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.
- Disqualifications (ASIC): ASIC has disqualified three Queensland directors from managing corporations based on insolvency-related offences. It found that they failed to exercise their directors’ duties with due care and diligence, failed to ensure their companies had paid taxes and failed to prevent the companies from trading while insolvent and (for two of the directors) improperly used their position to gain an advantage for a related entity. S. 206F of the Corporations Act 2001 (Cth) allows ASIC to disqualify a person from managing corporations for up to five years if, within a seven-year period, the person was an officer of two or more companies that were wound up and the liquidator lodge reports with ASIC about each company’s inability to pay its debts or alleges misconduct. This action strikes as consistent with ASIC’s greater focus on phoenix and other insolvency-related offences as set out in its Corporate Plan 2019 -23.
- Kleenmaid (ASIC): the former director of Kleenmaid (a white goods importer and retailer) has been found guilty of fraud by dishonestly gaining loan facilities from Westpac and criminally trading while insolvent in the District Court of Queensland. The verdict follows other indictments of two other directors, who each received lengthy prison sentences. When it went into administration on 9 April 200, the consolidated debts of the Kleenmaid group amounted to approximately $96 million, which included $26 million in customer deposits for outstanding orders. ASIC Commissioner John Price said of verdict “The action ASIC has taken against the former directors of Kleenmaid should send a clear message that where a director fails in their duty to prevent a company from incurring debts while it is insolvent, ASIC will take action, particularly where the director’s conduct has been dishonest and to the detriment of creditors and consumers”.
- Financial advisers (ASIC): the Australian Financial Review (2 — 6 / 1) has reported on ASIC’s and Treasury’s extraordinary private communications released on FOI concerning the FoFA reforms conflict of interest carve out given to financial advisers which enabled them to recommend special ASX-listed LIT and LIC investment funds to retail customers while taking commissions from fund managers. This carve out led to substantial revenues for financial advisers in the past few years, although research indicates that these funds appear to have performed poorly overall for retail investors. The AFR is now reporting (9 / 1) the Treasurer is pressing ASIC to investigate if stamping fees — which are the commissions paid by fund managers to brokers or financial advisers — are compromising the best interests of financial customers. Whether or not they are is up for debate, though arguably this is a moot point now for financial advisers as those fees are banned under the new FASEA Code of Ethics, Standard 3. In my view, the code will cause considerable confusion amongst advisers as it bans all conflicts of interest outright and blurs the line been the different advice obligations financial advisers owe to retail and sophisticated investors. In that regard it represents a significant extension to the existing law, contains muddled surrounding guidance in how to apply the code i.e. taking into account what the adviser’s “dominant” purpose was in a conflicts scenario (which flies in the face of the literal wording of the standard) and may have a substantial impact on financial advice businesses’ profitability — the conflicts ban will affect up to 57% of financial advice income on one estimate. You can read more about it here and here in the AFR articles in which I gave my views.
- New memorandum of understanding (AUSTRAC): our regulators are getting friendlier! With each other anyway. AUSTRAC and the Great Britain Gambling Commission have signed a regulatory memorandum of understanding (MOU) in London. It will enable both agencies to share regulatory and compliance information to combat money laundering and terrorism financing. The move follows a spate of important MOUs in 2019, including between ASIC / APRA and ACCC / US FBI. You can read more about it in a previous briefing I did (from a Government perspective) here. AUSTRAC intends to sign MOUs with other regulators in the UK in early 2020, including the UK Financial Conduct Authority and Her Majesty’s Revenue and Customs. The information sharing trend is only going to increase and needs to be front and centre in regulatory enforcement scenarios i.e. “I am content provide these documents to ASIC, but do I really want APRA to have them? I better assume they will get passed on…”
- Cold calling ban (ASIC): on 13 January 2020, the corporate regulator’s ban on unsolicited “cold call” telephone sales of consumer credit insurance and direct life insurance took effect under the ASIC Corporations (Hawking–Life Risk Insurance and Consumer Credit Insurance) Instrument 2019/839. The ban prohibits the offering of life insurance products and consumer credit products in the course of, or because of, an unsolicited telephone call, unless the person has been provided with personal advice. Speaking in relation to the long-anticipated ban, ASIC commissioner Sean Hughes previously stated: “ASIC will intervene to stop practices that lead to poor consumer outcomes and destroy trust in the financial system…This action draws a clear line in the sand. From January, firms will no longer be able to call consumers out of the blue and use sophisticated sales tactics to pressure people into buying life insurance and CCI products.”
Thoughts for the future: the ABA and FinTech Australia have submitted to the Senate that Australia’s regulation of the data economy is too fragmented, with ASIC, ACCC, APRA and AUSTRAC all having a role in some capacity. I agree with that. Marrying the consumer data right i.e. “open banking’ with the Australian Privacy Principles and AML / CTF — which can be tricky navigating in and of themselves — is going to make for an interesting 2020!
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)