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.
- ASIC v. VW (ASIC): ASIC has settled its claim against Volkswagen Financial Services Australia Pty Limited (VW), discontinuing its Federal Court proceeding and accepting a Court Enforceable Undertaking (CEU) from the car financier — big congrats to my colleague Kathy Merrick in Sydney on this one! ASIC had alleged that VW did not make reasonable inquiries or verify borrowers’ living expenses while providing 49,380 loan contracts. The CEU — which you can read here — will see VWFSA implement a consumer remediation program which will provide an estimated $4.7 million in redress to approximately 1,800 consumers including: $4.1 million in remediation payments; $600,000 in interest rate reductions on current contracts; and, taking reasonable steps to remove default listings from credit bureau files. While not a legal impediment, the resolution of the case does see an oddity go away; ASIC prosecuting a case on the basis of a law that no longer exists…
- RegTech (Productivity Commission): the productivity commission has released an interesting report (size notwithstanding, my top read for the week!), which is intended to support consideration of opportunities to improve regulatory administration and compliance through technology. Regulatory technology (‘regtech’) is the use of technology to better achieve regulatory objectives. While regtech can improve regulatory outcomes and reduce costs, it is not a substitute for regulatory reform. Key points from the paper I took include: a) there is potential scope in Australia to extend existing low‑tech solutions — including digitised data, forms, registers and transactions. These could reduce compliance costs for individuals and businesses, improve the efficiency of regulator practices, and generate flow‑on benefits for the community; b) leading‑edge regtech involves the use of data for predictive analytics and real time monitoring, enabling better regulatory outcomes and potentially fewer compliance burdens for businesses. But advanced regtech requires specialised resources and long development times; and c) there are four key areas where regtech solutions may be particularly beneficial: i) where regulatory environments are particularly complex to navigate and monitor; ii) where there is scope to improve risk‑based regulatory approaches, thereby targeting the compliance burden and regulator efforts; ii) where technology can enable better monitoring, including by overcoming constraints related to physical presence; and, iv) where technology can safely unlock more uses of data for regulatory compliance. The increase of the administrative state means businesses need cleverer tools so they are not constrained by red tape. I am a generally a large fan of all technological attempts at solving regulatory challenges, and this report is useful talking point in that discussion.
- Super / Whistleblowers (ASIC): ASIC’s Jane Eccleston has delivered a speech on whistleblowing aimed at super firms. Much of the speech will be familiar, and focuses on the need to have a whistleblowing policy and ASIC’s (pretty great) guidance in this regard. New information from the speech, however, is that in 2019–20, ASIC assessed close to 650 reports from whistleblowers. Approximately 25 per cent of whistleblower reports raised concerns of potential financial services and markets misconduct. Whistleblowers in the super sector alerted ASIC misconduct by trustees. This included ‘poor investment advice, inappropriate fees and misleading members.’ The speech also contains a reminder about the fact that, in 2020–21, ASIC is beginning to survey whistleblower policies from a sample of public companies, large proprietary companies and super trustees. ASIC will reach out to a limited number of trustees to participate voluntarily. ASIC’s review will focus on compliance with the legal requirements and the extent to which these companies are implementing good practices. It will also focus on the nature and content of whistleblower policies to better understand how companies and trustees are responding to the obligations. A timely review, given the new whistleblowing frameworks have now had about a year to embed by organisations. The key is balance. Whistleblowers are a great and necessary source of uncovering wrongdoing, however, if the whistleblowing framework is not calibrated well it can also exaggerate the other side of whistleblowing — spurious or unimportant complaints. It is an uncomfortable topic, given Australia’s treatment of whistleblowers has historically be sub-par, but it exists nonetheless and needs to be considered by the legal & compliance framers of whistleblowing frameworks.
- Annual Report (APRA): the prudential regulator has released its annual report to the Federal Treasurer. At a relatively dry 140 the report details a year of two halves for APRA. In the latter part of 2019, APRA established an ambitious regulatory and supervisory agenda, based on the delivery of four key community outcomes, and commenced a number of initiatives designed to deliver these, built on an expansion of resourcing provided by the Government in the 2019 Federal Budget. Substantial internal organisational changes were also instituted, designed to respond to changes in the financial system APRA supervises, and to better equip APRA to deliver on its 2019–2023 Corporate Plan. With the onset of COVID-19, however, much of this work needed to be reprioritised to enable APRA to deploy its resources to respond to the period of severe and sudden disruption and heightened financial risk caused by the pandemic i.e. capital ratio focuses etc. Expect a continuation of the latter, as the economy seeks to emerge from COVID-19, though with increasing reforms being put back on the table e.g. CPS 511.
- FRC Report (UK): the UK Financial Reporting Council (FRC) has released a discussion paper proposing a future for corporate reporting based on a principles-based framework. It outlines a blueprint for a more agile approach to corporate reporting which challenges existing thinking about how companies can more effectively meet the information needs of investors and other stakeholders. The proposals are designed to be tested with stakeholders and stimulate the conversation about what the future of corporate reporting should look like. Comments are invited by 5 February 2021. The paper considers a common criticism that annual reports are too long, and information difficult to access. With companies and society at large facing significant challenges, which have only been heightened by the Covid-19 pandemic, stakeholders are ever more interested in companies’ wider actions and the reporting that supports these. Proposals include: a new common set of principles that applies to all types of corporate reporting; objective-driven reports that accommodate the interests of a wider group of stakeholders, rather than the perceived needs of a single set of users; and, embracing the opportunities available through technology to improve the accessibility of corporate reporting. I, for one, having just read APRA’s annual report am all in favour!
Thought for the future: regtech is important. The number and complexity of regulations are increasing, and one way of being able to cope with them is technological solutions. ASIC itself is an early adopter, with its investment in technology to review documents, categories breach reports and identify misleading advertisements. The time, cost and risk reduction that regtech offers makes it harder to overlook.
(These views are my own and do not constitute legal advice. These updates are not designed to be comprehensive. Photo credit Tom Wheatley)