Financial Services in Focus – Issue 93

ASIC calls on super trustees to improve gatekeeping of member savings

On 9 May, ASIC released a report outlining key findings from a review of the progress superannuation trustees have made in addressing deficiencies in their monitoring of fee deductions for the provision of financial advice.

In response to its finding, ASIC has in Report 781 Review of superannuation trustee practices: Protecting members from harmful advice charges called upon superannuation trustees to renew efforts to protect members from unscrupulous operators amid evidence of inadequate oversight of advice fee deductions. ASIC urged trustees to consider the following steps to strengthen member protections:

• reviewing the ways financial advice documents are sampled to identify unscrupulous advisers providing harmful advice;

• objectively considering the caps on advice fee deductions​, including by using objective criteria to assess the cost of advice to help trustees determine appropriate fee caps;​ 

• enhancing adviser onboarding practices, including by vigilantly monitoring for financial advisers involved with cold calling businesses and using fact finds of advice licensees; and

• regularly checking ASIC’s Financial Adviser Register for unexpected adviser movements that might indicate a problem, maintaining watchlists and monitoring patterns or irregularities in advice fee deductions, withdrawals of member consent and rollovers into the fund.​

ASIC reviews superannuation switching business models

On 7 May, ASIC announced it had conducted a review of cold calling for superannuation switching business models, amid evidence of adverse consumer outcomes arising from unsuitable financial advice.

These models typically use the services of a cold calling operator, who makes cold calls to clients to encourage them to undertake a ‘review’ of their superannuation.  The outcome of the ‘review’ always results in a recommendation of a switch of the client’s superannuation, either to another fund regulated by APRA or a SMSF.

Overall, ASIC identified several areas of concern, and is reminding financial advisers, AFS licensees and superannuation trustees of their responsibilities towards clients and members.

ASIC announces review of superannuation industry’s dealings with death benefit claims

On 1 May, ASIC announced  it was undertaking a review of industry practices and compliance with laws regarding member services, initially focusing on how trustees handle death benefits claims. People making death benefit claims are usually under emotional and/or financial stress, making it especially important that trustees approach these claims in a timely, clear and respectful way.

ASIC is focused on improving interactions Australians have with their super funds. It commenced a dedicated multi-year project continuing over 2024 and beyond, which will look at industry practices and compliance with laws regarding trustee administration and contact centres.

ASIC is calling on trustees to urgently consider whether their arrangements for dealing with death benefit claims are fit for purpose.

ASIC releases guidance on the experienced provider pathway for financial advisers

On 22 May, ASIC released Information Sheet 281 FAQS: Relevant providers – Accessing the experienced provider pathway (INFO 281) to provide guidance to financial advisers and AFS licensees about the experienced provider pathway following changes to the law made by the Treasury Laws Amendment (2023 Measures No. 3) Act 2023.

ASIC issues information for unlicensed entities making unsolicited contact with consumers

On 15 May, ASIC published Information Sheet 282 Unsolicited contact leading to financial advice (INFO 282), which outlines how financial services laws apply to unlicensed entities referring consumers to a third party for the provision of financial advice.

INFO 282 is also relevant to AFS licensees and financial advisers receiving consumer details obtained through unsolicited contact.

The release of this information sheet is part of ASIC’s broader work to minimise consumer harm. This includes addressing cold calling business models using high-pressure sales tactics and online click-bait advertisements to lure consumers into receiving often inappropriate superannuation switching advice.

ASIC report: Australians need better hardship support from their lenders

On 20 May, ASIC published Report 783 Hardship, hard to get help: Lenders fall short in financial hardship support (REP 783), which outlines findings from ASIC’s review of 10 large home lenders.

The review found these home lenders should be doing more to support Australians who were struggling to meet their repayments. The report also found 40% of customers who received hardship assistance through reduction or deferral of payments, fell into arrears right after the assistance period ended.

From the 10 large home lenders reviewed in 2023, seven had improvement programs in place to manage financial hardship. However, as REP 783 highlights, much more work is required.

ASIC expects all lenders to act on the findings outlined in this report and prioritise improving their approach to supporting customers experiencing financial hardship. Reviewed lenders will be asked to prepare an action plan outlining how they will respond to the issues raised.

Report of the independent review of the changes to the continuous disclosure laws

On 14 May, Treasury shared the final Report of the independent review of the changes to the continuous disclosure laws that was tabled in both houses of Parliament. The report, received by government on 13 February, is currently under consideration.

ASX consults on clearing and settlement operating rules

On 13 May, ASX released a consultation paper titled ASX clearing and settlement operating rules review and refresh.

This consultation paper outlines proposed amendments regarding the five-year review and refresh of the ASX Settlement Operating Rules and Procedures and Austraclear Regulations and Procedures.

ASX welcomes feedback from stakeholders on the draft rule amendments and requests written submissions by 12 July 2024.

ASIC to launch new Professional Registers Search

On 28 May, ASIC announced it is launching a new streamlined Professional Registers Search (PRS) in late June 2024. The PRS allows users to review and search all professional registers databases with just one search.

User experience feedback will be collected through a survey tool on the homepage. This feedback will be used to inform continuous improvements to the search. A second update of the PRS is scheduled for late 2024, when all professional register extracts and documents will be made available.

Proposed Financial Institutions Supervisory Levies for 2024-25

On 28 May, Treasury prepared a discussion paper in conjunction with APRA  seeking submissions on the proposed financial institutions supervisory levies for the 2024–25 financial year.

The financial industry levies are set to recover the operational costs of APRA and other specific costs incurred by certain Commonwealth agencies, including Treasury and the Australian Taxation Office.

Consultations close on 11 June.

National Anti-Scam Centre releases its first Investment Scam Fusion Cell Report

On 22 May, the National Anti-Scam Centre released its Investment Scam Fusion Cell Report, which outlines findings of the first Fusion Cell co-led by ACCC and ASIC to combat investment scams.

The Fusion Cell, which ran from August 2023 to February 2024, was designed to identify investment scam campaigns and their enablers, to block the use of these enablers and to identify barriers to better coordinate scam prevention and disruption.

ACCC and ASIC worked closely with 43 organisations, including representatives from government, law enforcement, banks, digital currency exchanges, telecommunication providers and digital platforms to collaborate, share insights and act quickly on intelligence to disrupt investment scams.

According to ASIC’s media release, overall losses from investment scams amounted to $1.3 billion in 2023, down from $1.5 billion in 2022. This trend is encouraging, and an early sign that industry and government’s response to scams is beginning to have impact.

ASIC announces focus areas and expanded program to support financial reporting and audit quality

On 15 May, ASIC announced an expanded program of work to enhance the integrity and quality of financial reporting and auditing in Australia in achieving the broader goal of confident and informed investors.

ASIC’s announcement includes its focus areas for 30 June 2024.

ASIC consults on updated guidance for carbon market participants

On 6 May, ASIC released Consultation Paper 378 Safeguard mechanism reforms: Updates to RG 236 on proposed updates to its regulatory guidance for participants in the carbon market regarding AFS licensing requirements.

The proposed updates address the implications of the safeguard mechanism reforms to the financial services and markets section of the Corporations Act, as well as changes in the regulatory landscape for carbon markets, particularly Australian Carbon Credit Units, that have occurred since Regulatory Guide 236 Do I need an AFS licence to participate in carbon markets? (RG 236) was last re-issued in May 2015.

ASIC also announced it proposes to update several examples in RG 236, including those relating to derivatives over emissions units and financial product advice on safeguard mechanism credits units and Australian Carbon Credit Units, and Information Sheet 156 Regulated emissions units: Applying for or varying an AFS licence.

ASIC and UK Financial Reporting Council agree to recognise audit qualifications

On 6 May, ASIC announced the signing of a Memorandum of Understanding (MoU) on Reciprocal Arrangements with the Financial Reporting Council in the United Kingdom (UK), which sets out the recognition of audit qualifications.

The MoU allows auditors who have obtained professional audit qualifications as a statutory auditor in either the Australia or the UK, to apply more easily to have their qualification and audit rights recognised in the other country.

ASIC wins first court outcome regarding non-cash payment facility involving crypto-assets

On 3 May, the Federal Court handed down its judgment in ASIC v BPS Financial Pty Ltd [2024] FCA 457 (ASIC v BPS). In commenting on the judgment, ASIC said this case was a significant ruling as the first court outcome against a non-cash payment facility involving crypto.

The court found BPS Financial Pty Ltd (BPS) engaged in unlicensed conduct when offering consumers its crypto-based product, the ‘Qoin Wallet’, which used a digital currency token named ‘Qoin’.  Significantly, while Justice Downes found Qoin Wallet amounted to a ‘financial product’ under Australian financial services law, she found BPS’s entire Qoin Facility did not qualify as such.

The seminal decision signals courts will likely adopt a ‘substance over form’ approach when applying key regulatory concepts to evolving financial technology in the future, amid ASIC’s increasing scrutiny of offerings by the crypto-asset industry. The case also clarified the legal principles relating to the authorised representative exemption to the requirement of holding an AFSL This may have important implications for how ASIC will interpret and apply the exemption moving forward.

A detailed exploration of this judgment can be read here.

Treasury announces reforms to Australia’s Foreign Investment Framework

On 1 May, the Treasurer announced reforms to Australia’s foreign investment framework. in order to deliverwhat Treasury believes these reforms will be a stronger, faster and more transparent approach to foreign investment.

Australia’s Foreign Investment Policy, which provides a summary of Australia’s policy approach, has been updated. Further updates to the Guidance Notes reflecting these changes are in development.

For more information, see Australia’s foreign investment framework.

Treasury consults on exempting interfunding transactions from mandatory foreign investment notification

On 1 May, Treasury released for consultation its proposal to exempt interfunding transactions from mandatory notification requirements and fees under the Foreign Acquisitions and Takeovers Act 1975.

Treasury is seeking feedback on the proposed implementation of this exemption.

Consultation closes on 31 May.

ASIC releases summary document for identifying and supporting First Nations consumers experiencing financial abuse

On 29 April, ASIC published a summary document on building an understanding of First Nations consumers experiencing, or at risk of, financial abuse following a virtual workshop hosted on 14 March. The workshop, with financial services industry representatives, explored how industry can adopt community-led solutions to support consumers.

The workshop provided context on the unique cultural circumstances and experiences of First Nations consumers. It also highlighted opportunities for improvements across a range of financial service providers to ensure First Nations consumers impacted by financial abuse are appropriately and sensitively supported.

ASIC will host the next workshop for financial services industry representatives in June, focusing on best practice engagement for First Nations consumers and communities.