This edition of the Gadens’ Regulatory Recap highlights recent developments from ASIC, APRA, ACCC, AFCA, AUSTRAC, the OAIC, and Treasury, including various enforcement actions taken by the regulators and updates from the 2023 ASIC Annual Forum.
- ASIC and AFSA sign refreshed MoU: On 16 November 2023, the Australian Securities Investment Commission (ASIC) and Australian Financial Security Authority (AFSA) signed a refreshed Memorandum of Understanding (MoU). The updated MoU establishes a framework focused on continued collaboration in the pursuit of common interests and a demonstrated Australian Government approach facilitating the exchange of information to promote and protect the financial system. The MoU aligns with the Bankruptcy Act 1966 (Cth) and Corporations Act 2001 (Cth) and allows ASIC access to the AFSA-managed Personal Property Securities Register.
- ASIC Deputy Chair delivers speech on compliance and enforcement in retail credit and financial services: ASIC Deputy Chair Sarah Court has given an address at this year’s Australian Retail Credit Association Credit Summit signalling increased enforcement action in the consumer lending industry across several areas of concern identified by ASIC.
ASIC has indicated it will be targeting:
- effective systems and procedures for working with customers experiencing hardship;
- design and distribution obligations, including increased scrutiny of target market determinations; and
- breaches of the recently introduced reportable situations regime, based on concerns that only 11% of the licensee population has submitted a report to date.
3. ASIC proposes to extend parent entity reporting and auditor independence legislative instruments: On 17 November 2023, ASIC proposed to extend the operation of ASIC Corporations (Auditor Independence) Instrument 2021/75 and ASIC Corporations (Parent Entity Financial Statements) Instrument 2021/195 for a further five years. ASIC Instrument 2021/75 allows a lead auditor to be relieved from the requirement to disclose certain contraventions relating to financial interests in limited circumstances, while ASIC Instrument 2021/195 allows a parent entity to include single entity financial statements in consolidated financial statements. ASIC invites feedback on the proposal by 8 December 2023.
4. ASIC consults on ABA’s proposed changes to the Banking Code of Practice: On 17 November ASIC commenced a consultation on the Australian Banking Association’s (ABA) proposed changes to its Banking Code of Practice (the Code).
ASIC is focussed on obtaining stakeholder feedback and insights on:
- whether the proposed Code imposes obligations on subscribers that are beyond those required by the law;
- whether the proposed code provides for effective administrative systems for monitoring compliance and whether the obligations are capable of being enforced;
- whether the proposed code strikes an appropriate balance between simplifying the Code and minimising regulatory duplication on the one hand, and promoting consumer awareness of protections applicable to their banking relationship on the other; and
- the role of industry guidelines.
ABA has voiced intention to lodge a formal application for ASIC’s approval of the Code. Feedback can be submitted to the consultation until 15 January 2024.
5. ASIC Annual Forum: The Gadens team attended the ASIC Annual Forum where a number of key issues were discussed:
Setting a direction for ASIC in 2024: ASIC Chair Joe Longo delivered the keynote opening address and noted that ASIC’s interest is, and will continue to be, the safety and integrity of the financial system and capital markets, and positive outcomes for consumers, investors, and businesses. With the theme of the forum being ‘Navigating Disruption’, Mr Longo highlighted various matters that have the potential to disrupt the Australian financial market, including geopolitical uncertainty, rapid transformation in the financial services space, and market volatility, with key regulatory matters such as design and distribution obligations, the Financial Accountability Regime, and the reportable situations regime all the result of the disruption of the Royal Commission.
ASIC Annual Forum: Responding to climate disruption: ASIC held a panel session on the impact on Australian business of the net-zero economy. ASIC Deputy Chair Karen Chester stated that disclosure standards are critical, particularly in the context of decarbonisation. As the ESG space develops, ASIC has been engaging with counterparts both domestically and internationally, including as part of the Council of Financial Regulators Climate Working Group alongside APRA, the RBA, and Treasury.
Hardship and vulnerable consumers: A panel session was held on the hardship issues impacting vulnerable consumers. ASIC’s recent review of hardship applications from 30 large lenders indicated that there had been more than 430,000 applications from more than 170,000 customers since 2022, 40% of which related to home loans. David Locke, CEO and Chief Ombudsman at AFCA, indicated that many vulnerable consumers were relying on buy-now-pay-later and short-term lending products to fill the gap, with a 57% increase in complaints about buy-now-pay-later products. The Australian Retail Association indicated that consumers appeared to be reluctant to rely on hardship provisions under the misconception that doing so would have an impact on consumer’s credit scores. In the panel, ASIC called on lenders to ensure they have appropriate arrangements in place to appropriately respond to hardship requests and that they work with customers to find sustainable solutions.
Retirement income covenant one year on: A panel session was held on the impact of the retirement income covenant on the superannuation industry. The covenant, which requires trustees to develop a retirement income strategy to improve long-term outcomes for members as they approach retirement, came into effect on July 2022. ASIC stated that it could be seen that many trustees had taken steps to appropriately implement retirement solutions for members, but that there was variability in the quality of approach that was taken from some funds.
2024 enforcement priorities: As part of ASIC’s 2023 Annual Forum, Deputy Chair Sarah Court announced the regulator’s enforcement priorities for 2024. ASIC will continue to prioritise greenwashing, design and distribution obligations, while governance and directors’ duties failures have been added as enduring priorities.
Key 2024 priorities include:
- enforcement action targeting poor distribution of financial products;
- misleading conduct in relation to sustainable finance including greenwashing;
- high-cost credit and predatory lending practices to consumers and small business;
- misconduct resulting in the systematic erosion of superannuation balances;
- compliance with the reportable situation regime;
- misconduct relating to used car financing to vulnerable consumers; and
- compliance with financial hardship obligations.
6. ASIC Enforcement Activities: Over the last fortnight, ASIC has delivered a broad range of enforcement activities.
A former director and responsible manager of Alliance Management Group Pty Ltd has been permanently banned from providing financial services, controlling an entity that carries on a financial services business, and performing any function involved in a financial services business. A former director of the Magnolia Capital Group has been disqualified from managing corporations for five years and banned from providing financial services and engaging in credit activities for a period of ten years following findings that he failed to act in good faith, showed a lack of honesty and integrity, and was not a fit and proper person. The AFSL of three organisations were suspended for a variety of conduct issues including a failure to lodge financial statements and audit reports , a failure to meet compliance obligations, and a failure to comply with financial requirements and have adequate resources to provide financial services.
ASIC has accepted a court enforceable undertaking from iExtend Holdings Company Pty Ltd and iExi Pty Ltd (together, iExtend) after an investigation found that iExtend was operating a financial services business without an AFSL. The investigation found that iExtend was offering to pay life insurance premiums for customers in exchange for a portion of any benefit if a claim was made. The court enforceable undertaking requires iExtend to apply for an AFSL to issue financial products, provide general advice, and provide claims handling and settling services.
Separately, the Federal Court has ordered Mercer Financial Advice (Australia) Pty Ltd to pay a penalty of $12 million following findings that it failed in its fee disclosure obligations and charged fees that it was not entitled to charge. Mercer was found to have breached both the Corporations Act and the ASIC Act over a three-year period.
Following an ASIC investigation and referral to the Commonwealth Director of Public Prosecutions, Louise Medley, a former director of Black Collections Pty Ltd, was found guilty and convicted of two counts of dishonestly obtaining financial advantage by deception. In 2021, Black Collections was convicted and fined for engaging in unlicenced credit activity and holding out that it held an Australian Credit Licence.
7. APRA proposes targeted changes on liquidity and capital in response to global banking turmoil: APRA has commenced consultation on proposed targeted changes on liquidity and capital requirements. The proposed changes follow the bank crisis events in the United States and Europe earlier this year and are aimed at strengthening the banking sector’s resilience. The proposed changes would ensure that:
- ADI’s on the Minimum Liquidity Holdings (MLH) regime value liquid assets at their market value;
- all ADIs have robust processes for accessing exceptional liquidity assistance from the Reserve Bank of Australia; and
- contagion risk is reduced by strengthening the composition of MLH liquid assets.
The changes would primarily impact banks that are subject to the MLH regime, rather than the more complex Liquidity Coverage Ratio (LCR) primarily used by larger banks. Submissions are open until 16 February 2024.
8. ACCC Chair delivers speech on regulatory priorities and challenges posed by the digital economy: ACCC Chair, Gina Cass-Gottlieb, recently delivered a speech regarding key data-related competition and consumer concerns that the ACCC has identified in their digital platforms work, and the regulatory reforms recommended to government.
Key takeaways include:
- ACCC expects the uptake of generative AI in the services digital platforms to raise substantial barriers to entry and expansion that make platform markets tend towards concentration.
- ACCC is concerned about the rapid growth of leading digital platforms and acquisitions that protect or extend the market power of large digital platforms and data-rich companies.
Ms Cass-Gottlieb highlighted the need for targeted obligations on digital platforms to address the types of anti-competitive conduct most relevant to that service. In response, the ACCC has proposed a new mandatory notification and clearance model, and a change to the legal test for assessing mergers that placed greater focus on changes to structural conditions for competition that result from the merger.
9. Chief Ombudsman’s address at AFCA Member Forum: On 16 November 2023, AFCA’s Chief Ombudsman delivered the opening address at the AFCA Member Forum. The Chief Ombudsman’s address provided an overview of the achievements and challenges of AFCA over the past five years. Since AFCA’s inception in 2018, following the recommendations of the Ramsay Review, AFCA has handled over 400,000 complaints and worked with 4,000 financial firms. Notably, most of AFCA’s members have never had a complaint made against them, with only 16% of members receiving a complaint since 2018. One of AFCA’s focuses is early resolution of complaints, with over 60% of complaints resolved within 60 days.
10. AFCA responds to Australian Banking Association Scam-Safe Accord: On 24 November 2023, the ABA announced a Scam-Safe Accord between community owned banks, building societies, credit unions, and commercial banks to introduce anti-scam measures across the banking industry. The initiatives set out in the Accord, which include a new confirmation of payee system, and expansion of intelligence sharing across the industry, were welcomed by AFCA, which stated that in the first quarter of the 2023-24 financial year, AFCA received 2,856 scam-related complaints, accounting for a 57% increase on the same period a year earlier.
11. AUSTRAC and financial intelligence units in Pacific meet regarding money laundering: On 16 of November 2023, AUSTRAC co-hosted a conference for the Pacific Financial Intelligence Community (PFIC) in the Cook Islands, attended by government financial intelligence agencies across the Pacific nations. The 3-day event culminated in the participating nations signing a Statement of Intent committing to strategically co-ordinate and share intelligence in their ongoing efforts to fight financial crime.
12. AUSTRAC accepts Enforceable Undertaking from Perth Mint: Following an August 2022 AUSTRAC assessment of Gold Corporation (trading as Perth Mint), AUSTRAC has accepted an Enforceable Undertaking to uplift its anti-money laundering and counter-terrorism funding compliance standards. The assessment audit identified that Gold Corporation was failing in its compliance with its reporting obligations, monitoring systems and internal controls. In consideration of the nature and seriousness of the findings, AUSTRAC determined that an Enforceable Undertaking was the most appropriate regulatory response. The Enforceable Undertaking will ensure that Gold Corporation dedicates sufficient resources to adequately address the compliance shortcomings identified by the audit. Gold Corporation is required to make reports demonstrating progress towards its compliance obligations within an agreed timeframe.
13. Association of Information Access Commissioners meet: On 3 November 2023, the Association of Information Access Commissioners (AIAC) met in Perth for its second biannual meeting. The AIAC is made up of independent information commissioners and ombudsmen of Australia and New Zealand. The AIAC discussed the value of freedom of access to information, specifically for:
- fostering public trust in government integrity, accountability, and transparency;
- transparency over government decision making and processes encourage administrative and social efficiency;
- maintaining a well-informed citizenry; and
- meeting human rights obligations.
The AIAC also recognised contemporary challenges to freedom of access to information in the digital information age, especially in relation to automated decision making or decisions that involve the use of modern technology. Finally, the AIAC called on all governments to respect and appropriately resource freedom of information channels.
14. Treasury commences consultation for ‘Delivering better Financial Outcomes’ reform: Treasury has opened consultation on exposure draft legislation implementing the first tranche of the Delivering Better Financial Outcomes package of reforms. The draft was introduced following the Government’s Quality of Advice Review delivered in December 2022.
The draft legislation adopts a number of key recommendations from Treasury’s Quality of Advice Review, including clarifying the legal basis for superannuation trustees reimbursing adviser fees, streamlining fee renewal and consent requirements, and simplifying conflicted remuneration provisions.
Interested parties can provide feedback on the exposure draft until December 6, 2023.
15. Insurance Council of Australia announces independent review of 2020 GICOP: On 14 November 2023, the Insurance Council of Australian announced that an Independent Review of the 2020 General Insurance Code of Practice will be undertaken by a panel comprising former APRA Deputy Chair Helen Rowell (panel chair), consumer expert Gerard Brody, and industry expert Paul Muir. The review will be conducted in two phases with findings to be delivered by 30 June 2024 and 30 June 2025 respectively. The first phase will deal with general topics, and the second with the recommendations of the Federal Parliamentary Inquiry into insurer’s responses to 2022 floods. The panel will also consider a key recommendation from Deloitte’s review of the insurance industry’s response to the 2022 floods, that the ‘Extraordinary Catastrophe’ definition in the General Insurance Code be reworked.