Financial Services in Focus – Issue 77

By Vince Battaglia, Philip Hopley and Georgia Francis

In this edition, we outline the Federal Government’s consultation on enacting legislative instruments made by ASIC, the Quality of Advice Review final report, APRA’s supervision and policy priorities for 2023 and ASIC’s enforcement focus areas for 2023, and much more.

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

Financial products

Government announces commitment to making crypto safer for consumers

On 3 February, the Federal Government announced it would be taking steps to ensure that the regulation of crypto assets protects consumers, while also positioning the economy to take advantage of new digital products and services.

According to the media release issued jointly by the Treasurer, Jim Chalmers, and the Assistant Treasurer and Minister for Financial Services, Stephen Jones, the Government claims that some companies have adopted unsustainable business models when dealing in crypto assets, leaving consumers in a vulnerable position.

The Government has proposed a multi-stage approach with three objectives:

• strengthening enforcement, which involves the cooperation and oversight of ASIC (ensuring crypto providers are properly licenced), ACCC (preventing crypto-related scams) and AUSTRAC (preventing and detecting money laundering);
• bolstering consumer protection by reforming licensing and custody of crypto assets; and
• establishing a framework for reform, beginning with the Treasury’s token mapping exercise.

On the same day, Treasury released a consultation paper, Token Mapping, which explores which elements of the crypto ecosystem are sufficiently regulated and which require additional attention. Read more about this consultation paper in our earlier article.

Consultation closes 3 March.

Superannuation

Treasury consults on a proposed definition of the objective for the superannuation system

On 20 February, Treasury issued a consultation paper, Legislating the objective of superannuation, setting out the rationale for prescribing the objective of superannuation in law and providing some options on potential framing.

According to the consultation paper, a legislated objective for superannuation could improve accountability and transparency in policy development.

The media release, issued jointly by the Treasurer, Jim Chalmers, and the Assistant Treasurer and Minister for Financial Services, Stephen Jones, affirms the proposed definition of the objective set out in the consultation paper: ‘to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.’

The Government is seeking stakeholder feedback on the framing of the draft objective of superannuation, including the benefits of the objective and its practical application.

Consultation closes 31 March.

ASIC proposes to allow SMSF auditors’ competency standards class order to ‘sunset’

On 17 February, ASIC announced that it proposes to allow class order [CO 12/1687] Competency Standards for Approved SMSF Auditors to expire on 1 April 2023.

The class order is made under section 128Q(1) of the SIS Act and sets out competency standards for approved SMSF auditors.

ASIC has formed the view that the class order is no longer required and does not form a necessary and relevant part of the legislative framework.

ASIC is inviting those adversely affected by the expiry of [CO 12/1687] – or those who have feedback in relation to it – to make a submission to ASIC.

Submissions close 10 March.

APRA releases Superannuation Bulletin for 2021/22 financial year

On 31 January, APRA published the Annual Superannuation Bulletin for the 2021/22 financial year.

The Annual Superannuation Bulletin provides an overview of the superannuation industry with statistics containing key information on funds and membership profile, key financial performance metrics, financial position, fees and expenses.

The Annual Superannuation Bulletin is now published in three separate files:

• superannuation entities;
• MySuper products; and
• licensees.

FSC releases consumer research regarding superannuation

On 25 January, the FSC released consumer research which found strong support for legislating an objective for superannuation, provided that it focuses on delivering retirement income for all Australians.

Focus groups undertaken by CT Group in metropolitan and regional NSW asked about awareness, understanding, beliefs and attitudes towards the objective of superannuation.

According to the FSC, the findings from the focus groups included:

• all participants agreeing that legislating an objective for superannuation would serve Australians better;
• all participants agreeing that, while the objective should focus on delivering income in retirement, they also want an input about where and how their money is invested; and
• when a list of possible wording for the objective was provided to participants, all participants preferring wording specific to achieving a particular standard of living in retirement.

A summary of the findings of the focus groups can be found on the FSC’s website in the presentation called FSC superannuation qualitative top lines.

Treasury releases consultation paper on non-arm’s length expense rules for superannuation funds

On 24 January, Treasury released a consultation paper, Non-arm’s length expense rules for superannuation funds, in which Treasury is consulting on potential policy changes to the provisions where they relate to general expenses which have a sufficient nexus to all ordinary and statutory income derived by the superannuation fund.

Consultation closed 21 February.

Financial Product Advice

Treasury publishes report of Quality of Advice Review

On 8 February, Treasury published the Quality of Advice Review – Final Report (Final Report) provided by Ms Michelle Levy.

The Final Report provides twenty-two recommendations for changes to the regulatory framework to improve the accessibility and affordability of advice. 

The recommendations include broadening the definition of personal advice in the Corporations Act, removing the requirement to provide a general advice warning, and creating a ‘good advice’ duty to ensure advice is ‘fit for purpose’.

The Assistant Treasurer and Minister for Financial Services, Stephen Jones, said the government will now consult widely on the review’s recommendations.

The government is currently considering its response to the recommendations in the Final Report.

Consumer credit

Treasury releases exposure draft regulations on small amount credit contract laws

On 20 February, Treasury released exposure draft regulations and an accompanying draft explanatory statement which seek to give effect to the government’s response to the Review of the Small Amount Credit Contract Laws.

Treasury states the matters addressed by the proposed regulations are as follows:

• adding an additional requirement that licensees verify the financial situation of consumers before entering into a contract with them;
• consumer income requirements for both small amount credit contracts and consumer leases for household goods;
• anti-avoidance measures targeted at avoidance purposes relating to credit contracts and product intervention orders;
• the prescription of new civil penalties subject to the National Consumer Credit Protection Act 2009 infringement notice regime;
• disclosure of information requirements for consumer leases for household goods;
• the calculation method for the base price of goods hired under a consumer lease; and
• early termination fee principles for consumer leases for household goods.

Consultation closes 20 March.

Government releases submissions on ‘buy now, pay later’ products

On 16 February, the Federal Government released submissions on the he future regulatory framework for ‘buy now, pay later’ arrangements under the National Consumer Credit Protection Act 2009.

The submissions are on Treasury’s website in relation November 2022 options paper.

Treasury consults on anti-avoidance provisions for credit product intervention orders

On 21 February, Treasury released for consultation exposure draft legislation, Treasury Laws Amendment (Measures for Consultation) Bill 2023: Anti avoidance rule for product intervention orders (Exposure Draft Legislation).

The Exposure Draft Legislation supplements the Financial Sector Reform Act 2022, by introducing equivalent provisions regarding the prohibition to avoid relevant credit product intervention orders into the Corporations Act.

Consultation closes 21 March.

Other financial services regulation

Treasury consults on ending ASIC Instrument Measures

On 16 February, Treasury released for consultation exposure draft legislation, Treasury Laws Amendment (Measures 4 for Consultation) Bill 2023: 5 Rationalisation of ending ASIC 6 instruments (Tranche 2) (Exposure Draft Legislation).

The purpose of the Exposure Draft Legislation is to move matters in legislative instruments made by ASIC into the primary law and regulations.

According to the media release, the Exposure Draft Legislation will provide greater certainty, making it easier for stakeholders to identify their rights and obligations under the financial services law.

Treasury also released exposure draft regulations, a draft Explanatory Memorandum and Explanatory Statement.

Consultation closes 16 March.

ASIC releases enforcement report and enforcement focus areas

On 15 February, ASIC published the Report 757 ASIC enforcement and regulatory update: October to December 2022 (REP 757), which set out the actions taken during the last three months of 2022 and outlines the full list of enforcement priorities for 2023.

In the last three months of 2022, ASIC states it commenced a number of significant enforcement and regulatory actions pertaining to corporate governance and directors’ duties, product design and distribution, and misleading statements involving sustainable finance practices.

According to these publications, in 2023 ASIC will have a focus on a number of areas, including:

• sustainable finance practices;
• disclosure of climate risks and greenwashing;
• predatory lending;
• misleading insurance pricing promises;
• financial scams;
• cyber and operational resilience; and
• investor harms involving crypto-assets.

ASIC publishes its first regulatory developments timetable

On 15 February, ASIC published its first regulatory developments timetable, which ASIC states is designed to make ASIC more transparent regarding when it will issue draft or final guidance, or anticipate the making of a legislative instrument.

ASIC publishes its Indigenous Financial Services Framework

On 14 February, ASIC published its Indigenous Financial Services Framework (Framework).

In releasing the Framework, ASIC states that the Framework is part of ASIC’s role in supporting positive financial outcomes for First Nations people and as part of its consultation ASIC identified the following four key learnings:

• First Nations peoples had unique, established economies before colonisation that continued today and should be understood, respected, and maintained;
• First Nations peoples have been prohibited and excluded from participating in the Australian financial system;
• Financial wellbeing affects all aspects of First Nations peoples’ lives; and
• First Nations peoples have many different versions of financial success that need to be accepted and empowered.

APRA announces policy and supervision priorities for 2023

On 2 February, APRA released its policy and supervision priorities for 2023.  

APRA’s 2023 agenda, consistent with the strategic objectives in its Corporate Plan, focuses on embedding recent regulatory reforms, as well as ensuring entities have adequate financial strength to deal with any emerging financial stresses at the time of global economic uncertainty.

APRA’s key supervision priorities for 2023 include:

• heightening supervision on cyber resilience;
• embedding capital reforms for banks and insurers;
• continuing to hold trustees accountable to improve superannuation member outcomes; and
• addressing challenges in the availability, affordability, and sustainability of insurance.

APRA’s key policy priorities for 2023 include:

• modernising the prudential architecture;
• completing key reforms to strengthen the financial and operational resilience of the system, and improve outcomes for superannuation members; and
• reviewing and rationalising core standards within the framework, including for governance and the regulation of conglomerate groups.

ACCC crackdown on social influencers

On 27 January, the ACCC announced that it started a sweep to identify misleading testimonials and endorsements by social media influencers with the objective of identifying deceptive marketing practices across the digital economy including the failure to disclose commercial relationships behind the promotions.

The Assistant Treasurer and Minister for Financial Services, Stephen Jones, welcomed the crackdown.

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