6 November 2019
Financial Services in Focus – Issue 32
Funds and financial products
ASIC extends relief for portfolio holdings disclosure
On 29 October, ASIC announced that it amended ASIC Class Order [CO 14/443] Deferral of choice product dashboard and portfolio holdings disclosure regimes to provide legal certainty about the first reporting day for portfolio holdings disclosure, given the regulations setting out the required disclosures have not yet been made.
The amendments made to [CO 14/443] defer the first reporting day to 31 December 2020, which ASIC says will allow further time for Government to develop and make the regulations.
ASIC v Westpac case on marketing versus personal advice
On 28 October, the Full Court of the Federal Court of Australia consisting of Allsop CJ, Jagot and O’Bryan JJ handed down its decision in the case of Australian Securities and Investment Commission v Westpac Securities Administration Limited.
Between 2014 and 2015, Westpac engaged in a campaign of calling clients to encourage them to roll-over their external superannuation accounts into accounts that they already held with Westpac. This campaign attracted the attention of ASIC who brought proceedings in the Federal Court alleging that the act of calling clients and encouraging them to roll over their superannuation fund interests constituted providing ‘personal advice’ in relation to financial products under section 766B(3) of the Corporations Act, a financial service for which Westpac’s subsidiaries, Westpac Securities Administration Limited (WSAL) and BT Funds Management Limited (BTFM), were not authorised to provide under their AFSLs.
At first instance, Gleeson J of the Federal Court of Australia held that Westpac had engaged in providing financial product advice by implementing the campaign (which was permitted under Westpac’s licences) but this conduct did not satisfy the meaning of ‘personal advice’ under section 766B(3).
ASIC successfully appealed this decision to the Full Federal Court which delivered a unanimous decision (albeit in separate judgements) that the Westpac subsidiaries had engaged in the provision of personal advice as a part of the campaign in clear breach of their AFSLs. Of particular interest are the comments from Allsop CJ who concluded that when the context of a call was considered as a whole, including what was or was not said, the tone of the call, the act of making follow-up calls and the presence of an existing relationship between financial institution and customer, it was clear that the calls involved Westpac making an implied recommendation that the relevant customer should roll‑over their superannuation fund interests.
While all the judges agreed that the people making the calls did not actually consider the personal objectives, financial situation and needs of the clients, the circumstances of the calls were such that a reasonable person in the customer’s position would have expected the caller to have taken these factors into account. It was the creation of this perception that lead the Court to conclude that WSAL and BTFM had provided personal advice and consequently acted in breach of their AFSLs and other financial services laws.
ASIC’s media release can be found here.
Ending Grandfathered Conflicted Remuneration Act receives Royal Assent
On 28 October, the Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Act 2019 received Royal Assent.
The Act removes these grandfathering arrangements for conflicted remuneration and other banned remuneration from 1 January 2021, and also enables the regulations to provide for a scheme under which amounts that would otherwise have been paid as conflicted remuneration are rebated to affected customers.
Financial product advice
FASEA Releases Code of Ethics Guidance
On 18 October, FASEA Code of Ethics guide (FG002 Code of Ethics Guidance).
In releasing the Code, FASEA says compliance with the Code which comprises five values and twelve Standards will come into effect on 1 January 2020.
In an update to the release of the Code, FASEA confirmed the first consultation with designated representatives of consumer, professional, education and other industry groups commence November 12.
Draft Currency (Restrictions on the Use of Cash) Rules
On 25 October, the Treasury released draft rules to support the Currency (Restrictions of the Use of Cash) Bill 2019 (Bill) that was introduced in the Parliament on 19 September 2019. The Bill gives effect to an economy-wide cash payment limit to combat the black economy.
Treasury states that the Currency (Restrictions on the Use of Cash) Rules 2019 specify the types of transactions that are exempt from the cash payment limit, and also prescribe how to work out the value in Australian currency of an amount of foreign currency or digital currency for the purposes of the cash payment limit.
Treasury consults on Australian Business Growth Fund Bill
On 4 November, the Treasury released for public consultation exposure draft legislation and accompanying explanatory material to authorise the Commonwealth Government to invest in the Australian Business Growth Fund jointly with financial institutions.
In a joint media release, the Treasurer, Josh Frydenberg, and Senator Michaelia Cash, Minister for Small and Family Business, Skills and Vocational Education, stated that the Australian Business Growth Fund will ensure that small and medium-sized businesses have access to the finance they need.
Submissions to the consultation are open until 8 November.
Other financial services regulation
ASIC warns trustees on new rules for Putting Members’ Interests First
On 30 October, issued a letter to the superannuation industry about ASIC’s expectations in relation to member communications about the insurance reforms implemented by the ‘Putting Members’ Interests First’ (PMIF) and ‘Protecting Your Super Package’ (PYSP) legislation.
The letter states that ASIC expects trustees to help their members understand and make good decisions by:
- providing balanced and factual communications, that include appropriate context about the reforms; and
- tailoring communications to the needs of their members (including appropriate tailoring of language, structure and communication method).
In releasing the letter, ASIC stated that a recent review by ASIC found that many superannuation trustees did not adequately communicate with members in a similar situation when they were about to be impacted by the PYSP reforms.
APRA releases an update about the new Data Collection Solution
On 29 October, APRA released an update to the industry about the new Data Collection Solution, which will replace APRA’s current data collection tool, Direct to APRA (D2A).
The update is available on here on APRA’s website.
ASIC and ESMA sign MoU on Australian benchmarks
On 21 October, ASIC announced that it and the European Securities and Markets Authority (ESMA) signed a Memorandum of Understanding setting out cooperation arrangements in respect of Australian benchmarks.
ASIC says this decision will allow benchmarks declared significant by ASIC (BBSW, S&P/ASX200, Bond Futures Settlement Price, CPI, and Cash Rate) to be used in the European Union (EU) by EU-supervised entities.
ASIC issues report on TPD insurance design and claims handling process
On 17 October, ASIC issues a report into a review on the design of total and permanent disability (TPD) insurance and the claims handling process.
ASIC’s Report 633 Holes in the safety net: A review of TPD insurance claims (REP 633), summarises the findings and recommendations from ASIC’s thematic review of TPD insurance in Australia, and, in particular, reviews outcomes for consumers, claims handling practices, the role of data in managing the risk of consumer harm, and ASIC’s findings on insurers with higher than predicted rates of declined claims.
Along with REP 633, ASIC released an executive summary of REP 633, an infographic on the TPD claims process, and an infographic on poor consumer outcomes under the Activities of Daily Living test.
In releasing the report, ASIC said TPD insurance cannot be relied on by many Australians and that ASIC expects the industry to make prompt changes to ensure that cover provides real value.
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