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.
- Lanterne (ASIC): ASIC has commenced civil penalty proceedings against Lanterne Fund Services, alleging multiple failures to meet the obligations of its AFSL, including a failure to meet organisational competence requirements. It alleges Lanterne, under a ‘licensee for hire’ business model e.g. under ‘Corporate Authorised Representative’ models, failed to: have adequate resources (including financial, technological, and human resources) to provide the financial services and carry out supervisory arrangements; maintain competence to provide its financial services; ensure that its representatives were adequately trained; take steps to ensure that its representatives complied with the financial services laws, and do all things necessary ensure that the financial services were provided efficiently, honestly, and fairly. You can read the pleading here, which is my top read for the week. I kept reading it expecting to see something connected to a Corporate Authorised Representative’s failure which caused consumer loss but… nothing.
- CPS 511 (ASIC): public information on breach reporting (look out for that later in the year, courtesy of ASIC) and now the prudential regulator is following suit on remuneration. APRA has released a consultation which will focus on proposed new remuneration disclosure and reporting requirements for all banks, insurers and superannuation funds. APRA-regulated institutions will be required to publicly disclose information on how their remuneration arrangements are designed, and how risk is factored into remuneration outcomes for key executives, and large and complex financial institutions will be required to disclose how they have placed a material weight on non-financial metrics (such as risk management and conduct). These proposed changes will take place after the proposed remuneration disclosure and reporting requirements will take effect after the implementation of CPS 511 in 2023 for large entities and 2024 for smaller entities. Side note: if you haven’t started your CPS 511 preparations, it is one to get onto now — it takes longer than expected!
- Crypto (Parliament): Crypto currencies will continue to be excluded from foreign currency tax arrangements . It follows a decision by the Government of El Salvador to allow Bitcoin as legal tender has the potential to create uncertainty about the status of crypto assets such as Bitcoin for tax purposes in Australia. Crypto assets will not be regarded as a foreign currency for tax purposes, though CGT will continue to apply to crypto assets that are held as investments. Interesting, to be sure, but the bigger question is whether crypto is property or data for the purpose of the taxation framework. The fact that the ATO says it is the former, meaning it can tax crypto, is neither here nor there. There are not authoritative cases on point, or legislation in Australia, and we need one or the other asap!
- Scams (ACCC): Australians lost more than $2 billion to scams in 2021, , the ACCC’s latest Targeting Scams report reveals. Investment scams were the highest loss category ($701 million) in 2021, followed by payment redirection scams ($227 million), and romance scams ($142 million). Scamwatch data shows that between 2020 and 2021 there was a 60 per cent reduction in losses from inheritance and unexpected money scams, and only a one per cent increase in losses from travel, prizes and lottery scams. Conversely, losses from investment scams increased by 169 per cent over the 12 months. Males lost more (60%) than females (40%), and over 65s lost the most unfortunately.
- Derivatives (Treasury): in November 2021, Frydenberg wrote to the Council of Financial Regulators asking whether the current use of derivatives by super funds raised any concerns, in terms of operational capability of funds to properly manage large volumes of derivatives transactions, prudential implications for the operation of individual funds and the outcomes for members of those funds, and any broader implications in terms of financial system stability. “No” is the answer — they’re just hedging their FX and interest rate risk according to the response. For all the noise around derivatives and Wall St types, they are, fundamentally, a tool to manage risk. Our super funds are doing just that.
Thought for the future: the Lanterne action by ASIC is somewhat unsettling for the lack of detail apropos the defects in its CAR arrangements. In any case, time for any AFSL with a CAR arrangement to examine its systems & controls.