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.
- ‘Cuckoo smurfing’ (AUSTRAC): AUSTRAC has released a new financial crime guide to warn businesses and their customers about the dangers of a money laundering method known as ‘cuckoo smurfing’. It is used by criminals to move funds across borders and make money generated by their illegal activities appear to have come from a legitimate source. Cuckoo smurfing is facilitated by professional money laundering syndicates who work with a corrupt remitter based overseas. The corrupt remitter accepts an instruction from a customer to make a payment to an Australian-based beneficiary customer, and then hijacks the money transfer coming into Australia in order to place funds in the Australian-based beneficiary account which are sourced from criminal activity. You can read more in AUSTRAC’s excellent guidance here, which also contains helpful practical tips for spotting this type of behavior.
- Senate committee (ASIC / APRA): the Chairs of both ASIC and APRA have fronted the Senate Economics Legislation Committee. There was very little to ASIC’s opening statement, understandably as the Chair has just come into his role. APRA’s opening statement contained more detail, mainly around APRA’s focus on superannuation. In this regard, Mr Byres stated that APRA will continue to focus on driving superannuation trustees to improve outcomes for their members, through four key channels: enhanced data, greater transparency, a stronger prudential framework, and more intense supervision. Expect greater use of the Financial Accountability Regime (formerly BEAR) by APRA, when it comes into play for super trustees later in the year therefore. Those super trustees who have not started preparing for this regime, should now.
- Licensing / PDS (ALRC): the Australian Law Reform Commission (ALRC) undertook preliminary analysis of two key aspects of the legislative framework governing the regulation of financial services: 1) disclosure in relation to the issue or sale of securities and other financial products; and 2) licensing regimes in respect of financial services, credit and superannuation. Noting the complexity of the regimes, amusingly called ‘dark law to the innocent traveler’ by one ALRC lawyer, the ALRC as part of its quest to simplify the Corporations Act 2001 (Cth), has released some wonderful flowchart maps for the licensing regime and PDS / prospective regimes. My top read for the week, you can access them here.
- Auditing standards (FRC): the UK Financial Reporting Council has issued a revision of its UK auditing standard on the responsibilities of auditors relating to fraud — ISA (UK) 240 (Revised May 2021) — The Auditor’s responsibilities Relating to Fraud in an Audit of Financial Statements. The revisions to the standard are designed to provide increased clarity as to the auditor’s obligations, and provide that objectives of the auditor are: (a) to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement due to fraud, including: (i) identifying and assessing the risks of material misstatement of the financial statements due to fraud; (ii) obtaining sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses; and (b) to respond appropriately to fraud or suspected fraud identified during the audit. Fraud is one of the hardest things to detect in audits, and you will frequently hear the refrain ‘We’re a watchdog, not a bloodhound!’ when speaking to auditors about how they conceptualize their role; in my view, this is a good step forward by the UK.
- Capital frameworks (APRA): the prudential has released a letter to banks on the implementation of the capital framework reforms, which will come into effect from 1 January 2023. APRA is now writing to ADIs to set out a clear timeline to finalise the consultation phase, and to support the banking industry’s implementation of the reforms. The ADI capital reforms are designed to embed the industry’s ‘unquestionably strong’ capital position, and improve the flexibility of the framework to respond during periods of stress. APRA expects ADIs to be fully compliant with the revised capital framework from 1 January 2023, including the determination and reporting of capital adequacy. The timeline can be accessed here.
Thought for the future: reading through the ALRC’s flowcharts, firstly, made me very impressed with their work, secondly, reinforced my view that Chapter 7 of the Corporations Act 2001 (Cth) needs to be simplified and its own piece of legislation. Doing so will assist financial institutions in terms of compliance culture, efficiency and reduced cost. It is an obvious step in the post COVID-19 world, searching for economic effectiveness.