Thinking | 6 February 2019
Financial Services in Focus – Issue 19
Funds and financial products
Financial Services Royal Commission final report
On 4 February, the final report of the Royal Commission into the Misconduct in the Banking, Superannuation and Financial Services Industry was released to the public.
In a joint media release, Prime Minister Scott Morrison and Treasurer Josh Frydenberg stated that the Government has agreed to take action on all 76 recommendations contained in the final report and, in a number of important areas, is going further by:
- Establishing for the first time a compensation scheme of last resort and expanding the remit of the Australian Financial Complaints Authority (AFCA) so that they can award compensation for successful claims going back 10 years, consistent with the period examined by the Royal Commission.
- Compensating those individuals who had a prior unpaid determination in their favour by the predecessor bodies of AFCA, which (according to the media release) will see almost 300 consumers finally receive compensation totalling around $30 million as a consequence of prior misconduct.
- Extending the jurisdiction of the Federal Court to cover corporate criminal misconduct, which will expedite cases that are considered by state courts and commonly take over two years to be heard.
- Commencing a capability review of APRA to be led by Graeme Samuel AC and conducting further capability reviews every four years.
A detailed response from the Government is found here.
In response, ASIC states that ASIC’s enforcement culture will change focus by its adoption of a ‘why not litigate’ enforcement stance and it notes the serious matters referred by the Royal Commission of possible breaches of financial services laws.
APRA states that it is pleased many of the recommendations made within the final report, and supported by the Government, are consistent with submissions APRA made to the Commission.
For an extensive commentary on the final report, see our article.
Asia Region Funds Passport ASIC legislative instrument
On 31 January, ASIC issued ASIC Corporations (Asia Region Funds Passport) Instrument 2019/75.
According to the Explanatory Statement, the purpose of the determination is to protect the confidentiality of personal, sensitive or confidential information that is lodged in connection with an application for registration as an Australian passport fund or a notice of intention to offer interests in a foreign passport fund.
Government releases bills that implement the tax and regulatory components of the Corporate Collective Investment Vehicle (CCIV) regime
On 17 January, Government released for public consultation two bills that implement the tax and regulatory components of the CCIV regime and their related explanatory materials.
The proposed new law includes:
- the new Chapter 8B in the Corporations Act containing the core provisions outlining the establishment of CCIVs and their operational and regulatory requirements;
- amendments to other legislation to support the implementation of CCIVs (such as amendments to the ASIC Act and the Personal Property Securities Act 2009 (Cth)); and
- the tax legislation, which ensures the tax treatment of CCIVs broadly aligns with the existing treatment of attribution managed investment trusts, providing investors with the benefits of flow-through taxation.
The draft legislation is found here on the Treasury website.
Consultation closes on 28 February.
Treasury issues an issues paper on ICOs
On 31 January, Treasury issued an Issues Paper Initial Coin Offerings.
According to the issues paper, the paper is intended to solicit the views of interested parties on: the opportunities and risks posed by ICOs for Australia; whether our regulatory framework is well placed to allow those opportunities to be harnessed while appropriately managing the associated risks; and whether there are other actions that could be taken to best position Australia to capitalise on new opportunities.
For commentary on the issues paper, see our article.
Responses to the consultation close on 28 February.
Financial product advice
FASEA releases policy for the Foreign Qualification Standard
On 16 January, the Financial Adviser Standards and Ethics Authority Ltd (FASEA), published its policy for its Foreign Qualification Standard.
FASEA states that, under the Standard, new entrants and relevant providers are required to undertake a two-step process: an assessment by a Department of Education and Training approved body, for example the Chartered Accountants of Australia and New Zealand (CAANZ) and Certified Practicing Accountants (CPA) associations and then an assessment by FASEA as to the equivalence of the foreign qualification to a degree or qualification approved under FPS001 Education Pathways Policy.
The Foreign Qualification Policy can be viewed here.
Other financial services regulation
ASIC announces the launch of the Global Financial Innovation Network
On 1 February, ASIC announced the launch of the Global Financial Innovation Network (GFIN). ASIC states that GFIN is a group of 28 international organisations including ASIC, committed to supporting financial innovation in the interests of consumers.
As part of its launch, GFIN is inviting applications from firms to be part of a pilot to test innovative financial products, services or business models across more than one jurisdiction.
Firms must meet the eligibility requirements of all the jurisdictions in which they would like to test. In Australia, ASIC states that would mean meeting the eligibility criteria under ASIC’s regulatory sandbox licensing exemption.
ASIC Industry Funding Model and registry search fees draft regulations
On 22 January, the Government released an exposure draft of the Treasury Laws Amendment (ASIC Cost Recovery and Fees) Regulations 2019 in relation to the ASIC Industry Funding Model and related search fees.
According to the Exposure Draft Explanatory Statement, the purpose of the regulations is to:
- create a new subsector to enable ASIC to recover its regulatory costs incurred from its close and continuous monitoring of certain significant financial institutions;
- exempt journalists from paying certain registry search fees;
- reduce the inspecting roles and relationship search fee from $40 to $19;
- update certain existing fees so that they reflect ASIC’s regulatory costs; and
- make other minor amendments to the levy and Corporations (Fees) Regulations 2001.
The Assistant Treasurer Stuart Robert stated that exempting journalists will facilitate free access to important information about companies and financial services providers.
Consultation closes on 8 February.
Treasury releases discussion paper on disclosure in general insurance
On 16 January, Treasury released a Discussion Paper Disclosure in General Insurance: Improving Consumer Understanding.
The discussion paper sets out proposals to improve consumers’ understanding and access to information through better transparency and enhanced disclosure practices in the general insurance sector. Treasury states that responses to the discussion paper will assist in defining proposals to enable the Government to use regulatory tools to achieve its objectives and to identify the actions industry can take.
Assistant Treasurer Stuart Robert stated that in developing a model for improved disclosure, in addition to considering submissions from stakeholders, the Government will also have regard to any recommendations relating to disclosure from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and the recommendations in the First Interim Report of the Australian Competition and Consumer Commission's Northern Australia Insurance Inquiry.
Consultation closes on 28 February.
Draft legislation on mutually-owned ADIs financial institutions tax
On 21 January, the Government issued draft regulations in relation to changing the tax rules regarding the treatment of certain financial instruments issued by mutually-owned financial institutions.
Assistant Treasurer Stuart Robert stated the draft regulations seek to rectify a current disadvantage experienced by mutually-owned financial institutions (such as building societies and credit unions) compared with other banks; namely, the existing rules provide different tax treatment for certain financial instruments issued by banks, compared with similar instruments issued by mutually-owned financial institutions.
The exposure drafts of the regulations and explanatory statement can be found on the Treasury website here.
Consultation closes on 11 February.
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