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.
- AFSL auditing (ASIC): ASIC has announced new financial reporting requirements for AFSL holders, following changes to the accounting standards. AFSL holders’ financial reports must now contain disclosures consistent with the financial reports of other for-profit entities, prepared under standards set by the AASB. For-profit companies, registered schemes and disclosing entities that prepare financial reports under Chapter 2M of the Corporations Act 2001 , and which are not reporting entities, can no longer prepare special purpose financial reports that do not contain all disclosures required in the full accounting standards i.e. the full recognition and measurement requirements for assets, liabilities, income and expenses e.g. all licensees will be required to prepare a cash flow statement. In addition to single entity financial statements, consolidated financial statements must be presented where the licensee has controlled entities. The new disclosure requirements apply from financial years commencing on or after 1 July 2021, but many licensees can choose to defer any new disclosure requirements by one year. This can be expected to add significant cost to the audit fees for most of the smaller AFSL entities, and I have not seen a detailed rationale from ASIC as to why this needs to happen. To me, it very much seems like overkill for a profession already struggling under the weight of recent over-regulation…
- ACCC priorities (ACCC): the new Chair of the ACCC, Gina Cass-Gotlieb, has stated that one of the ACCC’s key compliance and enforcement priorities for 2022/23 is promoting competition and investigating allegations of anti-competitive conduct in the financial services sector. She singled out payments in particular, noting the new services and competitors in the payments ecosystem, such as payment gateways, payment aggregators, mobile wallet providers and payments using crypto-currencies. Other priorities for the competition regulator are digital payment platforms, disrupting scams and CDR. No surprises on the last one — CDR will be more complicated as it moves beyond banking e.g. to insurance where the comparison is apples and oranges between policies.
- Prudential levies (APRA): the total funding required under the levies in 2022–23 for APRA is $259.6 million. This is a $2.4 million (0.9 per cent) decrease from the 2021–22 requirement. Nothing too interesting in the report in terms of enforcement or other key priorities, but always useful to double check these submissions to see if there are any gems!
- Good practice guide (FRC): the UK Financial Reporting Council has published anonymised key findings and good practices reported by its Audit Quality Review team in relation to their 2020/21 audit quality inspections at the seven largest audit firms. The purpose of these documents is to share with auditors, audit committees, investors and other users of audited financial statements the nature of the key findings and good practices reported on the individual audits inspected. My top reads for the week — they are relatively easygoing as far as audit reporting goes — some of the more interesting findings are: the audit team did not adequately consider the perceived threats to independence arising from the provision of non-audit services (relevant in the context of the EY chatter about breaking up the firm); the audit team did not obtain sufficient understanding of the operation of relevant controls across all jurisdictions to address and respond fully to the identified significant risk that non-compliance with law or regulation might have material adverse consequences for the group; and, there was insufficient evidence that the audit team had adequately considered the significance of the requirement to refinance the revolving credit facility in relation to management’s going concern assessment. Interestingly, in relation to the last point, the key finding also took issue with the auditors not considering whether the key lender could or would provide further funding. It provided ‘There was insufficient evidence that the audit team assessed the ability of the lender to provide funding as and when required”, which is interesting / not one I have seen pop up before. Of course, it is hard to assess this on in the absence of knowledge as to who the lender was e.g. high street bank, or non-bank lender operating out of the Grenadines since 2019.
- ESG (SEC): lots of news on greenwashing at the moment. In response, the US SEC has proposed amendments to rules and reporting forms to promote consistent, comparable, and reliable information for investors concerning funds’ and advisers’ incorporation of environmental, social, and governance factors. The proposed amendments seek to categorize certain types of ESG strategies broadly and require funds and advisers to provide more specific disclosures in fund prospectuses, annual reports, and adviser brochures based on the ESG strategies they pursue. For example, funds focused on the consideration of environmental factors generally would be required to disclose the greenhouse gas emissions associated with their portfolio investments. One I think will be picked up in Australia, in the near future given the state of play here.
Thought for the future: ‘regulatory impact statements’ seek to assist government officials to move towards ‘best practice’ regulatory design and implementation by requiring the completion of a detailed cost-benefit analysis. ASIC does do them (see here for example), but they do seem to be patchy. It would be really useful to see a consistent framework for RISs; the new auditing amendments cry out for one which can be tested…