Financial Services in Focus – Issue 28

Funds and financial products

APRA releases update to its responses to the Royal Commission recommendations

On 7 August, APRA released its updated plans in relation to specific recommendations in the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

A tabular summary of APRA’s responses updated in August compared with its February 2019 commitment can be found here.

Standing Economics Committee to expand inquiry into financial services sector and Royal Commission implementation

On 2 August, the Treasurer, Josh Frydenberg, stated that the Government asked the House of Representatives Standing Committee on Economics to inquire into progress made by relevant financial institutions in implementing the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The Treasurer that this inquiry will help provide further transparency to the public on the work financial institutions are undertaking to implement recommendations from the Royal Commission and in doing so will contribute to restoring the community’s trust in the sector, and that the Government has asked the inquiry to commence as soon as possible.

ASIC consults on sunsetting class order for changing scheme constitutions

On 2 August, ASIC released Consultation Paper 320 Remaking ASIC class order on changing scheme constitutions: [CO 09/552] (‘CP 320’), which sets out ASIC’s proposal to remake its class order which modifies the requirements under the Corporations Act regarding changing the constitutions of registered schemes.  A draft legislative instrument was also released for consultation.

ASIC states it proposes to remake [CO 09/552] because it is operating effectively and continues to form a necessary and useful part of the legislative framework, and that the fundamental policy principles underpinning the class order have not changed.

Comments close on 23 August.

Government intends to introduce legislation to ban grandfathering of conflicted remuneration

On 30 July, in a joint media release by the Treasurer, Josh Frydenberg, and Senator Jane Hume, Assistant Minister for Superannuation, Financial Services and Financial Technology, it was stated that the Government will introduce legislation to ban the grandfathering of conflicted remuneration paid to financial advisers.

The Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Bill 2019 was introduced into the House of Representatives on 1 August.

Consultation closes on 7 August.

Financial markets

ASIC updates guidance on the Markets Disciplinary Panel’s policies and procedures

On 7 August, ASIC updated Regulatory Guide 216 Markets Disciplinary Panel (‘RG 216’).

RG 216 is for those who are subject to the market integrity rules—principally, market participants, and explains the disciplinary framework for the market integrity rules, the function of the Markets Disciplinary Panel (‘MDP’), and the policies that the MDP will take into account when making decisions about alleged contraventions of the market integrity rules.

ASIC states it has updated RG 216 to simplify and streamline the MDP’s policies and procedures, with the benefit of over eight years’ experience of the MDP model.

ASX releases response to submissions on guidance notes on Business Continuity and Disaster Recovery Admission as a Participant to address cyber resilience

On 5 August, ASX released its response to submissions on ASX’s 8 March 2019 consultation paper proposing changes to Guidance Note 10 Business Continuity and Disaster Recovery and Guidance Note 1 Admission as a Participant to address cyber resilience.

ASX states:

  • it received two written submissions in response to the consultation paper, one of which was provided on a confidential basis;
  • for existing participants, the proposed reduction in the recovery time objective (‘RTO’) in Guidance Note 10 will be phased in over a 3 year period;
  • existing participants will have 6 months from the date of publication of the revised Guidance Note 10 to comply with all of the other changes in Guidance Note 10; and
  • all new applicants for admission as participants will be expected to comply fully with revised Guidance Notes 1 and 10, including the proposed reduction in RTO, as a condition of being admitted as a participant.

ASIC report on Australian equity market cleanliness

On 31 July, ASIC released Report 623 Review of Australian equity market cleanliness: 1 November 2015 to 31 October 2018 (‘Report 623’).

Report 623 sets out the findings of ASIC’s review of Australian equity market cleanliness for the period 1 November 2015 to 31 October 2018, and focuses on possible insider trading and information leaks ahead of material, price-sensitive announcements.

In its report, ASIC states that it found that Australian equity markets continued to operate with a high degree of integrity.

In releasing Report 623, ASIC states that, going forward, it will use historical trading behaviour before material announcements to enhance its market supervision work and inform its regulatory priorities.

ASIC requests exchange market operators to pause the admission of managed funds with internal market makers

On 30 July, ASIC stated it has requested that exchange market operators do not admit any managed funds that do not disclose their portfolio holdings daily and have internal market makers while ASIC undertakes a review during the remainder of this calendar year.

ASIC stated that it intends to review the regulatory settings for exchange traded managed funds that use internal market makers, and will consult with industry during the second half of this year.

ASIC also stated that existing actively-managed exchange traded managed funds are not impacted, and that there is also no impact on other investment products that do not use internal market makers or on warrant products.

ASIC consults on market on securities lending and ‘substantial holding’ disclosure

On 29 July, ASIC published Consultation Paper 319 Securities lending by agents and substantial holding disclosure (‘CP 319’), which deals with securities lending by agents, and subsequent disclosure of a substantial holding in a listed entity.

ASIC states that CP 319:

ASIC states that the proposed legislative relief that aims to improve substantial holding disclosure by these intermediaries, while also reducing red tape.

ASIC is seeking comments by seeking comments by 6 September.

New Zealand Financial Markets Authority announces completed preparations for Asia Region Funds Passport

On 26 July, the Financial Markets Authority of New Zealand announced that it that New Zealand has completed preparations for the implementation of the Asia Region Funds Passport.

The Financial Markets Authority states that it, the Ministry of Business, Innovation and Employment, and the Companies Office have introduced changes to the country’s Disclose register and developed new forms, systems, processes and guidance, and that new regulations have also been developed under the Financial Markets Conduct Act.

The Financial Markets Authority also states that fund managers wanting to offer passport funds in New Zealand – and New Zealand fund managers wanting to offer funds offshore – need to apply to the FMA for approval.

Anti-money laundering

Treasury consults on the introduction of a cash payment limit

On 30 July, the Government released for public consultation exposure draft legislation and accompanying explanatory material to implement the economy-wide cash payment limit from 1 January 2020 and for certain AUSTRAC reporting entities from 1 January 2021.

The draft legislation is available here on the Treasury website.  Treasury states that the draft legislation follows the Governments’ announcement in the 2018-19 Budget it would introduce an economy-wide cash payment limit of $10,000 for payments made or accepted by businesses for goods and services, and that transactions equal to, or in excess of this amount would need to be made using the electronic payment system or by cheque.

See our article on this development from the perspective of the use of cryptocurrencies.

Consultation closes on 12 August.

AUSTRAC releases independent report on the AUSTRAC industry contribution levy arrangements

On 22 July, AUSTRAC released the report on the independent review of the AUSTRAC industry contribution levy.  Here is a link to the report.

AUSTRAC states the AUSTRAC industry contribution levy is an annual payment that some reporting entities must pay to cover AUSTRAC’s operating costs, and that a 2014 amendment to the Australian Transaction Reports and Analysis Centre Industry Contribution (Collection) Act 2011 required that the levy be independently reviewed four years after the amendment.

Other financial services regulation

ASIC consults on guidance for companies on whistleblower policies

On 7 August, ASIC released Consultation Paper 321 Whistleblower policies (‘CP 321’), and an accompanying draft regulatory guide.

CP 321 seeks feedback on ASIC’s proposed guidance for entities that must have a whistleblower policy—public companies, large proprietary companies and proprietary companies that are trustees of registrable superannuation entities.  CP 321 also seeks feedback on whether ASIC should provide legislative relief to public companies that are small not-for-profits or charities.

In releasing CP 321, ASIC states that transparent whistleblower policies are essential to good risk management and corporate governance, and help uncover wrongdoing that may not otherwise be detected.

On 1 July, ASIC released two Information Sheets, namely Information Sheet 238 Whistleblower rights and protections and Information Sheet 239 How ASIC handles whistleblower reports.

Comments on CP 231 close on 18 September.

ASIC warns superannuation trustees about influencing employers through improper inducements

On 31 July, ASIC released Information Sheet 241 Prohibition on influencing employers’ superannuation fund choice: section 68A of the SIS Act (‘INFO 241’).

INFO 241 is for trustees of regulated superannuation funds and their associates, and in it ASIC seeks to explain:

  • the background to amendments to section 68A of the Superannuation Industry (Supervision) Act 1993;
  • the prohibition in section 68A against particular conduct by a trustee or its associates;
  • the exemptions from section 68A that are available in regulation 13.18A of the Superannuation Industry (Supervision) Regulations 1994; and
  • the penalties that apply for a breach of section 68A.

INFO 241 also provides examples that include common scenarios and issues, which ASIC considers will help trustees and their associates understand their obligations under section 68A.

In released INFO 241, ASIC states it has issued guidance to superannuation trustees to remind them that using improper inducements to influence employers in their choice of default fund is illegal.

Government releases draft legislation to extend unfair contract terms to insurance contracts

On 30 July, the Government released draft legislation to extend the unfair contracts terms laws to insurance contracts regulated under the Insurance Contracts Act 1984.

The exposure draft legislation is available here and the draft explanation memorandum is available here.

Treasury states the draft legislation follows the Government’s announcement on 4 February 2019 that it would extend the unfair contracts terms regime to insurance contracts in response to Recommendation 4.7 of the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The media release from the Treasurer, Josh Frydenberg, is available here.

Consultation closes on 28 August.

APRA proposes requirements on remuneration to enhance conduct, risk management and accountability

On 23 July, APRA released a draft prudential standard aimed at clarifying and strengthening remuneration requirements in APRA-regulated entities

On 23 July, APRA released a new draft Prudential Standard CPS 511 Remuneration (‘Draft CPS 511’) and Discussion Paper Strengthening prudential requirements for remuneration for consultation.

Draft CPS 511 proposes to increase board oversight and standardise remuneration frameworks for all APRA-regulated entities – ADIs, general insurers, life insurers, private health insurers and RSE licensees.  In summary, CPS 511 proposes to:

  • highlight the importance of managing non-financial risks by imposing minimum standards for remuneration design;
  • incentivise appropriate management of risks by imposing minimum deferral periods and clawback requirements on variable remuneration for certain employees in Significant Financial Institutions; and
  • strengthen governance and accountability within remuneration frameworks, by requiring boards to approve and actively oversee remuneration frameworks, and to regularly review the framework for compliance with Draft CPS 511.

In releasing Draft CPS 511 and the discussion paper, APRA states the new requirements will help regulated entities align remuneration practices with risk, performance and their long-term viability.

APRA requests written submissions by 23 October.

Senate Economics Legislation Committee tables report into the Treasury Laws Amendment (Putting Members Interests First) Bill

On 23 July, the Senate Economics Legislation Committee tabled its report into the Treasury Laws Amendment (Putting Members Interests First) Bill 2019.


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