Financial Services in Focus – Issue 27

Funds and financial products

ASIC consults on relief for foreign providers of funds management services to Australian professional investors

On 3 July, ASIC released Consultation Paper 315 Foreign financial services providers: Further consultation (CP 315), and related material, in which ASIC is proposing to provide licensing relief for foreign financial services providers of funds management services in Australia to professional investors.

CP 315 sets out ASIC’s proposal to:

  • provide funds management relief by exempting foreign providers from the requirement to hold an AFSL to provide services to professional investors in Australia, subject to conditions including a proposed cap on the scale of activities that may be undertaken in Australia; and
  • repeal the licensing relief known as ‘limited connection’ relief, which ASIC previously proposed in Consultation Paper 301 Foreign financial services providers. ASIC states that foreign financial services providers may still access the proposed new funds management relief and the licensing exemptions in the Corporations Act and Corporations Regulations.

ASIC states that it has decided against giving relief for the situation where an Australian professional client initiates an inquiry or request to a foreign service provider operating outside Australia (reverse solicitation) due to the lack of information from industry about how it would be used and ASIC’s concerns about monitoring compliance with its conditions.

ASIC has also decided to:

  • extend the ‘limited connection’ relief to 31 March 2020 while ASIC continues its consultation; and
  • extend the ‘sufficient equivalence’ relief to 31 March 2020 to allow foreign providers to engage with the details of the guidance. The new foreign AFS licensing regime will commence on 1 April 2020. The draft updated RG 176 attached to CP 315 provides guidance on how foreign providers may apply for the foreign AFS licence.

Consultation closes on 9 August.

ASIC consults on its administration of its new product intervention powers and on its first use

On 26 June, ASIC released Consultation Paper 313 Product intervention power (CP 313). In announcing the release, ASIC stated that the product intervention power is an incredibly important addition to ASIC’s regulatory toolkit.

For an analysis of CP 313 and related material, see our article.

Following CP 313, on 9 July ASIC released Consultation Paper 316 Using the product intervention power: Short term credit (CP 316). In CP 316, ASIC is consulting on its first proposed use of its product intervention power in address significant consumer detriment in the short term credit industry. ASIC states that it is targeting a model involving a short term credit provider and its associate who charge fees under separate contracts which, when combined, these fees can add up to around 990% of the loan amount.

Consultation on CP 313 closes on 7 August and for CP 316 comments closed on 30 July.

ASIC amends fees and costs class order to align with Protecting Your Super Package laws

On 21 June, ASIC announced it amended [CO 14/1252], which deals with fees and costs disclosures, to ensure it is consistent with the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 and Regulations (PYSP), which ban exit fees from 1 July 2019.

ASIC states the amendment made:

  • is technical only;
  • applies to disclosure concerning superannuation products;
  • reflects the PYSP ban on exit fees for these products by eliminating the line allowing for disclosure of exit fees; and
  • does not otherwise make any change to the requirements set out in [CO 14/1252].

Anti-money laundering

ASIC issues guidance about protecting against share sale fraud

In June, ASIC issued Information Sheet Protecting against share sale fraud (INFO 237).

INFO 237 gives guidance to AFS licensees about how they can mitigate the risks to their clients and business of share sale fraud.

Consumer credit

APRA finalises amendments to guidance on residential mortgage lending

On 5 July, APRA announced that it will proceed with proposed changes to its guidance on the serviceability assessments that authorised deposit-taking institutions (‘ADIs’) perform on residential mortgage applications.

In a letter to ADIs issued on 5 July, APRA confirmed its updated guidance on residential mortgage lending will no longer expect them to assess home loan applications using a minimum interest rate of at least 7 per cent. Common industry practice has been to use a rate of 7.25 per cent. Instead, ADIs will be able to review and set their own minimum interest rate floor for use in serviceability assessments and utilise a revised interest rate buffer of at least 2.5 per cent over the loan’s interest rate.

Other financial services regulation

ASIC consults on proposals to ban unsolicited telephone sales of life insurance and consumer credit insurance

On 18 July, ASIC released Consultation Paper 317 Unsolicited telephone sales of direct life insurance and consumer credit insurance, in which ASIC seeks to consult on its proposal to ban unsolicited telephone sales of direct life insurance and consumer credit insurance (CCI). ASIC states that such a ban is consistent with the Financial Services Royal Commission recommendations, and that later this year it will review Regulatory Guide 38 The hawking provisions. Consultation closes on 27 August.

On 11 July, ASIC published REP 622 Consumer credit insurance: Poor value products and harmful sales practices. ASIC states that it reviewed of the sale of CCI by 11 major banks and other lenders and found that the design and sale of CCI has consistently failed consumers.

APRA Capability Review report released

On17 July, the Government released the report of the APRA Capability Review Panel, along the Governments Response to the APRA Capability Review.

The Panel made 24 recommendations, with 19 directed to APRA and the remaining five directed to the Government.

The Treasurer, Josh Frydenberg, stated that the Government has agreed to take action on all five of the recommendations directed to it, and in addition the Government will:

  • ensure that APRA has sufficient powers and flexibility to prevent inappropriate directors and senior executives from being appointed or re-appointed to regulated entities, as part of extending the Banking Executive Accountability Regime;
  • consider changes to APRA’s regulatory framework including a review of penalties, amending its private health insurance licensing powers and providing APRA with the power to appoint a person to undertake a review of a regulatory entity;
  • in establishing the Financial Regulator Oversight Authority, streamline and improve the effectiveness of both APRA and ASIC’s accountability arrangements;
  • outline its expectations for APRA on superannuation in its next Statement of Expectations; and
  • work with APRA and the Australian Public Service Commission to better understand and address any restrictions within the current APS Bargaining Framework in order to ensure APRA can attract and retain high skilled staff.

In its response, APRA states that:

  • APRA supports all of the 19 recommendations in the report directed at APRA, with work already underway on many as part of APRA’s current Corporate Plan;
  • APRA will continue to focus on its core mandate of safeguarding financial system stability as it expands capability in other areas; and
  • the Review recognises APRA’s remit has expanded, proposes an ambitious further extension and highlights the additional resourcing and Government support needed to achieve this.

APRA releases frequently asked questions on Prudential Standard SPS 515 Strategic Planning and Member Outcomes and outcomes assessment

On 11 July, APRA released three frequently asked questions (FAQs) on the development of Prudential Standard SPS 515 Strategic Planning and Member Outcomes and the introduction of an annual outcomes assessment resulting from recent legislative changes to the Superannuation Industry (Supervision) Act.

ASIC consults on whether to remake class order on departed former temporary residents’ superannuation

On 10 July, ASIC released Consultation Paper 318 Remaking ASIC class order on departed former temporary residents’ superannuation: [CO 09/437], which outlines ASIC's rationale for proposing to remake [CO 09/437]. ASIC’s preliminary view is that this class order is operating appropriately and effectively, and it continues to form a necessary and useful part of the legislative framework.

[CO 09/437] provides conditional relief to superannuation trustees from obligations in the Corporations Act that require trustees to provide an exit statement and notice to departed former temporary resident members.

ASIC also states that it plans to repeal [CO 09/210] Intra-fund superannuation advice, because it was made in 2009 and its relief has been redundant since the repeal of section 945A of the Corporations Act.

Consultation closes on 21 August.

ASIC provides new guidance for certain AFS licence applications

On 5 July, ASIC released Information Sheet 240 AFS licensing – Requirements for certain applicants to provide further information (INFO 240), which ASIC states provides guidance to applicants on recent changes to ASIC’s AFS licensing assessment procedures.

INFO 240 requires certain AFSL applicants, including body corporate applicants APRA-regulated applicants, to provide additional information to ASIC.

ASIC approves an updated Banking Code of Practice

On 28 June, ASIC announced that it approved an updated version of the Australian Banking Association's (ABA's) new Banking Code of Practice.

The approval is contained in ASIC Corporations (Approval of Banking Code of Practice) Instrument 2019/663.

APRA consults on its proposed approach to product responsibility under BEAR

On 28 June, outlined its proposed approach to implementing the Financial Services Royal Commission recommendation on product responsibility for ADIs under the Banking Executive Accountability Regime (BEAR).

APRA released a letter to ADIs detailing how it intends to achieve heightened and clarified product accountability among senior executives. Specifically, APRA proposes requiring ADIs to identify and register an accountable person to hold end-to-end product responsibility for each product the ADI offers to its customers, including retail, business and institutional customers.

The letter requests feedback on four key considerations relating to implementing the proposed product responsibility requirements: the scope of accountability; product coverage; the structure of the legal mechanism; and the application of joint accountability within ADIs and ADI groups.

Consultation closes on 23 August.

APRA releases response on changes to reporting requirements for registered financial corporations

On 28 June, released a response letter on the consultation on proposed changes to reporting requirements for registered financial corporations (RFCs).

The proposed changes to the Economic and Financial Statistics data collection relate to the consolidation for securitisation special purpose vehicles.

APRA finalises updated guidance on information security

On 25 June, released updated prudential guidance to all APRA-regulated entities on managing information security risks, including cyber-crime.

Prudential Practice Guide CPG 234 Information Security replaces CPG 234 Management of Security Risk in Information and Information Technology. APRA considers the updated guide will assist regulated entities to embed and comply with the requirements of APRA’s new cross-industry prudential standard, CPS 234 Information Security, which comes into force on 1 July.

APRA prepares for new laws granting approval powers for changes in control of super licensees

On 24 June, released for consultation a draft application form and a draft instruction guide for applications to acquire a controlling stake in a registrable superannuation entity (‘RSE’) licensee.

From 5 July, any party seeking to acquire greater than a 15 per cent stake in an RSE licensee must apply to APRA for approval. The new process stems from the passage in April of Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Act 2019, and which APRA states brings APRA’s change of ownership powers in superannuation in line with the banking and insurance sectors.


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