Financial Services in Focus – Issue 17

Funds and financial products

ASIC to consult on measures to restrict offers to retail investors of stub-equity in proprietary companies

On 13 December, ASIC announced that it is concerned about recent control transactions where part or all of the consideration includes ‘stub-equity’ in Australian proprietary companies.

ASIC states that an offer of ‘stub-equity’ occurs where scrip consideration is offered to target shareholders under a proposed control transaction, which have been structured to avoid two main restrictions placed on proprietary companies under the Corporations Act:

  • proprietary companies must have no more than 50 non-employee shareholders (s113(1)); and
  • proprietary companies are prohibited from fundraising activities which would require disclosure to investors (s113(3)).

ASIC considers it important that investors in widely held companies are afforded the safeguards that the law explicitly provides for shareholders of public companies, and from which proprietary companies are exempt. Accordingly, ASIC states that it will issue a consultation paper on a proposed legislative instrument to modify section 708 of the Corporations Act, with the effect that offers of scrip in a proprietary company as part of control transactions will be prevented, or restricted to where that offer is made to only a small number of shareholders (for example, to existing substantial shareholders in the target as part of a separate class under a scheme of arrangement).

ASIC extends the transition period for some fees and costs disclosures

On 11 December, ASIC extended the transition periods for certain fees and costs disclosures for superannuation funds and managed investment schemes.

ASIC states this extension is due to upcoming consultation on the proposals arising out of recommendations made in the review of the fees and costs disclosure regime in Report 581 Review of Regulatory Guide 97: Disclosing fees and costs (REP 581).

ASIC states it expects to release the consultation paper in response to REP 581 in January.

ASIC report on consumer experiences on the Internal Dispute Resolution process of financial service providers

On 10 December, ASIC released Report 603 The consumer journey through the Internal Dispute Resolution process of financial service providers.

ASIC states that the research sought to better understand the experience of people thinking about or making a complaint to a financial services firm and that the research revealed the incidence of complaints across the financial services sector, as well as the barriers and difficulties people face in approaching and navigating the complaints process.

ASIC states that the release of this research is the first step in a coordinated body of work that ASIC is undertaking to raise financial services internal dispute resolution standards and transparency.

Financial product advice

ASIC advice to AFS licensees about upcoming changes to education and training requirements

On 14 December, ASIC advised that, from 1 January 2019, new professional standards requirements for financial advisers will progressively replace training standards in Regulatory Guide 146 Licensing: Training of financial product advisers (‘RG 146’).

ASIC states that RG 146 will not apply to new entrants to the industry seeking to become a relevant provider from 1 January 2019. RG 146 will continue to apply to:

  • financial advisers who are authorised by their AFS licensee as an ‘existing provider’ until the new requirements apply to them; and
  • financial advisers who are not ‘relevant providers’ – that is, those who only provide general advice, those who provide advice about Tier 2 or less complex financial products and those who only give advice in relation to a time-sharing scheme.

Financial markets

ASIC announces new members of the Markets Disciplinary Panel and consults on proposed changes

On 29 November, ASIC announced the appointment of four new members of the Markets Disciplinary Panel (MDP). The MDP is a peer review panel that makes decisions about whether infringement notices should be given for alleged contraventions of the market integrity rules.

The new appointees are:

  • Mr Dan Ritchie (Macquarie Securities);
  • Ms Lisa Shand (Morgans);
  • Mr John Manchee (Credit Suisse); and
  • Mr Ian Jones (Goldman Sachs).

ASIC also released Consultation Paper 306 Markets Disciplinary Panel, under which ASIC seeks feedback about proposals to change the kinds of matters that should be referred to the MDP and the powers that should be exercised by the MDP. Comments on the consultation paper should be sent to ASIC by 15 January.

Anti-money laundering

AUSTRAC releases draft AML/CTF Rules amending Chapter 10 (Casinos)

On 13 December, AUSTRAC released for public consultation draft amendments to Chapter 10 of the AML/CTF Rules.

The draft amendments to paragraph 10.4.3 implement a requirement of the National Consumer Protection Framework for Online Wagering. They reduce the customer verification period for online gambling accounts from 90 days to a maximum of 14 days.

Consultation closes on 24 January.

Consumer credit

ASIC releases first review of ‘buy now, pay later’ industry

On 28 November, ASIC released Report 600 Review of buy now pay later arrangements, which summarises ASIC’s findings of its review into the ‘buy now, pay later’ arrangements that allow consumers to allow consumers to buy and receive goods and services immediately but pay for that purchase over time.

ASIC states that these arrangements are not regulated under the National Consumer Credit Protection Act 2009 (Cth) and as a result providers are not required to be licensed or to comply with the responsible lending laws that prohibit a lender from providing credit that would be unsuitable for the consumer. ASIC states, however, these arrangements are considered ‘credit facilities’ under the ASIC Act and ASIC can take action where a buy now pay later provider engages in conduct that is misleading or unconscionable.

In the report, ASIC states that it will continue to monitor the industry and considers that ASIC’s proposed product intervention power should be extended to all credit facilities regulated under the ASIC Act.


APRA responds to submissions on ADI leverage ratio, extends the timeline for broader capital framework reforms

On 27 November, APRA released its response to submissions on the introduction of leverage ratio requirements for ADIs.

APRA released proposals in February 2018 to incorporate a minimum leverage ratio within the ADI prudential framework. Most submissions supported the minimum leverage ratio, but raised concerns about the calibration of the minimum requirement and calculation methodology. In response, APRA has proposed to:

  • set minimum requirements for ADIs using internal ratings-based approach (IRB ADIs) to determining capital adequacy at 3.5 per cent, rather than 4 per cent;
  • keep the leverage ratio for ADIs that use the standardised approach to determine capital adequacy at 3 per cent;
  • allow standardised ADIs to use Australian accounting standards, rather than the more complex Basel III methodology, to calculate certain parts of the ratio; and
  • require IRB ADIs to largely follow the Basel III methodology to calculate their leverage rations.

APRA is now proposing that revisions to the capital framework, as outlined in February 2018, will come into effect from 1 January 2022.

Other financial services regulation

Terrorism Insurance Act Review: 2018

On 12 December, The Hon Stuart Robert MP, Assistant Treasurer, released the 2018 Review of the Terrorism Insurance Act 2003.

The Government has accepted all of the recommendations from the Review. These include:

  • No changes to the scope of the terrorism insurance scheme (‘scheme’).
  • No changes to the pricing of the scheme.
  • A temporary dividend of $10 million a year for three years beginning in 2018-19 and terminating in 2020-21. This reflects the appropriate level of compensation the Government should receive for the financial benefits provided to the scheme.

Government introduces legislation regarding the Consumer Data Right

On 5 December, the Treasurer, The Hon Josh Frydenberg MP announced that legislation was introduced into Parliament that week, which aims to give individuals access to personal data currently held by businesses.

The legislation will establish a Consumer Data Right which give individuals and small businesses the right to access their own data and also allowing them to authorise accredited third parties to access it.

The Consumer Data Right will first apply in the banking sector, where it is referred to as Open Banking, from 1 July 2019. It will then be applied to the energy and telecommunications sectors.

Australian Government Response - ASIC Act Bodies’ Annual Report

On 30 November, the Treasury made available the Government’s response to the Parliamentary Joint Committee on Corporations and Financial Services’ (Committee) Report on the 2016-2017 annual reports of bodies established under the ASIC Act.

In the response, the federal government agrees to the Committee’s recommendation that it review the adequacy of auditor disciplinary functions.

Further information from the Treasury is available here.

Government to consult public to modernise business register

On 28 November, The Hon Stuart Robert MP, Assistant Treasurer, announced a review of ASIC registry fees.

As part of the review, the Government is consulting on ways to make the registry fee regime simpler, easier to understand and more equitable.

The Government will consider the findings of the review in 2019. Any changes to the fee regime will be delivered through the Modernising Business Registers program.

The Treasury consultation paper, Modernising Business Registers Program Review of Registry Fees, is available on the Treasury website here.

Feedback and submissions are due by 21 December.

Government releases exposure draft introducing mutual capital instruments

On 26 November, the Treasury released for public consultation an exposure draft of the Treasury Laws Amendment (Measures 4 for a later sitting) Bill 2018: Mutual entities (tranche 2), containing reforms for cooperatives, mutuals and member-owned firms, and explanatory materials.

The draft legislation proposes to introduce a new bespoke mutual capital instrument (MCIs) in the Corporations Act for all eligible mutual entities allowing them to raise equity capital by issuing MCIs.

The draft legislation and draft explanatory memorandum can be viewed here.

Feedback and submissions are due up until 24 December.

ASIC cost recovery legislative instruments and regulatory costs

On 20 November, ASIC made the ASIC (Supervisory Cost Recovery Levy—Annual Determination) Instrument 2018/1063 and the ASIC (Supervisory Cost Recovery Levy—Regulatory Costs) Instrument 2018/1062.

The purpose of the instruments are to specify:

  • numbers, amounts or percentages that are used in the formulae specified in the ASIC Supervisory Cost Recovery Levy Regulations 2017 (Cth) to work out the basic levy component and the graduated levy component, and a leviable entity’s levy component; and
  • ASIC’s regulatory costs and their attribution to each sub-sector for the 2017 – 2018 financial year.

On 5 December, ASIC published its regulatory costs for the financial year 2017-2018. A summary of the industry funding levies is available here.


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