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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- ASIC v. Westpac: Justice Perram of the Federal Court handed down his decision in relation to proceedings ASIC commenced against Westpac connected with the responsible lending provisions of the National Consumer Credit Protection Act 2009 (Cth). The decision went against ASIC; Justice Perram found that Westpac did not fail to assess the unsuitability of loan products given various macro strategies it deployed to assess suitability (70 % Ratio Rule, Application Score Rule, the Aligned Risk Grade Rule) as opposed to a more granular view of consumers’ financials. In a judgment replete with excellent examples, his Honour stated “Whilst I accept that the Act requires a credit provider to ask the consumer about their financial situation … I do not accept that this has the further consequence that the credit provider must use the consumer’s declared living expenses in doing so” . ASIC is currently updating its guidance on responsible lending, so no doubt the judgment will be reflected there.
- Glencore v ATO: the High Court has dismissed Glencore’s attempt to block the ATO from utilising the Paradise Papers documents which contain details of its offshore financial arrangements. (The Paradise Papers were publicly leaked following a hacking incident on law firm Appleby which primarily has its office locations in minimal tax jurisdictions e.g. Cayman Islands.) There was no dispute that the documents were subject to legal privilege or suggestion of any wrongdoing by Glencore. The High Court was asked whether legal privilege is a right after the fact i.e. once the documents are in the authorities’ possession — it ruled in the negative. Legal privilege is only a protection against compulsion. In effect, it is a shield and not a sword. The ruling will not doubt escalate concerns around cyber attacks. In particular, those on law firms and corporate legal divisions. The ATO stated after its victory that taxpayers were “only one data leak away from their entire affairs being exposed.”
- Contagion risk: APRA has released a strengthened prudential standard aimed at mitigating contagion risk within banking groups. The idea is that instability in one corporate group, most likely those based overseas, should not disproportionately affect the capital stability of an ADI. APRA will require ADIs to regularly assess and report on their exposure to step-in risk — the likelihood that they may need to “step in” to support an entity to which they are not directly related. The new standard will come into effect from 1 January 2021.
- “Why not litigate”: The Australian Financial Review (19 August 2019) reports that ASIC plans to put up to 50 matters in courts in the coming months. (Senate Estimates hearings are held in October 2019, so expect a number could be in the court lists by then.) Deputy Commissioner Crennan is quoted as follows: “There are a very large number of investigations on foot and there will be cases being issued in coming weeks, which are the result of those investigations…Those matters will culminate in proceedings being issued before Christmas, and over the next few months…If ASIC does not pursue a case that is either referred to us or related to the royal commission we will be in a position to explain why.”
- ASIC enforcement report: ASIC has released its biannual enforcement report from January 2019 to June 2019. In addition to the strong language about ASIC’s enforcement resolve in the foreword (“Why not litigate” etc), and plans to continue its current recruitment drive with the extra $400M it has received from the Government, the report contains the following noteworthy statistics between July 2018 and June 2019:
- the number of ASIC enforcement investigations increased by 20%
- enforcement investigations involving the big six (or their officers or subsidiary companies) by 51%
- wealth management investigations by 216%.
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(These views are my own and do not constitute legal advice. Photo credit Tom Wheatley)