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.
- Add-on insurance (ASIC): the corporate regulator is considering making a product intervention order for the sale of add-on motor vehicle financial risk products. Under Pt 7.9A of the Corporations Act 2001 (Cth), ASIC may make a product intervention order when it is satisfied that a financial product available for issue to retail clients has resulted in, will or is likely to result in, significant detriment. ASIC is concerned that the sale of add-on insurance products and warranties in the caryard distribution channel has, and is continuing to result in significant detriment to retail consumers, including causing financial losses e.g. they are too expense or not fit for purpose. This move is not all that surprising, following on the heels of ASIC’s consultation paper 324 published in October 2019. That consultation sought views on ASIC’s proposal to use the product intervention power in Pt 7.9A of the Corporations Act 2001 to introduce a deferred sales model for the sale of add-on insurance and warranties by car-yards. Obviously, matters have not improved to ASIC’s satisfaction since then!
- Internal DR (ASIC): somewhat unexpectedly, ASIC has released its new guide on internal dispute resolution dispute resolution — RG 271. In essence, financial services firms must have a dispute resolution system that consists of an internal dispute resolution procedure that meets the standards or requirements made or approved by ASIC, and membership of AFCA. From my initial review, the main thrust of the guide is on :(a) achieving organisation-wide understanding of the definition of ‘complaint’ and the types of matters that must be dealt with; (b) increasing the capture, tracking, analysis and reporting of complaint data; (c) improving timeliness and efficiency; (d) enhancing the quality of written communications and responses; (e) strengthening complaint management skills; (f) fostering organisation-wide accountability for complaint management; and (g) leveraging technology and data analytics. Unsurprisingly, much like other recent guides, it is quite a broad guide, picking up AS/NZS 10002:2014’s definition of ‘complaint’ as: “[An expression] of dissatisfaction made to or about an organization, related to its products, services, staff or the handling of a complaint, where a response or resolution is explicitly or implicitly expected or legally required”. One of the real areas of focus will be the timeframes for responses set out on pages 21–22 (these pages are my top read for the week!), for e.g. acknowledgement within 24 hours and response within 30 days for standard complaints. Organisations need to move now to ensure their governance and risk frameworks are set up to meet these strict timelines.
- ASIC v. Mitchel (ASIC): Vice President of Tennis Australia, Harold Mitchell, was found by the Federal Court of Australia to have breached his director’s duties in connection with a 2013 decision by the Tennis Australia Board to award the domestic television broadcast rights for the Australian Open tennis tournament to the Seven Network. The Court found that Mr Mitchell contravened s 180(1) of the Corporations Act 2001 (Cth) on three occasions in December 2012. His Honour stated that Mr Mitchell “stepped over the line” in his dealings with Bruce McWilliam of the Seven Network, which had the tendency to “undermine the stance and approach of Mr [Steven] Wood” (the then CEO of Tennis Australia) in his negotiations for the broadcast rights. The (very long) judgment is here; it is not really a crushing win for ASIC as Beach J stated “In my view, he did so contravene s 180(1) on three occasions … but his contraventions are far narrower in scope than ASIC would have it…ASIC’s case that Mr Mitchell deliberately sought to prefer Seven’s interests over TA’s [Tennis Australia] interests fails. I am satisfied that, although some of his conduct could be criticised, nevertheless he acted in what he perceived to be TA’s interests.” His Honour then went on to have sharp words for ASIC, stating that its construction of its evidence displayed “confirmatory bias”. The three breaches his Honour did find were out of a total of forty four brought by ASIC.
- Remuneration (APRA): Wayne Byrne’s Opening Statement to the House of Representatives Standing Committee on Economics — August 2020 did not contain that much new information; it focused on APRA’s response to COVID-19. The exception, however, was the future timeline for APRA’s updated focus on remuneration. No doubt timed to coincidence with FAR, APRA has said it will recommence consultation on a revised standard CPS 511 in the latter part of 2020, with a view to finalising new requirements in mid-2021. That standard sets outs APRA’s heightened expectations for remuneration policy and governance practices, with the aim of ensuring remuneration arrangements promote effective management of both financial and non-financial risks, sustainable performance, and long-term soundness of the entity. It will be really interesting to consider how it is taken forward! APRA has hitherto been focusing on increasing the breadth and depth of remuneration arrangements boards are expected to oversee; prescribed remuneration deferral periods e.g. 7 years for CEOs; non-financial risk management.
- FIRB (Treasury): the Morrison Government is seeking stakeholder’s views on the exposure draft of the Foreign Investment Reform (Protecting Australia’s National Security) Bill 2020. The exposure draft Bill gives effect to the major reforms to the Foreign Acquisitions and Takeovers Act 1975 announced on 5 June 2020. The reforms seek to update Australia’s foreign investment review framework in three broad ways: addressing national security risks e.g. the Government will introduce a new national security test; strengthening compliance e.g. the Government will have standard monitoring and investigative powers and foreign persons will be required to seek further foreign investment approval for any increase in actual or proportional holdings above what has been previously approved; and, streamlining investment in non-sensitive businesses. Closing on 31 August, you can read the timeline map here.
Thought for the future: executive, legislature and judiciary. The separation of powers is arguably becoming incrementally less clear thanks to executive bodies who can make their own laws e.g. major regulators. The thought has been increasingly on my mind given all of the post-Hayne regulatory regimes being introduced. That is fine, has been the case for awhile now and is very necessary; it would be dreadful to have Parliamentarians in charge of many aspects of financial services regulatory policy for the simple fact that they are not the experts. Yet, the rise and rise of the regulatory state, and the blurring of the lines does introduce risk. Our regulators’ jobs are becoming more complicated, in terms of what is being asked of them. An abstract watching brief then, in the broader context of from where our regulators constitutionally derive their power.
(These views are my own and do not constitute legal advice. These updates are not designed to be comprehensive. Photo credit Tom Wheatley)