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.
- Claims handling as a service (ASIC): ASIC has called on insurers (life / general), insurance claims managers, and claimant intermediaries to lodge licence applications (new and varied) as soon as possible, and by no later than 7 May 2021. If they do not, they may have to stop providing claims handling and settling services after 30 June 2021. (We are doing one at the moment, and it is slower than usual going!) Deputy Chair, Karen Chester said ‘Time is running out for firms to lodge their applications with ASIC. To date [this week] we’ve received fewer than 15 applications for the new claims handling and settling service. Some applications received have also needed to be re-submitted because of their poor quality. We are concerned that firms are running the risk of not submitting a complete application in time to get the benefit of the legislated transition period.’ To put Ms. Chester’s comments in context, there are about 109 general insurers and 30 life insurers in Australia, so less than 10% have applied as of last week…
- Financial reporting (ASIC): ASIC prosecuted three companies between 1 July 2020 to 31 December 2020 for failing to comply with their financial reporting obligations. Section 292 of the Corporations Act 2001 (Cth) requires all disclosing entities, public companies, large proprietary companies and registered schemes to prepare financial reports each financial year. Section 319 of the Act require a disclosing entity and registered scheme to lodge the complete financial reports within three months after the end of the financial year. All other entities are required to lodge their financial reports within four months after the end of the financial year. The failures of the three companies were egregious, spanning 5 years each and the fines relatively minimal at $5K each. Still, the willingness of ASIC to focus on this area when previously it has not is notable. It follows a consistent pattern of regulatory focus on reporting; mainly AFSL breach reporting in 2020 and 2021.
- Judicial impartiality (ALRC): Australian Law Reform Commission has released two new background papers into the review into judicial impartiality. The first paper focuses on the practical matter of how courts manage claims (and the potential for claims) by litigants that the judicial officer deciding their matter is, or might appear to be, biased. The key issue is that the primary judge, the one in relation to whom the allegation of bias is raised, determines whether the relevant test for bias has been satisfied. This is traditionally justified on the basis that the challenged judge is ‘best apprised of the facts, and is in the best position to determine any such application’ and it avoids tactical manoeuvring. The second background paper provides an overview of the composition of the federal judiciary, the jurisdiction of the Commonwealth courts, the workload of those courts, and the frequency of complaints against judicial officers (noting that such complaints may not necessarily be in relation to an allegation of impartiality or bias). Both papers are worth the time spent to read in the context of the broader inquiry, which has asked the ALRC to consider ‘whether, and if so what, reforms to the laws relating to impartiality and bias as they apply to the federal judiciary, are necessary, or desirable.’
- Superannuation IDR (ASIC): RG 271 — Internal Dispute Handling does not take effect until 5 October 2021, though ASIC’s broad expectations of super firms to assist in the transition to meet the new requirements have been released. RG 271 includes reduced timeframes for responding to complaints, including a reduction to a new maximum of 45 days for superannuation complaints; further guidance on the information that funds must include in written IDR responses to allow consumers to understand complaint outcomes and decide whether to escalate their complaint; and, a greater focus on identifying, investigating and, where relevant, resolving possible systemic issues raised by complaints. RG 271 also introduces enforceable standards, which reinforces that trustees need to have oversight of, and be accountable for, their IDR procedures. The updated obligations are more comprehensive than existing requirements and focus with more granularity on the internal operations of the financial service provider. In setting out its expectations, ASIC has stated that super firms need to: 1) consider the intent behind them — this is directed specifically towards legal advisers; 2) thoroughly review existing processes, systems and resources, and trustees should turn their attention to this work now as it may require some time. (For example, ASIC states that there is likely to be changes needed to IT and administration systems for complaints management, including capturing data, processes and procedures, and staff training); 3) super firms need to review their insourced and outsourced arrangements, which may require contractual and/or operational changes; 4) keep the member journey front of mind when reviewing and implementing their IDR processes; 5) consider increasing their investment in skilled staff and systems; 6) focus on having the right governance arrangements and operational transparency in place, underpinned by a member-centric approach; and, 7) use the IDR processes to assist in identifying and managing systemic issues related to complaints. In what is the best and most granular ‘informal’ guidance given I have seen in awhile (my top read for the week), ASIC has stated: ‘… trustees [should] to take an expansive approach to identifying, recording and responding to complaints, and to ensure fund staff are empowered and encouraged to do the same. IDR-related processes should be run efficiently, honestly and fairly — from the handling of complaints to managing identified systemic issues to internal reporting. Trustees should engage with RG 271 early to ensure that they are fully compliant with the new standards by 5 October 2021′.
- FATF consultation (AUSTRAC): the international Financial Action Task Force (FATF) is inviting feedback on draft guidance about proliferation financing risk, and on digital currencies and digital currency exchange providers, known internationally as virtual assets and virtual asset service providers. FATF is proposing a risk-based approach to digital currency and digital currency exchange providers. The guidance is not binding in Australia, but will not doubt heavily influence the development of our policy in this space.
Thought for the future: 2021 was always going to be a massive year for regulatory reform, as the major Hayne Royal Commission recommendations come into play. With so many balls in the air, those entities that are coping best from my perspective are the ones giving themselves long lead times to implement regulatory change projects and who are seeking to cross-stitch multiple reforms together rather than leave this after the fact.