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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- Cigno v. ASIC (ASIC): Cigno has sought judicial review of ASIC’s first use of its new product intervention power in relation to short term credit which, in some cases, has resulted in repayment rates which are up to 1,000% of the initial loan sum achieved through layering of collateral fees. Basically, entity A (an embedded lender, “Gold Silver”) makes the loan and entity B (Cigno) provides services e.g. speeding up the loan process for which it charges various fees. These collateral fees sidestep protections under the National Consumer Credit Protection Act 2009 (Cth). From what is available about the case publicly, one of the main arguments appears to be that ASIC did not reach any state of satisfaction that Gold Silver’s loan itself will result or is likely to result in “significant detriment” (a required threshold under ASIC’s PIP powers) to retail clients i.e. the loan is the “financial product” upon which ASIC’s PIP powers are enlivened under s. 1023D of the Corporations Act 2011 (Cth) so ASIC is only allowed to consider it and has to ignore Cigno’s collateral fees. On my reading of 1023D(1), I do not think that it limits ASIC’s powers to just the financial product issuer (and if it turns out it does, that is a legislative drafting error in my eyes given the history of how this law came into effect after ASIC was unsuccessful in civil proceedings in the Federal Court in 2014 involving an earlier use of this short term lending model by two entities; Teleloans and Finance & Loans Direct ). A interesting development and one that will be watched closely!
- Responsible lending (Treasury): The Treasurer stated that the Australian Financial Review Property Summit in Sydney on 26 September 2019 that banks should not be unduly restrictive in lending rules and that “to date, the Australian Securities and Investments Commission has adopted a principles-based and scalable approach. This has allowed flexibility for lenders to appropriately take into account the facts and circumstances of each case and vary the degree of inquiry and verification depending on the customer risk involved.” Yes, though the devil is in the practical detail as recently shown in the Westpac v. ASIC case. How much flexibility is a key question here and one that we will have more detail on when ASIC releases its updated responding lending guidance soon (and the Westpac v. ASIC appeal decision is handed down!).
- School banking (ASIC): interesting news for those who had (have?) a Dollarmite account-ASIC has released Consultation Paper 323 on school banking programs. It is seeking to understand how they are implemented and marketed among other things. Commissioner Sean Hughes stated: “Young people are engaging with money every day and they need to understand financial concepts and develop the skills to identify financial services that are right for them. Financial literacy is embedded in the Australian Curriculum, and needs to be – and there is a long history of school banking programs in Australian schools.” The consultation, which is being run through a sharp looking online service, closes on 31 October 2019.
- Right to be forgotten (EU): looking far afield, but at an issue that I suspect will have broader ramifications, the EU Court of Justice has determined that the EU citizen’s “right to be forgotten” with respect to internet searches should not apply globally. More fulsomely “…where a search engine operator grants a request for de-referencing pursuant to those provisions, that operator is not required to carry out that de-referencing on all versions of its search engine, but on the versions of that search engine corresponding to all the [EU] Member States…” The full decision is here.
- Car insurance — PIP (ASIC): finishing where I started, ASIC has released Consultation Paper 324 on a proposal to use its product intervention power to reform the sale of add-on financial products by car yards. ASIC is seeking views — by 12 November 2019 (a longer time-frame then for previous uses of the PIP power) of proposals including: a) applying a deferred sales model to sales of add-on insurance products and warranties by caryards, other than comprehensive or CTP insurance / manufacturers’ warranties; and b) the use of “knock out” questions to prohibit sales where the product has low or no value and prohibiting the sale of warranties that provide low levels of cover. ASIC’s intended use of its PIP power in this area comes as no surprise on the heels of the Treasury’s consultation on reforms to the sale of add-on insurance products which ended on 30 September 2019 (see last week’s post for more detail here). Hopefully the longer consultation periods for the PIP power continues.
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(These views are my own and do not constitute legal advice. Photo credit Tom Wheatley)