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.
- Litigation funders (ASIC): as covered in last week’s update, the Government intends for litigation funders to hold an AFSL and litigation funding schemes will generally be subject to the managed investment scheme regime in Chapter 5C of the Corporations Act 2001 (Cth). ASIC has made ASIC Corporations (Litigation Funding Schemes) Instrument 2020/787 to manage the transition to the new regulatory regime for litigation funding. The Instrument, which commences on 22 August 2020, includes relief from: the obligation to give a Product Disclosure Statement to ‘passive’ members of open litigation funding schemes — on the condition the PDS is available on the scheme operator’s website and referred to in advertising material; the obligation to regularly value scheme property — this part is particularly sensible given it is nigh impossible to accurately predict litigation outcomes; the statutory withdrawal procedures for members who withdraw from a class action under court rules; and, the requirement to disclose detailed fees and costs information and information about labour standards or environmental, social or ethical considerations. ASIC has also issued a no-action position in relation to the obligation under Chapter 2C of the Corporations Act 2001 (Cth) to set up and maintain a register of members of a registered litigation funding scheme. ASIC has to’d and fro’d in relation to regulating litigation funders, but this class relief appears proportionate to me in the circumstances i.e. ASIC isn’t relieving litigation funders of their key MIS / AFSL duties to an unrealistic extent. Suffice to say that I, for one, can’t wait to read some of the PDSs the funders will create for their class actions…
- Add-on insurance (AFCA): AFCA has published its submission to ASIC’s consultation on the proposed use of its product intervention powers to address significant consumer harm caused by the sale of add-on insurance and warranty products sold with motor vehicles. No surprises — AFCA strongly agrees with ASIC’S assessment of consumer detriment caused due to these add-on products being sold along with motor vehicles. Additionally, AFCA says in its submission that all product issuers should at least be an AFCA member. For intermediaries involved in the sale and/or distribution of the product, they should also be AFCA members if an AFCA member is not responsible for their conduct in its view. ASIC’s consultation, which is covered in past editions of the ARWW, closes on 19 August 2020. There is an interesting point to be made here. AFCA strongly stands by its position it is not a regulator; I respectfully disagree, including as it exercise quasi-regulatory powers e.g. reporting systemic breaches to ASIC. Its frequent advocacy (this is by no means its first submission in recent times) to effect certain change within the industry, and increase its own powers no less, is further evidence it is a quasi-regulator in my view. With that in mind, I personally think AFCA’s energies would be better spent nailing its colours to the mast and advising the industry on its expectations for handling hardship requests, etc — areas that will ultimately generate a lot of complaints in 2021 — rather than commenting on confined consultations of other regulators. Easier to do, yes, but less beneficial for the industry as a whole.
- TrustID (Payments Providers): AusPayNet is undertaking consultation with interested parties on the governance structure of the TrustID Framework. The TrustID Framework is an open, contestable framework that can be used by different organisations to offer a range of interoperable identity services to individuals and private sector entities. It was created by members of the Australian Payments Council (mainly comprised of the major banks), and the goal is improve the convenience and security of many online interactions, enhance privacy and data security, and reduce costs related to identifying customers. The underlying thrust of the paper is focused on: a) Data economy context — the ability of a person to prove their claim as to who they are in a digital context is a critical component in efficient use of these systems; b) Staged development process — the framework needs to be flexible as it evolves to meet the needs as required, it is likely that the governance structure will need to follow a staged development path; and c) Broad stakeholder participation — the idea is to include not only those initially included directly, but also those who could be affected or need to participate in the longer term. Interested parties can make submissions on any or all issues raised in the consultation paper by 9 September 2020.
- Scams (ASIC): the conduct regulator has urged Indigenous consumers to be wary of scams, including anyone cold calling them asking for personal details or offering investment opportunities. There were 2,767 scam reports from Indigenous consumers to the ACCC’s Scamwatch in 2019, a 14 per cent increase from 2018. The greatest losses were to investment scams ($1.1 million). It comes with a great info-graphic, which you can access here (my top read for the week!). ASIC has recommend these tips to Indigenous consumers: a) Consumers should be careful before sharing information over the phone or online. If someone asks for personal details on the phone, consumers should hang up and call them back using details from their official website; b) If consumers are contacted by someone offering an investment and ways to make easy money, consumers should ask for more information about the company, and research whether the company is legitimate; and c) Consumers should take time to think things through, and not be pressured into sharing personal information or investing your money. Good advice for everyone in my view!
- ASIC v IOOF (ASIC): ASIC has launched legal proceedings against a subsidiary of IOOF for failing to have adequate cyber security systems. It follows a number of alleged cyber breach incidents at RI Advice Group, an AFSL holder. These breaches include an alleged alleged cyber-attack at Frontier Financial Group, which is a representative of RI Advice Group. ASIC alleges that Frontier was subject to a “brute force” attack whereby a malicious user successfully gained remote access to Frontier’s server and spent more than 155 hours logged into the server, which contained sensitive client information including identification documents. RI — as the AFSL holder — failed to have implemented adequate policies, systems and resources which were reasonably appropriate to manage risk in respect of cybersecurity and cyber resilience. The conduct regulator is seeking declarations that RI contravened the Corporations Act 2001 (Cth), that it pay a civil penalty, and compliance orders that its systems can adequately stand up to cyber-attacks. An interesting case, for both its novelty — being punished for cybrer failures is relatively new, and as it highlights ASIC’s continued hawkishness.
Thought for the future: Hong Kong may soon have its first fully licensed cryptocurrency exchange: OSL Digital Securities, which last Friday received a landmark approval-in-principal from the HK SFC. It follows US Acting Comptroller of the Currency, Brian Brooks, mooting the possibility of a future Central Bank Digital Currency issued by private companies but backed by bank deposits. US banks can already provide crypto-custody services. With around 50 million Americans holding onto cryptocurrencies of one form or another at any point of time, expect a lot of work to be done in this space in the next two years to accommodate cryptocurrency into the existing financial services major infrastructure e.g. exchanges, custodial arrangements, etc.
(These views are my own and do not constitute legal advice. These updates are not designed to be comprehensive. Photo credit Tom Wheatley)