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.
- DDO (ASIC): MASSIVE news this week on the AISC enforcement front. It has placed interim stop orders on three financial firms in response to deficiencies in the target market determination for their products. These actions are ASIC’s first use of the stop order powers under the design and distribution obligations, which took effect on 5 October 2021, and it is fair to say that this one came as a bit of a shock. A TMD is a mandatory public document that sets out the class of consumers a financial product is likely appropriate for (the target market). It also sets out matters relevant to the product’s distribution and review. In ASIC’s view, the three financial firms did not appropriately identify the consumers they intended to target i.e. for a fund, customers who intended to use an investment in the fund as a core component of their investment portfolio and investors with an objective of high capital growth or a mixture of capital growth and income (so ASIC compared the PDSs with the TMDs) or did not have a TMD at all i.e. a firm which had issues a prospectus, but not a TMD. In ASIC’s view, this meant that the products may have otherwise been marketed and sold to retail investors for whom they were not appropriate or too risky.
- CDR Sandbox (ACCC): the ACCC has launched the Consumer Data Right sandbox, a free tool that enables existing and potential CDR participants to better test and improve their CDR solutions. It is a hosted environment that behaves and functions like the actual CDR ecosystem. The Sandbox will allow participants to set up their own software solutions and communicate with the existing mock solutions and other participants within a secure testing environment. I think this is an absolutely wonderful offering from the ACCC, and will particularly helpful to insurance firms who are early on in their CDR journey (for more information see here).
- Complaints statistics (AFCA): Australians lodged 72,358 complaints with the AFCA in the past 12 months, a rise of 3 per cent on the previous financial year. Among the largest financial firms, the top 4 banks together accounted for nearly 20,000 complaints, a rise of nearly 10 per cent, while the top 4 insurers together accounted for about 9,400 complaints, up 19 per cent. Overall, the number of licensed financial firms with a complaint lodged against them was 5% lower than in the previous 12 months. One of the biggest increases was generated by natural disasters like floods, with 1,586 complaints being made, more than double the 653 complaints from such disasters the previous year. Altogether, 67 per cent of complaints were resolved by agreement between the parties. Finally, in statements that continue to gall me for the fact they come from an independent decision maker, AFCA ended with: “AFCA has now helped to secure more than $820 million in compensation and refunds since starting operation on 1 November 2018. It has registered more than 270,000 complaints in that time.”
- FIRB (Government): from Friday 29 July, foreign investment application fees will double. This will generate $455 million in revenue over the forward estimates, though query if it will also dampen foreign investment at a time when we need it most / is inconsistent with the development of structures designed to attract foreign investors e.g. CCIVs….
- Enforcement outcomes (ASIC): ASIC has released its enforcement statistics, providing an overview on ASIC’s enforcement actions in a particular six-monthly period. Highlights for me are the: 148 ongoing investigations, 57 individuals banned / restricted and 40 civil penalty cases before the court. Quite a lot then, and In addition, ASIC successfully took action in the Federal Court against an entity for failing to adequately manage cyber risk i.e. the RI Advice case. The current actions against Lanterne and Macquarie bank for failures in risk & compliance controls are equally major developments for ASIC, showing the new and more granular ways in which it is exercising its powers.
Thought for the future: ASIC is hawkish on the enforcement front. So much as been clear for years, and is increasing. ASIC has, however, recently become more creative. The DDO stop orders, RI advice case (Cyber failures) and actions against Lanterne / Macquarie (controls failure) show a regulator which is trying new things. More to come, in my estimation, when ASIC gets its hands on FAR (which is very likely to be passed soon — see here).