Financial Services in Focus – Issue 56

By Harry New and Adrian Verdnik 

In this edition, we consider ASIC’s pilot data dictionary and glossary for internal dispute resolution data reporting, the Federal Government’s proposed options for regulating foreign financial services providers, draft exposure legislation for the Financial Accountability Regime, and much more.

Click on each heading below to read more about each of these areas: funds and financial products, financial product advice, financial markets, consumer credit, banking and other financial services regulation.

Funds and financial products

ASIC consults on updated anti-hawking regulatory guidance

On 21 July, ASIC released for consultation proposed updates to its guidance on the prohibition on the hawking of financial products. According to ASIC, the updates reflect reforms to the anti-hawking regime made under the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth), which will come into effect on 5 October.

ASIC published:

1. ASIC Consultation Paper 346 Update to RG 38; and
2. the draft Regulatory Guide 38 The hawking prohibition.

Consultation closes on 17 August.

Financial adviser and mortgage broker reference checking and information sharing protocol registered

On 20 July, ASIC announced that it has made the ASIC reference checking and information sharing protocol.

Under the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth), new obligations were imposed on AFS licensees and Australian credit licensees to comply with reference checking and information sharing protocols to be made by ASIC in the form of legislative instruments. The reforms arise out of recommendations made by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

On that day, the ASIC Corporations and Credit (Reference Checking and Information Sharing Protocol) Instrument 2021/429 (Instrument 2021/429) was registered. According to the Explanatory Statement, Instrument 2021/429 prescribes the specific obligations that apply under the reference checking and information sharing protocol. The purpose of the protocol is to enable any past misconduct by a person to be ascertained and shared between the financial advice and mortgage broking industries.

ASIC also published ASIC Information Sheet 257 ASIC reference checking and information sharing protocol and ASIC Report 694 Response to submissions on CP 333 Implementing the Royal Commission recommendations: Reference checking and information sharing.

The new obligations apply from 1 October.

ASIC publishes pilot versions of data dictionary and glossary for IDR data reporting

On 19 July, ASIC published pilot versions of the internal dispute resolution (IDR) data dictionary and glossary.

The IDR dictionary and glossary set out and clarify information that financial firms will be required to collect and report to ASIC as part of the new IDR regime.

The new IDR regime as set out in ASIC Regulatory Guide 271 Internal dispute resolution will apply to complaints received by financial firms on and from 5 October. Last year, ASIC stated that the data reporting component of the new IDR regime will not commence from 5 October as it was subject to further consultation (see our earlier Issue 49).

On that day, ASIC also published ASIC Report 693 Response to submissions on ASIC’s internal dispute resolution data consultations.

These are intended to be used in a pilot involving financial firms from relevant industry subsectors in late 2021.

Treasury consults on regulations prescribing exemptions from deferred sales model for add-on insurance

On 19 July, the Treasury published exposure draft regulations prescribing classes of add-on insurance products that would be exempt from the deferred sales model for add-on insurance (Deferred Sales Model) introduced by Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth).

According to the exposure draft Explanatory Statement, the Deferred Sales Model prohibits the sale of add-on insurance products for at least four days after a customer has entered into a commitment to acquire the principal product or service. The Deferred Sales Model will be effective from 5 October.

The draft exposure regulations take into account consultation conducted earlier this year by Treasury. For more information on the consultation, see our earlier Issue 49.

Consultation on the draft exposure regulations closes on 6 August.

Treasury publishes report into grandfathered conflicted remuneration

On 16 July, the Treasurer, Josh Frydenberg, and the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, jointly announced the publication of ASIC’s report into industry’s transition away from grandfathered conflicted remuneration. The report is available on Treasury’s website.

According to the report, ASIC found that nearly all product issuers ended grandfathered conflicted remuneration arrangements before 1 January 2021.

Treasury consults on options for regulating foreign financial services providers

On 9 July, following the Budget announcement that the Government intends to consult on options to restore the previous regulatory relief regime for foreign financial services providers (FFSPs), the Treasury published a consultation paper seeking feedback on proposed options.

According to the paper, the purpose of the consultation is to assess options available in providing licensing relief to FFSPs and options to fast-track the licensing process (as well as any additional options that should be considered).

Consultation closes on 30 July.

We have previously written about the Budget, in relation to financial services and generally.

ASIC consults on proposed litigation funding scheme guidance and relief

On 9 July, ASIC published a consultation paper seeking feedback on proposed guidance and relief for litigation funding schemes.

According to ASIC Consultation Paper 345 Litigation funding schemes: Guidance and relief, on and from 22 August 2020, litigation funding schemes and associated providers of financial services providers are generally subject to the managed investment scheme, AFS licensing and product disclosure regimes under the Corporations Act.

In the context of this background, ASIC’s consultation relates to:

1. proposed guidance on how certain financial services laws definitions apply to litigation funding schemes; and
2. proposals in relation to current and new relief.

Consultation closes on 20 August.

Government announces final class exemptions for the deferred sales model for add on insurance

On 9 July, the Treasurer, Josh Frydenberg, announced the conclusion of consultation on whether any limited class exemptions need to be provided in respect of the deferred sales model for add on insurance (which commences on 5 October).

According to the Treasurer, the Government will exempt compulsory third party insurance for motor vehicles; third party property damage, fire and theft insurance for motor vehicles; comprehensive insurance for boats, motorcycles, motorhomes, caravans, and trucks; insurance sold within superannuation (including group life insurance); postage and delivery of consumer goods insurance; home building insurance; home and contents insurance; and landlord insurance, as well as provide relief for wholesale style insurances available to businesses.

The Treasurer also states that basic banking products will be exempt from the anti-hawking regime, where the customer initiates the contact.

For more information on the consultation, see our earlier Issue 49.

ASIC warns funds about ‘greenwashing’

On 7 July, ASIC published an article in relation to ‘greenwashing’. According to ASIC, this refers to the potential for funds to over-represent the extent to which their practices are environmentally friendly, sustainable or ethical.

ASIC noted that it is currently conducting a review into whether the practices of managed funds and superannuation funds that offer ‘ESG’ products are as ‘green’ or ESG-focused as claimed, and reminded boards of prohibitions on misleading and deceptive conduct and false or misleading statements in relation to financial products such as securities or interests in funds.

Financial product advice

FASEA releases draft amendments to the Education Legislative Instrument

On 19 July, FASEA announced it is consulting on draft amendments to the Corporations (Relevant Providers Degrees, Qualifications and Courses Standard) Determination 2020.

The drafting amendments are available here and FASEA has prepared a table of proposed amendments.

Consultation closes on 30 July.

ASIC releases sample record of advice for advisers relying on COVID-19 advice relief

On 14 July, ASIC released a sample record of advice to assist financial advisers relying on relief under the ASIC Corporations (COVID-19-Advice-related Relief) Instrument 2021/268.

The instrument extends temporary relief allowing financial advisers to provide a record of advice rather than a statement of advice to existing clients who require financial advice. For more information, see our earlier Issue 53.

ASIC publishes summary of responses to affordable advice consultation

On 1 July, ASIC published an infographic summarising responses to ASIC Consultation Paper 332 Promoting access to affordable advice for consumers (CP 332).

ASIC states that, following the consultation, it intends to:

1. work with industry on steps they can take to address the issues around providing good quality affordable personal advice;
2. set out the actions ASIC will take to help industry provide both good quality limited advice and affordable personal advice more broadly; and
3. pass on industry feedback to Government where relevant, for example, feedback on law reform.

For more information on the consultation, see our earlier Issue 48.

Financial markets

ASX reminds listed entities of forms and reports

On 13 July, the ASX issued Compliance Update No. 06/21. In this update, the ASX reminded listed entities:

1. that new online forms have come into effect on 5 June; and
2. of its expectations and requirements in relation to completing Appendix 4C quarterly reporters.

Consumer credit

ASIC announces commencement of debt management licensing regime

On 6 July, ASIC announced that the debt management licensing regime under the National Consumer Credit Protection Act 2009 (Cth) commenced from 1 July and published a list of applicants for an ACL (or variation to an ACL).

ASIC reminded providers of debt management services that they must cease engaging in such activities if they are not authorised under an ACL or operating in accordance with transitional arrangements (ie applied to ASIC for an ACL or ACL variation and are an AFCA member).

Banking

APRA updates key policy settings for upcoming ADI capital framework reform

On 21 July, APRA published a letter to ADIs providing an update on key policy settings for the capital framework reforms which will come into effect from 1 January 2023. These policy settings arise out of APRA’s consultation on draft prudential standards in December 2020.

In the letter, APRA states it is aiming to release final prudential standards in November 2021.

APRA announces regulatory support for loans impacted by COVID-19

On 19 July, APRA announced that it will grant regulatory support for banks offering temporary financial assistance to borrowers impacted by COVID-19.

APRA states it will release an updated prudential standard in July 2021 formalising this new treatment.

APRA consults on preparedness for zero and negative interest rates

On 12 July, APRA announced it is consulting on its draft expectations regarding ADIs’ preparedness for zero and negative interest rates.

APRA considers the risks arising from an ADI’s lack of preparedness for zero and negative interest rates to be material since this could have significant implications for an ADI’s risk management, hedging, operational processes, contracts, product disclosures, IT and accounting systems among other areas.

APRA expects ADIs to take reasonable steps to prepare for scenarios in which the cash rate and/or market interest rates may fall to zero or become negative.

Feedback is due by 20 August.

Other financial services regulation

ASIC publishes Cost Recovery Implementation Statement 2020-21 for feedback

On 23 July, ASIC published its draft Cost Recovery Implementation Statement (CRIS) for 2020-21. The CRIS outlines ASIC’s estimated regulatory costs for 2020-21 and how these will be recovered as industry levies under the industry funding model.

Feedback on the draft CRIS can be submitted until 13 August.

Treasury consults on Consumer Data Right strategic assessment and telecommunications sectoral assessment papers

On 22 July, Treasury released for consultation two consultation papers on the following assessments:

1. a strategic assessment to deliver the roadmap for the economy-wide roll-out of the Consumer Data Right, and
2. a sectoral assessment of the telecommunications sector.

In commenting on the assessments, the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, stated that telecommunications is the third sector to be considered for designation after banking and energy, which were designated in 2019 and 2020.

Consultation closes on 19 August.

Treasury consults on retirement income covenant proposals

On 19 July, the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, announced the publication of the Government’s position paper on the retirement income covenant.

On that day, the Treasury published the position paper for consultation. As set out in the paper, the purpose of the retirement income covenant is to establish on superannuation trustees an obligation to formulate, regularly review and give effect to a retirement income strategy.

The proposal to introduce a retirement income covenant was raised in the 2018-19 Budget, and consulted on by the Government in June 2018. According to the position paper, it is intended that the covenant will be legislated and take effect from 1 July 2022.

The Treasury states that stakeholder feedback will contribute towards the development of legislation to give effect to the retirement income covenant.

Consultation closes on 6 August.

APRA requires certain insurers to conduct risk management self-assessments

On 19 July, APRA published a letter it wrote to certain insurers, requiring insurers to conduct a risk management self-assessment exercise aimed at significantly reducing the likelihood of problems relating to the management of insurance risk in the future.

In the letter, APRA states that the letter arises out of issues arising out of the COVID-19 pandemic about the level of robustness applied to the management of insurance risk by some insurers.

The self-assessments are required to be completed and submitted to APRA by 30 November, and the consolidated results released publicly.

Treasury consults on Financial Accountability Regime legislative package

On 16 July, the Treasurer, Josh Frydenberg, and the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, jointly announced the release of exposure draft legislation to establish the Financial Accountability Regime (FAR).

According to the Ministers, the purpose of FAR is to extend the Banking Executive Accountability Regime (BEAR) to all APRA-regulated entities. View the package of exposure draft legislation and information papers.

According to the position paper, the Financial Accountability Regime (FAR) is intended to extend the clear standards of conduct established by BEAR for directors and the most senior and influential executives in ADIs to all APRA-regulated entities, with the differences being that FAR will have both a prudential and conduct focus and will be jointly administered by APRA and ASIC.

According to the Q&A paper, the FAR legislation is intended to be introduced to Parliament in Spring 2021.

Consultation closes on 13 August.

Government consults on Compensation Scheme of Last Resort

On 16 July, the Treasurer, Josh Frydenberg, and the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, jointly announced the release of exposure draft legislation to establish a Compensation Scheme of Last Resort (CSLR).

According to the Ministers, the CSLR is intended to facilitate the payment of compensation to eligible consumers who have received a determination for compensation from AFCA that remains unpaid.

According to the proposal paper, it is currently intended that CSLR legislation and regulations will be passed and enacted in late 2021 or early 2022.  View the package of exposure draft legislation and information papers.

Consultation closes on 13 August.

APRA publishes additional FAQs on Superannuation Data Transformation

On 16 July, APRA published additional FAQs on the Superannuation Data Transformation Phase 1 reporting standards. The FAQs are available on the APRA website.

Government announces a triennial review of the Terrorism Insurance Act 2003

On 2 July, the Government announced the commencement of the 2021 review of the Terrorism Insurance Act 2003 (Cth).

Treasury released a consultation paper by which Treasury seeks stakeholder views on issues outlined in the Terms of Reference, which are:

1. whether there continues to be market failure in the private sector supply of terrorism insurance, and consequently whether there is a need for the Act to continue;
2. whether the governance, administration and resourcing of the scheme remain appropriate, including interactions between the Cyclone Reinsurance Pool and the Terrorism Reinsurance Pool; and
3. whether the risk of cyber terrorism causing physical property damage should be included in the scheme.

Consultation closes on 30 July.

Instrument supporting investor visa regime changes registered

On 30 June, the Migration (Complying Investments) Amendment Instrument (LIN 21/041) 2021 (Amendment Instrument) was registered.

According to the Explanatory Statement, the purpose of the Amendment Instrument is to amend the Migration (IMMI 15/100: Complying Investments) Instrument 2015 (IMMI 15/100). The Amendment Instrument is made in support of amendments made to the Migration Regulations 1994 (Cth) on 1 July in relation to the Significant Investor visa (SIV) regime as well as the Investor visa regime.

The amendments support the Government’s announcement earlier this year in May of key changes that will come into effect from 1 July in relation to the investor visa regimes.