Financial Services in Focus – Issue 90

Court finds crypto-asset product to be financial products

On 9 February, in the matter of Australian Securities and Investments Commission v Web3 Ventures Pty Ltd [2024] FCA 64, the Federal Court of Australia found a certain crypto-backed product to be financial products on the basis of being an interest in a managed investment scheme and a facility for making a financial investment. However, it was not considered a derivative because of the anti-overlap statutory exclusion.

Jackman J noted there is legal controversy as to whether cryptocurrency is property under common law. While he referred to the English Court of Appeal’s decision to recognise it as property, he declined to form a view on this matter to resolve the proceeding and expressed no opinion on it.

For further information, see our earlier article. 

In commenting on the case, ASIC said this is one of the first decisions on the application of the financial services law to crypto-backed products. They remain concerned that consumers do not fully appreciate the risks associated with products involving crypto-assets and the decision is an important step forward to ensuring there are appropriate protections for consumers.

APRA consults on proposed amendments to the operational risk financial requirement for superannuation

On 19 February, APRA released for consultation proposed amendments to Prudential Standard SPS 114 operational risk financial requirement and its associated guidance.

APRA states the proposed changes, which follow APRA’s November 2022 Discussion Paper Financial resources for risk events in superannuation, are expected better to position RSE licensees to use the operational risk financial requirement for its intended purpose, namely, to manage the impact of disruption and smooth operational risk related losses fairly across different cohorts of beneficiaries.

Consultation closes on 13 May.

APRA publishes updates to FAQs on Superannuation Data Transformation and Outcomes assessment

On 5 February, APRA published updated FAQs for the Superannuation Data Transformation (SDT) project and the outcomes assessment under s 52(9) of the Superannuation Industry (Supervision) Act 1993.

APRA releases letter updating reporting guidance on large exposures on GRF 117.0 / GRF 117.0(G)

On 19 February, APRA announced it is updating guidance for general insurers to observe when reporting large exposures on reporting forms GRF 117.0 and GRF 117.0(G): Asset Concentration Risk Charge. This guidance was originally released in 2018 and has been updated to incorporate changes in the reporting standard released in 2023.

APRA publishes AASB17 update to the insurance frequently asked questions

On 6 February, APRA published new entries to its FAQs on the Australian Accounting Standards Board 17 collections. These new FAQs highlight the data requirements and common data issues all insurers should note before the next reporting cycle on 27 February 2024.

ASIC issues final reminder for unregistered financial advisers

On 6 February, ASIC issued a final reminder to financial advisers who are not registered with ASIC. Financial advisers who are not registered by 16 February 2024 will need to cease providing personal advice to retail clients. If advisers provide personal advice from this date, they will be in breach of the law and face potential regulatory action.

Treasury consults on amendments to instruments regarding financial advisers’ education standards

On 30 January, Treasury released for consultation exposure draft legislation and explanatory statement aimed at providing greater flexibility for financial advisers to demonstrate they have met the conditions of an approved degree. 

Consultation is open until 27 February.

ASIC consults on changes to OTC derivative transaction rules

On 15 February, ASIC released for consultation Consultation Paper 375 Proposed changes to the ASIC Derivative Transaction Rules (Reporting): Third consultation (CP 375).

CP 375 proposes changes to the ASIC Derivative Transactions Rules (Reporting) 2024 and the ASIC Derivative Transaction Rules (Clearing) 2015.

Broadly, the proposed changes to the reporting rules will:

• simplify the exclusion of exchange-traded derivatives;

• simplify the scope of foreign entity reporting;

• remove the alternative reporting provisions;

• clarify the exclusion of FX securities conversion transactions; and

• add additional allowable values for two data elements.

The proposed changes to the clearing rules involve:

• simplifying and aligning the exclusion of exchange-traded derivatives with the 2024 Reporting Rules; and

• making minor updates to re-reference the changed location of definitions in the Corporations Act which have been moved.

Consultation closes on 28 March.

ASIC grants class no-action position regarding Unfair Contract Terms for institutional markets

On 6 February, ASIC released a no-action letter announcing it was granting a limited no-action position on Unfair Contract Terms (UCT) for institutional markets. 

Following consultation with Treasury, Australian Financial Markets Association (AFMA) and industry participants, ASIC will not take action for the contravention of certain UCT provisions until the earlier of 9 November 2027 or the enactment of relevant amendments. 

ASIC provides guidance for market intermediaries on pre-hedging

On 1 February, ASIC published a letter to all market intermediary CEOs setting out guidance regarding pre-hedging practices. 

The letter aims to raise minimum standards in relation to pre-hedging, improve transparency, promote informed markets and uphold integrity and investor confidence in Australian financial markets. 

The letter emphasises market intermediaries should carefully consider their obligation under Australian law, as well as international codes and standards, when undertaking pre-hedging.

AUSTRAC makes amendments to AML/CTF Rules

On 22 January, the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment (Chapter 21 Amendments) Instrument 2024 was registered. This instrument sets out amendments to Chapter 21 of the AML/CTF Rules to exempt from the operation of the AML/CTF Act the issue or sale of securities and derivatives on specified low ML/TF risk domestic financial markets. The instrument clarifies that Australian Securities Exchange Limited (ASEL) is not a ‘prescribed financial market’ under the Corporations Act but defines ASEL as a ‘specified financial market’. Additionally, FEX Global Pty Ltd (ACN 124 127 224) is included in the definition of specified financial market for the purposes of the Chapter 21 exemption.

On 25 January, the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment (Chapter 1 Amendments) Instrument 2024 was registered. This instrument updates each reference to the Statutory Declarations Regulations 2018 in Part 1.2 of the AML/CTF Rules with a reference to the Statutory Declarations Regulations 2023, which commenced on 1 January 2024.

APRA and ASIC release letter on the Financial Accountability Regime ADI commencement and implementation

On 5 February, APRA and ASIC jointly released a letter to all ADIs and NOHCs on the Financial Accountability Regime (FAR). The FAR is due to commence for the banking industry on 15 March 2024. The letter emphasises that APRA and ASIC expect entities to submit their registration applications and make relevant notifications by no later than 30 June 2024.

APRA outlines 2024 supervision and policy priorities

On 31 January, APRA published its supervision and policy priorities for the first six months of 2024. Broadly, APRA’s focus is on protecting the safety and resilience of regulated entities, promoting confidence and stability in the financial system and supporting the community to achieve good financial outcomes. APRA plans to continue its supervision and policy agenda from last year, with a focus on:

• operational and cyber resilience for all regulated entities, reflecting the growing reliance on digital technologies by entities and the community;

• embedding lessons from last year’s global banking turmoil through targeted changes to the prudential framework for authorised deposit-taking institutions;

• lifting superannuation trustees’ practices on retirement incomes, implementing recommendations from the Financial Regulator Assessment Authority review, enhancing transparency, and aligning APRA’s heatmaps with the performance test; and

• across insurance, continuing to balance financial sustainability with the need to enhance affordability and availability.

APRA responds to consultation on updates to modernised Economic and Financial Statistics reporting standards and guidance

On 29 January, APRA released a response on its proposed changes to the Economic and Financial Statistics (EFS) reporting standards and guidance. Consultations were held between September and November 2023 in respect of proposed change, which include:

• aligning EFS business size definitions with the new capital framework by amending the exposure and turnover thresholds in ARS 701.0 ABS/RBA Definitions for the EFS Collection for SME Retail/SME Corporate lending to $1.5 million and $75 million respectively;

• clarifying reporting requirements for holdings of covered bonds by amending ARS 701.0 and RPG 701.0 ABS/RBA Reporting Concepts for the EFS Collection to ensure that entities report holdings of both resident- and non-resident-issued covered bonds; and

• updating the EFS Priority Listing for Data Items, which supports the EFS data quality standard detailed in RPG 702.0 ABS/RBA Data Quality for the EFS Collection.