By Vince Battaglia, Philip Hopley and Georgia Francis

In this edition, we outline Treasury’s consultation on the regulatory framework for managed investment schemes, Treasury’s consultation on licensing exemptions for foreign financial services providers, APRA’s update on policy priorities schedule for ADIs and much more.

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

Funds

On 4 August, Treasury released a consultation paper examining the regulatory framework for managed investment schemes to ensure it remains fit‑for‑purpose and effectively protects investors from unnecessary financial risk.

This consultation paper seeks feedback on the appropriateness of the existing regulatory settings for managed investment schemes including:

• the thresholds that determine whether an investor is a wholesale client;
• whether certain managed investment schemes should be marketed and sold to retail clients;
• the roles and obligations of responsible entities;
• whether ‘investor rights’ are appropriate;
• liquidity requirements for managed investment schemes;
• whether an insolvency regime is required for managed investment schemes; and
• interactions between Commonwealth and State laws when regulating real estate investments by managed investment schemes.

According to the Assistant Treasurer, Stephen Jones, the Government is also seeking views on opportunities to reduce regulatory burden without detracting from consumer outcomes.

Consultation closes on 29 September.

Superannuation

FSC standard to improve insurance claims handling for superannuation funds takes effect

From July, the Financial Service Council’s enforceable standard for handling group life insurance claims in superannuation, the FSC Standard No. 28 Claims Handling Standard for Superannuation Funds, commenced operation on a mandatory basis for all FSC superannuation members to improve the service standards in superannuation systems and to complement protections in the new Life Insurance Code of Practice.

The new standard replaced existing voluntary guidance and sets out the minimum level of service consumers should expect to receive from their superannuation fund when making a claim on their life insurance.

Compliance with FSC’s Standards is compulsory for FSC full members. The FSC states that, by adhering to the FSC’s Standards, member companies are required to operate with integrity, transparency and in the interests of customers.

APRA releases final technical determination and updated information paper on combining MySuper product performance histories

On 9 August, APRA released its final technical determination and updated information paper on combining MySuper product performance histories, following APRA’s consultation in April 2023 on the technical determination.

The final determination – Superannuation Technical Determination No. 1 of 2023 actual and benchmark return formulae modifications – removes the need for APRA to make individual determinations for every MySuper product for which performance histories are required to be combined.

Alongside the response to consultation, APRA has published an updated information paper outlining its methodology for combining performance histories of MySuper products to reflect the introduction of the technical determination.

APRA publishes new set of FAQs on the Your Future, Your Super package

On 3 August, APRA issued two new frequently asked questions (FAQs) to provide further guidance on the administration of the Government’s Your Future, Your Super Performance Test.

Insurance

APRA releases reminder on the use of alternative reinsurance arrangements

On 3 August, APRA issued a letter to all general insurers on the use of alternative reinsurance arrangements, such as catastrophe bonds and other types of Insurance Linked Securities (ILS) in the calculation of their insurance concentration risk charge.

In the letter to industry, APRA reflects on the challenging reinsurance environment and reminds insurers that they can consider a range of reinsurance solutions including both traditional and ILS options under the prudential framework. Insurers considering ILS options should engage with APRA early.

APRA also intends to review the reinsurance settings in the prudential framework over the course of 2023 and the first half of 2024 to ensure reinsurance requirements remain fit-for-purpose.

Financial markets

ASX releases intra-group conflict management report by external expert

On 28 July, ASX released an expert report on its arrangements to identify and manage conflicts between the commercial interests of ASX Group and the general licence obligations of ASX Clear and ASX Settlement. The report, which focused on the governance of current CHESS and CHESS replacement, made a positive assessment on the overall status of ASX’s intra-group conflict management arrangements and provided recommendations for further enhancements.

The release of the report follows a request contained in a letter of expectations issued by the RBA last December.

ASX will implement all 13 recommendations outlined in the report and expects to complete most of these changes in the next three months.

Banking

APRA releases update on policy priorities schedule for ADIs

On 10 August, APRA issued a letter to ADIs providing an updated schedule of policy priorities for the banking industry for the remainder of 2023.

Given what APRA considers to be the overseas banking stress events earlier this year, APRA has reviewed its policy initiatives to prioritise some immediate actions to strengthen standards related to bank financial stability and slow down timelines on less pressing policy reforms.

According to the letter, key ADI policy priorities for the remainder of 2023 are the following:

• Liquidity: APRA will consult on targeted changes to Prudential Standard APS 210 Liquidity (APS 210), focused on the treatment of liquid assets for ADIs on the minimum liquidity holdings approach. Consequently, APRA will move the comprehensive review of APS 210 to 2024.
• Interest rate risk: To further consider consultation feedback from industry and lessons learned from banking stress events overseas, APRA will take additional time to finalise Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (APS 117). The revised standard will be released in late 2023 and its effective date will be moved back to ensure sufficient implementation time for ADIs. APRA will also extend the scope of the review of APS 117 to consider the treatment of smaller ADIs (non-significant financial institutions). 
• Additional Tier 1 (AT1): The Council of Financial Regulators (CFR) discussed the challenges faced by policy makers in responding to bank stress, as highlighted during the recent bank crisis events in the United States and Switzerland. The CFR noted the importance that crisis management tools, including AT1, should operate as intended. APRA will issue a Discussion Paper to explore options for, and seek feedback from stakeholders on, improving the effectiveness of AT1 capital in Australia, ahead of potential consultation in 2024.
• Capital framework updates: Industry have raised a number of issues for consideration by APRA during the implementation of the capital reforms earlier this year. APRA will consult on minor updates to the bank capital framework in relation to these issues.

ACCC authorises Australian banks to collaborate on development of industry standards to combat scams

On 3 August, the ACCC announced that the Australian Banking Association Ltd (ABA) and its member banks will be able to participate in discussions to develop an industry standard to prevent, detect, and disrupt scams affecting individual and small business customers, following a conditional ACCC interim authorisation.

The interim authorisation applies to all ABA member banks, which currently includes AMP Bank, ANZ, Bank Australia, Bank of Queensland Limited, Bendigo and Adelaide Bank Limited, Citigroup, Commonwealth Bank of Australia, HSBC, ING Bank, J.P. Morgan Australia and New Zealand, Macquarie Bank, MUFG Bank, National Australia Bank, Rabobank Australia, Suncorp Bank and Westpac.

The ACCC notes the Federal Government has recently announced that a legislated cross-industry Code will be introduced for banks, telcos, social media platforms and others in the near term. The ABA has submitted that a robust and well considered bank industry standard can form the building blocks of the legislated cross-industry code.

APRA proposes to remake sunsetting standard APS 910 Financial Claims Scheme

On 26 July, APRA commenced a consultation on Prudential Standard APS 910 Financial Claims Scheme (APS 910), which is due to sunset on 1 October.

APRA states that APS 910 plays a key role in APRA’s crisis management framework as it requires locally-incorporated authorised deposit-taking institutions to be pre-positioned for the Financial Claims Scheme. APRA is proposing to remake APS 910 prior to the sunsetting date. APRA proposes to leave APS 910 unchanged at this stage, other than for minor updates to ancillary provisions. APRA plans to commence a comprehensive review of APS 910 at a later date, so as to consider lessons learned from recent international events.

The consultation letter is available on APRA’s website.

The consultation will be open for submissions until 23 August.

Consumer credit

ASIC consults on proposals to extend its short-term credit and continuing credit contracts product intervention orders

On 10 August, ASIC released for consultation, Consultation Paper 371 Product intervention orders: Short term credit facilities and continuing credit contracts (CP 371) seeking feedback on proposals to extend both product intervention orders.

The current product intervention orders came into effect on 15 July 2022. ASIC states they reinforce consumer protections by prohibiting the provision of short-term credit and continuing credit contracts, which involve unreasonably high fees charged to retail clients. These fees exceed the cost caps imposed by the National Credit Code. If not extended, the short-term credit and continuing credit contracts product intervention orders will expire on 15 January 2024.

CP 371 highlights ASIC’s analysis of the impact of the short-term credit and continuing credit contracts product intervention orders. ASIC believes that the current orders have been effective in reducing the risk of significant detriment to retail clients resulting from the issuing of these products in conjunction with high-cost services.

Consultation closes 31 August.

Federal Court grants declarations and injunctions in credit case – another win for ASIC

In Issue 76 we reported that the High Court of Australia had dismissed special leave applications by Cigno Pty Ltd (Cigno) and BHF Solutions Pty Ltd (BHF), which sought to appeal the decision of the Full Federal Court which unanimously found that a ‘financial supply fee’ charged by Cigno was a charge ‘made for providing credit’.

As foreshadowed in Issue 76, the Full Federal Court remitted the proceedings to the judge at first instance to determine whether Cigno engaged in credit activities and to consider the declaratory and injunctive relief sought by ASIC with respect to BHF and Cigno.

The Federal Court in ASIC v BHF Solutions Pty Ltd [2023] FCA 787 concluded that Cigno had contravened the National Consumer Credit Protection Act 2009 (Cth) (the Act) by engaging in ‘credit activity’ without holding an Australian credit licence (ACL) and that the declaratory and injunctive relief sought by ASIC should be made and granted.

The court was satisfied that emails sent by Cigno to the borrower to whom the proceedings related, after their credit contract had been entered into, reminding the borrower that additional funds were available through its website, constituted the provision of ‘credit assistance’ under the Act. That credit assistance in turn amounted to the provision of a ‘credit service’ which amounted to engaging in a ‘credit activity’ (for which an ACL was required).

The court also clarified the interpretation of acting as an ‘intermediary’ under section 9 of the Act (another type of ‘credit service’). The broad interpretation sought by ASIC was not accepted, with the court finding that the concept of an intermediary ‘securing a provision of credit’ excluded the acts of the intermediary that took place after the credit contract had been obtained.

The court also clarified the interpretation of exercising ‘the rights of a credit provider in relation to a credit provider… on behalf of the credit provider’ under section 6 of the Act (another type of ‘credit activity’). The broadest interpretation sought by ASIC was not accepted, with the court finding that the concept was limited to Cigno exercising the rights of BHF (the credit provider) in relation to the credit contract with the borrower to whom the proceedings related (being a narrower interpretation alternatively sought by ASIC).

The Federal Court’s judgment in Australian Securities and Investments Commission v BHF Solutions Pty Ltd [2022] FCAFC 108 can be found on ASIC’s website.

This litigation provides important legal clarification of the circumstances in which the Act and the National Credit Code apply to persons other than credit providers.

Anti-money laundering

AUSTRAC consults on draft AML/CTF Rules and Explanatory Statement amending Chapter 10 of the Rules

On 7 August, AUSTRAC released for consultation draft Anti-Money Laundering and Counter-Terrorism Financing Rules (AML/CTF Rules) and Explanatory Statement amending Chapter 10 of the AML/CTF Rules.

The draft AML/CTF Rules repeal Part 10.4 of the AML/CTF Rules with effect from 29 September 2023.

Consultation closes 4 September.

Other financial services regulation

ASIC extends transitional relief for foreign financial services providers

On 8 August, ASIC announced that it is extending for a further 12 months the transitional relief for foreign financial services providers (FFSPs) from the requirement to hold an AFSL when providing financial services to Australian wholesale clients.

The extension of the transitional relief to 31 March 2025 is made by ASIC Corporations (Amendment) Instrument 2023/588.

The new relief instrument also delays the commencement of the ASIC Corporations (Foreign Financial Services Providers-Funds Management Financial Services) Instrument 2020/199 until 1 April 2025. Under that instrument, ASIC gives licensing relief to some FFSPs that provide funds management financial services to certain categories of Australian professional investors.

Treasury consults on licensing exemptions for foreign financial services providers

On 7 August, Treasury released for consultation exposure draft legislation, Treasury Laws Amendment (Measures for Future Bills) Bill 2023: Licensing exemptions for foreign financial services providers and exposure draft explanatory memorandum.

The Government is seeking stakeholder views on exposure draft legislation to provide Australian financial service licensing exemptions to foreign financial services providers. The exposure draft legislation seeks to introduce:

• a comparable regulator exemption;
• a professional investor exemption;
• a market maker exemption; and
• an exemption from the fit‑and‑proper person assessment to fast‑track the licensing process for foreign financial services providers authorised to provide financial services in a comparable regulatory regime.

Consultation closes 8 September.

ASIC warns of further action against market misconduct

On 2 August, ASIC published Report 767 ASIC enforcement and regulatory update: April to June 2023, which highlighted over $109.1 million in civil penalties for the half year to 30 June 2023, along with a number of significant outcomes aimed at maintaining market integrity, including the cancellation of the AFS licence used by Binance Australia Derivatives, insider trading charges and the sentencing of an individual for market manipulation.

ASIC also warned market participants that strong, targeted enforcement action will continue in the coming months as part of its focus on protecting consumers from harm and upholding market integrity.

New transactions available in the ASIC Regulatory Portal

On 1 August, ASIC announced that the following new transactions were added to the ASIC Regulatory Portal:

• apply for ASIC consent to resign as an auditor of a public company (Legacy Form 342);
• apply for early destruction of books (Legacy Form 574);
• submit notification to rely on ASIC Corporations (Business Introduction Services) Instrument 2022/805; and
• notify ASIC or apply to ASIC about company auditor appointments.

APRA finalises requirements for remuneration disclosure

On 1 August, APRA finalised new requirements for ADIs insurers and superannuation entities to publicly disclose information on aspects of their remuneration.

Under the updates to Prudential Standard CPS 511 Remuneration, APRA-regulated entities will need to annually publish information on their remuneration frameworks, design, governance and outcomes. Larger and more complex entities must disclose additional quantitative information, including on payments to top executives and how they have placed a material weight on non-financial measures such as risk management.

Following industry feedback to the consultation launched mid-last year, the new disclosure requirements will now commence for all entities from their first full financial year following 1 January 2024. APRA has also agreed to provide additional flexibility around the timing of disclosures with annual disclosures required within six months of an entity’s financial year-end.

APRA launches review and updates priorities for data collections roadmap

On 31 July, APRA published a letter outlining plans to commence the first annual review of its data directions roadmap.

The roadmap, initially released in March last year, lays out a five-year plan for transforming APRA’s approach to collecting financial industry data from the entities it regulates.

The letter also provides additional clarity on APRA’s near-term data priorities to help entities prepare for ongoing engagement and consultation.

Treasury consults on miscellaneous amendments to Treasury portfolio laws

On 27 July, Treasury released for consultation exposure draft legislation, regulations and supporting explanatory materials pertaining to miscellaneous amendments that the Treasury considers will ensure that the law operates as intended by correcting technical or drafting defects, removing anomalies and addressing unintended outcomes.

Consultation closes 23 August.

This article was written with the assistance of Aash Velhal, Isabella Emanuel and Francesca Di Mase, Law Graduates.