Australian regulators weekly wrap — Monday, 14 September 2020

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.

  1. PPSA / Financial Products (AG): the Federal AG is seeking the public’s views on the practical impact of the Personal Property Securities Act 2009 on the trading of financial products, including whether the current provisions in the legislation should be amended, the reasons for any proposed changes and the nature of any proposed changes. The consultation paper is here. The PPSA does cover financial products, calling them ‘investment instruments’ which applies to any of the following financial products: shares; company and government debentures and bonds; derivatives; foreign exchange contracts; interests or units in managed investment schemes; a unit in a share in a company, and financial products traded on a market or exchange. While the PPSR has significantly broadened the forms of personal property over which security can be taken, from cars to crops and includes a wide variety of intangible assets, such as shares and other investment products, currency, and monies held in bank or other accounts or debts it has also added appreciable complexity in this regard as anyone who has ever had to wade through the legislation knows. Any attempt at simplification is a good idea.
  2. Senate Economics Committee (Banks): executives from Australia’s four major banks have appeared before a parliamentary committee in hearings to discuss their response to the pandemic. You can read their written responses here (my top read for the week!). In addition to COVID-19, the hearing also covered the four major banks’ progress in implementing the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. You can read their written responses here. Chair of the House of Representatives Economics Committee, Tim Wilson MP, saids going into the hearings that they are part of the parliament’s role in publicly scrutinising and holding Australia’s four major banks to account. He said: ‘Since the start of the pandemic, the Australian Government has introduced a range of support measures in cooperation with the banks. It’s really important that financial institutions are held accountable and that they are treating consumers fairly during what is a difficult time for many Australians’ . Personally, I think the banks and mutuals have been pretty great throughout the crisis. CBA has stated, for example, in its response that it has ‘Provided repayment deferrals on over 159,000 home loans, comprising a total balance of over $55 billion; with an estimated cash flow impact of $1.6 billion’. NAB has stated ‘As at 5 August 2020, NAB had $35 billion in home loan balances deferred, across a total of ~86,000 accounts. This represents 12% of NAB’s total home lending’.
  3. Insolvency laws (Legislation): the Federal Government will extend until 31 December 2020 the insolvency relief measures which were put in place from March 2020 as part of its response to the COVID-19 pandemic which were due to expire on 25 September 2020. Those were: a) insolvent trading — temporary relief for directors from personal liability for trading while insolvent, for debts incurred in the ordinary course of the company’s business; and b) statutory demands — temporary increase in the threshold at which creditors can issue a statutory demand to $20,000 and the time companies have to respond to statutory demands are now six months. While this may seem like a reasonable action — and perhaps it is — it does add to the building creditor wave, which will now break in 2021. A nasty hangover for New Years Day then…
  4. Cyber Threat (ACSC): the Australian Cyber Security Centre, the Australian Criminal Intelligence Commission and the Australian Federal Police, among a number of other Australian Government organisations, work together to protect against cyber security threats. It has just released its Annual Cyber Threat Report, July 2019 to June 2020. The report is the first unclassified annual threat report since July 2018. The report identifies and describes key cyber security threats targeting Australian systems and networks, and provides a range of examples and real-world case studies of malicious activity targeting Australian networks, between July 2019 and June 2020. The most common type of cyber security incident was ‘malicious email’ (27%, n=612). Phishing and spearphishing emails have consistently remained the most common cyber security incidents reported to the ACSC. Criminals continue to use phishing as a means of obtaining initial access into a network including through compromising user credentials or installing malware after a recipient clicks on a malicious link or attachment. The second most common incident was a ‘compromised system’, (24.4%, n=552). This category relates to incidents where an adversary has accessed or modified a network, account, database or website without authorisation. You can read the short report, which is only 18 pages, here.
  5. Select Committee on Financial Technology and Regulatory Technology (Fintechs / Regtechs): the Select Committee on Financial Technology and Regulatory Technology has releases it interim report designed to assist in facilitating increased competition in Australia’s financial sector. There are some good recommendations, including adopting the temporary COVID-19 relief measures around remote witnessing, electronic signatures, AGMs and other tax e.g. research & development tax and investment recommendations to assist Fintechs and Regtechs e.g. directing institutional money from super to these sectors. All in all, a step in the right direction for a sector that really needs to be supported to assist with the rise and rise of the regulatory state.

Thought for the future: judgment will be handed down on 15 September 2020 in the UK High Court’s hearing of the UK FCA’s business interruption insurance test case. The FCA’s intention in commencing the test case is to resolve the uncertainty as to whether policyholders can recover under two common extensions to BI cover: ‘infectious disease’ extensions, which provide cover in some circumstances for business interruption where a notifiable disease has occurred; and (b) ‘prevention of access’ extensions, which provide cover in some circumstances where access to the business premises is hindered as a result of steps taken by a public authority. The case is here , and will be highly significant either way…

(These views are my own and do not constitute legal advice. These updates are not designed to be comprehensive. Photo credit Tom Wheatley)

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