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.
- Vatican focus (AUSTRAC): the Vatican and the Australian Catholic Church have both denied knowledge of transfers worth US$1.8 billion which Australia’s financial watchdog says have been sent from Rome to Australia in the past seven years. The figures were made public in December by the AUSTRAC in response to a parliamentary question by Senator Concetta Fierravanti-Wells. They involved about 47,000 separate transfers, according to AUSTRAC and the transfers ranged from yearly totals of US$55.2 million in 2014 to US$448.0 million in 2017. Since the Vatican’s yearly budget is about 330 million euros, the whole matter is deeply strange (even for Vatican finances!), but indicative of AUSTRAC’s broader focus than the banks at the moment e.g. Crown Casino.
- Insolvency law changes (Legislation): the insolvency reforms for small businesses came into effect on 1 January 2021. These reforms follow the temporary measures introduced in March 2020 in response to the COVID-19 pandemic. They only apply to eligible incorporated small businesses with liabilities of less than $1 million. The reforms include a new: debt-restructuring process for incorporated small businesses; simplified liquidation process for incorporated small businesses; and ‘class’ of registered liquidator who can only undertake the debt-restructuring process. Subject to some very heated views, it will be interesting to see if these US-inspired insolvency law changes meaningfully assist Australian businesses in their post COVID-19 recovery. At the least, however, credit needs to be given to to the Treasury for taking bold measures.
- Temporary restructuring (ASIC): while on the subject of insolvency laws, it is worth recalling that the temporary restructuring relief extends to 31 March 2021.The measures that have been extended include, for companies eligible for temporary restructuring relief: a) increasing the amount that must be owed to a creditor from $2,000 to $20,000 before the creditor can issue a statutory demand for payment on the company; b) increasing the time a company has to respond to a statutory demand from 21 days to 6 months; and, c) providing a director with a temporary safe harbour from personal liability for insolvent trading for debts incurred in the ordinary course of business before any appointment of an administrator or liquidator of the company during the period of safe harbour protection. A company can access temporary restructuring relief if, during the period 1 January 2021 to 31 March 2021, the company directors make the required declaration about the company’s eligibility for temporary restructuring relief, and publish notice of the making of the declaration on ASIC’s website.
- IOSCO report (COVID-19): IOSCO’s Retail Market Conduct Task Force has published the Retail Market Conduct Task Force Report: Initial Findings and Observations About the Impact of COVID-19 on Retail Market Conduct. The report outlines key observations of the retail market conduct risks caused or exacerbated by COVID-19 including the: unique market environment emanating from the pandemic; impact on firm and investor behaviour; common drivers of retail misconduct; and, corresponding challenges and opportunities for regulators. In addition, the report identifies a number of common themes experienced during COVID-19 which highlight the vulnerabilities and risks for retail investors, market participants and regulators including: high market volatility; heightened financial and psychological stressors; social distancing and remote work requirements; and, an increase in aggressive advertising, on-line marketing and digital offerings of financial products that may target vulnerable investors. The report also highlights case studies specific to member organisations, for example that Australia experienced a surge in retail investor trading, an increase in predatory scams and unlicensed financial advice. An interesting, if no terribly surprising read, the report suggests practical regulatory tools member organisations can utilise such as: proactive supervisory monitoring including of offerings targeting vulnerable investors; targeted and effective enforcement action; close cross-border cooperation and regulatory coordination; and, leveraging the experience from previous crises to enhance agile regulatory approaches.
- FCA / BREXIT (Global): the UK FCA relaxed trading rules hours before Brexit, utilising its temporary emergency powers, allowing firms on both sides of Channel to deal in derivatives worth billions daily. It will let some companies subject to UK rules trade on EU venues, which means UK branches of foreign banks and brokers will be able to transact on behalf of EU clients. The European Securities and Markets Authority had previously said EU banks operating out of London would still be subject to EU regulations when the transition period ends. The EU’s refusal to recognise UK trading venues as properly regulated and supervised had left the London branches of EU-based banks facing overlapping and potentially contradictory instructions from two sets of regulators so, in this instance, the UK FCA blinked…
Thought for the future: the UK’s economy relies so heavily on financial services as an export, though the BREXIT agreement is rather light on the rules regarding this business sector. If equivalence between the UK and EU financial services regulatory regimes cannot be achieved in the near future, expect many more quickfire regulatory oddities like the derivatives exemption to arise going forward.