Financial Services in Focus – Issue 22

Funds and financial products

Design and Distribution Obligations and Product Intervention Powers legislation passes Senate

On April, the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2019 passed the Senate.  See our earlier reflections on this legislation.

ASIC welcomed the passing of the legislation.  Treasurer Josh Frydenberg and Assistant Treasurer Stuart Robert link these reforms to ‘taking action’ on the Banking, Superannuation & Financial Services Royal Commission, and state that they implement recommendations 21 and 22 of the Financial System Inquiry to strengthen product issuer and distributor accountability and introduce a product intervention power.

ASIC re-issues practical guidance for foreign financial services providers

On 3 April, ASIC re-issued Information Sheet 157 Foreign financial services providers – practical guidance (‘INFO 157’).

INFO 157 explains what a foreign financial services provider (‘FFSP’) must do if it wishes to:

Treasury consults on employee share schemes

On 3 April, Treasury released a Consultation Paper on employee share schemes.

Treasury states that the consultation paper seeks feedback on proposals to simplify and extend the current regulatory regime for employee share schemes by:

  • consolidating exemptions and class order relief from disclosure, licensing, hawking, advertising and other obligations under the Corporations Act;
  • increasing the value limit of eligible financial products that can be offered by unlisted companies in a 12 month period from $5,000 per employee to $10,000 per employee;
  • expanding relief for unlisted companies 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 in lodged disclosure documents, unless they are otherwise obligated to do so.

The Assistant Treasurer Stuart Robert states that the purpose of the proposed reforms to encourage small businesses to offer employee share schemes to help them attract, retain employees and grow their businesses.

Consultation closes on 30 April.

Assistant Treasurer announces reforms to develop the corporate bond market

On 2 April, the Assistant Treasurer Stuart Robert announced the Government will release a consultation paper this year to inform a legislative package that:

  • will significantly simplify disclosure requirements for large, listed corporates issuing directly to retail investors; and
  • enable parallel trading of simple corporate bonds in the wholesale and retail markets via a depository interests framework.

ASIC extends relief provided for business introduction services

On 25 March, ASIC extended the operation of its relief for business introduction or matching services for three years.

ASIC Corporations (Amendment) Instrument 2019/216 has the effect of preserving the relief provided by Class Order [CO 02/273] Business introduction or matching services (original class order) for an additional three years.

The original Class Order gives conditional relief from the fundraising, financial product disclosure, hawking and advertising requirements in the Corporations Act that would apply to a person making or calling attention to offers of securities or interests in a registered managed investment scheme through a business introduction service.

ASIC states that the additional three years will provide ASIC with sufficient time to review and consult on the policy settings in the original Class Order.

Further Royal Commission initiatives

In Issue 21 and Issue 20 of Financial Services in Focus we reported on the fallout of the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The Government has announced the following further initiatives which it states is ‘taking action’ in response to the Royal Commission report:

  • providing more funding to ASIC and APRA;
  • releasing draft regulations on the exposure draft Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019, which provides details on how benefits must be passed through to the customer and also imposes record keeping obligations on persons required to pass through benefits;
  • releasing an Issues Paper on the merits of legislating universal key definitions, terms and exclusions for default insurance cover within MySuper products; and
  • releasing a Discussion Paper exploring the law surrounding the distribution of superannuation death benefits, Aboriginal and Torres Strait Islander peoples' kinship structures, and how these kinship structures are accommodated elsewhere in the law.

Consultation periods for the above draft regulations and consultation papers close on 25 April, 26 April and 24 May respectively.

Financial product advice

ASIC releases research report on financial product advice

On 28 March, ASIC released Report 614 Financial advice: Mind the gap (‘REP 614’).

ASIC states that REP 614 presents new independent research on consumer awareness and understanding of general and personal financial advice, identifying substantial gaps in consumer comprehension.

Key findings of the report are the following:

  • ‘general advice’ and ‘personal advice’ are not familiar concepts for consumers
  • ‘general advice’ and ‘personal advice’ are not clearly distinguishable concepts for most consumers
  • Contextual factors can play a key role in how consumers interpret advice situations
  • Consumers do not necessarily see general and personal advice as separate types of advice
  • The term ‘general advice’ is ambiguous
  • Advisers’ responsibilities in general and personal advice situations are unclear to consumers
  • The general advice warning is not necessarily effective

Anti-money laundering

Amendments to AML/CTF Rules for corporate customers who are ‘custodians’

On 3 April, the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2019 (No. 2) was registered.

The instrument amends the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) in another of areas, including matters relating to custodians and the exemption from applicable customer identification procedures for the sale of shares for charitable purposes.

FASEA releases its legislative instrument on Relevant Providers Degrees, Qualifications and Courses Standard

On 25 March, FASEA released draft Corporations (Relevant Providers Degrees, Qualifications and Courses Standard) (Amendment No. 1) Determination 2019 for consultation.

FASEA states that the draft determination updates the relevant legislative instrument with additional information from higher education providers on their historical degrees and as well extends the range of approved historical programs.

Consultation closed on 1 April.

Other financial services regulation

Mutual reforms legislation passes the Senate

On 3 April, the Treasury Laws Amendment (Mutual Reforms) Bill 2019 passed the Senate.

The bill:

  • introduces a definition of a mutual entity into the Corporations Act;
  • removes the uncertainty for transferring financial institutions and friendly societies in respect of the demutualisation provisions in Part 5 of Schedule 4 of the Corporations Act; and
  • expressly permits mutual entities registered under the Corporations Act to issue equity.

APRA begins consultation on Financial Sector (Shareholdings) Rules 2019

On 2 April, APRA announced that it has begun a consultation on draft rules that give clarity to owners of new entrant financial sector companies on whether they are likely to be approved under the Financial Sector (Shareholdings) Act 1998 (Cth) (‘FSSA’).

APRA states that it has proposed Rules setting out the matters that must be considered in determining if a person is ‘fit and proper’ for the purposes of the FSSA; the calculation used to determine if an entity’s assets are within the relevant threshold; and the information to be reported to APRA annually if an application under the ‘fit and proper’ test is approved.

Copies of the draft Rules and explanatory material are available here.

Written submissions are requested by 27 May.

Assistant Treasurer announces intention to establish a superannuation consumer advocate

On 2 April, the Assistant Treasurer Stuart Robert announced the Government intends to establish a superannuation consumer advocate and calls for expressions of interest.

The Assistant Treasurer states that, as part of the process, the Government has asked Treasury to recommend to the Government:

  • a potential provider or providers from the field of expressions of interest,
  • the potential scope of the advocate's activities, and
  • to formulate accountability, governance and funding arrangements.

The Assistant Treasurer states that this is an important first step in implementing Recommendation 28 of the Productivity Commission's report, Superannuation: Assessing Efficiency and Competitiveness, for an independent, adequately resourced superannuation members' advocacy body.

ASIC releases estimate industry sector levies for 2018-2019

On 29 March, ASIC published estimated industry sector levies for 2018-19 as well as details on how it allocated its regulatory costs in 2017-18, as part of the its draft Cost Recovery Implementation Statement (‘CRIS’).

ASIC states that CRIS includes indicative levies for ASIC’s regulatory costs in the 2018-2019 financial year, and that this information will help industry better plan for the actual levy which will not be billed until January 2020.

APRA and ASIC publish life insurance data

On 29 March, ASIC and APRA released a series of publications and an online tool allowing policyholders – for the first time – to compare life insurers’ performance in handling claims and disputes.


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