Financial Services in Focus – Issue 18
Funds and financial products
ASIC releases consultation paper on fees and costs disclosure regime
On 8 January, ASIC released a consultation paper on reforms to the fees and costs disclosure requirements for managed investment schemes and superannuation funds.
ASIC provided its response to Report 581 Review of ASIC Regulatory Guide 97: Disclosing fees and costs in PDSs and periodic statements (REP 581) by issuing the following documents for public consultation:
- Consultation Paper 308 Review of RG 97 Disclosing fees and costs in PDSs and periodic statements (CP 308);
- a draft updated Regulatory Guide 97 Disclosing fees and costs in PDSs and periodic statements (Updated RG 97); and
- proposed amendments to Schedule 10 to the Corporations Regulations 2001 (Draft Legislative Amendments).
We provide an analysis of this proposed reform here.
ASIC is seeking comments on its consultation package by 2 April.
ASIC reviews allocations practices in equity raising transactions
On 20 December, ASIC released a report into its review of allocations in equity raising transactions, which focussed on the conduct of AFS licensees and the factors considered in making allocation recommendations to issuers.
The review is set out in ASIC Report 605 Allocations in equity raising transactions and a summary of the report is issued as ASIC Report 606 Allocations in equity raising transactions (summary version).
ASIC makes recommendations on improvements to licensee practices in the conduct of allocations. ASIC states that licensees appointed to manage capital raising transactions for the issuer must appropriately manage conflicts of interest and confidential information about transactions; otherwise, there is a risk that a breach of financial services laws may occur, including misleading and deceptive conduct, breaches by licensees of their general conduct obligations, insider trading and market manipulation.
High Court decision on amending scheme constitutions
On 13 December, the High Court of Australia handed down its judgment in Australian Securities & Investments Commission v Lewski  HCA 63 in relation to, among other things, the efficacy of the amendment of a scheme’s constitution by the responsible entity, without member approval, to permit the payment to the responsible entity of a fund ‘listing fee’ and a trustee ‘removal fee’.
The High Court rejected the view of the Full Court of the Federal Court of Australia that amendments to a scheme’s constitution made in breach of section 601GC(1) of the Corporations Act have ‘interim validity’ once the amendments are lodged with ASIC until they are subsequently set aside by a court, provided the directors of the responsible entity had an honest belief that the constitution had been validly amended. Further, lodging the amendments with ASIC to give effect to them under section 601GC(2) of the Corporations Act does not confer validity upon an amendment invalidly made. The court also held that it is a members’ ‘right’ to have a scheme constitution administered according to its terms.
ASIC’s media release in relation to the judgment is here.
Financial product advice
FASEA releases legislative instrument for relevant providers degrees, qualifications and courses standard and education pathways policy
On 23 December, the Corporations (Relevant Providers Degrees, Qualifications and Courses Standard) Determination 2018 was registered.
The determination was made by the Financial Adviser Standards and Ethics Authority Ltd (FASEA), the standards body for Part 7.6 of the Corporations Act. FASEA states that, under the standard, advisers are required to complete a bachelor or higher or equivalent qualification, and the determination includes a list of current and historical degrees approved by FASEA that will be updated on an ongoing basis as additional courses are approved.
On 15 January, FASEA released its final FPS001 Education Pathways Policy. FASEA states that the policy details the range of education pathways for new entrants and existing advisers including a defined recognition of prior learning framework for existing advisers.
Federal Court decision on the meaning of ‘financial product advice’
On 21 December, the Federal Court of Australia handed down its judgment in Australian Securities and Investments Commission v Westpac Securities Administration Limited, in the matter of Westpac Securities Administration Limited  FCA 2078.
ASIC’s media release in relation to the judgment is here.
Of interest, in this case, is the court’s analysis of the component elements of the definition of ‘financial product advice’ in section 766B of the Corporations Act. For example, the court held that there is a difference between ‘fact’ and an ‘opinion’, and that an opinion includes a statement that involves an inference but that some statements may not involve any inference (such as speculation).
The new compilation of AML/CTF Rules Instrument
On 21 December, a new compilation of the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) was registered on the Federal Register of Legislation.
The compilation contains amendments to Chapter 11 which set the reporting and lodgement periods for the Compliance Report, and specify the classes of reporting entity that will be exempt from lodging a 2018 Compliance Report.
AUSTRAC publishes guidance specific to the super sector
On 14 December, AUSTRAC published guidance for the superannuation sector in response to requests from the sector for information on how to apply the obligations of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth).
AUSTRAC’s guidance is set out in its Industry Specific Guidance: Superannuation Sector.
ASIC releases report on credit card lending practices
On 18 December, ASIC released ASIC Report 604 Credit card lending in Australia—An update.
The report gives an update on ASIC's work on credit cards and outlines how credit providers are addressing the concerns ASIC identified in July 2018.
ASIC states that the report made it clear that ASIC expects credit providers to:
- take proactive steps to address problematic credit card debt and products that do not suit consumers;
- minimise the extra credit provided to consumers who regularly exceed their credit limit, and
- allocate repayments for all credit cards in the more favourable way required for cards entered into after July 2012.
Other financial services regulation
Final Productivity Commission report into superannuation
On 10 January, the Productivity Commission released its Inquiry Report into the efficiency and competitiveness of Australia’s superannuation system. The Productivity Commission also released an overview of the report.
The report assesses the efficiency and competitiveness of Australia’s superannuation system and whether better ways to allocate defaults are needed. The report makes a number of findings and recommendations.
The Hon Josh Frydenberg MP, Treasurer, and The Hon Stuart Robert MP, Assistant Treasurer, stated that the Government will carefully consider the recommendations and will await The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry's Final Report before finalising its response to the Productivity Commission's report.
ACCC releases Consumer Data Right Rules Outline
On 21 December, the ACCC released the Consumer data right: Rules outline (Rules Outline).
The Rules Outline sets out the ACCC’s current position on the CDR Rules, which are expected to be published for consultation in the first quarter of 2019. The Rules Outline is intended to provide guidance to stakeholders, including designated data holders, potential data recipients and consumers, on what the rules will require of CDR participants. The ACCC states that the Rules Outline provides guidance to data holders and potential data recipients so they can continue to develop the reliable and secure systems and new product offerings ahead of the start of the CDR regime.
The Hon Josh Frydenberg MP, Treasurer, said the Rules Outline detail the principles with which Open Banking participants will need to comply, and follow the Government’s release of the Consumer Data Right legislation and explanatory memorandum earlier that week.
On 21 December, Treasury released a first version of the Privacy Impact Assessment (PIA) for the CDR, in accordance with the Privacy (Australian Government Agencies – Governance) APP Code 2017, for public consultation. Consultation closes on 18 January.
Australian Business Securitisation Fund draft legislation
On 21 December, Government released for public consultation an exposure draft of the Australian Business Securitisation Fund Bill 2018 and explanatory materials, and investment mandate for the Australian Business Securitisation Fund.
The Government proposes to establish a $2 billion Australian Business Securitisation Fund to invest in warehouse facilities and securitisations backed by small and medium enterprise (SME) loans, providing additional funding to smaller banks and non-bank lenders to on-lend to SMEs on more competitive terms, and the Fund will be administered by the Australian Office of Financial Management.
Consultation closed on 16 January.
Clean Energy Finance Corporation investment mandate
On 14 December, the Government issued a new Investment Mandate for the Clean Energy Finance Corporation (CEFC).
The Government has directed the CEFC to support the development of a market for firming intermittent sources of renewable energy and to prioritise investments that support more reliable, 24/7 power. An additional provision requires the CEFC to prioritise its investments with a view to support increased reliability and security of electricity supplies.
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