Australian regulators weekly wrap — Monday, 7 November 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.

  1. ASIC inquiry (Parliament): On 27 October 2022, the Parliamentary Joint Committee on Corporations and Financial Services began an inquiry into ASIC’s capacity and capability to respond to reports of alleged misconduct. The committee will call for written submissions in due course. The committee currently intends to table a report in both Houses of the Parliament by June 2024. The underpinning is some court losses ASIC has had, and the compensation scheme of last resort which one senator has stated “With AFCA’s significantly expanded mandate under the proposed compensation scheme, ASIC will be incentivised to undertake even less law enforcement. There will be a reduced incentive for ASIC to enforce the law as it will be able to lean on redress schemes for consumers where it fails to enforce the law”. A really bonehead move by the Senate. ASIC is SUPPOSED to lose cases — that is half of reason how you know they are taking the hard ones. The idea that ASIC has not been aggressive in the past 4 years strikes me as removed from reality…
  2. ASIC / crypto (ASIC): Annual forum for ASIC this week, and it has set out its views on crypto here. In essence, ASIC supports the development of an effective regulatory framework and greater regulatory clarity for this class of products; ASIC will also continue to take enforcement action to disrupt and deter harmful products already in our jurisdiction. ASIC is also working to disrupt scams involving crypto; and, ASIC is collaborating and cooperating with our domestic and international peers. Sometimes you learn more from what is not said that what is said. To be sure, ASIC is hobbled by a lack of regulation in this space, but irrespective of that it appears to me to view crypto wholly in threatening terms which is perspective I think needs to shift.
  3. Sportsbet (AUSTRAC): AUSTRAC has ordered the appointment of external auditors under section 162 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 to assess compliance of two corporate bookmakers, Sportsbet and Bet365. The external auditors must report to AUSTRAC within 180 days of being appointed and will examine Sportsbet’s and Bet365’s compliance with: adopting and maintaining an AML/CTF program that has risk-based systems and controls in place to effectively identify, mitigate and manage money laundering and terrorism financing risks; undertaking an appropriate ML/TF Risk Assessment that considers the risk posed by their customer types, the types of designated services they provide and the methods by which they deliver those designated services; ensuring Sportsbet and Bet365 have a framework through which their Boards and senior management have ongoing oversight of their Part A Programs; and, appropriately monitoring their customers with a view to identifying, mitigating and managing the risk they may reasonably face that the provision of designated services may involve or facilitate money laundering or the financing of terrorism. It is part of AUSTRAC’s broader focus on the gambling industry, which doesn’t look like it will end anytime soon (as shown by its recent investigation into Entain).
  4. Crypto legislation (Parliament): Senator Bragg’s draft Australian legislation on crypto licensing is right in theory i.e. digital assets need regulation to thrive, though needs some drafting surgery in practice to make it more effective. Something more… EU or US like, with a UK jurisprudential underpinning? As Picasso said, ‘Good artists copy, great artists steal’ and we should merrily steal as much as possible from our clever Northern cousins. You can read our short submission on the draft legislation, which has far too broad a definition of digital assets, leaves too much of the heavy lifting to future regulations and doesn’t have sufficient incidental benefits for the Web3 community here.
  5. Greenwashing (ASIC): ASIC has taken its first action for ‘greenwashing’ against listed energy company Tlou Energy Limited. ASIC issues infringement notices in relation to statements and images contained in two ASX announcements made by Tlou which claimed that: electricity produced by Tlou would be carbon neutral; Tlou had environmental approval and the capability to generate certain quantities of electricity from solar power; Tlou’s gas-to-power project would be ‘low emissions’; and. Tlou was equally concerned with producing ‘clean energy’ through the use of renewable sources as it was with developing its gas-to-power project. ASIC considered that Thou either did not have a reasonable basis to make the representations, or that the representations were factually incorrect. The notices are here.

Thought for the future: Crypto exchange Coinbase has petitioned a federal court for permission to file an amicus brief in the ongoing lawsuit between the U.S. Securities and Exchange Commission and Ripple Labs. The SEC sued Ripple at the end of 2020 on allegations it sold XRP as an unregistered security. The exchange highlighted whether the SEC provided “fair notice” prior to bringing its enforcement action, adopting the position that the regulator has not provided clear guidance to businesses in the process. An issue in not just the US, but also in Australia I think…

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