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.
- Federal ICAC (Election): the election is over, and the red team has formed a majority Government. Importantly, the main election promise Labor has made on integrity is to establish what it says will be a “powerful, transparent and independent National Anti-Corruption Commission”. Labor has proposed a robust commission with serious powers — it will draw on a draft bill proposed by MP Helen Haine in 2020. The NACC will have broad jurisdiction to investigate serious and systemic corruption by Commonwealth ministers, public servants, ministerial advisers, statutory office holders, government agencies e.g. ASIC and APRA and MPs. It would have the power to conduct public hearings if it believes it is in the public interest, and the power to make findings of fact, including findings of corrupt conduct. It could refer matters involving criminality to law enforcement authorities, and also have retrospective powers to investigate alleged misconduct from 15 years ago. It will be able to act in response to referrals, including from whistleblowers and public complaints, consistent with other integrity bodies. There will be oversight by a parliamentary joint committee, and its decisions will also be subject to judicial review. Labor has promised to pass legislation establishing the NACC by the end of the year, which is a really significant change to the regulatory landscape.
- Binary options (ASIC): ASIC has released Consultation Paper 362 Extension of the binary options product intervention order (CP 362), seeking feedback on a proposal to extend its product intervention order banning the issue and distribution of binary options to retail clients until it sunsets in 2031. ASIC banned the product in 2021, finding that in the 13 months before the ban between 74% and 77% of active retail clients lost money trading binary options, and loss-making retail client accounts made net losses totaling $15.7 million compared with $1.7 million total net profits of profit-making retail client accounts. Personally, while I understand ASIC’s position, I am a little uncomfortable with a blanket ban — if retail consumers want a lot of risk, subject to that risk being explained well, and all the other financial services laws being complied with, they should have access to that risk. In addition, and while the ‘slippery slope’ is a logical fallacy in terms of arguments, I do wonder what products are next…
- Insurance stats (APRA): APRA has released its Quarterly General Insurance Performance Statistics and Quarterly General Insurance Institution-level Statistics publications for the March 2022 quarter. Industry reported a net profit after tax of $1.3 billion and a return on net assets of 4.3 per cent during the year ended 31 March 2022, an increase compared to the prior year. The increase in net profit was driven by a stronger underwriting result, in part reflecting the impact of premium increases across certain classes of business. You can see the result here, which are a little surprising to me given how hardened the current market is at the moment.
- Directors duties (Courts): an interesting — though not groundbreaking — case was handed down from a governance perspective; In the matter of Bryve Resources Pty Ltd  NSWSC 647. In the case, a director was found in breach of duties under ss 180 and 181 of the Corporations Act 2001 (Cth) by making unsecured interest-free loan to foreign company associated with director with doubtful capacity to repay loan. The court found that: “Applying those principles to the present case, I find that it may be expected that a reasonable person in the Company’s circumstances would not have made the Stanton payments, notwithstanding that the Company was indebted to Mr Stanton. The payments benefitted the Company by reducing that indebtedness to some extent. Mr Stanton benefitted by receiving the payments (or receiving advantages derived from payments made to third parties for his benefit) in circumstances where the Company was making no repayments to its other significant creditor, had insufficient funds to pay all of its debts and is presumed to have been insolvent by reason of its failure to keep the books and records required by s 286 of the Corporations Act”.
- Breach reporting (ASIC): ASIC have responded to concerns and frustrations raised by the financial services sector which was pointedly highlighted in the recent research presented by Lawcadia and Gadens— State of Financial Services Breach Reporting in Australia. (We gave them the report, naturally.) ASIC chair Joe Longo said breach reporting was “quite an ambitious” piece of law reform. He acknowledged that there has been some “teething issues” in administrating the legislation, and indicated that they are consultation with industry and will release some additional guidance. It seems the regulator will be focusing on consistency of reporting and although acknowledging that perfection is not possible, organisations are warned that ASIC will take action on non-compliance.
Thought for the future: how will the new NACC impact on ASIC, APRA, OAIC and AUSTRAC regulatory investigations?