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.
- Licensing update (ASIC): ASIC has released a report outlining key issues, new and proposed changes to its licensing processes, and other work it has undertaken that affects licensees. Between July 2020 and June 2021, ASIC received 1,883 AFSL and ACL applications (an increase from 1,346 the previous year). The increase was mainly due to the licensing reforms relating to insurance claims handling and debt management services. AFSL applications alone were up 40%. ASIC approved 458 new AFSLs and ACLs (compared to 394 last year). ASIC also approved 537 variation applications by existing licensees (the same as last year). In addition to AFS and credit licence approvals, 391 AFS and ACL applications were withdrawn or rejected for lodgement, one was refused, 563 licences were cancelled and 23 suspended. My top read for the week for practitioners in the licensing space (we have done / are doing about 20 ourselves in 2021), you can read the report here.
- BBSW securities (RBA): the Reserve Bank is introducing new eligibility criteria for securities to be accepted as collateral in the Reserve Bank’s market operations. Floating rate notes and marketed asset-backed securities issued on or after 1 December 2022 that reference BBSW must include robust fallback provisions. All self-securitisations, regardless of the date of issue, must include robust fallback provisions. Eligibility criteria for FRNs and marketed asset-backed securities issued before 1 December 2022 are unchanged. However, issuers should consider including robust fallbacks for such securities, depending on their length of time to maturity, as a matter of prudent risk management. More detail is here, and this will come as no surprise — ASIC and APRA have been banging the drum about the change over from BBSW from quite some time now.
- Design & distribution (ASIC): ASIC has released additional information for advice licensees and financial advisers who are authorised representatives to help them prepare for the commencement of the design and distribution obligations on 5 October 2021. The fact sheet is here, and contains quite useful summarised information which complements RG 274. For example, it clarifies that advice licensees and financial advisers are exempt from meeting the reasonable steps obligation when providing personal advice but not when providing general advice. The exemption from the reasonable steps obligation applies when personal advice is provided because, in these circumstances, the adviser is providing advice tailored to the consumer’s individual circumstances. Given the amount of TMDS that financial advisers (and credit reps) will be receiving at the moment from issuers, the distilled information is quite timely.
- Criminal actions (ASIC): the corporate regulator has brought criminal charges against CBA, for the mis-selling of consumer credit insurance. The charges relate to allegations that between 2011 and 2015, CBA made false or misleading representations to customers that the insurance policies had uses or benefits to those customers when part or all the benefits were not available. It has also brought criminal charges against ME bank, again for misleading & deceptive. The charges relate to letters issued by ME Bank to home loan customers between September 2016 and September 2018, which ASIC alleges made false and misleading representations about: customers’ relevant annual interest rates; and/or, the minimum repayment to be paid after the fixed-rate period expired; and/or the minimum repayment to be paid after the interest-only rate period expired. ASIC also alleges that, between December 2016 and February 2018, ME Bank failed to give written notice to home loan customers that their annual interest rates and minimum repayment amounts were changing after their interest-only rate and/or fixed-rate period expired. The actions are notable for the fact that ASIC considers it can satisfy the higher burden of proof require to maintain criminal charges, and the aggressiveness — such litigation is rare. Somewhat ominous as well given the new breach reporting regime commencing in October specifically makes misleading & deceptive conduct a ‘deemed significant’ breach. For more detail, read here.
- Tax treaties (Treasury): the Government will expand Australia’s tax treaty network to enter into 10 new and updated tax treaties by 2023, building on Australia’s existing network of 45 bilateral tax treaties. The aim is to improve tax system integrity through the establishment of a bilateral framework of cooperation on the prevention of tax evasion, the collection of tax debts and rules to address tax avoidance, and is supposed to cover about 80% of foreign investment in Australia. Read this as another of Treasury’s interventions, together with insolvency reform, and attempts to roll back onerous responsible lending regulation on the credit sector to improve Australia’s economic bounce back from COVID-19. Consultation is open until 31 October 2021.
Thought for the future: the US regulatory system is, from one perspective, clever insofar as it uses industry itself to assist regulators. An example is paying whistleblowers for successful outcomes. The Securities and Exchange Commission said the total amount of payouts made to whistleblowers had topped $1 billion after the financial watchdog issued its second-largest ever award to a person for flagging wrongdoing — one person this week was paid a combined $110 million for information and assistance that led to successful enforcement actions by the SEC and other entities. Australia has considered, but rejected this route. It has, however, included a ‘dobbing’ obligation under the new enhanced breach reporting regime commencing in October 2021. That is, AFSL and ACL holders are required to report breaches about other licence holders to ASIC. It will be very new for us, and I suspect quite culturally challenging — especially, for multi AFSL and ACL organisations.Liam Hennessy