Financial Services in Focus – Issue 16

Funds and financial products

ASIC extends relief for non-cash payment facilities

On 16 November, ASIC has amended the ASIC Corporations (Non-cash Payment Facilities) Instrument 2016/211 to remove an expiry date that would have seen the instrument ceasing to operate in March 2019.

The instrument provides relief to the following type of non-cash payment products:

  • travellers’ cheques, which are exempt from the requirement to provide confirmation of transaction under the Corporations Act;
  • loyalty schemes and road toll facilities, which are not subject to the financial services law in the Corporations Act;
  • prepaid mobile arrangements and some single use gift vouchers, which are exempt from the licensing, conduct and disclosure obligations in the Corporations Act; and
  • low value payment products, which are exempt from the licensing, conduct and disclosure obligations in the Corporations Act but are subject to alternative disclosure and dispute resolution obligations.

ASIC states that is extending the operational period of the relief under the instrument to allow for Government policy settings for retail payment products to be clarified by the Treasury, ASIC, APRA and the RBA.

Government proposes amendments to employee share schemes’ regulatory framework

On 13 November, the Treasurer, the Hon Josh Frydenberg MP, and Senator the Hon Michaelia Cash, Minister for Small and Family Business, Skills and Vocational Education, jointly announced that the Government is proposing to amend the current regulatory framework for employee share schemes as the current regime is too complex and fragmented and ultimately discourages businesses - particularly, small businesses - from offering employee share schemes.

The announcement states that the Government proposes to simplify and extend the current regime by:

  • creating a dedicated exemption for disclosure, licensing, advertising and on-sale obligations under the Corporations Act;
  • increasing the value limit of eligible financial products that can be offered in a 12 month period from $5,000 per employee to $10,000 per employee;
  • expanding employee share schemes to include contribution plans, where an employee can make a monetary contribution to acquire eligible financial products; and
  • allowing small businesses to offer employee share schemes without publicly disclosing commercially sensitive financial information unless they are otherwise obligated to do.

ASIC reinstates exemptions for IDPS operators regarding hawking and product disclosure under platforms relief

On 12 November, ASIC Corporations (Amendment) Instrument 2018/1028 was registered.  The instrument amends ASIC Class Order [CO 13/763] Investor directed portfolio services.

According to the Explanatory Statement, the purpose of the instrument is to reinstate the exemptions previously granted to IPDS operators from Division 8 of Part 7.8 and Part 7.9 of the Corporations Act in relation to a financial product that is an interest in a managed investment scheme arising out of participation in the IDPS.  The Explanatory Statement also states that the amendments merely reinstates an aspect of ASIC’s long-standing policy on IDPSs.

Financial product advice

ASIC urges financial advisers to register by 31 December

On 23 November, ASIC reminded financial advisers, who are currently authorised by a financial services licensee, to make sure that they are on ASIC’s Financial Advisers Register no later than 31 December 2018, before new professional standards requirements take effect.

FASEA releases Continuing Professional Development Legislative Instrument

On 22 November, Financial Adviser Standards and Ethics Authority Limited (FASEA) released its legislative instrument on continuing professional development (CPD) for consultation.

Under the standard, FASEA proposes advisers are required to complete 40 hours of CPD each year of which 70% will need to be approved by the licensee (including a maximum 4 hours of professional reading).  The minimum hours for CPD categories are:

  • Technical – 5 hours
  • Client Care and Practice – 5 hours
  • Regulatory Compliance and Consumer Protection – 5 hours, and
  • Professionalism and Ethics – 9 hours.

The balance up to 40 hours will consist of qualifying CPD.

Transition arrangements for 2019 will be on a pro-rata basis for licensees whose CPD year is not a calendar year.

These developments are welcomed by the Hon Stuart Robert MP, Assistant Treasurer.

Feedback and submissions are due by 7 December.

FASEA releases Code of Ethics Legislative Instrument

On 21 November, FASEA released its legislative instrument for the Code of Ethics standard for consultation.

Under the standard, FASEA proposes the Code of Ethics addresses the values of Trust, Competence, Honesty, Fairness and Diligence.  All advisers must act at all times, in all cases in a manner that is demonstrably consistent with the 12 standards which will be monitored by ASIC’s approved code monitoring bodies.

These developments are welcomed by the Hon Stuart Robert MP, Assistant Treasurer.

Feedback and submissions are due by 19 December.

Financial markets

ASIC releases report outlining impact of high-frequency trading in the Australian equity and Australian-US dollar cross-rate markets

On 16 November, ASIC reported on its latest review of the impact of high-frequency trading in the Australian equity and Australian-US dollar cross-rate markets.

The outcomes of the review are set out in Report 597 High-frequency trading in Australian equities and the Australian-US dollar cross rate.  ASIC states that notable findings from the review are:

  • High-frequency traders are responsible for a quarter of all market transactions in equities and the AUD/USD cross rate and it is trending down.
  • Traders continue to invest in faster technologies and are accessing markets more quickly. They are undertaking less arbitrage and more position taking, with less intraday trading and longer holding times.
  • High-frequency traders contribute positively to price formation, benefiting all investors in the market. They also provide important liquidity during market stress or peak demand.
  • There is a cost to natural market users from high-frequency trader intermediation, but this cost is small, and is trending down.

To increase accessibility, ASIC has also published a summary version of the report:  Report 598 High-frequency trading in Australian equities and the Australian–US dollar cross rate (summary version).


Legislation passes parliament regarding ADI and insurance company ownership limits and restricted ADI licence

On 15 November, the Treasury Laws Amendment (Financial Sector Regulation) Bill 2018 (Cth) passed both houses of Parliament.

The bill amends both the Financial Sector (Shareholdings) Act 1998 (Cth) and the Banking Act 1959 (Cth).

According to the Explanatory Memorandum, the bill:

  • increases the ownership restriction limit from 15 % to 20% applying to insurance companies and ADIs, which is designed to support new entrants to the financial services market; and
  • implements the framework for a restricted time-limited ADI licence, to encourage greater competition in the banking sector and allow start-up banks to enter the market at an earlier stage than is currently possible.

These developments are welcomed by the Hon Stuart Robert MP, Assistant Treasurer.

Other financial services regulation

APRA launches review of capital requirements for private health insurers

On 16 November, APRA wrote to private health insurers providing an update on APRA’s planned approach to reviewing the capital framework applicable to provide health insurers and outlines its next steps.

A copy of the letter is available here.

Proposed changes to large proprietary company thresholds

On 16 November, the Government has released for public consultation exposure draft regulations and an Exposure Draft Explanatory Statement containing proposals to reduce the financial reporting burden for some proprietary companies by increasing the thresholds for determining what constitutes a large proprietary company under the Corporations Act.

Currently, companies that meet the thresholds are required to prepare and lodge an audited financial report, a director’s report and an auditor’s report with ASIC each financial year.

The exposure draft regulations propose to increase the thresholds as follows:

  • the consolidated revenue for the financial year of the company and the entities it controls from $25 million to $50 million;
  • the value of the consolidated gross assets at the end of the financial year of the company and the entities it control from $12.5 million to $25 million; or
  • the company and the entities it control having 50 employees to 100 employees at the end of the financial year.

More information is available in our update.

Submissions are due by 14 December.

Government announces boost to Commonwealth DPP’s and Federal Court’s funding to pursue criminal prosecutions for financial misconduct

On 16 November, the Treasurer, the Hon Josh Frydenberg MP, and the Hon Christian Porter MP, Attorney-General, jointly announced that the Government is providing an additional $51.5 million to the Commonwealth Director of Public Prosecutions (CDPP) and the Federal Court of Australia to enable further prosecutions of criminal misconduct by banks and other financial institutions and to ensure civil claims are dealt with effectively and expeditiously.  The Treasurer anticipates that there will be increased enforcement activity as a result of the cases highlighted by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The Treasurer and Attorney-General also announced that the Government has also asked the Attorney-General’s Department (AGD) to conduct a review of whether the Federal Court’s criminal jurisdiction should be expanded to include corporate crime, and that the AGD will produce a report to the Government in January next year.

APRA announces Terms of Reference for enforcement strategy review

On 12 November, announced Terms of Reference for a review of its enforcement strategy.

APRA states that the review will examine APRA’s current enforcement strategy and infrastructure and how it interacts with APRA’s core supervisory approach.  Further, APRA states that it has established the enforcement review in recognition both of new regulatory responsibilities under the Banking Executive Accounting Regime, as well as case studies examined by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The final Review will be presented to APRA Members by 31 March 2019.  Following consideration of the Review’s recommendations, APRA expects to release publicly both the final review and APRA’s enforcement strategy.


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