Financial Services in Focus – Issue 95

ASIC issues reminder about virtual-only meetings

On 12 July, ASIC issued a reminder that companies (including CCIVs) and registered schemes can hold virtual-only meetings of members if expressly required or permitted by their constitutions. For the 2024 annual general meeting season, ASIC reminds companies to ensure their constitutions have been amended if they wish to hold virtual-only meetings of members.

ASIC recently reviewed a sample of 643 notices of meeting of public companies between 1 July 2022 to 31 December 2023 and found some companies did not have constitutions that expressly required or permitted virtual-only meetings, while other companies had not lodged appropriate resolutions with ASIC. ASIC has reminded these companies of their obligations.

The Statutory Review of the Meetings and Documents Amendments closed its consultation on 19 July. The Panel conducting the review must report to the Government by 14 August.

ASIC proposes October expiry date for primary production scheme legislative instrument

On 8 July, ASIC proposed that ASIC Corporations (Land Holding for Primary Production Schemes) Instrument 2024/15, relating to managed investment schemes, be allowed to sunset on 1 October. This means the instrument will cease to operate and entities will no longer be able to rely on it. ASIC understands that the relief for primary production schemes covered by this instrument may no longer be required by the managed fund sector.

ASIC invites feedback on whether the instrument still forms a necessary and useful part of the legislative framework, and whether standards set out in the instrument remain appropriate to ensure effectiveness.

ASIC invites feedback on the proposal by 9 August.

ATO announces new regulations have commenced

On 6 July, the ATO announced the Income Tax Assessment Amendment (Superannuation) Regulations 2024 (Regulations) were registered and commenced. 

The Regulations specify changes to the treatment of the transfer balance cap for successor fund transfers and will ensure individuals with a capped defined benefit income stream are not adversely impacted in the event of a successor fund transfer between superannuation funds. From 6 July 2024, for the purposes of the individual's transfer balance account, a new income stream beginning as a result of a successor fund transfer will have the same beginning value as the closing value of the original income stream.

The changes will be applied retrospectively from 1 July 2017.

ASIC proposes update to superannuation forecasts relief instrument

On 5 July, ASIC announced that it proposes to update the rate of nominal wage inflation in ASIC (Superannuation Calculators and Retirement Estimates) Instrument 2022/603 (Instrument 2022/603), and Regulatory Guide 276 Superannuation forecasts: Calculators and retirement estimates (RG 276) in view of Treasury’s revised long-term wage growth forecasts.

Instrument 2022/603 exempts providers of superannuation calculators and retirement estimates (collectively referred to as ‘superannuation forecasts’) from certain regulatory requirements related to providing financial product advice if they provide their superannuation forecasts within the terms of the ASIC relief.

ASIC proposes to revise the prescribed rate of nominal wage inflation in ASIC Instrument 2022/603 and RG 276 from 4% p.a. to 3.7% p.a., to ensure that the default inflation assumptions in Instrument 2022/603 continue to reflect long-term economic conditions.

APRA updates prudential standard on member outcomes in superannuation

On 4 July, APRA announced updates to Prudential Standard SPS 515 Strategic Planning and Member Outcomes (SPS 515) and related guidance reinforcing trustees’ duties to act in the best financial interests of members.

APRA states the revised standard and guidance sets out:

• clear expectations for trustees on expenditure;

• design principles for a robust expenditure management framework – including board oversight, alignment to strategic objectives, and active monitoring and review;

• APRA’s view that better practice is for trustees to obtain a yearly attestation from accountable senior executive management that they are taking reasonable steps to meet the requirements in SPS 515 regarding expenditure management; and

• APRA’s view that such attestation should confirm that controls are in place and operating effectively to prevent expenditure that would be unjustifiable in the context of the duty to act in the best financial interests of beneficiaries.   

APRA’s response to industry consultation provides further detail on the changes and guidance, which aim to ensure members’ interests are front-and-centre in trustees’ strategic and business planning, financial resource management, implementation of the retirement income covenant and fund transfers.

The updated SPS 515 will take effect from 1 July 2025.

ASIC and APRA urge superannuation trustees to strengthen oversight of retirement strategy implementation

On 2 July, ASIC and APRA jointly released a statement which called on superannuation trustees to boost efforts to track and measure the impact of their strategies to improve retirement outcomes for members. As part of a follow-up survey to REP 766 Implementation of the retirement income covenant: Findings from the APRA and ASIC thematic review (Thematic Review), ASIC and APRA have released REP 784 Industry update: Pulse check on retirement income covenant implementation (REP 784). Trustees were asked to share responses to the recommendations and findings from the Thematic Review, with key observations including:

• While approximately three-quarters of trustees indicated that measuring retirement outcomes was a priority, just eight trustees said tracking the effectiveness of retirement-focused assistance to members was a priority.

• Many trustees were taking steps to better understand the retirement needs of their members, but only one in five planned improvements identified by trustees were expected to be completed by mid-2024.

The responses from trustees pointed to several challenges in implementing the covenant, including uncertainty around the financial advice framework, privacy, security, and cost concerns on collecting more member data, and a lack of member engagement and financial capability.

ASIC and APRA expect trustees to review examples from REP 784, assess the gaps in their own strategy implementation and identify opportunities to accelerate progress in closing those gaps.

FSC releases new standard on fraud and scam mitigation measures

On 1 July, FSC released a new FSC Standard No. 29 Fraud and Scam Mitigation Measures for Superannuation Funds (Standard), setting industry expectations for the protection of customers from scams and fraud, such as multifactor authentication on high-risk transactions.

The Standard came into effect on 1 July for voluntary compliance, with full compliance required from 1 July 2026, which provides two years for superannuation funds to implement the necessary system and technology changes where required. The FSC is strongly encouraging its members to target early compliance.

APRA publishes letter on thematic review of recovery and exit planning in the superannuation industry

On 28 June, APRA issued a letter to all RSE licensees sharing initial observations from its targeted thematic review of the superannuation industry’s preparedness for Prudential Standard CPS 190 Recovery and Exit Planning (CPS 190). The letter shares opportunities for improvements and better practice examples to enhance the superannuation industry’s understanding and preparedness, including improvements across:

• early warning indicators and trigger levels in the trigger framework that are more relevant to RSE licensees’ operating environment and risk profiles;

• enhanced preparatory measures should be considered for recovery and exit options, together with an uplift in capability to reduce execution risk; and

• proactive communication strategies to support the effective execution of recovery and exit plans particularly in periods of stress. 

For RSE licensees, CPS 190 will come into effect from 1 January 2025.

APRA releases response on enhancements to quarterly insurance publications

On 17 July, APRA released its response to the consultation on proposed enhancements to the content and presentation of its suite of quarterly insurance statistical publications. The proposed enhancements were:

• revision of content, following changes to the reporting framework for insurance to reflect the implementation of Australian Accounting Standards Board 17 Insurance Contracts (AASB17) and revised capital framework for private health insurers; and

• enhancement of the presentation of data, moving to an approach featuring dashboards with dynamic data tables and charts.

APRA intends to release the first edition of the enhanced quarterly insurance statistics in August 2024.

Government passes first tranche of financial advice laws

On 9 July, Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Act 2024 received assent on 9 July 2024, with the part dealing with reforms to financial services and superannuation laws commencing on 10 July. This is the first tranche of legislation delivering the government’s package of financial advice reforms.

We previously discussed the announcement of these measures in Issue 92.

According to Assistant Treasurer Stephen Jones, the legislation:

• streamlines fee documentation into one simplified document;

• enables flexibility in how Financial Services Guides are provided;

• strengthens transparency and protections for consumers who receive personal advice about insurance products; and

• clarifies that Australians can use their superannuation accounts to pay for personal financial advice about their superannuation from an independent financial adviser.

The Assistant Treasurer also stated that a second tranche of reforms will be developed over the second half of the year.

ASIC urges AFS licensees to correct records on the Financial Advisers Register

On 1 July, ASIC released a statement calling on AFS licensees to assess the accuracy of records about their financial advisers on the Financial Advisers Register after a spot check identified errors and inconsistencies. ASIC urged AFS licensees to immediately check the accuracy of all information, with a particular focus on the adviser’s approved qualification(s), ability to provide tax (financial) advice services, business address and telephone number.

Any incorrect or out of date information must be rectified by lodging a ‘maintain’ transaction via ASIC Connect.

From 1 August, ASIC will commence a compliance program and will consider enforcement action where necessary.

ASIC report on equity market cleanliness

On 24 July, ASIC released a report on equity market cleanliness, and states that report has shown Australia’s equity markets continue to operate with a high level of integrity and remain consistently among the cleanest in the world.

REP 786 Equity market cleanliness snapshot report highlights some of ASIC’s key findings from its review of Australian listed equity market cleanliness and looks at ASIC’s enforcement track record in detecting and prosecuting insider trading matters.

ASX confirms plans for staged implementation of CHESS replacement project

On 28 June, ASX confirmed it is progressing with the targeted delivery of the first phase of the CHESS replacement project in 2026, as previously announced in November 2023. ASX also released its response to feedback received on the proposed two stage approach to implementation and the scope and design for delivery of clearing services.

ASX will release Consultation Paper 2 – which focuses on the settlement and subregister functionality – in August 2024.

APRA finalises targeted changes regarding banks’ liquidity and capital requirements

On 24 July, APRA released a response paper about targeted reforms to banks’ liquidity and capital requirements designed to strengthen the ability of banks to respond to a future stress event.

APRA announced that it has confirmed plans to proceed as planned with two of the three proposed reforms:

• banks subject to the Minimum Liquidity Holdings regime for calculating their liquidity requirements will be required to adjust the value of their liquid assets regularly for movements in market prices; and

• all banks must be operationally ready to provide certain key information regarding their financial position when requesting exceptional liquidity assistance from the Reserve Bank of Australia.

These two measures will come into effect from 1 July 2025.

ASIC report on First Nations customers

On 15 July, ASIC announced bank customers on low incomes, including First Nations customers, will be refunded over $28 million dollars after a first-of-its-kind ASIC review revealed four Australian banks systemically charged high fees to those customers who could least afford it. Report 785 Better banking for Indigenous Consumers (REP 785) found at least two million Australians on low incomes, including many relying on Centrelink payments to make ends meet, were kept in high-fee accounts.

ASIC Commissioner Alan Kirkland called on all banks to consider the findings from REP 785, to improve the accessibility and distribution of low-fee accounts and commit adequate resourcing to specialist First Nations services.

Treasury releases Pacific Banking Forum Outcomes Statement

On 12 July, Treasury released the Pacific Banking Forum (Forum) Outcomes Statement.  The Forum was co-hosted by the Australian and US governments and convened on 8 to 9 July 2024 in Brisbane and delivered Prime Minister Albanese’s and President Biden’s commitment to working with Pacific Island countries and public, private and multilateral sector partners in the region to address the decline of correspondent banking relationships in the Pacific.

The Forum Outcomes Statement can be viewed on the Treasury website. Representatives at the Forum agreed to the commitments outlined in the Forum Outcomes Statement.

APRA finalises revised Interest Rate Risk in the Banking Book requirements

On 8 July, APRA published a response to submissions to its December 2023 consultation on Interest Rate Risk in the Banking Book (IRRBB) revisions for ADIs, as set out in the revised Prudential Standard APS 117 Interest Rate Risk in the Banking Book (APS 117) and the final revised Prudential Practice Guide APG 117 Capital Adequacy: Interest Rate Risk in the Banking Book (APG 117).

The revisions to APRA’s standard are designed to:

• address lessons learned from the large interest rate movements and last year’s international banking crisis;

• create better incentives for authorised deposit-taking Institutions (ADIs) (in particular, larger ADIs) in managing their interest rate risk, including raising standards of governance and the measurement of risk; and

• simplify the IRRBB framework and ensuring a proportionate approach across ADIs.

The final revised APS 117 will be effective from 1 October 2025.

AUSTRAC provides update on second stage consultation on the AML/CTF reforms

On 11 July, AUSTRAC issued an update on the second round of public consultation on proposed reforms to the AML/CTF regime, which has now drawn to a close. All feedback is currently being reviewed by the Attorney-General’s Department to inform the development of the draft legislation. AUSTRAC intends to engage heavily with affected sectors on the design and delivery of the implementation of the proposed reforms.

For further information, see our earlier article.

AUSTRAC and partners release financial crime guidance on preventing vulnerable students from being used as ‘money mules’

On 11 July, AUSTRAC released a new financial crime guide designed to help businesses understand and identify criminal networks seeking to exploit vulnerable foreign students to launder money, using them as so-called ‘money mules’.

The Financial Crime Guide, Combating the Exploitation of International Students as Money Mules, has been developed by Fintel Alliance in partnership with the Australian Federal Police and Australian Border Force.

AUSTRAC provides update on its Reporting Entity System Transformation Program

On 11 July, AUSTRAC issued an update on the Reporting Entity System Transformation (REST) Program that will replace the current AUSTRAC Online interface with a modern and user-friendly platform. The REST Program will improve AUSTRAC’s ability to process the significant volumes and types of data. Over the coming months, AUSTRAC will deliver the final stage of program features, including a new AUSTRAC Online platform, new enrolment and registration forms to provide a more user-friendly experience and transaction reporting processes.

AUSTRAC invites reporting entities to provide feedback on the program features through small interactive focus groups.

AUSTRAC releases risk assessments on money laundering and terrorism financing

On 9 July, AUSTRAC released the Money Laundering in Australia: National Risk Assessment and Terrorism Financing in Australia: National Risk Assessment, which examine current money laundering and terrorism financing threats and vulnerabilities in specific parts of Australia’s financial sector and are intended to be a resource for reporting entities to use to refine internal controls and to meet reporting obligations, particularly in relation to suspicious matter reporting.

For further information, see our earlier article.

FATF releases updates on global ML/TF risk

On 8 July, AUSTRAC announced the Financial Action Task Force (FATF), the global group that sets international AML/CTF standards, has published two recent updates relating to international money laundering and terrorism financing risk. The High-Risk Jurisdictions subject to a Call for Action – June 2024 and Jurisdictions under Increase Monitoring – June 2024 reports provide an update on jurisdictions that may pose a risk to the international financial system.

APRA completes program to modernise the prudential architecture

On 23 July, APRA announced that it has delivered its multi-year project to modernise the prudential architecture (MPA), with the publication of the final version of its new digital Prudential Handbook.

Since its commencement, the MPA program has delivered changes to the design and presentation of APRA’s prudential framework to enable:

• better regulation – improving the design of the framework, which is now structured in clear pillars, and rationalising and consolidating standards and guidance where it makes sense to do so;

• a ‘digital first’ approach – using technology to make it easier to access and manage the standards, guidance and supporting policy information; and

• new risks, new rules – responding in an adaptable and agile way to emerging risks in a manner that integrates with – rather than adds to – the existing framework.

The new Prudential Handbook, which was released in beta version last month, brings together all of APRA’s prudential standards, prudential practice guides and relevant supporting information into one place.

ASIC and OAIC sign information sharing MoU to accelerate data and privacy breach responses

On 19 July, ASIC announced that it had signed with the Office of the Australian Information Commission (OAIC) a Memorandum of Understanding (MoU) for the sharing of data and privacy breach information.

The MoU allows for information sharing, enabling the two agencies to proactively share information for the purposes of exercising powers or performing functions, and in response to written requests. It sets out steps and actions for the request, sharing, use and confidentially of information.

APRA releases response to consultation on minor amendments to prudential framework for ADIs and insurers

On 17 July, APRA announced that it is finalising several minor updates to the prudential framework for ADIs and insurers. These updates are technical clarifications and are not material changes in policy settings.

ASIC and APRA issue final rules and information for the Financial Accountability Regime

On 11 July, APRA and ASIC jointly published new information to help insurers and superannuation trustees prepare for the commencement of the Financial Accountability Regime (FAR). The FAR already applies to the banking industry and takes effect for the insurance and superannuation industries from 15 March 2025.

New information in the package includes:

• an amendment to the Regulator rules, which prescribes key functions information for inclusion in the FAR register of accountable persons for insurance and superannuation industries; see Financial Accountability Regime Regulator Rules Amendment Instrument No. 1 of 2024and Financial Accountability Regime Act (Information for register) Regulator Rules 2024; and

• a joint ASIC and APRA letter summarising key issues raised during consultation and their response, including the concept and application of key functions.

The package updates previously released information to reflect the final Regulator rules, including:

• an updated information paper to assist entities and their accountable persons in understanding and complying with their obligations under the FAR, with changes made to reflect the final list of key functions and their descriptions; 

• an updated accountability statement guide and template to help entities subject to the FAR enhanced notification obligations to prepare accountability statements; and

• reporting form instructions to assist insurance and superannuation entities in providing the required information to ASIC and APRA.

This information completes the total package of FAR guidance materials. 

ASIC releases estimated industry funding levies for 2023-24

On 8 July, ASIC issued its 2023-24 Cost Recovery Implementation Statement (CRIS). The CRIS outlines estimated regulatory costs and levies for each industry subsector to help entities plan and budget for levies and fees to be charged. The statement’s figures are a guide only.

Final levies will be published in December and invoiced between January and March 2025.