Australian regulators weekly wrap — Monday, 11 October 2021

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.

  1. Breach reporting for ACLs (ASIC): ASIC has issued a consolidated update to credit licence holders who are dealing with the new breach reporting regime. It has noted that licensees should already be registered on the ASIC Registration Portal for their annual industry funding obligations. However, individuals responsible for submitting reportable situations on behalf of their licensee may need to create a portal account and be given access to the licensees they represent. ASIC has encouraged licensees to organise portal access for relevant employees as soon as possible. The portal’s frequently asked questions page has guidance on how to invite someone to connect to a licensee in the portal. ASIC has also given guidance to industry on how to comply, including updating Regulatory Guide 78 Breach reporting by AFS licensees and credit licenseesfrequently asked questions and information for submitting reportable situations to the ASIC Regulatory Portal.
  2. Interest rate buffers (APRA): the prudential regulator has increased the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications. APRA has told lenders it expects they will assess new borrowers’ ability to meet their loan repayments at an interest rate that is at least 3.0 percentage points above the loan product rate. This compares to a buffer of 2.5 percentage points that is commonly used by ADIs today. One to remember when designing RG 209 compliance frameworks. APRA’s letter is here.
  3. Royal commission reforms (Treasury): Treasury has noted the additional reforms which are now in operation, and matched them to Royal Commission reforms, including: 1) strengthening the unsolicited selling (anti-hawking) provisions, including for superannuation and insurance products, to prevent pressure selling to consumers (Recommendations 3.4 and 4.1); 2) introducing a deferred sales model for add-on insurance products, to promote informed purchasing decisions and prevent inappropriate sales of those products (Recommendation 4.3); 3) replacing the duty of disclosure regime with a duty to take reasonable care not to make a misrepresentation, ensuring valid claims cannot be declined for inadvertent failures to disclose information by consumers (Recommendation 4.5); 4) strengthening breach reporting requirements for financial service licensees in the Corporations Act 2001 and introducing a breach reporting regime for credit licensees under the National Consumer Credit Protection Act 2009 (Recommendation 1.6, 2.8, 2.9 and 7.2); 5) requiring Australian financial services and credit licensees to provide reference checks, ensuring consistent practices throughout the industry for sharing relevant employment information about financial advisers and mortgage brokers (Recommendation 2.7); and, 6) implementing the new DDO to help consumers obtain more appropriate financial products by requiring issuers of financial products to determine an appropriate target market for these products, followed by issuers and distributors being required to sell their products accordingly. We covered these ones in more detail in last week’s wrap. A big month ahead!
  4. Scams (ACCC): the ACCC is urging people to be extra vigilant about scams after Australians reported a record $211 million in losses to scams so far this year, an 89 per cent increase compared to the same period last year. The losses, reported between 1 January and 19 September, have already surpassed the $175.6 million reported to the ACCC’S Scamwatch across all of last year. Most of these losses are from phone based scams, which accounted for over $63.6 million (31 per cent) of the losses. Additionally, of the 213,000 reports that Scamwatch received so far this year, 113,000 were about phone scams. I have received more than a few of these myself!
  5. Class action returns (Treasury): the Government has released for consultation exposure draft legislation to set caps on the distribution of class action proceeds in proceedings involving a litigation funder. If progressed, the legislation would implement key recommendations of the Parliamentary Joint Committee on Corporations and Financial Services in its report on litigation funding and the regulation of the class action industry. Courts would be empowered to approve or vary the share of proceeds to which members of the scheme are entitled to ensure the distribution is fair and reasonable. In making this determination, courts would be supported by independent experts at the funder’s expense. The draft legislation would establish a rebuttable presumption that a return to the general members of a class action litigation funding scheme of less than 70 per cent of their gross proceeds is not fair and reasonable. Finally, the draft legislation would require plaintiffs to consent to become members to a class action litigation funding scheme before funders can impose their fees or commission on them. This will encourage ‘book building’, which has gone the way of the dinosaur recently given the preference for open class actions. Don’t expect partisan support on this one, and watch out for the fireworks ahead given the political, business/consumer and legal divides over this hot button issue.

Thoughts for the future: the challenge behind the new breach reporting regime is that any civil penalty provision / most criminal penalty provisions across any item of legislation in Australia are ‘deemed significant’ breaches which need to be reported (good luck trying to knock out a civil penalty breach on the basis it does not touch on a ‘core obligation’ e.g. ‘efficiently, honestly and fairly’) More information is set out in this short article we prepared. The difficulty is in identifying whether a particular issue —say an advertising mistake — is contradictory to one or more of these provisions, which means considering all of the potentially applicable legislation unless you have a tool (for those struggling with the new regime, we have created a platform to assist here.) I suspect the answer is a combination of more resources, more tech and more framework assets e.g. spreadsheets of civil penalties / obligations registers.

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