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.
- Currency bill (Parliament): the Currency (Restrictions on the use of Cash) Bill 2019 (Cth) will force Australians to use electronic transactions or cheques over cash for payments above $10,000 and impose two-year jail sentences and fines of up to $25,200 if they don’t. You can read more about it in this previous ARWW here. The controversial law has been passed in the House of Parliament and was due to commence on 1 January 2020; it has stalled in the Senate, which is conducting an inquiry through the Senate Economics Legislation Committee which is due to report in early February 2020. My sense is that affected businesses, for e.g. car retailers and travel businesses, need to continue their planning — given all the AML / CTF focus at the moment, I think it very likely the law will pass.
- FASEA Code (Financial Advisers): the controversial FASEA code for financial advisers commenced operation on 1 January 2020. You can read more about it in this previous ARWW briefing. In my view, there will be confusion. Standard 1 of the Code provides “You must act in accordance with all applicable laws, including this Code, and not try to avoid or circumvent their intent.” This is fine in principle, but potentially problematic in practice as it requires financial advisers to form a view on the “intent” of the applicable financial services laws. That is difficult enough for trained lawyers. The problem can readily be observed in the guidance to the Code itself, which provides as example 2 a scenario where the financial adviser who has dealt with a confirmed wholesale client as a wholesale client is in breach of Standard 1 because he “…ignores her lack of competence in financial matters.” That is not a consideration under the Corporations Act 2001 (Cth), which is clear-cut in its distinction between retail and wholesale investors; in practical effect this blurs the lines for financial advisers. The big one is Standard 3 of the Code though, which provides “You must not advise, refer or act in any other manner where you have a conflict of interest or duty.” This is a very broad requirement, which goes beyond the requirements of the Corporations Act 2001 (Cth) and ASIC’s guidance which only require conflicts of interest to be properly managed, and is based on Commissioner Hayne’s direction to eliminate conflicts of interest “where possible”. Whatever side of the financial adviser conflicts debate you sit on, the the FASEA code and surrounding guidance could be improved on in my view. See this article in the AFR (4 / 1) where my views are set out in more detail.
- Modern Slavery (Legislation): the Modern Slavery Act 2018 (Cth) (Act) came into effect on 1 January 2019 and requires firms with an annual revenue of over $100 million which is based or conducts business in Australia to report annually on the risks of modern slavery in its operations and supply chains. And what the firm is doing to address those risks. For companies who report on a calendar year, the first reporting period will be 1 January 2020 to 31 December 2020 with the first report due by 30 June 2021. More detail on the Modern Slavery regime, and current consultation exercise, is in this previous ARWW briefing.
- Legislative pipeline (Parliament): a hopefully timely run through of key legislation covered in past ARWW briefings that is currently winding its way through Parliament: 1) Business Names Registration (Fees) Amendment (Registries Modernisation) Bill 2019 (creates director identification numbers); 2) Crimes Legislation Amendment (Combatting Corporate Crime) Bill 2019 (creates a new offence of failure of a body corporate to prevent foreign bribery by an associate and creates a Commonwealth Deferred Prosecution Agreement scheme which will enable the CDPP to invite a person that has engaged in serious corporate crime to negotiate an agreement to comply with a range of specified conditions); 3)National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (№2 (creates new conditions for small account contracts, including mandating equal repayments and payment intervals); 4) Financial Sector Reform (Hayne Royal Commission Response — Protecting Consumers (2019 Measures)) Bill 2019 (requires mortgage brokers to act in the best interests of consumers when providing consumer credit assistance, reforms mortgage broker remuneration, ensures that the consumer protection provisions of the financial services law apply to funeral expenses policies and bans unfair contract terms in standard insurance contracts — this will apply from 5 April 2021); 5) Financial Sector Reform (Hayne Royal Commission Response — Stronger Regulators (2019 Measures)) Bill 2019 (upgrades ASIC’s current range of search warrant powers, improves ASIC’s ability to access telecommunications intercept material, strengthens ASIC’s licencing powers e.g. ensuring that controllers such as significant shareholders are fit and proper in deciding whether a AFS licence should be granted or retained and extends ASIC’s banning powers to ban individuals from managing financial services businesses where they are not a fit and proper person i.e. more grounds to do so); 6) Anti-Money Laundering and Counter-Terrorism Financing and Other Legislation Amendment Bill 2019 (expands the circumstances in which reporting entities may rely on customer identification and verification procedures undertaken by a third party and many other reporting requirement tweaks); and 7) Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 (introduces new criminal offences and civil penalty provisions for company officers that fail to prevent the company from making creditor-defeating dispositions and other persons that facilitate these actions).
- Whistle-blowing (Legislation): Public companies, large proprietary companies, and corporate trustees of APRA-regulated superannuation entities must have a revised whistle-blower policy from 1 January 2020 under the Treasury Laws Amendment (Enhancing Whistleblower Protections) Act 2019. Among other things, the whistle-blower policy must include information about the legal protections available to whistle-blowers, and how a company will investigate whistle-blower disclosures and protect whistle-blowers from detriment. You can read more about this development in this previous ARWW briefing and this one. There are penalties for non-compliance, and setting up an effective whistle-blowing regime can take time — anonymous disclosures is a particular tricky aspect, so do get started if you have not already!
Thoughts for the future: there is an eye-watering amount of legislation planned for 2020 — see pages 8 and 9 of Treasury’s Financial Services Royal Commission Implementation Roadmap. (My top re-read for the week!) That is to say nothing of ASIC, APRA and AUSTRAC’s planned activities. Before February 2020, at which time the courts will reopen and most of corporate Australia will be back at work, setting aside a few hours (or a full day) to map what regulatory reforms are likely to impact your business lines in 2020 and proactively take steps to meet those challenges is effort that will certainly not be wasted.
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)