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.
- Consumer remediation (ASIC): ASIC has released a consultation paper on proposed updates to Regulatory Guide 256: Client review and remediation conducted by advice licensees. Consultation Paper 335 Consumer Remediation: Update to RG 256 (CP 335) includes clarification of RG 256’s application to all financial services licensees, credit licensees and superannuation trustees. ASIC is currently monitoring over 100 remediations that could see the return of at least another $3.55 billion in total to over 3.6 million consumers upon finalisation. There are many other remediations that are dealt with by firms without any ASIC involvement. The paper contains some interesting content, for example ASIC is proposing that a remediation must be initiated when a licensee has engaged in a misconduct, error or compliance failure relating to a financial service provided by and covered under the licensee’s relevant licence and caused actual or potential consumer loss to ‘one or more’ consumers, rather than a ‘number of consumers’. It is essentially proposing to remove reference to systemic issues. My top read for the week, the submissions on CP 335 are due by 26 February 2021. It is also worth noting that ASIC has also released Making it Right: how to run a consumer centered remediation, to offer guidance on customer-centered remediations.
- Vulnerable customers (ASIC): Sean Hughes, ASIC Commissioner, gave a speech to the to the Financial Services Assurance Forum in which he outlined ASIC’s expectations regarding vulnerable customers. I thought two parts were quite interesting; 1) ‘vulnerability’ per se is not specifically regulated in Australia, but ASIC’s contextual definition is outlined in the ASIC Corporate Plan 2021–24. It is a very broad definition, and extends to those experiencing temporary life problems and business entities; 2) DDO is a big focus for ASIC in this space. Commissioner Hughes that there are a few questions the boards of financial services firms ought to ask their senior executives now, including: a) Are we getting ready for DDOs? b) Do we have the data we need to ask and answer fundamental business questions?; c) Do we know our target market for this product?; d) Does it meet their needs? e) Is this product of value to that target market? f) Do our distribution controls, included our chosen distribution channels, mean it’s getting to our target market? g) Would we know if it wasn’t? I completely agree. Implementing the DDO regime is takes appreciable time, in the experience I have had thusfar, so it is worth getting on with the program.
- Litigation funding (Legislation): despite opposition from Labor and cross-bench senators, the Morrison Government’s legislation to require litigation funders to become MIS / AFSL structures has passed into legislation with the help of Pauline Hansen. For more details on the legislation, which have generated significant debate, you can read this article I wrote earlier in the year here.
- LIBOR (ASIC): ASIC has released an information sheet providing practical guidance for Australian entities to manage conduct risk during the transition from the London Interbank Offered Rate (LIBOR), which is expected to cease at the end of 2021. ASIC’s expectations include: a) treating clients fairly; b) performance of products and services i.e. clients should be provided with products and services that perform as they were led to believe; c) client communication — ASIC expects entities to use their knowledge to help clients make decisions about the appropriateness of products and services, and not to take advantage of their potential lack of understanding about the transition process; d) risk management framework, with appropriate governance so as to manage conduct risk; e) buy-side entities’ responsibilities — ASIC consider that these entities have a duty to ensure their clients are not disadvantaged during the transition and they have acquired appropriate resources in an environment where there is a potential skills shortage.
- Remittance providers (AUSTRAC): A remittance service provider is an individual, business or organisation that accepts instructions from customers to transfer money or property to a recipient. Remittance service providers are also known as ‘money transfer businesses’. One of the more vexed areas of AML / CTF, in my experience, remittance providers must apply to register with AUSTRAC. AUSTRAC has the right to refuse, suspend or cancel registration and can also impose conditions on registration. To assist, AUSTRAC has released new products that make understanding and following AML/CTF obligations simpler. There’s a new video, a detailed guide to developing an AML/CTF program, as well as new fact sheets on risk management, reporting, customer identification and more. It is worth a look here, if you practice in the AML/CTF space.
Thought for the future: with thanks to the reader who picked it up in my update last week, the updated breach reporting regime will commence in October 2021 (instead of April 2021). The proposed reforms include requirements for third-party licensees to report breaches by individual mortgage brokers and financial adviser representatives of other licensees. ASIC intends to consult on an updated RG 78 on breach reporting in early 2021. Next year is shaping up to be a big one for self reporting…