Financial Services in Focus – Issue 38

By Harry New, Adrian Verdnik and Vince Battaglia

Funds and financial products

Federal Court upholds ASIC’s short term credit product intervention order

On 15 April, Stewart J of the Federal Court of Australia handed down his decision in Cigno Pty Ltd v Australian Securities and Investments Commission [2020] FCA 479.

The decision arises out of an application filed by Cigno Pty Ltd challenging ASIC’s exercise of its product judicial review application intervention power (PIP) to ban a model of lending in the short term credit industry. ASIC made the order on 12 September 2019 by registering the ASIC Corporations (Product Intervention Order—Short Term Credit) Instrument 2019/917.  This is the first deployment of ASIC’s PIP.

Under section 1023D(3) of the Corporations Act, ASIC may exercise its PIP in relation to a class of financial products where there is, or will be, significant detriment to retail clients. Stewart J held that significant detriment need not result from something inherent to the product. It is sufficient where the detriment results from the particular circumstances in which the product was issued or offered. Accordingly, he rejected Cigno Pty Ltd’s argument that ASIC wrongly considered detriment caused by the short term lending model (instead of detriment caused by the short term credit facility itself).

In addition, Stewart J held that:

  • it is not necessary for there to be any existing product, or more than one product, in a class of financial products before section 1023D(3) can be exercised; and
  • Part 7.9A of the Corporations Act should be construed broadly as it is ‘a fundamental piece of remedial and protectionist legislation’.

ASIC’s media release in relation to the decision can be found here. The media release of the Assistant Treasurer, Michael Sukkar, is here.

ASIC to provide additional time for unlisted entity financial reports

On 9 April, ASIC announced that it will extend the deadline for unlisted entities to lodge financial reports under Chapters 2M and 7 of the Corporations Act by one month for balance dates from 31 December 2019 to 31 March 2020.

In the announcement, ASIC states that, under Chapter 7 of the Corporations Act, the deadline for lodgement of profit and loss and balance sheets (and other associated information) for:

  • unlisted AFS licensees that are bodies corporate and are also disclosing entities or registered schemes is extended from 3 months to 4 months;
  • unlisted AFS licensees that are body corporates and are not disclosing entities or registered schemes is extended from 4 months to 5 months; and
  • AFS licensees that are not bodies corporate is extended from 2 months to 3 months.

ASIC states that the extended deadlines will only apply where the normal reporting deadline has not already passed. For example, the deadline for a 31 December 2019 year-end financial report of a managed investment scheme was 31 March 2020 and no extended period will apply.

In its announcement, ASIC says that it an instrument extending the deadlines is expected to be registered on the Federal Register of Legislation in the near future.

ASIC releases new crowd-sourced funding report

On 9 April, ASIC released ASIC Report 657 Survey of crowd-sourced funding intermediaries: 2018-19 (REP 657).

REP 657 outlines findings from ASIC’s second industry survey, which tracks the growth and development of crowd-sourced funding (CSF) in Australia.

ASIC states the survey covers the first full financial year (1 July 2018 to 30 June 2019) since the CSF framework was introduced in Australia, and that it is also the first survey period in which proprietary companies have been allowed to make CSF offers.

Further conditional relief from derivative transaction reporting

On 27 March, the ASIC Corporations (Amendment) Instrument 2020/242 was registered. The instrument commences on 1 April.

This instrument grants conditional relief until 30 September 2022 from two elements of the ASIC Derivative Transaction Rules (Reporting) 2013 (Rules) relating to trade identifiers and New Zealand banks reporting entity information.

According to ASIC, the instrument extends conditional relief to reporting entities:

  • from the requirement to report a ‘universal transaction identifier’ or a ‘single transaction identifier’ (trade identifier relief) where an alternative trade identifier is reported; and
  • that are New Zealand registered banks from the requirement to report entity information (entity identifier relief) for transactions with smaller NZ companies in certain circumstances where an internal identifier is reported.

Financial product advice

ASIC grants temporary advice relief to industry in light of COVID-19

On 14 April, ASIC announced measures to assist industry in providing consumers with affordable and timely advice during the COVID-19 pandemic.

On that day, ASIC registered the ASIC Corporations (COVID-19 – Advice-related Relief) Instrument 2020/355. This instrument commences on 15 April, and provides temporary relief to:

  • allow financial advisers not to give a Statement of Advice (SOA) to a client when providing advice about the early release of superannuation scheme, subject to conditions;
  • permit registered tax agents to give advice about the early release of superannuation to existing clients without needing to hold an AFSL, subject to conditions;
  • give advice providers up to 30 business days (instead of 5 business days) to give an SOA after time-critical advice is provided; and
  • enable a Record of Advice to be given instead of an SOA, in certain circumstances, to existing clients of financial advisers.

ASIC has updated its COVID-19 FAQ for financial advisers and advice licensees to provide more information about the temporary measure.

ASIC also issued a temporary no-action position for superannuation trustees to expand the scope of personal advice that may be provided by, or on behalf of, superannuation trustees as ‘intra-fund advice’ to include personal advice about the COVID-19 early release of superannuation scheme.

ASIC expresses concern about unlicensed financial advice by real estate agents

On 3 April, ASIC published a letter it wrote to real estate institutes in each State that outlined ASIC’s concerns about real estate agents who are advising tenants to apply for an early release of their superannuation.

As part of the Government’s COVID-19 stimulus package, the superannuation framework was changed to allow for a limited early release of superannuation benefits for financial stress.

In the letter, ASIC explained its concern that those real estate agents may be engaging in conduct that constitutes unlicensed financial advice or conduct that is not in the best interests of individuals, in contravention of the Corporations Act.

ASIC releases FAQ about COVID-19 issues and the financial advice industry

On 3 April, ASIC published its responses to frequently asked questions (FAQ) about issues impacting the financial advice industry as a result of the COVID-19 pandemic.

This includes information about ASIC’s actions to reduce regulatory burden on financial advisers and ASIC’s expectations about continuing compliance with legal and regulatory obligations.

Financial markets

ASIC updates internal market-making guidance

On 15 April, ASIC issued an updated Information Sheet 230 Exchange traded products: Admission guidelines (INFO 230). INFO 230 provides guidance on better practices for internal market-making in non-transparent, actively managed funds that are traded on exchange markets.

According to ASIC, the update:

  • outlines measures that firms should take to manage market integrity risks associated with internal market-making; and
  • provides further guidance on improving internal market-making practices.

The update follows ASIC’s review of internal market-making practices of non-transparent, actively managed funds that are traded on exchange markets.

Anti-money laundering

Changes to AML/CTF Rules to support early release of superannuation

On 15 April, the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2020 (No. 1) was registered.

The purpose of this instrument is to amend the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) to introduce a time-limited measure that exempts a reporting entity from the applicable customer identification procedure to facilitate the early release of superannuation to those individuals approved by the ATO as meeting the relevant criteria.

This follows AUSTRAC’s announcement on 27 March that it will introduce a rule to ensure that superannuation funds making payments to their members under the early release scheme will not be required to conduct additional customer verification under the AML/CTF Act where it is approved by the ATO and processed through MyGov and ATO online. For more information, see Issue 37.

AUSTRAC provides information to reporting entities on KYC during COVID-19

On 1 April, AUSTRAC published information for reporting entities about how they can comply with ‘know your customer’ (KYC) obligations in light of the disruption caused by COVID-19.

The guidance provides information about flexible KYC processes and procedures that are supported by the AML/CTF Rules, and includes examples of how reporting entities can apply flexible KYC processes.

AUSTRAC stated that it expects reporting entities keep a record of any changes in their AML/CTF policies and procedures that are made due to COVID-19.

AUSTRAC also reminded reporting entities of their obligation to submit suspicious matter reports, and identified areas where the financial system may be more vulnerable due to the impact of COVID-19.

FATF issues statement on COVID-19

On 1 April, Financial Action Task Force (FATF) issued a statement about COVID-19 and measures to combat illicit financing.

In the statement, FATF addressed:

  • the need to remain vigilant to financial crime risks in light of COVID-19;
  • digital on-boarding and simplified due diligence processes to adapt to confinement or strict social distancing measures;
  • the delivery of aid through non-profit organisations;
  • ongoing outreach and advice to the private sector from regulators, supervisors, financial intelligence units, law enforcement authorities and other relevant agencies; and
  • FATF’s readiness to provide further guidance on issues relating to COVID-19.


Further amendments to Coronavirus SME Guarantee Scheme

On 15 April, the Coronavirus Economic Response Package Omnibus (Measures No. 2) Act 2020 (Cth) (Amending Act) was registered.

Schedule 3 of the Amending Act amends the Guarantee of Lending to Small and Medium Enterprises (Coronavirus Economic Response Package) Act 2020 (Cth), which establishes a guarantee scheme to facilitate loans from ADI and non-ADI lenders to small and medium enterprises in light of the COVID-19 pandemic. The Amending Act ensures that certain categories of smaller non-ADI lenders fall in the definition of ‘financial institution’ in that Act.

For more information about the scheme, see our earlier article.

On 17 April, APRA also released a new reporting standard to collect data from financial institutions taking part in the Coronavirus SME Guarantee Scheme. To support the standard, APRA registered the following instruments on 16 April:

ACCC grants interim authorisation to Australian Securitisation Form and members

On 8 April, the ACCC granted urgent interim authorisation to the Australian Securitisation Form (ASF) and its members to work together to assist smaller lenders to maintain liquidity and issue loans to consumers and small businesses during the economic disruption caused by COVID-19.

The interim authorisation was granted to facilitate the implementation of the Structured Finance Support Fund (SFSF) and allows ASF members to coordinate their input to the Australian Office of Financial Management about how the administration of the SFSF. For more information about the SFSF, see Issue 37.

The ACCC stated that it will seek feedback on the application for final authorisation, and will make available details about how to make a submission here.

APRA issues capital management guidance to ADIs and insurers

On 7 April, APRA published a letter it wrote to all ADIs, general insurers, life companies, and private health insurers, to provide guidance on capital management during the period of significant disruption caused by COVID-19.

In the letter, APRA outlined its expectations that recipients limit discretionary capital distributions during at least the next couple of months, including by deferrals or prudent reductions in dividends.

Other financial services regulation

Monetary value thresholds for foreign investment review amended

On 17 April, the Foreign Acquisitions and Takeovers Amendment (Threshold Test) Regulations 2020 (Cth) were registered.

The Foreign Investment Review Board explained that these regulations amend the monetary value thresholds which apply in determining whether particular foreign investments made on or after 10:30 pm (AEDT) Sunday, 29 March 2020 are subject to Australia’s foreign investment framework to nil.

For more information on the temporary change, see our earlier articles (in English and in Mandarin) and Issue 37.

AFCA extends response deadlines for parties to complaint matters

On 16 April, AFCA announced that it will give consumers, small businesses and financial firms extra time to respond to complaints due to COVID-19.

The extension is for nine days. Financial firms now have 30 days to respond when AFCA notifies them that a complaint has been lodged, up from 21 days.

AFCA states that the changes will be in place for up to six months, and will be reviewed and adjusted as appropriate.

New regulations facilitating early release of superannuation

On 16 April, the Treasury Laws Amendment (Release of Superannuation on Compassionate Grounds) Regulations 2020 (Cth) were registered.

The regulations allow temporary residents affected by the adverse economic effects of COVID-19 to have up to $10,000 released from their superannuation or retirement savings account on compassionate grounds, and build on the amendments introduced in Schedule 13 to the Coronavirus Economic Response Package Omnibus Act 2020 (Cth), which established such grounds of early release for Australian citizens and permanent residents.

For more information on the amendments, see our earlier article.

APRA delays commencement dates for prudential and reporting standards

On 16 April, APRA announced new commencement dates for six prudential and reporting standards that have yet to come into effect, including two cross-industry standards and four banking standards.

APRA updates FAQ on early release of superannuation scheme

On 16 April, APRA published its responses to two new frequently asked questions setting out its expectations for superannuation trustees on the release of benefits under the COVID-19 temporary early access to superannuation scheme.

The FAQ, which was first published by APRA on 1 April, is available here.

ASIC updates FAQs for superannuation trustees

On 14 and 16 April, ASIC updated its frequently asked questions (FAQ) for superannuation trustees in relation to COVID-19 to include responses about:

  • what measures ASIC is doing to allow greater access to advice through superannuation as a result of COVID-19;
  • how superannuation trustees should communicate the potential long-term impacts of the COVID-19 early release of superannuation scheme on retirement balances;
  • ASIC deferring the first reporting date for portfolio holdings disclosure from 31 December 2020; and
  • information about how applicants can apply for ASIC relief from requirements in the Corporations Act or the SIS Act, where ASIC has the relevant exemption and modification powers.

Changes to information and documentary requirements in response to COVID-19

On 15 April, the Coronavirus Economic Response Package Omnibus (Measures No. 2) Act 2020 (Cth) (Amending Act) was registered.

Schedule 5 of the Amending Act provides that a Minister responsible for an Act or legislative instrument that requires or permits certain matters relating to information and documentation may determine that different arrangements apply in response to the COVID-19.

According to the Explanatory Memorandum, this mechanism provides flexibility and certainty in light of social distancing measures and restrictions on movement and gatherings in response to COVID-19.

The mechanism, and any determination made under the mechanism, will cease to have effect after 31 December 2020.

ASIC provides update on its regulatory work and priorities in light of COVID-19

On 14 April, ASIC provided further details on changes to its regulatory work and priorities in light of the impact of COVID-19.

ASIC has deferred or is considering deferring regulatory work and commencement dates in relation to financial advice, managed funds, superannuation, credit, retail banking and payments, insurance, market infrastructure and supervision, and other areas.

More information about changes to ASIC’s regulatory work and priorities in response to COVID-19 is available here.

ACCC grants interim authorisation allowing co-ordination on life insurance

On 9 April, the ACCC granted urgent interim authorisation to the Financial Services Council and its members to allow life insurers to co-ordinate to ensure that frontline healthcare workers are not excluded from coverage due to potential or actual exposure to COVID-19.

The interim authorisation means that life insurers can implement a commitment that exposure to COVID-19 cannot be used as a reason to decline life insurance coverage to a frontline health worker, or to charge higher premiums or apply risk exclusions to any new policy. The authorisation does not include co-ordination on pricing or other terms.

The ACCC stated that it will seek feedback on the application for final authorisation, and will make available details about how to make a submission here.

ASIC publishes feedback on responses to ASIC’s LIBOR transition letter

On 8 April, ASIC published feedback from ASIC, APRA, and the RBA on responses from selected major Australian financial institutions to ASIC’s ‘Dear CEO’ letter.

On 9 May 2019, ASIC announced that it wrote to the CEOs of several major Australian financial institutions regarding their preparations for the end of the London Interbank Offered Rate (LIBOR), which is a global benchmark used by many Australian financial institutions in their contracts and business processes.

According to ASIC, the ‘Preparation for LIBOR transition “Dear CEO” letter feedback’ highlights the:

  • need for all stakeholders to plan for LIBOR transition;
  • aspects to consider in transition; and
  • importance of starting the transition early.

ASIC states that while it recognises that disruptions from COVID-19 may affect some institutions’ transition plans, they should continue under the assumption that the end of 2021 remains the target date.

APRA’s and the RBA’s media releases in relation to publication of feedback are here and here.

APRA temporary suspends the issuing of new licences

On 8 April, APRA published a letter that it wrote to applicants for new banking or insurance and superannuation licences advising that APRA is temporarily suspending the issue of new licenses for at least six months in response to the economic uncertainty created by COVID-19.

In the letter to applicants, APRA explained that it may issue new APRA licences in the rare case that the granting of a licence is necessary for APRA to carry out its mandate. APRA also stated that it will continue to assess current licence applications during this period.

ACCC grants interim authorisation to insurance companies and brokers

On 2 April, the ACCC granted urgent interim authorisation to allow Suncorp, Allianz, and QBE Insurance (as well as any other insurers or insurance brokers who notify the ACCC) to work together to implement COVID-19 relief measures.

The interim authorisations allows participants to work together to offer a range of measures including a deferral of premium payments by SME policy holders who suffer hardship due to COVID-19 for up to six months, refunds of unused premiums for any insurance policy cancelled by eligible businesses as a result of COVID-19, and credits or refunds of any unused travel insurance premium where the policy holder can no longer travel as planned due to COVID-19.

The ACCC stated that it will seek feedback on the application for final authorisation, and will make available details about how to make a submission here.


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