Australian regulators weekly wrap — Monday, 23 May 2022

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.

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  1. Prudential perspectives (APRA): Chair Wayne Byres has identified digital disruption, and the emergence of higher inflation and rising interest rates as key impacts affecting the banking industry in a speech to FINSIA. He also identified that common theme that increasingly pervades all three sectors of the industry — general insurance, life insurance and health insurance — is the (un)affordability and (un)availability of insurance. Finally, and interestingly, he noted that there are around 150 prudential standards and practice guides, supported by a myriad of information papers, industry letters and FAQs. APRA is undertaking a project to make the framework more cohesive; easier to understand and navigate; and less costly to maintain and update. APRA also want to cater to new risks from digitization. A great initiative, and one that will benefit from a lot of stakeholder engagement.
  2. Financial advisers (ASIC): ASIC has released a curious article entitled ‘Why get your advice from a licensed financial adviser?’. ASIC noted that, while using a licensed adviser doesn’t guarantee against financial loss, dealing with licensed professionals provides important safeguards if things go wrong. What struck me about the briefing is less the content, and more the continued recent shift by ASIC to help an industry unfairly decimated after the Royal Commission. Media releases are great, but now to structural reform. Whether that is carving certain low risk products out form the weight of compliance that comes with personal advice i.e. so we’d have 1) general advice; 2) simple personal advice; and 3) not simple personal advice, or modifying breach reporting and other onerous regimes to advisers’ circumstances, we need financial advisers in Australia and therefore do more to assist them from a regulatory perspective.
  3. Financial Accountability Regime (Parliament): election day in Australia, and I have fielded a number of queries in the lead-up about FAR which is sitting with Parliament. Whether or not the red or blue team wins (or we have a hung Parliament, God help us), my sense is that legislation will go through largely unchanged. It has strong bi-partisan support, and Labor got their win with the ancillary liability provisions (read more here) — and Australia’s loss, but that is a topic for another time! Expect this legislation to go through in the budget i.e. mid-year sittings.
  4. Green bonds (ASIC): ASIC is alerting investors of the existence of fake green bonds. Green bonds are bonds that are used to finance new and existing projects that offer climate change and environmental benefits. They can be purchased by superannuation funds, fund managers, insurance companies and other wholesale entities. These ones are not available — at least directly — to the general public or retail investors. Great work by ASIC, as part of its broader public mandate.
  5. Fairness review (AFCA): AFCA has published a new report which summarises work undertaken to try to ensure AFCA’s Fairness jurisdiction is well understood by stakeholders, that it is applied consistently and independently, and in a way that is fair for members and complainants. It includes a: a) New Fairness Jurisdiction Tool which ensures AFCA can discuss important issues for resolution with the parties in plain english; b) New decision templates to clearly explain how AFCA has applied the fairness tests in its complaint handling and why decisions made are fair in all the circumstances; c) Apprehended bias policy to ensure AFCA’s people remain impartial when working with the parties to resolve complaints; d) The AFCA Engagement Charter which clearly sets expectations of how parties should engage with each other and AFCA to ensure a fair process; e) Revised AFCA Approach library providing members and complainants with easy-to-understand information about how we handle specific types of complaints; and, f) New processes to calculate and capture fair outcomes once achieved. Good improvements, though for an organisation which produces some head scratching decisions with more regularity than one might be expect, at considerable expense to licensees, I think that the focus should be on supporting and upskilling the decision makers, internal review tree and process architecture to summarily deal with bad claims.

Thought for the future: what will the red team undo or change if they get in today? May sense is that they will start with the changes for litigation funders e.g. AFSLs, and potentially legislation common fund orders, given their closeness to the plaintiff firms / resistance previously…

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