tom Wheatley)

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