Financial Services in Focus – Issue 39

By Harry New, Adrian Verdnik and Vince Battaglia

Funds and financial products

ASIC announces final tranche of remediation programs for poorly designed CCI

On 13 May, ASIC announced the final tranche in over $160 million in remediation for consumers who were sold junk consumer credit insurance (CCI).  The remediation program follows ASIC Report 622 Consumer credit insurance: Poor value products and harmful sales practices, which found that the design and sale of CCI had consistently failed consumers.

ASIC explains that remediation is being paid where CCI policies were sold to consumers who were ineligible to claim under the policy or unlikely to benefit from cover, or where consumers received no or very little value from the product.  Remediation was also paid where lenders used pressure selling or other unfair sales tactics, and where lenders incorrectly charged or declined claims or otherwise had inadequate consumer-focused processes.

The remediation program arises out of ASIC’s review of the design and sale of CCI, which commenced in December 2017.  ASIC also announced that it will commence a public review of ASIC Regulatory Guide 256 Client review and remediation conducted by advice licensees.

In its media release, ASIC also states that under the new design and distribution obligations, financial services providers will be required to design and sell products that are fit for purpose and better meet consumer needs.

ASIC defers commencement of design and distribution obligations

On 8 May, ASIC announced that it will defer the commencement date of the design and distribution obligations (DDO) for six months from their original commencement dates.

The commencement of the DDO will be deferred until 5 October 2021.  The DDO regime imposes significant changes in relation to the design, distribution, and ongoing monitoring of retail financial products on product issuers and distributors.

ASIC stated that it will work towards releasing the final guidance on these reforms in mid-2020.  For more information on ASIC’s draft regulatory guidance on DDO, see our earlier article here.

Government announces six-month deferral of Royal Commission reforms

On 8 May, the Treasurer, Josh Frydenberg, announced that Government will defer the implementation of a number of legislative reforms arising out of the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission).

According to the Treasurer's media release:

  • measures that the Government indicated would be introduced into the Parliament by 30 June 2020, will now be introduced by December 2020;
  • measures originally scheduled for introduction by December 2020 will now be introduced by 30 June 2021; and
  • commencement dates contained in Royal Commission related exposure draft legislation issued prior to COVID-19 will be extended by an additional six months.

This announcement would cover the package of draft exposure legislation released by Treasury on 31 January.  These draft exposure bills included (among others) proposals to strengthen breach reporting requirements and impose restrictions on RSE licensees holding multiple roles or offices.

ASIC issues warning to consumers about investment advertising

On 7 May, ASIC issued a warning to consumers about investment advertising that compares fixed-term investment products to bank term deposits, following a surge in the marketing of such fixed-term investment products in recent months.

ASIC stated that it is monitoring such advertising and the entities involved because of reports about fixed-income products being advertised as term deposit ‘alternatives’ or ‘substitutes’, and consumers investing significant sums as a result.

ASIC added that it is considering potential regulatory action where appropriate.

Temporary changes to facilitate issuing debit cards in response to COVID-19

On 24 April, the ASIC Corporations (COVID-19 – Distribution of Debit Cards) Instrument 2020/401 was registered.

According to the Explanatory Statement, the purpose of the instrument is to facilitate ADIs providing their existing customer bases with debit cards, as lockdown restrictions in response to COVID-19 may affect customers who rely on cash to purchase goods and services.

The instrument provides for exemptions and modifications to the hawking and product disclosure requirements in the Corporations Act in relation to issuing basic deposit products, linked non-cash payment facilities and debit cards.

The instrument will cease to apply on 30 September.

Financial markets

ASIC outlines expectations in relation to equity market participants

On 14 May, ASIC published a letter outlining its expectations for all market participants to act appropriately to ensure Australia’s equity markets remain resilient.

In the letter directed to equity markets participants, ASIC requested all equity market participants to take reasonable steps to ensure the number of trades matched from their orders are capable of being handled by their systems, and support the fair and orderly operation of Australian equity markets.

ASIC also stated that it has revoked directions that it issued earlier in March to nine large equity markets participants to limit the number of trades executed each day, due to their actions to enhance their capacity and a stabilisation in overall trading activity.

ASIC issues reminder to directors trading during COVID-19

On 7 May, ASIC issued guidance setting out important considerations for directors, including directors of a responsible entity of a listed managed investment scheme, and other ‘insiders’ (eg other company officers and key management personnel) regarding the acquisition and disposal of securities and other financial products issued by their listed entity.

ASIC warned that directors and other insiders should:

  • consider their listed entities’ trading policy;
  • consider whether they possess information that may give rise to perceptions that could adversely impact their, or their listed entity’s, standing and reputation, or information that may otherwise mean that trading is prohibited, taking the current uncertain and volatile market conditions into account;
  • ensure that directors’ interests, and their trading in those interests, are disclosed to the market as required under the ASX Listing Rules and the Corporations Act; and
  • consider conflicts and disclosure obligations arising from using securities or other financial products related to their listed entity to finance other investments via margin loans and similar arrangements.

ASIC publishes paper on retail investor trading during COVID-19 volatility

On 6 May, ASIC published a paper outlining some of its early observations on retail trading activity in securities markets during the volatility caused by COVID-19.

According to ASIC, there was a substantial increase in retail activity across the securities market.  ASIC found that some retail investors engaging in short term trading strategies are unsuccessfully attempting to time price trends.

ASIC stated that it is concerned about the significant increase in retail investors’ trading in complex, often high-risk products, including highly-geared exchange traded products and contracts for difference.

ASX issues updates in relation to its supervision of COVID-19 capital raising

On 1 May, the ASX issued Compliance Update no. 05/20.  In this update, the ASX announced:

  • changes to the payment of FY21 annual listing fees for FY21;
  • that minor drafting changes were made to the ASX’s temporary emergency capital raising relief (the class waivers are available here);
  • that a listed entity must notify the ASX as early as possible where it intends to rely on the class waivers and explain the circumstances in which it does so, in particular where the capital raising appears to be neither COVID-19 related nor urgently needed;
  • that listed entities should note ASX Listing Rule 6.1 and consult with the ASX as early as possible so the ASX can consider whether the terms of issue of certain securities meet the requirements of Listing Rules 6.1, and should make sufficient disclosure in any announcements or notices of meeting where the terms applicable to equity securities are especially favourable to the holder; and
  • listed entities are reminded of how to contact the ASX.

This follows the ASX’s Compliance Update no. 04/20 on 22 April, where the ASX announced that it has amended the temporary emergency capital raising relief class waivers (including enhancing market disclosure requirements under the temporary extra placement capacity class waiver).

In Compliance Update no. 04/20, the ASX also:

  • provided further information in relation to the ASX’s announcement on 31 March that it will allow entities to request back-to-back trading halts;
  • requested listed entities contemplating the cancellation of a dividend/distribution to announce that at the earliest opportunity and, if at all possible, before its securities commence trading ex-dividend/distribution;
  • requested that, if an entity is considering announcing a change to an upcoming dividend or to its dividend policy, it provide clear advice on any change in the nature of the dividend from ordinary to special or otherwise, in addition to other details such as dates and amount; and
  • advised that it has decided to defer the introduction of education requirements for persons responsible for communicating with ASX in relation to listing rule matters.

For more information on ASX regulatory relief, see our article here.

ASIC announces support the ASX’s temporary emergency capital raising relief

On 23 April, ASIC stated that it supports the enhanced disclosure requirements for placement allocations and share purchase plans that are being conducted by companies using the ASX’s temporary emergency capital raising waiver as amended on 22 April.

ASIC also states that it will be:

  • reviewing the allocation spreadsheets that issuers are required to give to the ASX and ASIC in relation to capital raisings completed in reliance on the temporary extra placement capacity class waiver; and
  • monitoring the disclosures made by companies about placements, rights offers, and share purchase plans to ensure they are accurate, sufficiently detailed, and provide meaningful, rather than ‘boiler plate’ disclosure.

ASIC also encourages companies to make enhanced disclosures even for placements and share purchase plans that do not need to rely on the class waiver.

Anti-money laundering

Amendment to AML/CTF Rules to facilitate KYC during COVID-19 pandemic

On 7 May, the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2020 (No. 2) (Amendment Instrument) was registered.

According to the Explanatory Statement, the Amendment Instrument amends Part 4.15 of the Anti-Money and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (AML/CTF Rules) to provide greater legal certainty for reporting entities who rely on alternative identity proofing processes to establish the identity of their customer where that customer possesses, but cannot produce or provide, the necessary information or evidence of identity due to COVID-19 measures.

The amended AML/CTF Rules provide that reporting entities can use alternative identity proofing processes to establish a customer’s identity if the customer has the necessary information or evidence of identity, but cannot provide them due to COVID-19 measures.  Furthermore, where a reporting entity is unable to verify information based on the original, or a certified copy or certified extract, of a document due to COVID-19 measures, the reporting entity may rely on a copy of the document.

AUSTRAC publishes guidance on new AML/CTF Rule to support early release of superannuation

On 17 April, AUSTRAC published guidance in relation to the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2020 (No. 1) (Amendment Instrument), which was registered on 15 April.

According to AUSTRAC, the Amendment Instrument was introduced to help to streamline the customer verification process for superannuation funds to make payments to their members under the COVID-19 early release of superannuation initiative.  Where the ATO has approved the payment, superannuation funds will not have to carry out their customer identification procedure before making the payments to their members.

In the guidance, AUSTRAC also reminded superannuation funds that their other obligations under the AML/CTF Act still apply, including ongoing customer due diligence and suspicious matter reporting.

For more information about the early release of superannuation initiative, see our earlier article here.

FATF publishes paper on money laundering and terrorist financing responses during COVID-19

On 4 May, the Financial Action Task Force (FATF) published a paper identifying challenges, good practices and policy responses to new money laundering and terrorist financing threats and vulnerabilities arising from the COVID-19 crisis.

According to the authors, the COVID-19-related Money Laundering and Terrorist Financing: Risks and Policy Responses paper covers three broad topics:

  • new threats and vulnerabilities stemming from COVID-19-related crime and impacts on money laundering and terrorism financing risks;
  • the current impact of COVID-19 on anti-money laundering and counter-terrorist financing efforts by governments and the private sector; and
  • suggested policy responses.

Consumer credit

ASIC defers commencement of mortgage broker reforms

On 8 May, ASIC announced that it will defer the commencement date of the mortgage broker best interest duty and remuneration reforms for six months from their original commencement dates.

The mortgage broker reforms will be deferred until 1 January 2021.  These are new obligations requiring mortgage brokers to act in the best interests of consumers.

ASIC stated that it will work towards releasing the guidance on these reforms in mid-2020.

ASIC reminds retail lenders about their obligations during COVID-19

On 29 April, ASIC issued a reminder to lenders of their obligations under the National Consumer Credit Protection Act 2009 (Cth) and its application to lenders’ dealings with consumers who are experiencing financial difficulties due to COVID-19.

In the reminder, ASIC also raised five points in relation to communication and flexible solutions that lenders should consider in order to respond fairly to consumer financial difficulties.

ACCC releases Home Loan Price Inquiry interim report

On 27 April, the ACCC published the interim report to the ACCC’s Inquiry into the market for the supply of home loans.

The ACCC stated that the interim report shows that recovering profits was central to decisions by the big four banks to not always fully pass through the RBA’s rate cuts to mortgage customers.  The report also found that home loan pricing practices continue to make it difficult for consumers to compare different mortgage products.

The final report will consider impediments to consumers refinancing to alternative home loan suppliers.  The Treasurer, Josh Frydenberg, and the Minister for Housing and Assistant Treasurer, Michael Sukkar, jointly announced that the timeframe for the Inquiry’s final report will be extended until 30 November in light of COVID-19.


APRA publishes FAQ for ADIs on its expectations during COVID-19

On 7 May, APRA published a list of frequently asked questions (FAQ) for ADIs in relation to its expectations during the period of disruption driven by COVID-19, and updated this on 18 May.

The FAQ currently addresses:

  • loan repayment deferrals;
  • residential mortgage lending; and
  • market risk capital requirements.

AFCA Scheme Rules amendments to support Coronavirus SME Guarantee Scheme

On 24 April, the AFCA Scheme Authorisation (Additional Condition) Amendment 2020 (Additional Conditions) was registered.

Subsequently on 7 May, the ASIC Corporations (AFCA Regulatory Requirement) Instrument 2020/0433 (Instrument) was registered.

According to the Treasury, the Additional Conditions will limit AFCA’s ability to consider decisions made by the lender about whether to provide a loan (and the amount of the loan) under the Coronavirus SME Guarantee Scheme, and ensure that when making assessments or determinations about a complaint, AFCA gives consideration to the impact of the coronavirus on the economy and the intent and requirements of the scheme.

The Instrument requires AFCA to amend the AFCA Scheme Rules according to the Additional Conditions without undergoing the usual consultation process by 13 May.

The Coronavirus SME Guarantee Scheme was introduced to facilitate access by small and medium enterprises to working capital in light of COVID-19.  We reported on this in Issue 37.

ASIC responds to ABA request for guidance on COVID-19 regulatory issues

On 9 April, the Australian Banking Association (ABA) wrote to ASIC, seeking written guidance on various regulatory issues arising out of the implementation by ABA member banks of measures to support small businesses and individuals during COVID-19.

On 24 April, ASIC wrote to the ABA in response.  In its letter, ASIC addressed:

  • the application of responsible lending obligations under the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act) to banks during COVID-19;
  • the application of general obligations (including the obligation to act efficiently, honestly and fairly) under NCCP Act, including in relation to disrupted property settlements; and
  • the ABA’s request for ASIC to provide exemptions from or modify a number of provisions in the National Credit Code in relation to making contract changes, as well as exemptions from substantive requirements under the Code.

Other financial services regulation

New instrument relating to in-house asset rules for intermediary limited recourse borrowing arrangements

On 19 May, the Superannuation Industry (Supervision) In-house Asset Determination — Intermediary Limited Recourse Borrowing Arrangement Determination 2020 was registered.

According to the Explanatory Statement, the purpose of this instrument is to exclude an investment by an SMSF in a related trust from being an in-house asset of a fund under section 71(1)(f) of the Superannuation Industry (Supervision) Act 1993 (Cth) in circumstances where the investment in the related trust is in connection with an intermediary limited recourse borrowing arrangement (Intermediary LRBA) that complies with section 67A of that Act.

FIRB publishes new Guidance Note on COVID-19 changes

On 24 April, FIRB published a new Guidance Note addressing the effects of temporary changes to the foreign investment regime that were announced on 29 March.

The newly issued Guidance Note 53 Temporary measures in response to the coronavirus replaces the Q&A – Temporary changes to foreign investment framework previously provided by FIRB.

For more information on the temporary change, see our earlier articles on this topic in English and in Mandarin.  We have also written about the FIRB clearance changes specifically in relation to commercial leases here.

ASIC extends financial reporting deadlines for listed and unlisted entities

On 20 May, ASIC Corporations (Extended Reporting and Lodgment Deadlines—Listed Entities) Instrument 2020/451 and ASIC Corporations (Amendment) Instrument 2020/452 were registered.  According to the Explanatory Statement, the purpose of the instruments is to assist listed and unlisted entities affected by the impacts of COVID-19 by enabling them more time to report and have audits.  This includes public companies, proprietary companies, registered schemes, disclosing entities and financial services licensees.

On 13 May, ASIC announced that it will extend the deadline for both listed and unlisted entities to lodge financial reports under Chapters 2M and 7 of the Corporations Act by one month for certain balance dates up to and including 7 July 2020 balance dates.  ASIC states that listed entities will be required to inform the market when they rely on the extended period for lodgement.

New instrument to provide additional time for unlisted entity reporting

On 24 April, the ASIC Corporations (Extended Reporting and Lodgment Deadlines – Unlisted Entities) Instrument 2020/395 was registered.

The purpose of this instrument is to support unlisted entities (including AFS licensees) affected by COVID-19 by providing them more time to report and have audits.  The instrument commenced on 25 April.

According to the Explanatory Statement, the instrument extends the deadline for lodging profit and loss and balance sheets (and other associated information):

  • for AFS licensees that are not bodies corporate from 2 months to 3 months;
  • for unlisted AFS licensees that are body corporates and also disclosing entities from 3 months to 4 months; and
  • for all other body corporate licensees that are not listed from 4 months to 5 months.

The Explanatory Statement states that the extended deadlines only apply where the normal reporting period deadline has not already passed.

This follows ASIC’s announcement on 9 April that it will register such an instrument, which we reported on in Issue 38.

The ASIC Corporations (Amendment) Instrument 2020/396 was also registered on 24 April.  According to the Explanatory Statement above, this instrument amends ASIC Corporations (Exempt Proprietary Companies) Instrument 2015/840 so that, where a grandfathered proprietary company uses the extended deadline relief, it will continue to retain its grandfathered status.

ASIC amends ‘no action’ position on holding of AGMs

On 13 May, ASIC announced that it has adopted a ‘no action’ position where public companies do not hold their Annual General Meetings (AGM) within five months after the end of financial years that end from 31 December 2019 to 7 July 2020, but do so up to seven months after year end.

ASIC state that, for public companies with 1 June 2020 to 7 July 2020 year ends, the ‘no action’ position also applies where holding an AGM in January or February 2021 results in a failure to meet the requirement to hold an AGM in the 2020 calendar year.

This follows ASIC’s ‘no action’ position announced earlier on 20 March, where ASIC stated that it will not take action where public companies hold their AGMs for 31 December 2019 year ends by the end of July 2020.

ACCC releases CDR Compliance and Enforcement Policy

On 8 May, the ACCC and the Office of the Australian Information Commissioner (OAIC) jointly released the Compliance and Enforcement Policy for the Consumer Data Right.

According to the ACCC, the Policy outlines the approach that the ACCC and the OAIC have adopted to encourage compliance with, and address breaches of, the Consumer Data Right regulatory framework.

The OAIC’s media release in relation to the release of the policy can be found here.

Temporary changes to meetings and execution requirements under the Corporations Act

On 5 May, the Treasurer, Josh Frydenberg, announced changes made by the Government to meeting procedure and document execution in light of the disruption caused by COVID-19.

These changes are made under the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (Determination), which was registered on 5 May.

The Determination enables:

  • companies and other entities (eg responsible entities of managed investment schemes) that are required to or wish to hold a meeting, such as an annual general meeting, may do so using technology rather than face-to-face meetings; and
  • alters the operation of section 127 of the Corporations Act to give certainty that when company officers sign a document electronically (including an electronic document), the document has been validly executed.

The Determination takes effect for six months from 6 May.  It was made under the Treasurer’s new power to temporarily exempt or modify the operation of specified provisions of the Corporations Act or Corporations Regulations due to COVID-19 (for more information about this power, see our earlier Issue 37).

On 6 May, ASIC issued guidelines setting out its view on the most appropriate approach to conducting hybrid and virtual meetings for public company annual general meetings and any other meeting of company or scheme members.  ASIC stated that it has commenced a program of observation of hybrid and virtual meetings held during the COVID-19 restrictions.

We wrote about changes made by the Determination to execution rules here.  For more information about the Determination and virtual general meetings, see our article here.

Revisions to criteria for early access to superannuation by temporary residents

On 30 April, the Treasury Laws Amendment (Release of Superannuation on Compassionate Grounds) Regulations (No. 2) 2020 was registered.  The regulations amend the Retirement Savings Account Regulations 1997 and Superannuation Industry (Supervision) Regulations 1994.

According to the Explanatory Statement, the purpose of these regulations is to revise the criteria for holders of a Subclass 457 (Temporary Work (Skilled)) or Subclass 482 (Temporary Skill Shortage) visa to apply to the Commissioner of Taxation for release of their superannuation on compassionate grounds.  The revised criteria is expected to broaden access to the early release of superannuation provisions for these visa holders.

The Retirement Savings Account Regulations 1997 and Superannuation Industry (Supervision) Regulations 1994 were initially amended by the Treasury Laws Amendment (Release of Superannuation on Compassionate Grounds) Regulations 2020 (Cth), which enabled temporary residents to apply for early release of funds from their superannuation or retirement savings account.  We reported on this in Issue 38.

ASIC writes letters to general and life insurers in relation to COVID-19

On 27 April, ASIC announced that it had written to the directors of general insurance companies and life insurance companies about ASIC’s expectations towards their response to COVID-19.

ASIC explained that it expects insurers to:

  • handle insurance claims with utmost good faith and to deal with complaints genuinely, promptly, fairly, and consistently;
  • be flexible in dealing with consumers’ specific circumstances (for example, by providing premium ‘holidays’, deferrals, or reductions); and
  • communicate proactively, clearly and accurately with consumers about their insurance cover.

ASIC’s letters to general insurers and life insurers can be found here and here respectively.

ACCC grants three month exemption to non-major ADIs from CDR obligations

On 23 April, the ACCC granted exemptions under section 56D of the Competition and Consumer Act 2010 (Cth) to non-major ADIs, delaying the commencement date of their obligations to comply with product data requests from 1 July 2020 to 1 October 2020.

Under the terms of the exemption, data holders specified in Appendix A are exempted from rule 2.4(3) of the Competition and Consumer (Consumer Data Right) Rules 2020 until 1 October 2020.  Rule 2.4(3) requires a data holder to disclose required product data through its product data request service in accordance with the data standards, in response to a product data request.

On 24 April, the ACCC explained that it is granting these exemptions as an acknowledgment of the disruption caused by COVID-19.

Further consultation on CDR Rules

On 24 April, the ACCC published a revised draft of the Competition and Consumer (Consumer Data Right) Rules 2020 for consultation, along with an explanatory note to the draft rules.

According to the ACCC, the proposed amendments include:

  • clarifications on the types of accounts in scope for sharing consumer banking data;
  • new rules on the function of the Accreditation Register and Registrar; and
  • rules relating to the use of the Consumer Data Right logo.

ASIC stated that the proposed amendments will come into effect from July 2020.

Consultation closed on 8 May.


Changes to provide permanent tax relief for superannuation fund mergers

On 14 May, the Treasury Laws Amendment (2020 Measures No. 1) Bill 2020 (Bill) was passed by Parliament.

According to the Explanatory Memorandum, among others, this Bill makes amendments to the Income Tax Assessment Act 1997 (Cth), Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Act 2012 (Cth), and Tax Laws Amendment (2009 Measures No. 6) Act 2010 (Cth) to make permanent tax relief for merging superannuation funds.

This tax relief was due to expire on 1 July 2020, and contains arrangements for loss relief and asset rollover that provide relief from CGT liabilities to superannuation funds in the event of fund mergers and transfer events.



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