Financial Services in Focus – Issue 34

Funds and financial products

Design and distribution obligations regulations registered

On 16 December, the Corporations Amendment (Design and Distribution Obligations) Regulations 2019 was registered.

The regulations amend the Corporations Regulations to enhance the design and distribution obligations regime by altering the products and persons in relation to which the regime applies and extend the regime to additional persons and products and exclude certain persons and products from its operation.

ASIC concludes review of internal market making for quoted managed funds

On 11 December, ASIC stated it concluded a review of internal market making practices of non-transparent actively managed funds that are traded on exchange markets.

ASIC states the review identified market integrity risks under certain internal market-making models - particularly those models where a market maker uses non-public information as part of its pricing methodology.

Some key outcomes of the review are stated in the media release.  Subject to these controls, ASIC has requested that exchange market operators lift the pause on the admission of new managed funds with internal market making.

ASIC states that it also intends to update Information Sheet 230 Exchange traded products: Admission guidelines in early 2020.

ASIC publishes a report on the timeshare industry

On 6 December, ASIC released a report which it states provides detailed insights into the risks of harm at each stage of a consumer’s journey with time-sharing schemes.

ASIC’s report, Report 642 Timeshare: Consumers’ experiences (REP 642) outlines ASIC’s concerns about the timeshare industry.  REP 642 presents key findings from qualitative research commissioned by ASIC to explore consumers’ experiences with timeshare from the initial approach and sale through to membership use and the exit process.  ASIC also released an infographic about the stages of the consumer’s journey.

In releasing the report, ASIC states that the key findings from the research were that, while some research participants were satisfied with their timeshare membership, there was a high level of discontent overall.

ASIC releases updated RG 97 on fees and cost disclosure

On 29 November, released updated guidance on fees and cost disclosure for issuers of superannuation and managed investment products.

For a comprehensive summary of this package of reforms see our earlier article.

Funeral expenses facilities regulations registered

On 29 November, the Treasury Laws Amendment (Financial Services Improved Consumer Protection) (Funeral Expenses Facilities) Regulations 2019 was registered.

According to the Explanatory Statement, the purpose of the regulations is to implement recommendation 4.2 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry to remove the exemption for funeral expenses policies from the definition of financial products under the Corporations Act.

Ending grandfathered conflicted remuneration regulations registered

On 29 November, the Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Regulations 2019 was registered.

According to the Explanatory Statement, the purpose of the regulations is to amend the Corporations Regulations to provide for a scheme by which conflicted remuneration in relation to financial product advice that remains payable on or after 1 January 2021 will be rebated to affected retail customers by means of payments or other monetary benefits.  The regulations also repeal provisions that grandfather conflicted remuneration that are contained in the Corporations Regulations.

Financial product advice

ASIC reports on compliance with financial advice fee disclosure obligations

On 28 November, ASIC released a report about the financial advice industry’s compliance with obligations regarding fee disclosure statements (FDSs) and renewal notices (RNs).

Report 636 Compliance with the fee disclosure statement and renewal notice obligations (REP 636) found, among other things, frequent non-compliance by fee recipients in relation to FDS and RN obligations and identified examples of inadequate policies and procedures for turning off fees when ongoing fee arrangements terminated.

In releasing REP 636, ASIC states it is investigating a number of advice licensees (not surveyed for the purposes of the report) for potential breaches of the FDS and RN obligations.

ASIC report on financial advice provided by superannuation funds

On 3 December, ASIC released a report that examines the ways in which superannuation funds help members obtain financial advice and the quality of personal advice obtained through the funds.

In releasing Report 639 Financial advice by superannuation funds, ASIC states that it found that the quality of personal advice provided to members was generally appropriate.

The report includes a number of practical tips for trustees, advice licensees and advice providers.

Financial markets

ASIC reports on cyber resilience assessments of financial markets firms

On 18 December, ASIC released a report on cyber resilience of firms operating in Australia’s financial markets.

Report 651 Cyber resilience of firms in Australia’s financial markets: 2018-19 (REP 651) provides an update to Report 555 Cyber resilience of firms in Australia’s financial markets, and identifies key trends from self-assessment surveys completed by financial markets firms, and highlights existing good practices and areas for improvement.

In releasing REP 651, ASIC encourages all financial markets firms to consider and discuss the information in this report as they develop or enhance their cyber resilience frameworks.

ASIC reports on practices in wholesale foreign exchange markets

On 18 December, ASIC released a report that summarises its work in wholesale foreign exchange (FX) markets during 2018 and 2019.

Report 652 Wholesale FX practices in Australia (REP 652) highlights ASIC’s observations of better practices and some poorer practices used by participants operating in the market.

In releasing REP 652, ASIC states that participants in the FX market should review the report’s observations and practices and consider how the better practices may be applied in their own FX businesses to enhance their approach to managing conduct risk.

Anti-money laundering

AMl Rules amendment instrument registered

On 13 December, the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2019 (No. 3) was registered.

The Rules make a number of minor and technical revisions to the current drafting of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

Consumer credit

ASIC updates responsible lending guidance

On 9 December, ASIC released an updated Regulatory Guide 209 Credit licensing: Responsible lending conduct (RG 209) following extensive consultation.

In releasing the updated RG 209, ASIC states that the revised guidance provides greater clarity and support to lenders and brokers in meeting their obligations, and, importantly, ASIC has maintained principles-based guidance that supports flexibility for licensees.

ASIC has also published its response to submissions made to Consultation Paper 309 and a tool to assist users of RG 209 to navigate the updated structure of the document, both of which can be accessed here.


ASIC approves an updated Banking Code of Practice

On 17 December, ASIC stated that it approved an updated version of the Australian Banking Association’s Banking Code of Practice, which will commence on 1 March 2020.

The approval is given in ASIC Corporations (Approval of March 2020 Banking Code of Practice) Instrument 2019/1255.

ASIC states that the updates in the March 2020 Code include changes to:

  • introduce the concept of ‘basic accounts’ that have minimum features (including no account keeping fees, no minimum deposits, free direct debit facilities and access to a debit card);
  • provide for eligible low-income customers to access basic accounts and other low and no-fee accounts, each of which must not feature informal overdrafts, dishonour fees or overdrawn fees;
  • clarify the restrictions on non-monetary defaults on small business loans;
  • extend protections to guarantors of small business loans - banks will now be required to first pursue the borrower in the event of default, before the guarantor (previously the Code limited these protections to guarantors of consumer loans), and
  • prohibit default interest on small business loans secured by agricultural and commercial property in the event of drought or natural disaster.

Other financial services regulation

APRA and ASIC publish executive accountability statements

On 19 December, APRA published a document outlining its governance arrangements, along with accountability statements for its senior executives.

APRA states that the paper, titled ‘Governance and Senior Executive Accountabilities’:

  • describes APRA’s internal governance and accountability arrangements and is supported by individual accountability statements for senior executive roles and an accountability map; and
  • responds to recommendation 6.12 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry: that ‘each of APRA and ASIC should internally formulate and apply to its own management accountability principles of the kind established by the BEAR.’

ASIC also states that it has updated its internal governance framework and implemented a new accountability regime, which it states that it articulates how ASIC’s Commission collectively exercises its functions and powers to deliver ASIC’s statutory objectives.  ASIC’s governance and accountability framework can be accessed here.

Treasury consults on enhancements to unfair contract terms protections

On 13 December, the Treasury announced it seeks stakeholder feedback on a range of policy options to address the issues identified by the 2018 review of the unfair contract terms regime set out in the Australian Consumer Law, which is Schedule 2 to the Competition and Consumer Act 2010, and the ASIC Act.

The Treasury also seeks views on whether any enhanced unfair contract terms protections for small business contracts should also be extended to consumer and insurance contracts to ensure consistency in the operation of the protections.

The submission guidelines are available here.

Consultation closes on 16 March 2020.

ASIC releases report on insurance in superannuation

On 13 December, ASIC released a report on the superannuation industry’s progress in improving consumer outcomes in relation to life insurance provided through superannuation.

ASIC states that Report 646 Insurance in superannuation: Industry implementation of the Voluntary Code of Practice comments on industry’s implementation of the Insurance in Superannuation Voluntary Code of Practice.

ASIC states that it plans to undertake further work from the perspective of consumer outcomes in the matters related to insurance in superannuation.

Treasury seeks expressions of interest for consumer advocacy body for superannuation

On 2 December, the Treasury seeks expressions of interest from interested parties to respond to the Government’s process to establish a consumer advocacy body for superannuation.

The Treasury states that the objective of the advocacy body will be to become the voice of consumers in policy discussions and to support access to information to educate and assist consumers, including vulnerable consumers, to navigate the superannuation system, and that the advocacy body will be required to leverage current financial literacy initiatives, such as MoneySmart.

Responses are due by 13 January 2020.

Treasury releases draft legislation to make insurance claims a financial service

On 29 November, the Treasury released exposure draft legislation for public consultation in relation to

  • remove the exclusion of insurance claims handling and settlement services from the definition of a ‘financial service’ in the Corporations Act;
  • make handling and settlement of an insurance claim, or potential insurance claim, a ‘financial service’ under the Corporations Act; and
  • tailor application of the existing financial services regime to the new financial service of handling and settling an insurance claim.

The draft legislation follows recommendation of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry that the handling and settlement of insurance claims, or potential insurance claims, should no longer be excluded from the definition of ‘financial service’ (Recommendation 4.8).

Consultation closes on 10 January 2020.

ASIC and APRA issue updated Memorandum of Understanding

On 29 November, APRA and ASIC published an updated Memorandum of Understanding (MoU).

In releasing the updated MoU, ASIC stated the updated MoU follows on from the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Recommendation 6.10).

The Treasurer, Josh Frydenberg, welcomed the MoU and said that the Government is preparing exposure draft legislation to give effect to Recommendation 6.9, which will create a statutory obligation on each of ASIC and APRA to cooperate, share information, and notify each other of suspected breaches of laws administered by the other.  The Treasurer said this MOU will support the implementation of that recommendation.

APRA updates timing of the proposed product responsibility under the Banking Executive Accountability Regime

On 13 December, APRA released a letter outlining the revised timing of the implementation of product responsibility requirements under the Banking Executive Accountability Regime (BEAR).

APRA advised authorised deposit-taking institutions that it will delay finalising the consultation until the first half of next year in order to align the product responsibility proposal with the Government’s proposed extension of the accountability regime.

APRA publishes MySuper Heatmap

On December, APRA published its first ‘heatmap’ providing assessments of the performance of every MySuper superannuation product.

APRA states the MySuper Product Heatmap provides additional transparency on the outcomes being delivered by all trustees providing MySuper products, and is designed to lift industry practices and enhance member outcomes by publicly identifying which MySuper products are underperforming and the areas they need to improve.

APRA intervenes in life insurance market

On 2 December, APRA released a letter in which it announced a series of measures, including capital charges, that will require life insurers and friendly societies to address what APRA considers to be flaws in product design and pricing that are contributing to unsustainable practices in the life insurance market relating to individual disability income insurance.

APRA finalises revised guidance on superannuation Business Performance Review

On 27 November, APRA released a final revised Prudential Practice Guide SPG 516 Business Performance Review (SPG 516) and response to submissions letter following a six-week consultation period.

Copies of the response letter and SPG 516 are available.


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