Financial Services in Focus – Issue 51

By Harry New, Adrian Verdnik and Nina Mao

In this edition, we report on draft exposure regulations for incoming reforms to breach reporting obligations, the passing of a Banking Royal Commission bill dealing with adviser fees and super fund advice fees, ASIC’s new immunity policy on breaches of the insider trading and market manipulation provisions and much more.

Click on each heading below to read more about each of these areas: funds and financial products, financial markets, anti-money laundering and other financial services regulation. 

Funds and financial products

ASIC consults on proposals concerning deferred sales model for add-on insurance

On 11 March, ASIC released a consultation paper seeking stakeholder feedback on draft regulatory guidance and other proposals in relation to the forthcoming deferred sales model for add-on insurance.

Under the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth), an industry-wide deferred sales model for add-on insurance (Deferred Sales Model) will come into effect on 5 October. The Deferred Sales Model applies a deferral period between the purchase of the primary product and the purchase of add-on insurance.

As part of the consultation, ASIC has made available:

1. ASIC Consultation Paper 339 Implementing the Royal Commission recommendations: The deferred sales model for add-on insurance;
2. draft ASIC Regulatory Guide 000 The deferred sales model for add-on insurance; and
3. a template for applications for exemption from the Deferred Sales Model.

Consultation closes on 23 April.

Treasury consults on draft breach reporting regulations

On 10 March, the Treasury published exposure draft regulations and exposure draft Explanatory Statement to support amendments made to breach reporting obligations for both AFS licensees and credit licensees in Schedule 11 to the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth). The amendments to breach reporting obligations under the Act commence on 1 October.

Consultation closes on 9 April.

Adviser fees and super fund advice fees bill receives Royal Assent

On 25 February, the Treasurer, Josh Frydenberg, and the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, jointly announced the passage of the Financial Sector Reform (Hayne Royal Commission Response No. 2) Bill 2020 through Parliament.

On 2 March, the Financial Sector Reform (Hayne Royal Commission Response No. 2) Act 2020 (Cth) (Act) received Royal Assent.

As noted in our earlier Issue 48 in respect of the bill, the Act implements a further four recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

According to the Explanatory Memorandum to the bill:

1. the ongoing fee arrangements reforms will apply to ongoing fee arrangements entered into on or after 1 July 2021, and a conditional transitional period to and including 30 June 2022 will apply to ongoing fee arrangements which are in force immediately before 1 July 2021;
2. a providing entity (an AFS licensee or authorised representative) who is not acting independently is required to give a written disclosure of lack of independence to retail clients in a Financial Services Guide before providing personal advice to the client. This requirement applies in relation to financial services provided on or after 1 July; and
3. reforms to rules about advice fees charged by superannuation trustees apply from 1 July in relation to any fees payable under an arrangement entered into on or after that time, and a transitional period to and including 30 June 2022 applies in relation to existing arrangements entered into before 1 July 2021.

Financial markets

ASIC market integrity determination registered

On 3 March, the ASIC Market Integrity Rules (Securities Markets) Determination 2021/135 (Determination) and the ASIC Market Integrity Rules (Securities Markets) Repeal Instrument 2021/136 (Repeal Instrument) were registered.

According to the Explanatory Statement, the purpose of the instruments is to determine Tier 1 Equity Market Products and the Tier 2 Equity Market Products for the purposes of paragraph 6.2.1(1)(c) of the ASIC Market Integrity Rules (Securities Markets) 2017, and to repeal the current determination ASIC Market Integrity Rules (Securities Markets) Determination 2020/1102 (which is to be superseded).

The Explanatory Statement confirms that the Determination and Repeal Instrument maintain existing policy settings under the current determination.

ASX releases review of Trade Acceptance Service and related Product Services Legal Terms

On 26 February, the ASX released the ASX Review of Legal Terms ASX Trade Acceptance Service and related Product Services.

According to the paper, the trade acceptance service and related product services are provided by the ASX to approved market operators on the basis of contractual Legal Terms. The current Legal Terms commenced on 31 October 2016 and are due to expire on 31 October.

The Legal Terms require a review to be commenced 12 months prior to the expiry of the Legal Terms, and a review to the published within four months of commencement. According to the paper, the review has not identified a need for significant changes to the Legal Terms. The ASX states that some relatively minor changes will be implemented.

ASX consults on changes to CHESS replacement netting and settlement confirmation workflows

On 18 February, the ASX released a consultation paper outlining proposed modifications to the design of netting and settlement confirmation workflows as part of the CHESS replacement project.

According to ASX Consultation Paper CHESS Replacement: Proposed changes to netting and settlement workflow, the modifications are intended to support the registration and clearing and settlement of significantly greater trading volumes than had been anticipated at the commencement of the project.

Consultation closes on 18 March.

Anti-money laundering

FATF releases guidance on risk-based supervision

On 4 March, the Financial Action Task Force (FATF) released guidance designed to clarify and explain how supervisors (such as AUSTRAC) should apply a risk-based approach to their activities in line with FATF Standards.

According to FATF, FATF Guidance for a Risk-Based Approach Guidance to Supervision sets out:

1. high-level guidance on risk-based supervision;
2. strategies to address common challenges in risk-based supervision and jurisdictional examples; and
3. country examples of supervision of the financial sector, virtual asset service providers and other private sector entities.

Other financial services regulation

APRA writes to life insurers and RSE licensees in relation to life insurance

On 9 March, APRA published a letter to life insurers and registrable superannuation entity (RSE) licensees noting APRA’s concerns in relation to trends and practices in the provision of insurance to superannuation members.

APRA states that it has identified the need for:

1. superannuation trustees to maintain, and make available to insurers, high quality and sufficiently granular data to facilitate sustainable insurance design and pricing;
2. clear insurance strategies developed and maintained by trustees, that reflect a scheme design for default insurance which carefully considers and appropriately balances their members’ needs and the cost of insurance; and
3. tender processes that provide adequate information and time to all participants, to enable them to consult on scheme design and appropriately price the risks and benefits.

In the letter, APRA states that it expects RSE licensees and life insurers to take note of the concerns and expectations set out in the letter, and take steps to address them.

On that day, APRA also published an article in relation to its concerns.

Bill enabling superannuation balance transfers to ATO passes Parliament

On 25 February, the Treasurer, Josh Frydenberg, and the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, jointly announced the passage of the Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020 through Parliament.

According to the Explanatory Memorandum, the bill amends various Acts to facilitate the closure of eligible rollover funds and allow the ATO to reunite amounts received by the ATO from eligible rollover funds with a member’s active account.

The Explanatory Memorandum explains that the bill follows a Productivity Commission report finding that found eligible rollover funds have not been successful in reuniting members with lost superannuation.

ASIC releases immunity policy for Part 7.10 contraventions

On 24 February, ASIC released an immunity policy setting out information on applications for immunity from civil penalty or criminal proceedings for a contravention of a provision in Part 7.10 of the Corporations Act.

According to the ASIC, the policy applies to contraventions of a provision in Part 7.10 of the Corporations Act, including serious offences such as market manipulation, insider trading and dishonest conduct in the course of carrying on a financial services business.

As part of its regulatory information package, ASIC has issued the following documents:

1. INFO 172 Cooperating with ASIC;
2. ASIC immunity policy: Frequently asked questions;
3. ASIC immunity policy – request for marker form.

ACCC updates guidance on Consumer Data Right exemptions power

On 22 February, the ACCC released updated guidance for applicants seeking exemption under section 56GD of the Competition and Consumer Act 2010 (Cth) (CC Act). Under section 56GD of the CC Act, the ACCC has a discretionary power to exempt a person from one or more provisions of the Consumer Data Right regime.

According to the ACCC’s Consumer Data Right newsletter (3 March 2021), the guidance has been updated to include a list of factors that the ACCC may take into account in its assessment of applications.