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. Olive Financial Markets (ASIC): Between 2013 and 2018, Olive operated two Gold Coast-based financial services businesses. In March 2020, ASIC cancelled Olive’s AFSL which was appealed to the AAT. The AAT considering the cancellation afresh and found that Olive’s contraventions included engaging in unconscionable conduct, prohibited hawking, misleading or deceptive conduct, false or misleading statements, failing to provide appropriate advice and failing to act in the best interests of clients. As a firm they did focus a lot on CFDs, which are an inherently riskier product. For example, Olive learned from complaints lodged in September 2016 that problematic representations were being made by their salespeople to customers about past performance of financial products, and that the salespersons did not highlight or reinforce the message contained in the disclaimer about serious risk. Another example is that the fact find document contain pre-selected examples! The AAT stated these “problems went undetectedor were ignoredover a long period partly because of serious shortcomings in the compliance arrangements and complaints handling processand that this bad behaviour went on under the noses of senior managers who manifestly failed to supervise those for whom they were responsible.” Despite improvements made by Olive to its business and the AAT stating it did not have reason to believe Olive is likely to contravene its obligations in the future, the AAT upheld the cancellation given the serious and systemic contraventions that occurred over an extended period and “…the need to deter similar conduct elsewhere.” The stark decision is here.
  2. FAR (Treasury): It appears the Financial Accountability Regime won’t include $1 million + fines for accountable persons (as opposed to their direct reports though) in banks, general insurance and super, with the Coalition offering Labor support to pass the legislation through the Senate. It is not a done deal yet and has been the source of intense lobbying in connection with Assistant Minister Jones. Personal fines under FAR is a really bad idea, for the reasons I have set out in this Op Ed here. Thank God that sanity appears to be prevailing in early 2023!
  3. Deposit rates (ACCC): The Federal Treasurer Jim Chalmers has asked the competition watchdog, the ACCC, to investigate the interest rates that banks are offering to savers, in light of a 3% increase in the cash rate since May 2022. The ACCC says increases to the rates offered to savers by the banks have often been “lower, slower or conditional” when compared with the rate rises they’ve passed onto mortgage holders, as it welcomed an inquiry to increase transparency.
  4. Crypto Risks (BIS): BIS has released a paper saying that the ‘shadow financial’ functions enabled by crypto markets share many of the vulnerabilities of traditional finance. These risks are exacerbated by specific features of crypto in its view, and BIS says that authorities may consider different – not mutually exclusive – lines of action to tackle the risks in crypto. These include containment or regulation of the crypto sector or an outright ban.’ Central banks and public authorities could also work to make TradFi more attractive, and a key option is to encourage sound innovation with central bank digital currencies. A funny paper to my mind, with some obviously accurate observations e.g. crypto markets have the same vulnerabilities as TradFi e.g. custody, though some retrograde indications e.g. containment or bans? Good luck. That genie is out of the bottle, and won’t (and shouldn’t, in my view) be put back in. The BIS paper does acknowledge the difficulties here, though the paper does feel like it was written in 2020 instead of 2023 in terms of the commercial and regulatory market at present.
  5. Sean Hughes (ASIC): Regulators are comprised of people, who have their idiosyncrasies like anyone else. One of the best Commissioners was Sean Hughes, who is departing for Vanguard. A driving force behind FAR, it will be interesting to see who replaces him and picks up that mantle as it is legislated shortly and starts to take shape.

Thought for the future: the present CEO of FTX has mooted the possibility of the firm being revived. Leave the commercials aside e.g. reputation, trust, etc, the regulatory licensing process would be an absolute nightmare as I’ve outlined in this CoinTelegraph article. Perhaps insurmountable.