17 September 2019

Financial Services in Focus – Issue 30

Funds and financial products

Treasury releases draft Design and Distribution Obligations Regulations

On 12 September, Treasury released for public consultation exposure draft regulations to support the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019 (‘Act’) and an exposure draft explanatory statement.

The regulations support the Act by varying the range of products and entities that are subject to the design and distribution obligations.

Treasury states the exposure draft regulations take into consideration previous consultation on these regulations in October 2018 and also Parliamentary Amendments to the Act prior to its passage.

The Treasurer, Josh Frydenberg, stated that update to the regime is part of an additional suite of measures the Government committed to in its response to the Banking, Superannuation and Financial Services Royal Commission.

Consultation closes on 11 October.

ASIC makes product intervention order banning short term lending model

On 12 September, ASIC announced that it has used its product intervention power first time to ban a model of lending in the short term credit industry which has been found to cause significant consumer detriment.

For the background ASIC consultation on this matter, see Financial Services in Focus - Issue 27.

The relevant legislative instrument, ASIC Corporations (Product Intervention Order—Short Term Credit) Instrument 2019/917, commences on 14 September and remains in force for 18 months unless it is extended or made permanent.

ASIC update on Royal Commission implementation

On 11 September, ASIC released the ASIC Royal Commission implementation update (‘Update’), which is its second update on its actions in response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

ASIC states that the Update outlines a number of measures across ASIC by which ASIC is implementing the seven priorities highlighted in its Corporate Plan 2019-23, one of which is to prioritise the recommendations and referrals from the Royal Commission.

Among other things, in the Update ASIC states that the Royal Commission recommended that ASIC become the conduct regulator of superannuation, and that ASIC has started to take on this role where it can without needing the law to change.

ASIC extends relief for foreign financial services providers

On 10 September, ASIC announced it extended to 31 March 2020 licensing relief for foreign financial services providers (‘FFSPs’) to allow them to provide certain financial services to Australian wholesale clients without needing to hold an Australian financial services licence.  This extension was foreshadowed in Consultation Paper 315.

The licensing relief that has been extended by ASIC is:

  • ASIC Corporations (Repeal and Transitional) Instrument 2016/396 and ASIC Corporations (CSSF-Regulated Financial Services Providers) Instrument 2016/1109 - FFSPs relying on this relief can provide specified financial services to Australian wholesale clients if their home regulatory regime has been assessed by ASIC as sufficiently equivalent to the Australian financial services licensing regime; and
  • ASIC Corporations (Foreign Financial Services Providers—Limited Connection) Instrument 2017/182 - this instrument provides licensing relief for FFSPs that are only required to hold an AFSL because they have engaged in conduct that is intended to induce an Australian wholesale client to use the provider’s financial services.

These instruments had been due to expire on 30 September 2019.

The extension of the relief is contained in ASIC Corporations (Amendment) Instrument 2019/902.

ASIC remakes class order facilitating the offer of share and interest purchase plans

On 30, ASIC announced it remade the relief in Class Order [CO 09/425], which was due to sunset on 1 October 2019.

The new instrument, ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547, will continue the effect of the previous instrument while increasing the participation limit (for each registered holder in a 12-month period) from $15,000 to $30,000.

ASIC also released an updated Regulatory Guide 125 Share and interest purchase plans.

Financial markets

New ASIC Market Integrity Rules

On 6 September, ASIC Market Integrity Rules (Securities Markets) Determination 2019/896 was registered.

According to the Explanatory Statement, the purpose of the Determination is to determine, for the purposes of paragraph 6.2.1(1)(c) of the ASIC Market Integrity Rules (Securities Markets) 2017 and with effect from its commencement, the Tier 1 Equity Market Products and the Tier 2 Equity Market Products.

Consumer credit

ASIC releases a report on consumer experiences and expectations in getting a home loan

On 29 August, ASIC released Report 628 Looking for a mortgage: Consumer experiences and expectations in getting a home loan (‘REP 628’) and an accompanying infographic.

ASIC states the key findings from its research include the following:

  • consumers who visit a mortgage broker expect the broker to find them the ‘best’ home loan;
  • mortgage brokers were inconsistent in the ways they presented home loan options to consumers, sometimes offering little (if any) explanation of the options considered or reasons for their recommendation; and
  • first home buyers were more likely to take out their loan with a mortgage broker.

In releasing REP 628, ASIC states it strongly supports the recent Government announcement to enact a best interests duty for mortgage brokers.

Banking

APRA commences a second consultation on the framework for interest rate risk in the banking book

On 4 September, APRA announced it has commenced a second consultation on the requirements in Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (‘APS 117’) that aims to strengthen the prudential framework for interest rate risk in the banking book (IRRBB), as well as implement the Basel standard.

Copies of the response to submissions and the draft APS 117 can be found on the APRA website here.

Written submissions are requested by 6 December.

Other financial services regulation

Treasury releases draft legislation regarding aspects of the ASIC Enforcement Review Taskforce

On 11 September, Treasury released for public consultation draft legislation implementing a number of recommendations of the ASIC Enforcement Review Taskforce relating to search warrants, access to telecommunications intercept material, licensing and banning orders.

The draft legislation and explanatory materials can be found here.

Treasury states the draft legislation:

  • strengthens ASIC's licensing powers by replacing the AFSL requirement that a person be of 'good fame and character' with an on-going requirement that they be a 'fit and proper person';
  • aligns the penalties for false and misleading statements in AFSL and Australian Credit Licence applications;
  • extends ASIC's powers so that they may ban a person from performing functions in a financial services or credit business. The legislation also expands the grounds on which ASIC can issue banning orders;
  • harmonises ASIC's search warrant powers across different Acts and brings them into line with the search warrant powers in the Crimes Act; and
  • allows interception agencies to provide lawfully intercepted information to ASIC for serious offences that ASIC can investigate or prosecute.

The Treasurer, Josh Frydenberg, stated that the measures demonstrate the Government’s plan to implement its commitments on implementing the recommendations of the Banking, Superannuation and Financial Services Industry Royal Commission.

Consultation closes on 9 October.

Treasury releases proposal paper on reforms to the sale of add-on insurance products

On 9 September, Treasury released Proposals Paper Reforms to the sale of add-on insurance products for consultation.

This paper outlines the Government’s proposed model in response to recommendation 4.3 of the final report of the Banking, Superannuation and Financial Services Industry Royal Commission

Responses to the paper are due on 30 September.

APRA updates Enforcement Approach to provide clarity around transparency and data reporting

On 3 September, APRA announced it updated its Enforcement Approach to outline how it will increase transparency around the use of its formal enforcement powers.

APRA states that the Enforcement Approach was updated to include principles that APRA will take into account when considering when and how to publicise its enforcement actions, and guidance on APRA’s approach to enforcement for data submissions.

Treasury releases its Corporate Plan

On 5 September, Treasury released the Treasury 2019-20 Corporate Plan, which sets out its purpose, operating context and priorities for the next four years (2019‑20 to 2022‑23).

APRA releases its Corporate Plan

On 29 August, APRA released its Corporate Plan for 2019 to 2023.

The Corporate Plan states that the 2019-2023 strategy identifies four strategic focus areas to strengthen outcomes for the Australian community that APRA is seeking to deliver.  They are:

  1. maintaining financial system resilience;
  2. improving outcomes for superannuation members;
  3. improving cyber-resilience across the financial system; and
  4. transforming governance, culture, remuneration and accountability across all regulated financial institutions.

ASIC releases its Corporate Plan

On 28 August, ASIC released its Corporate Plan for the financial years 2019-2020 to the years 2022-2023.

ASIC states that this year’s Corporate Plan outlines its efforts towards becoming a more strategic regulator, its renewed approach for supervision and enforcement, and its key regulatory activities over the next four years.

The Corporate Plan identifies seven ‘strategic priorities’ for ADIC, namely:

  1. high-deterrence enforcement action;
  2. prioritising the recommendations and referrals from the Financial Services Royal Commission;
  3. delivering as a conduct regulator for superannuation;
  4. addressing harms in insurance;
  5. improving governance and accountability;
  6. protecting vulnerable consumers; and
  7. addressing poor financial advice outcomes.

APRA finalises revised measures to strengthen outcomes for superannuation members

On 28 August, APRA announced it substantially revised Prudential Practice Guide SPG 516 Business Performance Review (‘SPG 516’) to better support the final version of the Prudential Standard SPS 515 Strategic Planning and Member Outcomes (‘SPS 515’) which has also been released.  SPS 515 will come into force from 1 January next year.

In order to assist RSE licensees implement the new requirements, APRA released a finalised Prudential Practice Guide SPG 515 Strategic and Business Planning.

APRA states that draft guidance has also been included to assist RSE licensees comply with the legislated outcomes assessment introduced by the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No.1) Act 2019.

Written submissions on draft SPG 516 will be received by APRA until 10 October.

Contact

    Fluent in Chinese | Mandarin - conversational

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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  • Fluent in Hebrew -Conversational

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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    Fluent in Arabic - Conversational

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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