Financial Services in Focus – Issue 75

By Philip Hopley and Georgia Francis

In this edition, we outline Treasury’s consultation on regulating ‘buy now, pay later’ arrangements, APRA’s first handbook for bank board directors and ASIC’s updated guidance on ETP naming conventions, and much more.

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

Financial products

Treasury announces consultation on further improvements to corporations and financial services law

On 12 December, the Treasury released for consultation Treasury Laws Amendment (Measures 4 for consultation) Bill 2022: ALRC 5 Financial Services Interim Report 6 Tranche 2 (Exposure Draft Legislation) to reduce the complexity of Australia’s corporations and financial services laws by making these laws more adaptive, efficient and navigable within existing policy settings.

The Exposure Draft Legislation, among other things:

• implements a further two recommendations made by the Australian Law Reform Commission (ALRC) in Interim Report A of its Inquiry into the Legislative Framework for Corporations and Financial Services Regulation relating to improving navigability and readability of the law, to:
  • create a single glossary of defined terms in section 9 of the Corporations Act; and
  • ‘unfreeze’ the Acts Interpretation Act 1901 (Cth) (AIA) as it applies to the Corporations Act and Australian Securities and Investments Commission Act 2001 (Cth) so the most current version of the AIA applies to both Acts; and
• partially implements three recommendations from the ALRC’s Interim Report B to:
  • repeal definitions that are no longer used, remove cross-references to repealed provisions and other redundant provisions;
  • amend the law to address unclear or incorrect provisions; and
  • simplify unnecessarily complex provisions, with a particular focus on terms defined as having more than one meaning and definitions containing substantive obligations.

The Exposure Draft Legislation further builds on the amendments to simplify the corporations and financial services law contained in the Treasury Laws Amendment (Modernising Business Communications and Other Measures) Bill 2022, which the Government introduced to Parliament on 23 November.

Consultation closes 15 January 2023.

ASIC consults on proposals to remake sunsetting class orders on takeovers, compulsory acquisitions and relevant interests

On 30 November, ASIC released Consultation Paper 365 Remaking ASIC class orders on takeovers, compulsory acquisitions and relevant interests, in which ASIC states that it proposes to remake these following class orders because they are operating effectively and efficiently and continue to form a necessary and useful part of the legislative framework:

• Class Order [CO 12/1209] Relevant Interests, ASIC and ASIC Chairperson, which sunsets on 1 April 2023;
• Class Order [CO 13/519] Changing the responsible entity, which sunsets on 1 October 2023;
• Class Order [CO 13/520] Relevant interests, voting power and exceptions to the general prohibition, which sunsets on 1 October 2023;
• Class Order [CO 13/521] Takeover bids, which sunsets on 1 October 2023;
• Class Order [CO 13/522] Compulsory acquisitions and buyouts, which sunsets on 1 October 2023;
• Class Order [CO 13/524] Bidder giving substantial holding notice, which sunsets on 1 October 2023;
• Class Order [CO 13/525] On-sale disclosure relief for scrip bids and schemes of arrangement, which sunsets on 1 October 2023;
• Class Order [CO 13/526] Warrants: Relevant interests and associations, which sunsets on 1 October 2023; and
• Class Order [CO 13/528] Changes to a bidder’s statement between lodgement and dispatch, which sunsets on 1 October 2023.

ASIC introduces Reportable Situations Application Programming Interface

On 21 November, ASIC announced that AFS licensees can now access the ‘Reportable Situations Application Programming Interface’ (API) to submit reports under the reportable situations regime.

The API allows high-volume users to submit reportable situations more efficiently to ASIC as they are no longer required to manually input information into ASIC’s form.

Information about the API can be found on the ASIC website.

Funds

ASIC reports on targeted surveillance of marketing by certain managed funds

On 30 November, ASIC reported in its findings of its surveillance of the marketing material associated with five registered schemes.

ASIC reported that it was concerned that the representations made were not consistent with long-standing regulatory guidance that:

• projected fund performance must be reasonable and include prominent and proximate qualification or warnings;
• promotion of fund benefits requires prominent and proximate balancing risk disclosure;
• comparisons of funds with other products must be appropriate and reasonable; or
• recommendations should be attributed and testimonials should be appropriate and reasonable.

ASIC updates guidance on ETP naming conventions

On 24 November, ASIC updated its guidance on naming conventions for licensed Australian exchanges that admit exchange traded products (ETPs) following a public consultation.

In Information Sheet 230 Exchange traded products: Admission guidelines (‘INFO 230’), ASIC revised the definitions of ‘Active’ and ‘Complex’ and included more detailed guidance for licensed exchanges.

Consumer credit

Treasury consults on regulating ‘buy now, pay later’ arrangements

On 21 November, the Government announced it is requesting feedback on the future regulatory framework for buy now, pay later arrangements under the National Consumer Credit Protection Act 2009 (the Credit Act).

Buy now, pay later arrangements (BNPL) are not currently regulated under the Credit Act, because they currently fall under the exemptions available to certain types of credit in Schedule 1 to the Credit Act (ie the National Credit Code).

Treasury states that the options paper Regulating Buy Now, Pay Later in Australia is seeking views on three broad options that aim to provide a regulatory foundation for the future growth of BNPL in Australia, and states that these options aim to ensure new and emerging credit products such as BNPL are subject to appropriate regulation that balances consumer protection while still encouraging innovation in the financial service industry.

See our analysis in our article.

Consultation closes 23 December.

Superannuation

ASIC releases report on complaints handling by superannuation trustees

On 9 December, ASIC released Report 751 Disputes and deficiencies: A review of complaints handling by superannuation trustees (Report 751), which ASIC states provides insights for compliance by superannuation trustees with enforceable obligations and guidance in Regulatory Guide 271 Internal dispute resolution.

In particular, Report 751 it outlines areas for improvement identified through ASIC’s review of the timeliness and content of responses to complaints, systemic issue identification and management, and trustee processes.

In releasing the report, ASIC stated that superannuation trustees are on notice to improve their internal dispute resolution systems after a targeted review of trustee compliance with the enforceable complaints handling requirements found that some trustees had sub-standard arrangements for managing complaints.

APRA releases updated Prudential Standard on audit and related matters

On 7 December, APRA released a letter to industry on the updated Prudential Standard SPS 310 Audit and Related Matters (SPS 310), along with the final version of SPS 310.

APRA states the amendments to SPS 310 are minor and must be implemented within the scope of audits for the financial year ending 30 June 2023 onwards.

Government announces the introduction of legislation to increase superannuation fund transparency

On 23 November, the Assistant Treasurer and Minister for Financial Services, Steven Jones, announced the Government is overhauling transparency requirements.

According to the media release, the Government intends to:

• introduce legislation to align superannuation funds’ financial and accounting reporting obligations with those of public companies (such as filing annual, publicly-available financial reports with ASIC); and
• launch a new annual Super Transparency Report, to provide a single source of granular, consistent information for members to compare fund performance and expenditure.

APRA announces consultation on governance guidance for superannuation trustees

On 17 November, APRA announced that it has commenced consulting on updated investment governance guidance for superannuation trustees.

The updated guidance intends to assist trustees in meeting their requirements under Prudential Standard SPS 530 Investment Governance (SPS 530), which comes into effect on 1 January 2023.

The guidance includes additional information on:

• the new conditions in SPS 530 including liquidity management, stress testing and valuations practices; and
• APRA’s expectations of how trustees will approach ESG risk factors as part of their investment risk management.

Consultation closes 17 March 2023.

Insurance

ASIC calls on life insurers to review claims payment systems

On 12 December, ASIC called on life insurers to review the accuracy of their systems and controls for claims calculations and payments, in light of breach reports from seven life insurers for the miscalculation of life insurance benefits.

According to the media release, ASIC considers that life insurers may be in breach of the obligation to handle claims efficiently, honestly and fairly if they do not accurately calculate and pay the benefits under a claim.

ASIC expects that life insurers will make the necessary investment in systems and controls to administer products and handle claims efficiently, honestly and fairly.

APRA and ASIC release joint letter on premium increases in the life insurance industry

On 8 December, APRA and ASIC issued a joint letter to CEOs of life insurers and friendly societies (life companies) about premium increases in the life insurance industry.

The letter outlines APRA’s and ASIC’s concerns following complaints from consumers and reportable situations relating to premium increases, particularly in relation to level premium products.

APRA and ASIC have requested all life companies to review and report on their past and present application and disclosure of premium increases by 31 March 2023.

APRA publishes new FAQs on the capital framework for COVID-19 related disruptions

On 7 December, APRA updated the frequently asked questions (FAQs) for private health insurers on the application of the capital framework for COVID-19 related disruptions.

ASIC grants FSG relief to certain authorised representatives that provide claims handling and settling services

On 28 November, ASIC issued a relief instrument which provides conditional relief from the requirement to provide a Financial Services Guide to representatives that are authorised by licensees to:

• deal in general insurance products and/or bundled consumer credit insurance products; and
• provide claims handling and settling services.

The relief is set out in ASIC Corporations (Financial Services Guides) Instrument 2022/910, which was registered on 28 November. The relief commenced on 29 November 2022 and will expire in five years, and ASIC states it will review the operation of the instrument before it expires.

APRA publishes the proposal to remake four life insurance standards

On 21 November, APRA announced that it is consulting on the following four life insurance standards that are due to sunset on 1 April 2023:

• Prudential Standard LPS 100 Solvency Standard;
• Prudential Standard LPS 115 Capital Adequacy: Insurance Risk Charge;
• Prudential Standard LPS 360 Termination Values, Minimum Surrender Values and Paid‑up Values; and
• Prudential Standard LPS 370 Cost of Investment Performance Guarantees.

APRA considers that these standards remain broadly fit for purpose, subject to reviewing any industry feedback.

Submissions are due by 15 December.

Financial product advice

ASIC updates guidance on SMSF advice

On 8 December, ASIC released an updated version of Information Sheet 274 Tips for giving self-managed superannuation fund advice (INFO 274).

ASIC states that the key changes made in INFO 274 and on ASIC’s Moneysmart’s SMSF webpage include:

• highlighting SMSF risks and the importance of seeking professional advice;
• ensuring comparisons about SMSFs and APRA-regulated funds remain relevant and up to date;
• removing guidance about a minimum balance for an SMSF reflecting that balance alone is not the driving indicator of suitability, as illustrated in new case studies in INFO 274; and
• consolidation of existing guidance in Information Sheet 205 Advice on self-managed superannuation funds: Disclosure of risks (‘INFO 205’) and Information Sheet 206 Advice on self-managed superannuation funds: Disclosure of costs (‘INFO 206’).

Financial markets

ASIC and RBA issue joint statement on CHESS replacement program

On 17 November, ASIC and RBA jointly acknowledged ASX’s announcement that it will abandon plans to introduce a blockchain-based replacement of CHESS settlement technology.

In response, ASIC and RBA have provided ASX with a joint letter of regulatory expectations, requesting the current CHESS model be maintained, with the replacement program to be reintroduced after the solution design has been completed.

Banking

APRA releases final prudential standard on public disclosure requirements for authorised deposit-taking institutions

On 9 December, APRA released its final Prudential Standard APS 330 Public Disclosure for locally incorporated authorised deposit-taking institutions (ADIs), so that sufficient information is available for market participants to assess an ADI’s material risks and capital. A Response to Submissions Finalising ADI public disclosure requirements was also published, along with the non-confidential submissions.

Government expands Consumer Data Right to non-bank lenders

On 30 November, the Assistant Treasurer and Minister for Financial Services, Steven Jones, announced that the Government will expand the Consumer Data Right (CDR) to the non-bank lending sector.

The CDR is designed to empower consumers to safely share data with service providers, allowing them to compare deals and identify offerings that are suited to their needs.

The Consumer Data Right (Non-Bank Lenders) Designation 2022 was registered on 25 November, the purpose of which is to designate the non-bank lending sector as subject to the CDR.

Further, Treasury and the Data Standards Body are seeking input on the development of rules and data standards to implement the CDR in the non‑bank lending sector, and on 5 December released a design paper Consumer data right in non-bank lending: CDR rules and data standards design for public consultation. Consultation on this paper closes on 31 January 2023.

RBA releases review of the its approach to forward guidance on cash rate

On 15 November, the RBA released a review of its approach to forward guidance regarding the cash rate.

The RBA states that, as was the case for many other central banks during the pandemic, it used forward guidance on the cash rate to strengthen the impact of its other monetary policies. Previously, the RBA had used forward guidance to varying degrees, with the guidance being generally qualitative in nature.

The RBA states that the review demonstrated that the RBA’s stronger forward guidance worked to lower funding costs and support the economy early in the pandemic when the outlook appeared dire. The policy response helped shore up confidence during a period of significant uncertainty and disruption. It also provided insurance against very bad economic outcomes at a time when there was very limited scope to lower the cash rate further.

However, according to the review, the preferred approach is to leave the markets and public to draw their own inference about the timing and extent of future interest rate movements using information provided by the Bank and other information more broadly.

APRA’s first handbook for bank board directors

On 29 November, APRA published its first handbook targeted at assisting the directors of banks, credit unions and building societies to understand and comply with APRA’s regulatory requirements.

APRA states that the guide has been developed as part of a multi-year initiative to modernise the prudential architecture and will be a useful reference point for boards as it consolidates all APRA’s existing requirements and accompanying guidance in one place.

Other financial services regulation

APRA publishes final prudential standard CPS 190

On 1 December, APRA announced that it released its final Prudential Standard CPS 190 Recovery and Exit Planning, intended to strengthen the financial system’s resilience.

This new standard will come into effect from 1 January 2024 for banks and insurers, and from 1 January 2025 for RSE licensees.  

APRA releases response paper for data collections

On 1 December, APRA released its response paper to consultation on direction for data collections. APRA states it has engaged with industry stakeholders through roundtables and written submissions and prepared the response paper to address issues raised in these consultations.

The Response Paper Direction for data collections sets out APRA’s commitment to:

• provide detailed roadmaps for the intended implementation of new collections for each industry;
• work with industry to develop a targeted framework that supports data quality outcomes; and
• continue working with all industries through strategic working groups to support planning, design and implementation of the future collection roadmaps.

APRA releases key findings of ‘Climate Vulnerability Assessment’

On 30 November, APRA released the aggregated findings of its first ‘Climate Vulnerability Assessment’ (CVA) of Australia’s five largest banks.

The Information Paper Climate Vulnerability Assessment Results sets out the key findings from the banks’ estimated future financial impact of climate change on their businesses, as well as how they might respond to the resulting physical and transition risks. APRA states the results demonstrate that climate change poses future financial challenges for both banks and their borrowers.

APRA also states that it will consider how the experience gained from the CVA can be applied to other APRA-regulated entities and climate-related risks.

APRA’s response to Medibank cyber breach

On 28 November, APRA announced its interim response to Medibank Private Limited (Medibank) in light of the cyber incident reported last month which has raised concerns about the strength of Medibank’s operational risk controls.

As part of its response, APRA states it will intensify its supervision of all APRA-regulated entities not meeting Prudential Standard CPS 234 Information Security.

Exposure draft legislation seeks to amend ASIC Act to meet sustainability standards

On 28 November, the Treasury released for consultation Treasury Laws Amendment (Measures for Consultation) Bill 2022: sustainability standards (Exposure Draft Legislation), which seeks to amend parts of the ASIC Act that will empower the Australian Accounting Standards Board to meet sustainability standards.

The Exposure Draft Legislation follows the Government’s commitment to hold large businesses accountable in providing Australians and investors with greater transparency of their sustainability-related plans, financial risks and opportunities.

Consultation closes on 16 December.

Tax

Exposure draft legislation on the tax treatment of off-market share buy-backs

On 17 November, Treasury released exposure draft legislation intended to align the tax treatment of off-market share buy-backs undertaken by listed public companies with the tax treatment of on-market share buy-backs, as a result of a measure set out in the 2022-23 Budget.

The exposure draft legislation and explanatory materials are available on Treasury’s website.

This article was written with the assistance of Georgia Koutzoumis and Rachel Bonic, Law Graduates.