Financial Services in Focus – Issue 25

Funds and financial products

ASIC consults on lifting standards and transparency of complaints handling

On 15 May, ASIC released Consultation Paper 311 Internal dispute resolution: Update to RG 165 (‘CP 311’). CP 311 seeks feedback on ASIC’s proposals to update its policy on the internal dispute resolution (‘IDR’) requirements that apply to:

  • Australian financial services licensees;
  • Australian credit licensees;
  • unlicensed product issuers and secondary sellers;
  • trustees of regulated superannuation funds (except for SMSFs), trustees of approved deposit funds and retirement savings account;
  • unlicensed carried over instrument lenders; and
  • unlicensed financial technology businesses.

CP 311 outlines proposed new standards, including a new mandatory data reporting standard. Some key elements of the new standards that ASIC is seeking feedback on include:

  • reducing maximum time frames for IDR responses;
  • what constitutes a complaint, including if received by way of a firm’s social media;
  • setting clear standards about what should be in written reasons for decisions;
  • strengthening the requirement that firms take a systemic focus to complaints handling; and
  • the details of the new framework for recurrent complaints data reporting to ASIC.

ASIC states that the proposed new standards have been informed by recent consumer research by ASIC and findings from aspects of ASIC’s new onsite supervisory program – Close and Continuous Monitoring - which is currently reviewing IDR policies, practices and procedures in Australia’s five largest and most complex financial services institutions.

ASIC seeks public input on the consultation documents by 9 August 2019 and aims to release new IDR standards (in a new Regulatory Guide 165) by end 2019. ASIC also states that a further, separate consultation on the publication of IDR data will commence in early 2020.

ASIC takes action against AFS licenses who are authorised representatives

On 13 May, ASIC announced that it conducted an investigation into 65 AFS licensees who were appointed as authorised representatives by another AFS licensee, in breach of the Corporations Act. Of the 65 cases investigated, ASIC found that 58 were in breach of the law.

In circumstances where an authorisation has been granted to one AFS licensee by another, ASIC is concerned that licensees may not have appropriate compliance measures in place, resulting in potential risks to consumers, such as professional indemnity insurance or membership of an external dispute resolution scheme because they are operating as an authorised representative of another licensee.

ASIC expects AFS licensees to check ASIC’s professional registers prior to granting a authorisation to new representatives to ensure that they do not authorise a person or entity that already holds an AFS licence, and that AFS licensees should adopt this practice as part of their on-boarding process.

Consumer credit

APRA proposes amending guidance on mortgage lending

On 21 May, APRA announced that it has begun consulting on possible revisions to its guidance on the serviceability assessments that ADIs perform on residential mortgage loan applications.

In a letter to ADIs issued, APRA proposed removing its guidance that ADIs should assess whether borrowers can afford their repayment obligations using a minimum interest rate of at least 7 per cent; instead, ADIs would be permitted to review and set their own minimum interest rate floor for use in serviceability assessments.

APRA also proposed that ADIs’ serviceability assessments incorporate an interest rate buffer of 2.5 per cent.

A four-week consultation will close on 18 June, ahead of APRA releasing a final version of the updated APG 223 Residential Mortgage Lending shortly afterwards.


APRA makes minor changes to reporting standards for measuring counterparty credit risk exposures

On 22 May, APRA released minor changes to the three reporting standards for the standardised approach for measuring counterparty credit risk exposures.

APRA states that the reporting standards have been updated in response to amendments to the Banking Act 1959 (Cth) which ease restrictions on the use of the term ‘bank’.

APRA consultations on the Banking Executive Accountability Regime

On 15 May, APRA published a letter to ADIs responding to submissions on a new registration form for the Banking Executive Accountability Regime (‘BEAR’) and providing guidelines for submitting applications for the registration of accountable persons.

APRA states that it released the draft ARF 550.0 Banking Executive Accountability Regime – Registration Form for consultation last December. The form is to be used by small and medium ADIs to register responsible persons under the BEAR, which comes into effect for these entities from 1 July 2019. Applications for the registration of accountable persons can be made from 20 May 2019.

ASIC writes to financial institutions regarding their preparations for the end of LIBOR

On 9 May, ASIC stated that it wrote to the CEOs of several major Australian financial institutions regarding their preparations for the end of LIBOR (the ‘London Interbank Offered Rate’).

ASIC states that the UK Financial Conduct Authority has stated that it will no longer use its powers to sustain LIBOR beyond 2021.

Other financial services regulation

APRA releases report on industry self-assessments into governance, culture and accountability

On 22 May, APRA released a report analysing the self-assessments carried out by 36 of the country’s largest banks, insurers and superannuation licensees in response to the Final Report of the Prudential Inquiry into Commonwealth Bank of Australia.

APRA states that consistent findings in the self-assessments conducted by these institutions included:

  • non-financial risk management requires improvement;
  • accountabilities are not always clear, cascaded and effectively enforced;
  • acknowledged weaknesses are well-known and some have been long-standing; and
  • risk culture is not well understood, and therefore may not be reinforcing the desired behaviours.

After receiving the self-assessments last December, APRA states that its frontline supervision teams carried out detailed analysis and benchmarking of their quality and the key issues that institutions identified.

ASIC reminds licensees about the relationship between industry funding levies and ASIC’s time to assess variation or cancellation applications

On 15 May, ASIC reminded Australian financial services and Australian credit licensees who have industry funding obligations to factor in the time it may take ASIC to assess applications to cancel or vary their licence, as part of any measures by licensees to reduce the industry levy they are charged for the 2019-20 financial year.

ASIC states it has a licensing service charter that aims to assess 70% of all complete applications within 150 days of lodgement and 90% within 240 days.


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