Financial Services in Focus – Issue 36

Funds and financial products

Bill to expand ASIC Fintech Sandbox receives Royal Assent

On 26 February, the Treasury Laws Amendment (2018 Measures No. 2) Act 2020 received Royal Assent.  The new laws empower ASIC to grant exemptions to a wider number of fintech businesses, which will allow them to test fintech products and services in Australia without needing to acquire an AFSL or an ACL, for a prescribed period of time.

Importantly, for the first time, ASIC will be able to make these exemptions conditional.

For more information see our earlier article.

ASIC and APRA publish letter about joint regulatory oversight of superannuation trustees

On 14 February, ASIC and APRA issued a joint letter to superannuation trustees about how they will oversee the superannuation industry.

The letter assumes that exposure draft legislation introducing important reforms that will support ASIC and APRA to carry out their roles as co-regulators in superannuation, released by the Treasury on 31 January, become law.

In publishing the letter, ASIC states that the proposed reforms will strengthen ASIC's ability to effectively regulate superannuation trustee conduct and focus on consumer protection in its regulation of superannuation.  APRA states that it will continue to strengthen its focus on member-outcomes and prudential soundness.

IOSCO publishes report on issues and risks of crypto-asset trading platforms

On 12 February, the Board of the International Organisation of Securities Commissions (IOSCO) published a report that describes the issues and risks associated with crypto-asset trading platforms and sets out key considerations to assist regulatory authorities in addressing these issues.

The Final Report Issues, Risks and Regulatory Considerations Relating to Crypto-Asset Trading Platforms is available here.

House of Representatives Committee commences inquiry into the Australian retail corporate bond market

On 10 February, the House of Representatives Committee on Tax and Revenue announced an inquiry into the development of the Australian retail corporate bond market.

The inquiry will consider the tax treatment of corporate bonds, as well as the regulatory regime under the Corporations Act, to determine whether there are any impediments to the development of the retail corporate bond market.

Consultation closes on 19 March.

Federal Court clarifies on what constitutes ‘arranging’ services

On 5 February, Davies J of the Federal Court of Australia held that Allianz Metro Pty Ltd breached the Corporations Act by providing paying agency services, without an AFSL, to a foreign company that offered binary options trading to customers in Australia (among others).

According to ASIC, the judgment provides much needed clarification as to what constitutes ‘arranging’ in the context of someone arranging for another person to deal in a financial product.

In Australian Securities and Investments Commission v One Tech Media Ltd [2020] FCA 46, Davies J stated that the paying agency services were an essential part of the trading in binary options through the foreign company’s website.  The services included the provision of the bank accounts to be used to receive deposit funds from the foreign company’s website customers, the vetting of customer information to open an account for trading and the facilitation and dealing with the receipt and remittance of website customers’ funds.  Those services were integral to the binary options trading by website customers using the bank transfer method through the websites and the issue of binary options by the foreign company.

Davies J found that the provision of paying agent services by Allianz Metro Pty Ltd constituted the provision of a financial service by ‘arranging’ for the foreign company to issue binary options to Australian customers.  The court held that the verb ‘to arrange’ has a broad meaning which includes ‘to make preparations’ and there is no warrant for giving the term ‘arranging for’ in the context of section 766C(2) of the Corporations Act a narrow or restricted meaning.

Financial markets

ASX updates Guidance Note 8

On 28 February, ASX Limited released an update to Guidance Note 8 Continuous Disclosure: Listing Rules 3.1 – 3.1B.  A copy of the Guidance Note with the changes marked up is published here.

ASIC consults on relief regarding IPOs

On 24 February, ASIC released a consultation paper on voluntary escrow arrangements and pre-prospectus communications in connection with an initial public offer (IPO).

Under Consultation Paper 328 Initial public offers: Relief for voluntary escrow and pre-prospectus communications (CP 328), ASIC consults on proposals to grant relief through a legislative instrument in the context of an IPO to:

  • allow public companies, professional underwriters and lead managers who have obtained relevant interests as a result of voluntary escrow arrangements to disregard them for the purposes of the takeover provisions (but not substantial holding provisions); and
  • permit companies to communicate certain factual information to security holders and employees before the company lodges an IPO prospectus.

In releasing CP 328, ASIC states that the proposals seek to reduce and simplify the regulatory costs for companies undertaking an IPO while maintaining investor protection and market integrity.

Consultation closes on 6 April.

Consumer credit

ASIC extends relief for ‘simple arrangements’

On 26 February, ASIC registered ASIC Credit (Amendment) Instrument 2020/148 which extends the relief provided by ASIC Class Order [CO 14/41] for simple arrangements to 1 March 2022.

A ‘simple arrangement’ is any agreement that defers or reduces the obligations of a debtor or lessee for a period of no more than 90 days.  Where a simple arrangement is agreed, [CO 14/41] Extension of transitional credit hardship provisions exempts credit providers and lessors from the requirements in the National Credit Code to record any contractual changes and provide written notice to debtors and lessors.

Treasury consults on mandatory comprehensive credit reporting regulations

On 14 February, the Treasury released exposure draft regulations in relation to the establishment of a mandatory comprehensive credit reporting (CCR) regime within Australia.

The National Consumer Credit Protection Amendment (Mandatory Credit Reporting) Regulations 2020 support the National Consumer Credit Protection Amendment (Mandatory Credit Reporting and Other Measures) Bill 2019, which mandates comprehensive credit reporting and the reporting of hardship arrangements by banks to credit reporting bodies.

Consultation closed on 28 February.


ASIC consults on best interests duty guidance for mortgage brokers

On 20 February, ASIC released draft guidance on the new best interests duty for mortgage brokers for public consultation.  The new obligations were legislated by the Parliament in response to Recommendation 1.2 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.  From 1 July, the obligations will require mortgage brokers to act in the best interests of consumers and to prioritise consumers' interests when providing credit assistance.

The draft Regulatory Guide, which is attached to Consultation Paper 327 Implementing the Royal Commission recommendations: Mortgage brokers and the best interests duty, sets out ASIC's views on what the best interests duty provisions require and steps that can minimise the risk of non-compliance.

Consultation closes on 20 March.

Other financial services regulation

Inquiry into the Consumer Data Right releases Issues Paper for consultation

On 6 March, the Inquiry into Future Directions for the Consumer Data Right released an Issues Paper for public consultation.  The inquiry was announced by the Treasurer, Josh Frydenberg, on 23 January.

According to the Treasury, the Consumer Data Right gives customers, including individuals and business customers, the right to safely access certain data about them held by businesses, and direct that their information be transferred to accredited, trusted third parties of their choice.  It also requires data holders to provide public access to specified information about their products upon request.

The inquiry will look at how the Consumer Data Right could be enhanced and leveraged to boost innovation and competition, and support the development of a safe and efficient digital economy.

Consultation closes on 23 April.

Treasury consults on draft legislation to improve superannuation flexibility

On 5 March, the Treasury released exposure draft legislation implementing 2019-20 budgetary measures to improve flexibility for older Australians in relation to their superannuation.

The draft Treasury Laws Amendment (Measures for a later sitting) Bill 2020: Improving Flexibility for Older Australians and Superannuation Legislation Amendment (2020 Measures No. 1) Regulations 2020 would:

  • increase, from 65 to 67, the age at which people will be required to meet a work test before they are permitted to make voluntary contributions to superannuation;
  • increase the age limit for spouse contributions from 69 to 70; and
  • increase, from 65 to 67, the age at which people can access arrangements that bring forward an amount of their annual non-concessional contributions cap (ie contributions from after-tax income that are not taxed in their superannuation fund).

Consultation closes on 3 April.

ASIC releases guidance on document production

On 2 March, ASIC released an information sheet covering document production guidelines for people who produce books, including documents and any other record of information, to ASIC in connection with investigations or surveillance activities.

Information Sheet 242 Document production guidelines explains:

  • the preferred methods for producing books to ASIC in electronic and hard copy form;
  • the benefits of producing books in accordance with the guidelines;
  • the consequences of not following the guidelines; and
  • how ASIC requests books to be produced when using a litigation support system.

RBA and Australian Payments Council release conclusions paper about ISO 20022

On 26 February, the RBA and Australian Payments Council (APC) released the final paper in a series of three papers aimed at assisting the industry to come to an agreement on key strategic issues regarding the adoption of the International Organization for Standardization (ISO) 20022 messaging standards.

The ISO 20022 Migration for the Australian Payments System – Conclusions Paper:

  • provides a summary of the responses received to the Responses and Options Paper (which followed the Issues Paper published in April 2019); and
  • presents the RBA’s and APC's final conclusions based on the industry consultation.

According to the media release, the Australian Payments Network will establish the governance arrangements as set out in the paper, develop a work plan for the migration of payments messaging to the ISO 20022 messaging standards, and establish initial working groups.  The RBA states that it (and APC) will continue to work cooperatively with the industry in undertaking this migration.

APRA publishes letter regarding climate risk prudential guidance

On 24 February, APRA published a letter directed to all APRA-regulated institutions outlining plans to develop a prudential practice guide focused on climate-related financial risks, as well as a climate change vulnerability assessment.

In the letter, APRA also outlined its intention to update superannuation Prudential Practice Guide SPG 530 Investment Governance, which includes paragraphs related to environmental, social and governance (or ‘ESG’) investments.

Parliament enacts Royal Commission’s recommendations regarding unfair contract terms, funeral expenses policies and mortgage brokers

On 17 February, the Financial Sector Reform (Hayne Royal Commission Response—Protecting Consumers (2019 Measures)) Act 2020 (Protecting Consumers Act) received Royal Assent.

The Protecting Consumers Act:

  • extends the existing protections of the unfair contract terms regime under the ASIC Act to insurance contracts;
  • ensures that consumer protection provisions of the ASIC Act apply to funeral expenses policies; and
  • requires mortgage brokers to act in the best interests of consumers, and addresses conflicted remuneration for mortgage brokers.

Parliament enacts ASIC Enforcement Review Taskforce Report’s recommendations regarding ASIC’s enhanced powers

On 17 February, the Financial Sector Reform (Hayne Royal Commission Response—Stronger Regulators (2019 Measures)) Act 2020 (Stronger Regulators Act) received Royal Assent.

The Stronger Regulators Act implements recommendations from the ASIC Enforcement Review Taskforce Report to harmonise ASIC’s search warrant powers, improve ASIC’s ability to access certain telecommunications information, strengthen ASIC’s licensing powers, and extend ASIC’s banning powers.

ASIC releases report on trustees’ PYSP communications

On 12 February, ASIC released findings from its recent review of superannuation trustees’ communications with their members about changes introduced through the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 (PYSP).

The key changes of the PYSP regime were designed to benefit members with low superannuation balances (below $6,000) and those with accounts that have been inactive for 16 months.

According to ASIC, while the communications review is not exhaustive, the findings in Report 655 Review of member communications: Protecting Your Superannuation Package (PYSP) reform (REP 655) are important to all trustees framing communications to members on PYSP and related reforms, as well as other topics more broadly.  The report also provides information and tips for trustees and sets out ASIC’s expectations about future communications.

In publishing REP 655, ASIC states that it will continue to monitor trustee communications in relation to PYSP and related reforms and consider taking regulatory action where further issues are identified.


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