Wed 09 2019

Financial Services in Focus – Issue 29

Funds and financial products

ASIC approves AFCA rule change enabling the naming of firms

On 26 August, ASIC stated it approved changes to the Australian Financial Complaints Authority (AFCA) Rules to allow the scheme to name financial firms in published determinations. The approval was given under section 1052D of the Corporations Act, which enables ASIC to approve a material change to the AFCA scheme on the request of AFCA.

Consumers who are party to a complaint will continue to be anonymised in all determinations.

In its media release, ASIC stated:

  • in its view, naming firms in determinations can help identify conduct or market problems within firms or affecting specific products or services, as well as highlighting where firms have done the right thing;
  • in its view, naming firms will also enhance transparency and accountability of firms’ performance in complaints handling and of AFCA’s own decision-making; and
  • to support the new Rules, AFCA will shortly be issuing updated operational guidelines which set out examples of the circumstances in which a determination naming a financial firm would not be published. This includes where naming may expose confidential information about a firm’s systems or policies.

ASIC proposes to use product intervention power to ban OTC binary options and restrict issue of OTC CFDs

On 22 August ASIC released Consultation Paper 322 Product intervention: OTC binary options and CFDs (‘CP 322’) and accompanying draft legislative instruments.

CP 322 sets out ASIC’s proposals to exercise its product intervention power to make certain market-wide product intervention orders relating to the issue and distribution of over-the-counter (OTC) binary options and contracts for difference (CFDs) to retail clients. In CP 322, ASIC proposes to:

  • ban the issue and distribution of OTC binary options to retail clients, and
  • impose conditions on the issue and distribution of OTC CFDs to retail clients.

Accompanying CP 322 is Report 626 Consumer harm from OTC binary options and CFDs (REP 626), which ASIC states provides a snapshot of the binary options and CFD market, describes the harm to consumers ASIC has observed and outlines ASIC’s proposed product intervention orders.

In releasing these documents, ASIC states it is concerned that retail investors have suffered, and are likely in future to suffer, significant detriment from binary options and CFDs.

ASIC seeks the feedback on its proposed product intervention orders by 1 October.

Government issues a Royal Commission Implementation Roadmap

On 19 August, Government released its Banking, Superannuation and Financial Services Royal Commission Implementation Roadmap setting out how the Government will deliver on its response to the Royal Commission. The Restoring Trust in Australia’s Financial System: Financial Services Royal Commission Implementation Roadmap (‘Roadmap’) can be found here.

Treasury states the Roadmap provides timelines for implementing the Government response, giving clarity and certainty to consumers, industry and regulators.

In releasing the Roadmap, the Treasurer, Josh Frydenberg, stated that the Government’s commitment to implementing the Royal Commission’s represents the largest and most comprehensive corporate and financial services law reform package in the three decades since the Corporate Law Economic Reform Program (CLERP) in the 1990s.

ASIC updates guidance on climate change related disclosure

On 12 August, ASIC stated it has updated its existing regulatory guidance to take into account the disclosure of climate change related risks and opportunities.

The updates are contained in Regulatory Guide 228 Prospectuses: Effective disclosure for retail investors and Regulatory Guide 247 Effective disclosure in an operating and financial reviewINFO 203 has also been updated.

In releasing this information, ASIC also stated that, in the coming year, ASIC will conduct surveillances of climate change related disclosure practices by select listed companies.

Financial product advice

ASIC releases report on research into consumer experiences of financial advice

On 26 August, ASIC released Report 627 Financial advice: What consumers really think (REP 627).

RP 627 summarises the results of some preliminary research ASIC commissioned into what consumers think about financial advice. The research explored overall use of financial advisers, motivators and barriers to seeking personal advice, and consumer attitudes towards the financial advice industry.

In releasing the report, ASIC states that the research shows that many consumer do not seek advice because they are put off by factors such as high costs, significant distrust of the industry and a perception that financial advice is only for the wealthy.

ASIC to review industry transition towards ending grandfathered remuneration for financial advice

On 21 August, ASIC stated that, at the direction of the Treasurer, it is investigating the progress of transition away from grandfathered conflicted remuneration arrangements for financial advisers.

The investigation follows the Government’s commitment to end the practice by 1 January 2021, and will review the steps taken by industry participants from 1 July 2019 until the 2021 deadline. ASIC states it will also investigate any impediments to this transition, and the extent to which benefits are being passed on to affected clients.

Financial markets

ASX updates Guidance Notes

In August, ASX published an updated version of ASX Listing Rules Guidance Note 9 Disclosure of Corporate Governance Practices, which is due to be released on 1 January 2020.

In August, ASX also released updated versions of Guidance Note 8 Continuous Disclosure – Listing Rules 3.1 – 3.1B and Guidance Note 27 Trading Policies to reflect the changes to the law in the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019.

Consumer credit

Treasury consults on draft legislation regarding mortgage broker best interests duty and remuneration reforms

On 26 August, the Treasury released draft legislation and accompanying explanatory materials that introduce a best interests duty for mortgage brokers and reform mortgage broker remuneration.

According to the Treasury, the draft bill requires mortgage brokers to act in the best interests of consumers when providing credit assistance. Further, the bill and regulations make changes to mortgage broker remuneration by:

  • requiring the value of upfront commissions to be linked to the amount drawn down by borrowers instead of the loan amount;
  • banning campaign and volume-based commissions and payments; and
  • capping soft dollar benefits.

Furthermore, the regulations limit the period over which commissions can be clawed back from aggregators and mortgage brokers to two years and prohibit the cost of clawbacks being passed on to consumers. Entry into force of the reforms is scheduled for 1 July 2020.

Consultation closes on 4 October.

Treasury consults on draft legislation regarding mandatory comprehensive credit reporting and hardship arrangements

On 15 August, the Treasury released revised draft legislation and accompanying explanatory materials that introduce a mandatory comprehensive credit reporting regime and which requires the big four banks to participate fully in the credit reporting system.

According to the Treasury, revised Bill introduces a new category of information within credit reporting, enabling hardship information to be reported alongside repayment history information.

Consultation closes on 5 September.

Banking

APRA issues updated prudential standard on associations with related entities

On 20 August, APRA issued updated Prudential Standard APS 222 Associations with Related Entities (APS 222), which APRA states will further reduce the risk of problems in one part of a corporate group having a detrimental impact on an authorised deposit-taking institution.

Copies of APRA’s response paper to submissions, the updated APS 222 and reporting standards are available here.

Other financial services regulation

APRA releases the Financial Sector (Shareholdings) Rules 2019

On 21 August, APRA released the Financial Sector (Shareholdings) Rules 2019 (FSSA Rules), which APRA states will provide clarity to owners of new entrant financial sector companies on whether they are likely to be approved under the Financial Sector (Shareholdings) Act 1998 (FSSA) 'fit and proper' test.

APRA published a response letter, the final version of the FSSA Rules and an following explanatory statement, which can be found here.

Treasury discussion paper on Financial Institutions Supervisory Levy Methodology

On 16 August, the Treasury released a Discussion Paper Financial Institutions Supervisory Levies methodology, which submissions on the design and operation of the Financial Institutions Supervisory Levies. The focus of the discussion paper is on the methodology used for the application of the levies.

The Treasury states that this discussion paper is separate to the annual ‘Proposed Financial Institutions Supervisory Levies’ paper released each year.

Responses are due by 13 September.

APRA consults on amendments to prudential standard on margin requirements

On 14 August, APRA released for consultation amendments to its margin requirements for non-centrally cleared derivatives.

APRA states that the proposed changes to Prudential Standard CPS 226 Margining and risk mitigation for non-centrally cleared derivatives will apply to all authorised deposit-taking institutions, general insurers, life insurers and registrable superannuation entity licensees. APRA’s letter is available here.

Submissions close on 28 August.

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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