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.
- Blockchain (Senate): the Senate Select Committee on Australia as a Technology and Financial Centre has released its final report. There are some exciting recommendations — read them here (my top read for the week)— including: 1) establishing a market licensing regime for Digital Currency Exchanges, including capital adequacy, auditing and responsible person tests under the Treasury portfolio; 2) establishing a new Decentralised Autonomous Organisation company structure; 3) establishing a custody or depository regime for digital assets with minimum standards under the Treasury portfolio; 4) undertaking a token mapping exercise to determine the best way to characterise the various types of digital asset tokens in Australia; and 5) having the Anti-Money Laundering and Counter-Terrorism Financing regulations clarified to ensure they are fit for purpose, and do not undermine innovation. These recommendations are innovative and sensible in my view, and will assist Australia is becoming a blockchain leader if it fully embraces them — fingers crossed!
- CPS 511 (APRA): CPS 511, which comes into effect from 1 January 2023, is designed to strengthen remuneration practices across all APRA-regulated entities. It introduces heightened requirements on remuneration and accountability aimed at creating more balanced incentive structures, promoting financial resilience and supporting better outcomes for customers. (It needs to be linked with FAR, which it is currently not consistent with — but that is a whole other issue.) The final Prudential Practice Guide CPG 511 Remuneration has been released by APRA and sets out guidance and examples for: strengthening incentives for individuals to prudently manage the risks they are responsible for; implementing appropriate consequences for poor risk outcomes; and, improving oversight, transparency and accountability on remuneration. If you haven’t already, start thinking about CPS 511 implementation now as it is going to be a big one across 2022!
- Advice sector and compensation (AFCA): the draft Compensation Scheme of Last Resort (CSLR) legislation is coming out soon. It will facilitate the payment of limited compensation to eligible consumers who have received a determination for compensation from the AFCA which remains unpaid. The currently proposed scope of the CSLR treats complaints about losses arising from the sale, distribution and operation of managed investment schemes and financial products and the provision of financial advice differently. In response, AFCA intends to provide clarity to the advice sector and consumers on how it currently deals with and categorises these complaints. The tricky issue is determining which financial firm is responsible i.e. the issuer or the adviser (both of whom need an AFSL) for responding to a particular type of complaint and where the responsibility may lie for specific conduct. AFCA will be issuing an interim fact sheet and consulting with relevant stakeholders, including the financial advice industry, about a more formal approach document soon.
- AGMs and electronic executions (Treasury): whatever your politics, it is clear Treasurer Frydenberg’s Treasury is a hard working one! The Government has introduced into parliament the The Corporations Amendment (Meetings and Documents) Bill 2021 which will permanently allow companies to use technology to meet regulatory requirements under the legislation. More particularly, it will allow companies and registered schemes to hold virtual meetings, distribute meeting‑related materials and validly execute documents. These reforms build on recently renewed temporary relief, which will remain in place until 31 March 2022. A great development, now lets turn to electronic executions of documents!
- IAL (ASIC): ASIC has launched civil penalty proceedings in the Federal Court against Insurance Australia Limited (IAL), alleging that IAL engaged in misleading or deceptive conduct and made false or misleading representations to some NRMA Insurance customers by stating that customers were eligible for certain discounts on renewal of their home and motor insurance policies and then failing to apply those discounts. ASIC claims IAL increased the gross insurance premiums that would apply to those customers to ensure that their net premiums after the discounts did not fall below a certain level. As a result, the full discounts were not passed on to customers, and impacted NRMA Insurance renewals between March 2014 and November 2019 and affected at least 596,000 customers, in respect of 705,000 separate insurance policies, approximately 1,785,000 times. The affected customers did not receive promised discounts totaling around $60 million. A good case to watch, particularly as s. 12DA of the ASIC Act creates havoc for entities struggling under the new breach reporting regime…
Thought for the future: this month has been tricky navigating the new breach reporting regime —many more beaches are getting reported for ‘misleading & deceptive conduct’ and ‘material loss & damage (which is determined from the customers’ perspective). There is also a lot of confusion between ‘core’ and ‘deemed significant’ provisions, so this flow chart may assist AFSL and ACL holders navigating the new regime.