Thank you to everyone who has supported the ARWW in 2019. I hope that it has been useful — have a wonderful New Year and see you in 2020!
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.
- PIP / DDO (ASIC): ASIC has issued a consultation paper CP 325 on the forthcoming guidance for the new financial product design and distribution obligations which come into effect on April 2021. It is a very useful paper summarising to whom the regime applies (page 13) and their obligations (pages 14–16) — my top read for the week! In terms of the guidance, key points are a strong emphasis on documenting the product governance framework to help firms demonstrate whether or not they are complying with their design and distribution obligations; an expectation that behavioral biases or “other factors that impede consumer outcomes” will not be exploited; a note that disclosure is not enough to protect consumers (which is a global theme); a principles-based approach to designing the content and form of a “target market determination” for a financial product subject to the regime; and some more detail on what broad considerations will form part of the “reasonable steps” to be taken in assuring that a financial product is being distributed in accordance with the target market determination e.g. risk, harm and mitigation (page 28). An issuer must notify ASIC of a significant dealing (except excluded dealings) in a financial product that is not consistent with the product’s target market determination — ASIC plans to provide guidance to issuers on the factors to consider in relation to this breach reporting aspect. To my mind the paper is a detailed and helpful resource to assist affected product issuers and distributors to get started on what may prove to be a lengthy regulatory reform project which will need to interlink with other projects e.g. BEAR. And against the backdrop of Cigno’s challenge to ASIC’s corresponding enforcement tool, the product intervention power.
- Regulator co-operation (Treasury): the Morrison Government has released exposure draft legislation for public comment which implements recommendations 6.9 and 6.11 of the Hayne Royal Commission to place a statutory obligation on ASIC and APRA to cooperate, share information with each other and notify each other if they have a reasonable belief that there has been a breach of the other’s legislation and also to formalise and align their meeting procedures. ASIC and APRA have already released an MOU which outlines how they are going to work together (which you can read more about in a recent article I published here). The draft legislation is straight-forward enough and contains mechanisms for mandatory information disclosure (upon request) and proactive notifications e.g. the new s 55D of the Australian Prudential Regulation Authority Act 1998 (Cth) which provides that “(1) Subsection (2) applies if APRA has a reasonable belief that a material breach of a legislative provision of which ASIC has the general administration may have occurred, or may be occurring. (2) APRA must notify ASIC of that reasonable belief as soon as practicable.” (Emphasis added). Regulatory investigations by one regulator can trigger a snowball effect i.e. other regulators issuing their inquiries, market disclosure obligations and class actions. Firms need to appreciate this now more than ever in the context of the incoming legislation and existing MOUs.
- Crypto exchanges (AUSTRAC): AUSTRAC has withdrawn the licences of three crypto-currency exchanges based on concerns about their connections to organised crime. These actions were commenced in September 2019, but recently announced as AUSTRAC increases its focus on this area. Australian cryptocurrency exchange operators have been required to register with AUSTRAC since the Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2017 (Cth) was passed. Under that law AUSTRAC can suspend and/or cancel a registration if it is believed that a business or organisation poses an unacceptable risk of money laundering, terrorism financing, or other serious crime.
- ASIC v. Volkswagon (ASIC): ASIC has commenced civil penalty proceedings in the Federal Court of Australia against Volkswagen Financial Services Australia Pty Limited (Volkswagen), claiming that between 20 December 2013 and 15 December 2016, Volkswagen contravened the responsible lending provisions of the National Consumer Credit Protection Act 2009 (Cth) (Act) in relation to 49,380 car finance loans by not making reasonable inquiries about and / or verifying borrowers’ living expenses and not making an assessment about whether the loans were unsuitable in contravention of ss 128(d), 129 and 130(1)(b) and ( c) of the Act. ASIC also alleges that Volkswagen contravened its obligations under s47 of the Act (the Act’s version of s 912A of the Corporations Act 2001 (Cth)) requiring it to engage in credit activities “efficiently, honestly and fairly” — unlike in the Corporations Act 2001 (Cth), there is no penalty for breaching this section. This action comes on the back of ASIC’s appeal to the Full Federal Court from the decision in ASIC v Westpac Banking Corporation, which Justice Perram decided a lender “may do what it wants to in the assessment process” and so does not have to use a borrower’s stated expenses in undertaking their obligations, and ASIC’s release of an updated RG 209 on responsible lending. Initial setback notwithstanding, ASIC is clearly not backing down in the area of responsible lending…
- Directors (Market-commentary): it has been reported that top company directors have warned that too few boards have directors able to make “experience-based judgments”, partly due to the public “sin-binning” of those tarnished by controversies in recent times (The Australian, 27 / 12). It is an important discussion to have. The pressure from the regulatory e.g. BEAR & ASIC’s stepping stones strategy, media e.g. recent AGM coverage and political spheres e.g. Frydenberg’s public commentary on directors of financial services firms is enormous. What long term effect it will have on the Australian director talent pool remains to be seen. For now, my sense is that directors need to be given as much assistance as possible — and the benefit of some more nuanced perspective — in discharging their duties to shareholders and other stakeholders while also successfully navigating increasingly choppy regulatory waves. Senior executives too!
Thought for the future: the UK Financial Conduct Authority is introducing a new regime next year which will force credit card providers to take a series of escalating steps to help people who are making low repayments on credit cards for a long period of time. Banks will have to explain to customers the benefits of increasing customer’s payments, and tell them about where to get debt help and advice after 18 months of persistent low level repayments. They will need to send them a reminder at 27 months and then offer them a way to repay their balance over a reasonable period after 36 months. Customers who fail to respond or cannot afford the increased repayment risk having their credit cards suspended. With ASIC’s increasing focus on responsible lending, perhaps this a measure we can expect to be raised in Australia soon?
Do you think I overlooked something or would like more information? If so, please send me a message!
(These views are my own and do not constitute legal advice. Photo credit Tom Wheatley)