- Finder (ASIC): ASIC has commenced civil penalty proceedings in the Federal Court against Finder Wallet Pty Ltd, for allegedly providing unlicensed financial services, breaching product disclosure requirements and failing to comply with design and distribution obligations in relation to its crypto-asset related product Finder Earn. Finder Wallet offered Finder Earn between late February and 10 November 2022. Finder Earn customers deposited Australian dollars into their accounts, which were then converted to an Australian dollar-denominated ‘stablecoin’ called TAUD and allocated to Finder Wallet to use for its own working capital. Finder Wallet paid customers an annual compounding return of 4.01%- 6.01%, in exchange for the use of their funds by Finder Wallet. ASIC alleges that the Finder Earn product was, in substance, a debenture. After ASIC notified Finder Wallet of its concerns, Finder Wallet ceased offering Finder Earn from 24 November 2022 and all funds were returned in full to customers. You can read the originating process here. There are a few interesting bits about this one, including the fact that ASIC calls the product a debenture — this is different to the MIS or derivative allegations in ASIC’s concurrent claim against crypto “earn” products, underscoring the variability of the digital assets landscape. It is also the fact that ASIC has chosen to lump in breach of PDS and DDO obligations. Why bother when all that flows from the fact that you may have engaged in unlicensed conduct? And in that regard, if the regulator notifies you of its concerns in a highly technical and evolving area, and you return all of the consumer funds do you really deserve to be sued? I would argue in the negative.
- Financial Advice (AFS): ASIC has cancelled the AFS licence of National Advice Solutions because it failed to ensure that financial services covered by the licence were provided efficiently, honestly and fairly. National Advice Solutions adopted a ‘layered advice’ strategy whereby the licensee separated the advice into pre-determined topics, regardless of the client’s personal circumstances, goals or advice needs. The ‘layered advice’ strategy was found to actively impede financial advisers from complying with the financial services laws, as clients were provided with expensive and templated advice that was not appropriate for their personal circumstances. It is not the first time that ASIC has taken issue with financial advisers trying to (understandably) commoditize their world, but it underscores the ongoing efforts ASIC is making in the financial advice sector to improve standards.
- Modernising the Financial System (Treasury): Next year, the Government has stated that it will:
- update and strengthen Australia’s payments system;
- strengthen our financial market infrastructure; establish a regulatory framework for Buy Now Pay Later; and
- establish a framework for the licensing and regulation of crypto service providers.
These are mostly already known, save that the big news is the reform of the payment system area. It is drastically needed. Over time, Australia’s payments system has expanded in size and complexity. New technology e.g. blockchain, business models and participants are providing increased transaction convenience and more payment methods but are also giving rise to greater complexity and new risks. The Government has released a consultation paper aimed at developing a Strategic Plan for the future of Australia’s payments system. (The development of a strategic plan was a key recommendation of the June 2021 Review of the Payments System.) The consultation paper allows for feedback to determine the key objectives and priorities for the payments system, and how the Plan can be used to coordinate action across public and private sector participants — the response is due by February 2023.
- Guide for Bank Directors (APRA): APRA has published its first handbook aimed at helping the directors of banks, credit unions and building societies to understand and comply with APRA’s regulatory requirements. The guide puts all of APRA’s existing requirements and accompanying guidance in one place, and very helpfully in an excel spreadsheet which can be cross-checked with obligations registers (if you do work within an ADI, and don’t have an obligations register, reach out and we can assist in getting you started with our big templates).
- Corporations Law (Treasury): More draft legislation coming from Treasury to give effect to the ALRC’s great work. The draft legislation:
- creates a single glossary of defined terms in section 9 of the Corporations Act 2001 (Corporations Act);
- ‘unfreezes’ the Acts Interpretation Act 1901 (AIA) as it applies to the Corporations Act and Australian Securities and Investments Commission Act 2001 so the most current version of the AIA applies to both Acts;
- repeals definitions that are no longer used, cross-references to repealed provisions and other redundant provisions;
- amends the law to address unclear or incorrect provisions; and
- simplifies unnecessarily complex provisions, with a particular focus on terms defined as having more than one meaning and definitions containing substantive obligations.
All of this is necessary and great stuff — but it is tinkering. We need to see the real reform i.e. making the CA more principles based, so as to reduce its complexity, as the ALRC has been pushing for.
Thought for the future: this Government is continuing the breakneck pace of reform in the financial services sector which partially characterized the past Government. 2023, between FAR, CSLR. ,BNPL regulation, crypto regulation and payment systems reform is going to be big and I am excited!
