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.
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- Westpac AML action (ASIC):following AUSTRACs application to the Federal Court for civil penalty orders against Westpac relating to systemic non-compliance with theAML/CTF Act 2006(Cth) (Act) on over 23 million occasions, and as anticipated (see last weeks wraphere), ASIC and APRA have separately announced investigations into the matter. (And plaintiff firm Phi Finney McDonald have predictably announced they are investigating a class action.) Expect ASIC action to focus on s912A(1) of the Corporations Act 2001 (Cth) i.e. efficiently, honestly and fairly;APRA is focusing on whether it can use its new tool BEAR. Indeed, on 1 December 2019 Chair Wayne Byres told a Parliamentary hearing that the regulator would confirm by the end of the month whether it was launching proceedings under BEAR and stated:There are various people designated by Westpac as accountable persons??that broadly includes individual directors, the chief executive and by and large the next layer of group executiveseach of those accountable persons has their own obligations under the BEAR regime??to act honestly, conduct their affairs with due skill and diligence and to make sure they dont do anything that might unduly jeopardise the current standing of the bankif there is a sense that it is not done efficiently or effectively, then there is an opportunity for APRA, if the circumstance is warranted or the behaviour is sufficiently serious, to seek disqualification of certain individuals.It is worth noting, in this context, that BEAR is not retrospective and most of the conduct appears to have occurred before its introduction in July 2018. And that, like the UK SMCR upon which it is based, BEAR is designed on the no-gaps principle i.e. more than two people should not have responsibility for the same matters. There may be some grey areas of overlap (commonly with the tech function), but for all the sweeping public statements being made it is very doubtful to me that the BEAR would apply broadly across the executive suite. (P.s. look out for a forthcoming article this week on the UK experience so far under the UK SMCR which may give us a clue where BEAR is going!)
- Insurance prudential standard (APRA):APRA released for consultation its proposed revisions to prudential standard SPS 250, which are aimed at improving superannuation member outcomes by helping trustees select the most appropriate policies for their members, and monitor their ongoing relationships with insurers. The revisions also incorporate recommendations from the Hayne Royal Commission, and include the ability of members to easily opt out of insurance cover (new 12(f)) and requirement for super licencees to obtain independent certification that insurance arrangements entered into are (among other things) in the best interests of members (new 25). Submissions on thedraft revised prudential standardwill be received until 3 February 2020.
- Fees disclosure (ASIC):sticking with superannuation, ASIC has released updated guidance on fees and cost disclosure for issuers of superannuation and managed investment products. Designed to make the regime more practical for industry, the the main changes in the updatedRG 97, are a categorisation of on-going fees and costs into three groups (Administrative, Investment and Transaction), a single cost of product figure in PDSs and simplifying how fees and costs are presented in periodic statements. The new guidance will apply to PDSs issued on or after 30 September 2020, and periodic statements (ongoing or on exit) for a reporting period that commences on or after 1 July 2021.
- Memorandum of understanding (ASIC / APRA): as can be seen in the current Westpac case, when you are dealing with one regulator there is always the potential for another (local or foreign) to be in the wings. Especially where there is an MOU between those regulators on information sharing and enforcement action! The ACCC and US FBI signed an MOU earlier in the year to will strengthen the agencies joint efforts in combating cartels and other anti-competitive behaviour. And now ASIC and APRA have refreshed their MOU, following the Hayne Royal Commissions recommendation 6.9 that the law should be amended to oblige ASIC and APRA to cooperate, share information to the maximum extent practicable and notify the other whenever it forms the belief that a breach for which the other agency has enforcement responsibility may have occurred. Theupdated MOU(my top read for the week!) is geared to information sharing and investigatory co-operation, for example [22] providesEach agency agrees to inform the other agency of breaches, and suspected or potential breaches of regulatory requirements that are relevant to the others responsibilities.From my viewpoint, APRA and ASIC are already information sharing to quite an extent in the wake of the Hayne Royal Commission- no doubt that trend will continue and probably increase given the new MOU
- Financial advisors / FASEA(ASIC):in news welcomed by financial planning industry, ASIC announced that it will not be monitoring or enforcing individual advisers compliance with theFinancial Planners and Advisers Code of Ethics 2019on the grounds that it is not a code-monitoring body.The code was set by the Financial Adviser Standards and Ethics Authority (FASEA) in February 2019. Financial advisers will still be required to comply with the code from 1 January 2020 and AFS licensees will still be required to take reasonable steps to ensure that their financial advisers comply with the code. However, ASIC will take a facilitative approach to compliance with Standards 3 and 7 of the Code (see below) until the new single disciplinary body for financial advisors currently under development??which will displace the role of compliance schemes in monitoring and enforcing the code??is up and running. Standard 1 of the code provides You must act in accordance with all applicable laws, including this Code, and not try to avoid or circumvent their intentand Standard 3 of the Code providesYou must not advise, refer or act in any other manner where you have a conflict of interest or duty.
Thought for the future:the global Financial Action Taskforce (FATF), is an intergovernmental organization founded in 1989 on the initiative of the G7 to develop policies to combat money laundering. In its reviews on Australia over the years, it has sometimes been less than glowing in its reports. (One longstanding gripe is the fact that AML / CTF laws do not cover real estate agents, lawyers and accountants??there is good reason for it not covering lawyers, including given their fiduciary obligations but that is a topic for a separate time.) Indeed, in its last report in 2018 FATF stated Overall, Australia has made some progress in addressing the technical compliance deficiencies identified in its MER and has been re-rated on seven Recommendations. However, 14 Recommendations remain non-compliant or partially compliantMy broad sense is that with recent developments, FATF will obtain more satisfaction from Australia going forward.
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(These views are my own and do not constitute legal advice. Photo credit Tom Wheatley)
