Financial Services in Focus – Issue 9

Funds and financial products

Asia Region Funds Passport regulations registered

On 20 August, the Corporations Amendment (Asia Region Funds Passport) Regulations 2018 (Cth) was registered.

According to the Explanatory Statement, these regulations make the amendments to the Corporations Regulations and other miscellaneous regulations which are necessary to implement the Asia Region Funds Passport in Australia.  This includes amendments to update the particulars that are included on ASIC’s registers and ensure that the disclosure requirements for foreign passport funds products are the same as those that currently apply to managed investment products.

Consumer credit

Government releases Productivity Commission Inquiry Report on competition in the Australian financial system

On 3 August, the Government released the Productivity Commission Inquiry Report on competition in the Australian financial system. An overview was also released, highlighting the findings and recommendations.

The report considers the provision of financial services and the interaction of market participants, issues facing the consumers of financial services and the functions and activities of the regulators.

Among other recommendations, the Productivity Commission recommends the introduction of a best interest obligation for all providers in the home loans market — whether as a lender or mortgage broker — who interact directly with consumers seeking a home loan.  The proposed obligation is intended to build on the existing regulatory framework in the National Consumer Credit Protection Act 2009 (Cth), which governs the licensing and conduct regime that applies to providers in the credit market.  Further, Productivity Commission recommends that, to reduce conflicts of interest, trail commissions should be banned and clawback of commissions from mortgage brokers be restricted.

Banking

APRA proposes changes to the Australian ADI capital framework

On 14 August, APRA released a Discussion Paper Improving the transparency, comparability and flexibility of the ADI capital framework, which considers whether to alter the way ADIs’ capital requirements are calculated and disclosed to facilitate greater domestic and international comparability and transparency of ADI capital strength.

APRA stated that though Australia’s capital framework is largely based on internationally agreed minimum standards set by the Basel Committee on Banking Supervision, APRA takes a more conservative approach to the definition of capital and the calculation of risk-weighted assets in some areas.  Consequently, Australian ADIs typically have lower reported capital ratios than overseas peers with comparable capital strength.

ASIC approves Banking Code of Practice

On 10 August, the ASIC Corporations (Banking Code of Practice) Instrument 2018/700 was registered (Instrument).

The Instrument provides ASIC’s approval of the Australian Banking Association’s (ABA) Banking Code of Practice, published in August 2018 by the ABA, as existing at the date of the Instrument.

The Explanatory Statement states that ASIC has assessed the Banking Code of Practice and is satisfied that it meets the requirements of section 1101A(3) of the Corporations Act.

The Government responds to the Senate Economics Legislation Committee report

On 10 August, the Government responded to the Senate Economics Legislation Committee report on the Reserve Bank Amendment (Australian Reconstruction and Development Board) Bill 2013 (Cth).

The Committee recommended that the Department of Agriculture and Treasury consult with the banking sector and relevant bodies who have identified deficiencies in the current information available on rural debt, and that the purpose of the consultation would be to progress a suitable data collection method to ensure that the quality of data available to government on rural debt would provide the information needed for decision makers to make timely and well-informed decisions.

In its response, the Government stated that it agreed with this recommendation.

ASIC announces banks to improve fraud protection systems following review

On 9 August, ASIC announced that five Australian banks will improve their compliance measures and controls for deposit accounts that can be operated by a third party, such as a financial adviser.

ASIC’s review looked at the policies, procedures and controls that banks have in place to prevent fraud and unauthorised transactions for consumers who have deposit accounts that can be operated by their adviser.

ASIC’s review did not identify concerning levels of fraud, but found that banks could do more to manage the risks to customers associated with third party access to money in customers’ accounts.

ASIC prepared a report following the review, Report 584 Improved protections for deposit accounts with third-party access.

Other financial services regulation

Government legislates that a second Deputy Chair to be created for APRA

On 16 August, the Treasurer, the Hon Scott Morrison, announced that the Government has strengthened APRA by legislating that a second Deputy Chair to be created.

The Treasurer stated that this newly-created position will ensure APRA has the capabilities to effectively carry out its mandate, including to increase accountability and competition in the financial sector.

Government introduces an amendment to the Consumer Data Right

On 15 August, the Government released the exposure draft of the Treasury Laws Amendment (Consumer Data Right) Bill 2018 (Cth) and Exposure Draft Explanatory Materials.

According to the explanatory materials, the Consumer Data Right (CDR) will provide individuals and businesses with a right to efficiently and conveniently access specified data in relation to them held by businesses, and to authorise secure access to this data by trusted and accredited third parties.  The CDR will also require businesses to provide public access to information on specified products they have on offer.

The Treasurer, the Hon Scott Morrison, stated that the CDR will arm Australians with the right information they need to seek better deals on banking products and loans, with further sectors such as energy and telecommunications services to be added over time.

Submissions are due by 7 September.

ASIC consults on the proposed establishment of a Global Financial Innovation Network

On 8 August, ASIC stated that it is, in collaboration with 11 international financial regulators, and related organisations, consulting on the proposed creation of the Global Financial Innovation Network (GFIN).

The proposed network will seek to provide a more efficient way for innovative firms to interact with regulators, helping them navigate between countries as they look to scale new ideas.  It would also create a new framework for co-operation between financial services regulators on innovation related topics, sharing different experiences and approaches.

The consultation paper states the GFIN is a collaborative policy and knowledge sharing initiative aimed at advancing areas including financial integrity, consumer wellbeing and protection, financial inclusion, competition and financial stability through innovation in financial services, by sharing experiences, working jointly on emerging policy issues and facilitating responsible cross-border experimentation of new ideas.

The working group is asking for feedback on the consultation questions by 14 October.

The Government provides further funds to ASIC

On 7 August, the Government announced that it is injecting a further $70.1 million into ASIC to ensure the corporate regulator has the resources and powers it needs to combat misconduct in the financial services industry and across all corporations for the protection of Australian consumers.

The announcement states that this new funding will bolster ASIC’s enforcement capabilities and enable it to undertake new regulatory activities and investigations, so as to better deliver on its mandate of combatting misconduct in corporations and in the financial services industry.