Financial Services in Focus – Issue 12

Funds and financial products

ASIC consults on share and interest purchase plan class order

On 2 October, ASIC released Consultation Paper 304 Remaking ASIC class order on share and interest purchase plans: [CO 09/425], which ASIC states outlines ASIC’s rationale for proposing to remake the class order without significant changes.

ASIC states that MDA providers now require an AFSL with dealing authorisation

On 1 October, ASIC stated that from that date managed discretionary account (MDA) providers must now have an AFSL, with an MDA-specific ‘dealing by issue’ licence authorisation and that MDA providers who do not have the required AFSL authorisations must cease providing MDAs until they have obtained those authorisations.

ASIC further states that ASIC will undertake reviews to check that MDA providers hold the relevant AFSL authorisations and will take action if unlicensed activity is identified.

Royal Commission releases interim report

On 28 September, the Interim Report of Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was submitted to the Governor-General of the Commonwealth of Australia and tabled in the Commonwealth Parliament.

Volumes 1-3 of the Interim Report in addition to an Executive Summary are available on the Royal Commission website.

Australian Small Business and Family Enterprise Ombudsman Guide to borrowing from fintech lenders released

On 28 September, the Australian Small Business and Family Enterprise Ombudsman, FinTech Australia and released Borrowing from fintech lenders, which is a guide for small to medium enterprises (SMEs) to help improve their awareness and understanding of business financing options, including fintech lenders.

ASIC extends relief for foreign financial services providers

On 21 September, ASIC extended to 30 September 2019 licensing relief for foreign financial services providers (FFSPs) to allow them to provide financial services to Australian wholesale clients without needing to hold an. AFSL.  The relief was due to expire at the end of this September.

The extension of ASIC’s relief in FFSP legislative instruments and ASIC’s ‘limited connection’ legislative instrument is set out in ASIC Corporations (Amendment) Instrument 2018/807 and is explained in the Explanatory Statement.

ASIC acts against misleading ICOs and crypto-asset funds targeted at retail investors

On 20 September, ASIC stated that it has taken action to stop several proposed initial coin offerings or token-generation events (together, ICOs), targeting retail investors, and that ASIC recently stopped the issue of a Product Disclosure Statement for a crypto-asset managed investment scheme.

ASIC states that consistent problems identified by ASIC are:

  • the use of misleading or deceptive statements in sales and marketing materials;
  • operating an illegal unregistered managed investment scheme; and
  • not holding an Australian financial services licence.

More information is available here.

ASIC provides relief for transition to Australian Financial Complaints Authority

On 21 September, ASIC made ASIC Corporations and Credit (Transition to AFCA) Instrument 2018/814, which was amended by ASIC Credit (Amendment) Instrument 2018/836.

According to the Explanatory Statement, ASIC Corporations and Credit (Transition to AFCA) Instrument 2018/814 is intended to provide transitional relief from the requirement for AFSL holders and ACL holders, corporate authorised representatives and unlicensed carried over instrument lenders to notify ASIC of their AFCA membership details, and extends the statutory notification periods from 10 or 15 days to 30 days (1 November to 30 November 2018).  The purpose of this relief is to support the effective transition to AFCA—by providing additional time to make the requisite notification, but does not affect the obligation to become a member of the AFCA scheme by 21 September 2018.

ASIC exhorts financial firms to join Australian Financial Complaints Authority

On 20 September, ASIC warned that ‘all Australian financial services licensees, Australian credit licensees, authorised credit representatives and superannuation trustees that they must join the Australian Financial Complaints Authority (AFCA) now if they have not already done so’ and that the Minister for Financial Services set a membership deadline for joining AFCA of 21 September.

ASIC remakes class order about group purchasing bodies and extends the relief to limited licensees

On 14 September, ASIC made ASIC Corporations (Group Purchasing Bodies) Instrument 2018/751, which ASIC states is to remake [CO 08/1] which was due to expire with the only substantive change being that the new instrument expressly extends the class relief to holders of ‘limited licences’.

According to the Explanatory Statement, the purpose of the instrument is to preserve the effect of [CO 08/1], pending a future more detailed ASIC review of the policy settings for the exemptions, and to reinstate the exemptions in relation to accountants who are limited licensees.

Financial product advice

ASIC releases guidance on code of ethics compliance schemes for financial advisers

On 28 September, ASIC released Regulatory Guide 269 Approval and oversight of compliance schemes for financial advisers (RG 269), in which ASIC gives guidance on ASIC’s proposed approach to approving and overseeing compliance schemes for financial advisers.

ASIC states that RG 269 explains our process and criteria for determining whether to grant approval to a compliance scheme, and sets out:

  • ASIC’s expectations for the governance and administration, monitoring and enforcement processes, and ongoing operation of compliance schemes;
  • how ASIC will exercise its powers to revoke the approval of a compliance scheme and to impose or vary conditions on the approval, and
  • the notifications that monitoring bodies must make to ASIC.

ASIC review into breach reporting practices by large financial institutions

On 25 September, ASIC released REPORT 594 Review of selected financial services groups’ compliance with the breach reporting obligation (REP 594).

REP 594 examined the breach reporting processes of 12 financial services groups, including the big four banks (ANZ, CBA, NAB and Westpac) and AMP.

ASIC states that key findings from the report include:

  • Financial institutions are taking too long to identify significant breaches, with the major banks taking an average time of 1,726 days (over 4.5 years).
  • There were delays in remediation for consumer loss. It took an average of 226 days from the end of a financial institution’s investigation into the breach and first payment to impacted consumers. (This is on top of the average across all institutions of 1,517 days before the breach is discovered and the time taken to start and complete an investigation.)
  • The significant breaches (within the scope of the review) caused financial losses to consumers of approximately $500 million, with millions of dollars of remediation yet to be provided.
  • The process from starting an investigation to lodging a breach report with ASIC also takes too long, with major banks taking an average of 150 days.

ASIC extends employee redundancy funds legislative instrument

On 25 September, ASIC extended the relief to employee redundancy funds from the managed investment and associated provisions in the Corporations Act under ASIC Corporations (Employee redundancy funds relief) Instrument 2015/1150 by making instrument ASIC Corporations (Amendment) Instrument 2018/825.

ASIC states that the extension will allow for consideration of whether employee redundancy funds should continue to technically fall within the managed investment regime of the Corporations Act, particularly in light of proposed law reform to the Fair Work Act 2009 (Cth) and Fair Work (Registered Organisations) Act 2009 (Cth) concerning these funds.


Large Exposures framework for authorised deposit-taking institutions

On 21 September, APRA has updated its website and published answers to frequently-asked questions (FAQs) relating to standards and guidance for large exposures for authorised deposit-taking institutions (ADIs).

Other financial services regulation

Modernising Business Registers and Director Identification Numbers legislation

On 1 October, the Government released draft legislation dealing with the modernisation of business registers.

The draft legislation follows the announcement in the 2018-19 Budget, where the Government announced that it will modernise the Australian Business Register (ABR) and the 31 ASIC business registers onto a single platform that will be administered by the Australian Business Registrar within the Australian Taxation Office.

Consultation closes on 26 October.

Draft legislation released to strengthen corporate and financial sector misconduct

On 26 September, the Government released for public comment draft Treasury Laws Amendment (ASIC Enforcement) Bill 2018 (Bill) aimed at strengthening penalties for corporate and financial sector misconduct.

According to the Exposure Draft Explanatory Materials, the Bill amends the Corporations Act, ASIC Act, National Consumer Credit Protection Act 2009 (Cth) and Insurance Contracts Act 1984 (Cth) to introduce a stronger penalty framework in response to a number of recommendations from the ASIC Enforcement Review Taskforce report.

The draft legislation is open for comment until 23 October.

Council of Financial Regulators publishes Issues Paper on changes to stored-value facilities regulation

On 24 September, the Australian Council of Financial Regulators (CFR) published an Issues Paper Review of Retail Payments Regulation: Stored-value Facilities, which reviews the regulatory regime of stored-value facilities including purchased payment facilities.  The CFR comprises RBA, APRA, ASIC and the Treasury.

ASIC states that the Issues Paper is part of a review into the regulatory regime for ‘stored value facilities’, which are payment products that allow users to pre-load money for future purchases (such as a travel money card).

Stakeholders are invited to provide written submissions to the CFR by 19 October.

Draft regulations remaking Financial Sector (Transfers of Business) Regulations 1999 and Australian Prudential Regulation Authority Regulations 1998

On 25 September, exposure draft regulations were issued to replace regulations that are soon to expire.

According to the Treasury website, the Financial Sector (Transfers of Business) Regulations 1999 (Cth) and Australian Prudential Regulation Authority Regulations 1998 (Cth) are due to sunset on 1 April 2019, and, to ensure the ongoing operation of these regulations, the proposed Financial Sector (Transfer and Restructure) Regulations 2018 (Cth) and the Australian Prudential Regulation Authority Regulations 2018 (Cth) would remake the existing regulations with minimal changes.

The exposure drafts of the regulations and the explanatory statements are available on the Treasury website.  Consultation on the draft regulations close on 23 October.

Government releases second stage draft legislation for Consumer Data Right

On 24 September, the Government released for public consultation the second stage of exposure draft legislation, accompanying draft Explanatory Materials, a proposals paper and draft designation instrument and accompanying Explanatory Materials, giving effect to the announced measures with respect to the implementation of the Consumer Data Right in line with the recommendations of the Review into Open Banking in Australia.

The revised definitions and Privacy Safeguards sections of the exposure draft, reflecting feedback from public consultation on the first tranche of draft legislation which was released on 15 August.

The closing date for submissions is 15 October.


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