19 March 2019

Financial Services in Focus – Issue 21

Funds and financial products

Further Royal Commission fallout

The fallout from Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry continues with proposals for legislative reform to implement some of the recommendations.

Treasury is currently consulting on a number of initiatives, namely:

  • draft legislation ending the grandfathering arrangements for conflicted remuneration in relation to financial advice provided to retail clients;
  • a consultation paper on including the handling and settling of insurance claims as a financial service;
  • the Terms of Reference for the capability review of APRA; and
  • a consultation paper on the enforceability of financial services industry codes.

Consultation periods close on 22 March, 29 March, 10 April and 12 April respectively.

In addition, on 27 February Treasurer Josh Frydenberg issued Australian Securities and Investments Commission (Investigation into Grandfathered Conflicted Remuneration for Financial Advice) Direction 2019, which is a direction to ASIC under the ASIC Act to investigate the extent to which persons who are giving or accepting grandfathered conflicted remuneration, as at the commencement of this instrument, are (a) changing their arrangements to end the payment of grandfathered conflicted remuneration prior to 1 January 2021; and (b) passing the benefit of ending the payment of grandfathered conflicted remuneration on to clients, whether through direct rebates or otherwise.  According to the Explanatory Statement accompanying the legislative instrument, the Direction is designed to ensure that the benefits of industry renegotiating current arrangements to remove grandfathered conflicted remuneration ahead of 1 January 2021 flow through to clients.

Australian Labor Party’s response to the Banking Royal Commission is here. Labor has also introduced legislation into Parliament to end the payment of grandfathered commissions, legislating for the coverage of funeral expenses policies as financial products under the Corporations Act and ASIC Act, and the removal the financial service exemption for handling and settling insurance claims.

ASIC remakes class order about warrants and out of use notices

On 14 March, a new legislative instrument re-making Class Order [CO 08/781] Warrants: Out-of-use notices was registered.  This class order was due to expire on 1 April 2019.

ASIC states that the new instrument, ASIC Corporations (Warrants: Out-of-use notices) Instrument 2019/148, continues to provide issuers of warrants relief from the requirement in the Corporations Act to notify ASIC when a warrant ceases to be available in certain circumstances. The relief is provided only to issuers of warrants offered under a PDS or Supplementary PDS covering two or more warrant products.

ASIC states that, under ASIC Corporations Instrument 2019/148, a warrant issuer will only need to lodge an out-of-use notice with ASIC when all the warrants to which the PDS or Supplementary PDS relates are no longer available.

The new instrument will continue the effect of the previous instrument with some minor amendments, which include simplifying the drafting to give greater clarity.

Whistleblower protections legislation receives Royal Assent

On 12 March, the bill that has become the Treasury Laws Amendment (Enhancing Whistleblower Protections) Act 2019 received Royal Assent.  The legislation is described in issue 20 of Financial Services in Focus.

ASIC Enforcement Review Taskforce legislation receives Royal Assent

On 12 March, the bill that has become the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 received Royal Assent.

As previously reported in Financial Services in Focus, the legislation introduces a stronger penalty framework in the Corporations Act, ASIC Act, National Consumer Credit Protection Act 2009 and Insurance Contracts Act 1984 dealing with corporate and financial sector misconduct.

Financial product advice

FASEA releases Program & Provider Accreditation Policy

On 15 March, FASEA released its final FPS002 Program & Provider Accreditation Policy.

The policy provides guidance to Higher Education Providers and Professional Associations on the approval requirements for a range of education pathways in the FASEA Education Pathways Policy.

Financial markets

ASIC Derivative Transaction Rules (Reporting) amendments

On 13 March, the ASIC Corporations (Amendment) Instrument 2019/169 was registered.

The instrument amends the ASIC Corporations (Derivative Transaction Reporting Exemption) Instrument 2015/844 to extend some elements of the existing relief under that instrument to address ongoing implementation issues.

Market Integrity Rules amended

On 8 March, each of ASIC Market Integrity Rules (Securities Markets) Determination 2019/175 and ASIC Market Integrity Rules (Securities Markets) Repeal Instrument 2019/176 were registered.

According to the Explanatory Statement, the purpose of the Determination is to determine, for the purposes of paragraph 6.2.1(1)(c) of the ASIC Market Integrity Rules (Securities Markets) 2017 and with effect from its commencement, the Tier 1 Equity Market Products and the Tier 2 Equity Market Products.  The purpose of the Repeal Instrument is to repeal a superseded Determination.

Corporations Act transfer provisions amended by ASIC to accommodate Chi-X trading of MIS interests

On 4 March, the ASIC Corporations (Amendment) Instrument 2019/45 was registered.

According to the Explanatory Statement, the instrument expands the operation of the transfer provisions in Part 7.11 of the Corporations Act to cover interests in registered managed investment schemes that are quoted on the financial market operated by Chi-X Australia Pty Ltd (‘Chi-X’), because Chi-X is proposing to expand its secondary trading services to include interests in registered schemes that have been admitted to quotation on the financial market operated by Chi-X.

To give effect to the above arrangements, the instrument amends ASIC Corporations (Division 4 Financial Products) Instrument 2015/1030.

Anti-money laundering

AML/CTF Rules amending Chapter 10 (Casinos) registered

On 25 February, the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2019 (No. 1) was registered.

According to the Explanatory Statement, these amendments to the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) reduce the period within which a reporting entity is required to carry out the applicable customer identification procedure in relation to online wagering accounts from 90 days to 14 days as part of the implementation of the National Consumer Protection Framework.

Other financial services regulation

ASIC consults on coverage of ePayments Code review

On 6 March, released a consultation paper seeking feedback on the proposed coverage of its review of the ePayments Code.

Consultation Paper 310 Review of the ePayments Code: Scope of the review (‘CP 310’) is the first of two papers ASIC plans to issue in 2019 in its review of the ePayments Code. CP 310 seeks feedback from stakeholders on the effectiveness of the following areas in the Code:

  • complaints handling;
  • unauthorised transactions;
  • data reporting; and
  • mistaken internet payments.

Submissions are due by 5 April.

Treasury releases draft legislation on superannuation tax reform technical amendments and amendments to running balance accounts

On 27 February, Treasury released draft legislation designed to:

  • Correct an error in the way that market-linked pensions are valued under the transfer balance cap when they are commuted or rolled over, resulting in a nil debit.
  • Ensure that death benefits that include life insurance proceeds are not subject to tax when they are rolled over to a new superannuation fund.
  • Fix the valuation of defined benefit pensions under the transfer balance cap to reflect when pensions are permanently reduced following an initial higher payment, such as for some public sector defined benefit reversionary pensions.
  • Change the definition of life-expectancy period for innovative income stream products to account properly for the number of days in a leap year.
  • Maintain the capped defined benefit treatment of market-linked pensions under the transfer balance cap where they have been rolled over as a result of a successor fund transfer.

Consultation closes on 27 March.

Contact

    Fluent in Chinese | Mandarin - conversational

Eugene specialises in capital raising, funds management, financial services licensing and anti-money laundering law.

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Heather advises on all regulatory, compliance, investment, tax and contractual issues, as well as acting in connection with disputes, regulator actions, product development, fund mergers and restructurings, and other transactions...

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Anne is a leading superannuation and financial services lawyer with deep knowledge and understanding of the superannuation and financial services industry...

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  • Fluent in Hebrew -Conversational

Harry has represented a number of listed public companies, large private companies and government organisations...

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Adrian’s financial services law practice covers superannuation, managed funds, insurance, and financial advice...

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    Fluent in Arabic - Conversational

John has broad experience in financial services, funds management, blockchain, corporate and commercial law, with a particular emphasis on funds management related matters.

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Vince Battaglia is an experienced funds management and financial services practitioner.  He has worked in global and national law firms, as well as at ASIC.

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