Wed 06 2019

Financial Services in Focus – Issue 26

Funds and financial products

ASIC issues guidance to licensees to protect against share sale fraud

On 17 June, ASIC issued guidance for Australian financial service (AFS) licensees about how they can mitigate the risks to their clients and business of share sale fraud. The guidance is in Information Sheet 237 Protecting against share sale fraud (INFO 237)

ASIC has identified a rise in the instance of share sale fraud, primarily in connection with issuer-sponsored holdings.

Specifically, INFO 237 provides guidance in relation to ASIC’s expectations around licensees’ management of:

  • one-off share sales;
  • customer due diligence;
  • ongoing customer due diligence;
  • intermediary clients;
  • anti-money laundering and counter-terrorism financing (AML/CTF) training; and
  • reporting of suspicious matters.

ASIC consults on proposals to maintain investor protections by restricting retail offers of ‘stub-equity’ in control transactions

On 4 June, ASIC issued Consultation Paper 312 Stub equity in control transactions, and an accompanying draft legislative instrument, seeking feedback on proposals to address concerns with offers of ‘stub-equity’ to retail investors in control transactions.

ASIC states the proposals seek to restrict certain structures that would result in retail investors not being covered by the normal protections available under Australian law when participating in a broad offer of securities.

Comments close on 17 July 2019.

ASIC updates guidance on ICOs and crypto-assets

On 30 May, ASIC released an updated Information Sheet 225 Initial coin offerings and crypto-assets (INFO 225).

ASIC states its update is based on its recent experiences with ICOs and crypto-assets, which indicate that ICOs and crypto-assets will often be financial products or involve financial products that are regulated under the Corporations Act.

Financial product advice

FASEA approves higher education Graduate Diplomas and bridging courses

On 13 June, FASEA confirmed its approval of a first round of Graduate Diplomas and bridging courses from select higher education providers as part of its education standard for financial advisers.

FASEA states that the approval is recognition of the alignment of the listed programs and courses with FASEA’s required curriculum and standards.

Financial markets

ASX listing rules consultation

On 30 May, ASX announced that ASX has been advised by ASIC that it will not be able to process the rule changes proposed in ASX’s consultation paper Simplifying, clarifying and enhancing the integrity and efficiency of the ASX Listing Rules in time for them to come into effect on the originally proposed implementation date of 1 July 2019.

Consequently, ASX states that it has decided to defer the implementation date for those changes to 1 December 2019, to give listed entities the opportunity to complete their AGMs for 2019 before having to absorb the rule and guidance changes in the package.

Subject to receipt of the necessary regulatory approvals, ASX states that it expects to release a consultation response and the final version of the listing rule changes and associated guidance note changes in late September/early October 2019. Further, ASX states will conduct a national roadshow about the rule and guidance changes in late October/early November 2019.

Other financial services regulation

ASIC approves AFCA Rules change for legacy complaints

On 18 June, ASIC announced it approved changes to the Australian Financial Complaints Authority (AFCA) Rules which give effect to the AFCA authorisation condition introduced by Government on 19 February 2019.

ASIC states that, under the Government’s additional condition, AFCA is required to give expanded access to the AFCA scheme for consumers and small businesses that were harmed by financial misconduct, dating back to 1 January 2008.

ASIC approved these Rules in accordance with legislative requirements in section 1052D of the Corporations Act which require AFCA to seek ASIC approval of material changes to the AFCA scheme.

Treasury consults on Open Banking designation instrument (second round)

On 14 June, Treasury released for public consultation the second version of a draft Designation Instrument for the application of the Consumer Data Right to the banking sector (Open Banking).

The second stage of consultation responds to concerns raised in the first stage of consultation regarding the scope of information about the use of a product by carving out information about the use of a product that meets the test of having been materially enhanced.

The Design Instrument for Open Banking (second stage), Explanatory Materials and summary of proposals is available here on the Treasury website.

Consultation closes on 12 July.

RBA issues conclusions paper on New Payments Platform

On 13 June, the RBA issued NPP Functionality and Access Consultation: Conclusions Paper on the functionality of, and access to, the New Payments Platform.

The RBA states the report presents 13 recommendations from the public consultation that the RBA has undertaken with input and assistance from the ACCC. The recommendations, if fully implemented by NPP Australia (NPPA) and its participants, should address the issues and policy concerns identified during the consultation.

The RBA states that the report's overall conclusion is that the NPP is enabling payments functionality that largely addresses the gaps identified in the Reserve Bank’s 2010–2012 Strategic Review of Innovation. However, it highlights that the slow and uneven roll-out of NPP services by the major banks has been disappointing and that this has likely slowed the development of new functionality and contributed to stakeholder concerns about access to the NPP. Therefore, the RBA states, the report includes a number of recommendations aimed at promoting the timely roll-out of NPP services and development of new functionality.

ASIC amends relief conditions for superannuation and retirement calculators

On 5 June, ASIC amended ASIC Corporations (Generic Calculators) Instrument 2016/207 to ensure that estimates produced by superannuation and retirement calculators are adjusted for inflation. The amendment is effected by ASIC Corporations (Amendment) Instrument 2019/514.

ASIC states that the new requirements will commence on 5 December 2019 to provide calculator providers with a transition period of six months. The amendments require superannuation and retirement calculator providers to adjust for inflation in estimates by using either:

  • the default inflation rate set out in the instrument for superannuation and retirement calculators; or
  • an alternative inflation rate, as long as certain disclosure requirements are met.

APRA responds to first phase of consultation on revisions to ADI capital framework

On 12 June, APRA released its response to the first round of consultation on proposed changes to the capital framework for ADIs.

APRA states that, after taking into account both industry feedback and the findings of a quantitative impact study, APRA is proposing to revise some of its initial proposals, including:

  • for residential mortgages, some narrowing in the capital difference that applies to lower risk owner-occupied, principal-and-interest mortgages and all other mortgages;
  • more granular risk weight buckets and the recognition of additional types of collateral for SME lending, as recommended by the Productivity Commission in its report on Competition in the Financial System; and
  • lower risk weights for credit cards and personal loans secured by vehicles.

Copies of the Response Paper and draft prudential standards are available on APRA’s website.

Written submissions are requested by 6 September.

APRA finalises its approach to apportionment of variable remuneration for medium and small ADIs under the BEAR

On 12 June, APRA released a response letter and the final wording of the schedule in relation to how the Banking Executive Accountability Regime (BEAR) applies to variable remuneration arrangements for medium and small ADIs.

APRA states that the final legislative instrument will be published before the BEAR comes into force for medium and small ADIs on 1 July 2019.

APRA releases updates to frequently asked questions on the implementation of Protecting Your Super legislative amendments

On 3 June, APRA updated its frequently asked questions (FAQs) on the implementation of the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019.

The updates relate to fees charged to superannuation members (section 1 of the FAQs) and insurance for inactive accounts (section 2 of the FAQs).

Tax

New Victorian transfer duty legislation may affect property professionals and fund managers

New legislation in Victoria that is expected to take effect on 12 June could impose transfer duty on ‘economic entitlements’, such as income derived from property transactions.

The Victorian Government is proposing to revamp and extend the ‘economic entitlement’ rules by introducing new provisions into the ‘transfer’ duty regime (rather than just in the ‘landholder’ duty regime) and significantly extending their scope. These proposed changes will have extensive reach and will bring many commercial arrangements to duty. They will apply to most ‘standard’ commercial development agreements, many arrangements in the funds management space, and will even go so far as to apply to common real estate transactions involving Victorian land with an unencumbered value that exceeds $1 million. This includes commercial agreements negotiated at arm’s length between unrelated parties.

Read our article on the subject.

Contact

    Fluent in Chinese

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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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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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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