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.
- Corporate Plan (ASIC): the corporate regulator has published its Corporate Plan for 2020–24, which sets out its strategic priorities and actions for the next four years. A good portion of the plan is dedicated to pandemic-related activities, as you might expect, and most of that content has been released previously. For example, ASIC will be focusing on protecting consumers from harm at a time of heightened vulnerability and maintaining financial system resilience and stability. Perhaps of more interest are its longer term focus areas which include: deterring poor behaviour and misconduct through its ‘Why not litigate?’ discipline and driving cultural change using all of its regulatory tools; addressing consumer harm as a result of elevated debt levels and hardship, with a particular focus on predatory lending; reducing poor product design and restricting mis-selling; reducing misconduct by company directors and professional service providers; and, delivering as a conduct regulator for superannuation. in sum, expect ASIC to continue to be hawkish in the enforcement space and rely heavily on its product intervention powers.
- Paid debt representatives (ASIC): ASIC has offered guidance in relation to debt-management firms, which are entities who promise to assist consumers in financial hardship. They offer a range of services such as debt negotiation and ‘cleaning’ or ‘fixing’ credit reports. As part of their service offering to indebted consumers, these entities often lodge complaints with financial firms directly at the IDR stage and/or to an external dispute resolution scheme such as the Australian Financial Complaints Authority (AFCA). They work on a for-profit basis, and often their fees can leave vulnerable clients worse off. ASIC has included guidance in the new RG 271 — Internal Dispute Resolution to clarify when it would consider it to be appropriate for a financial firm not to engage with a paid representative. This includes circumstances where a financial firm reasonably believes that a paid representative is not acting in the best interests of the consumer. In that case the financial services firm should should clearly explain to a consumer why contact is being made directly and provide reasonable time to respond, and can continue to communicate with a consumer directly.
- ‘Fees for no service’ — advice compensation (ASIC): ASIC has released updated statistics which record that six of Australia’s largest banking and financial services institutions have paid or offered a total of $1.05 billion in compensation, as at 30 June 2020, to customers who suffered loss or detriment because of fees for no service (FFNS) misconduct or non-compliant advice. The compensation payouts stem from two ASIC commenced in 2015 to look into: a) the extent of failure by the institutions to deliver ongoing advice services to financial advice customers who were paying fees to receive those services (see Report 499 Financial advice: Fees for no service); and b)how effectively the institutions supervised their financial advisers to identify and deal with ‘non-compliant advice’ — i.e. personal advice provided to a retail client by an adviser who did not comply with the relevant conduct obligations in the Corporations Act, such as the obligations to give appropriate advice or to act in the best interests of the clients, at the time the advice was given (see Report 515 Financial advice: Review of how large institutions oversee their advisers).
- Enhanced sandbox (ASIC): from 1 September 2020, there will be an enhanced regulatory sandbox (ERS) which will operate under a class waiver from licensing for certain financial services and credit activities. The ERS expands on the existing ASIC sandbox which was set up way back in 2016 and allows for a longer testing period (of up to 24 months) for a broader range of financial services and credit activities and for a wider range of businesses (including existing licensees). ASIC’s guidance is contained in Information Sheet 248 Enhanced regulatory sandbox (INFO 248), an Infographic, and a document that compares the ERS with the old ASIC sandbox. Applicants hoping to take the benefit of the regulatory relief need to complete a prescribed notification form and explain how their proposed product or service satisfies a new public benefit test and innovation test. A timely development from ASIC.
- NULIS Nominees (APRA): the prudential regulator has issued directions and imposed additional registrable superannuation entity licence conditions on NULIS Nominees (Australia) Limited to improve its governance and control environment. The Hayne Royal Commission in 2018 formed the view that NULIS’s decisions in relation to the migration of certain cohorts of its members into MySuper products, grandfathering certain fee arrangements, and the charging of fees to members for services that were not provided, may not have been in members’ best interests. APRA’s investigation did not find that NULIS breached the Superannuation Industry (Supervision) Act 1993 (Cth), but instead raised concerns about the adequacy of NULIS’s internal processes for demonstrating how members’ best interests were considered and prioritised. The directions and additional licence conditions require NULIS to: a) record how it considers members’ best interests and priority covenants when making decisions that materially affect their interests; and b) address prudential concerns APRA identified in its supervision of NULIS, corroborated in an independent report undertaken by Deloitte.
Thought for the future: paid debt consultants are, in my view, a troubled part of the financial services industry. They mainly offer access to free services e.g. internal IDR or AFCA for people in stressful situations, usually without any further services e.g. accounting or legal. For that information, and ongoing agitation on the customer’s behalf, they charge upfront or success fees which can often make those individual’s positions worse. As more households come under pressure given the effects of COVID-19, my sense is that more and more of these individuals will pop up, and so ASIC’s guidance is quite timely and will be well received…
(These views are my own and do not constitute legal advice. These updates are not designed to be comprehensive. )