Thinking | 1 July 2020

Financial Services in Focus – Issue 41

Funds and financial products

Government registers stamping fee exemption regulations

On 29 June, the Corporations Amendment (Stamping Fee Exemption) Regulations 2020 (Amending Regulations) were registered.

According to the Explanatory Statement, the purpose of the Amending Regulations is to prohibit the payment or receipt of stamping fees paid in respect of listed investment companies or listed investment trusts. The amendments will apply to benefits given on or after 1 July.

Public consultation on draft exposures of the Amending Regulations was undertaken from 4 to 10 June (for more information, see Issue 40).

ASIC extends transitional arrangements for internal dispute resolution standards

On 26 June, the ASIC Corporations, Superannuation and Credit (Amendment) Instrument 2020/99 (Amending Instrument) was registered.

According to the Explanatory Statement, the purpose of the Amending Instrument is to preserve ASIC’s existing policy in relation to approved standards and requirements for an internal dispute resolution procedure, pending the commencement of ASIC’s new policy on 5 October 2021.

Under ASIC Corporations and Credit (Internal Dispute Resolution—Transitional) Instrument 2019/965 (Transitional Instrument), ASIC’s existing internal dispute resolution policy was intended to apply until 30 June 2020. However, due to the impact of COVID-19, the release of ASIC’s new internal dispute resolution standards and requirements was delayed.

The Amending Instrument extends the transitional period for ASIC’s existing policy by amending the Transitional Instrument, so that ASIC’s existing policy continues to apply to complaints received before 5 October 2021.

ASIC warns consumers about crypto scams

On 18 June, ASIC published a warning to consumers about crypto-asset or cryptocurrency scams (crypto scams).

According to ASIC, there was an increase in reports about crypto scams and misconduct reports during the COVID-19 pandemic. ASIC also provided an example of a typical crypto scam. On 24 June, ASIC further noted an increase in the number of investment scam reports generally.

NSW Court of Appeal notes court’s power under section 601EE(2)

On 18 June, the decision of Caron and Seidlitz v Jahani and McInerney in their capacity as liquidators of Courtenay House Pty Ltd (in liq) & Courtenay House Capital Trading Group Pty Ltd (in liq) (No 2) [2020] NSWCA 117 was handed down by the New South Wales Court of Appeal.

The relevant companies ran a Ponzi scheme that solicited investor funds purportedly to invest in foreign exchange. In 2017, ASIC successfully obtained freezing orders and injunctions against the companies. This decision arises out of a dispute between investors over the methodology used to apportion funds held in the companies’ frozen bank accounts. In brief, the appeal was upheld.

Of interest are observations made by the primary judge, Brereton J, in relation to section 601EE(2) of the Corporations Act that were noted without dispute in Bell P’s judgment on appeal.

The primary judge observed that ‘[g]enerally, the Court’s power (under Corporations Act, s 601EE(2)), to make any orders it considers appropriate for the winding up of an unregistered managed investment scheme does not authorise a distribution of surplus assets other than to those entitled to the assets in proportion to their entitlements, although that general principle yields in cases where it is not pragmatic to ascertain the proprietary rights.’

The part of the dispute relevant to section 601EE(2) was resolved and accordingly not addressed at length on appeal, however this indicates the court’s view that the power under section 601EE(2) does not extend to ordering the pooling of accounts where there is otherwise no mixing or other proper basis for pooling.

ASIC releases guidance on product intervention power

On 17 June, ASIC published a new regulatory guide on the administration of its product intervention power (PIP).

The PIP refers to ASIC’s power under the Corporations Act and the National Consumer Credit Protection Act 2009 (Cth) to make orders prohibiting specified conduct relating to certain financial products and credit products, on an industry or individual basis, where the conduct results or is likely to result in significant detriment to retail clients.

Last year, from 26 June to 7 August, ASIC consulted on a draft form of the regulatory guide in ASIC Consultation Paper 313 Product intervention power. On 17 June, ASIC also published its responses to the consultation in ASIC Report 661 Response to submissions on CP 313 Product intervention power.

ASIC Regulatory Guide 272 Product intervention power sets out:

  • the scope of ASIC’s PIP;
  • when and how ASIC may exercise the power; and
  • the process for making a product intervention order (including consultation).
ASIC reminds advertisers of their compliance obligations

On 18 June, ASIC reminded industry that it is actively monitoring the advertising of financial products and services, and will take action in response to misleading claims and predatory behaviour.

ASIC states that its new cross-sector advertising working group is monitoring a wide range of products and services across a broad range of media (including social media). The establishment of a new advertising working group was flagged in the ASIC Interim Corporate Plan 2019-20, published earlier on 11 June.

ASIC also referred firms to ASIC Regulatory Guide 234 Advertising financial products and services (including credit): Good practice guidance for guidance.

For more information in relation to ASIC’s interim corporate plan, see below.

ASIC reminds responsible entities about advertising requirements

On 15 June, ASIC put responsible entities ‘on notice’ that they must ensure their fund advertising provides clear, balanced and accurate information.

The publication of this warning is consistent with ASIC’s strategic priorities as set out in the ASIC Interim Corporate Plan 2019-20. In its interim plan, ASIC states that it will focus, among others, on ensuring funds are true-to-label by monitoring advertising and taking regulatory action if necessary.

In its warning, ASIC noted the following as examples of poor behaviour:

  • using comparisons focussing on one aspect of a fund without fairly indicating key differences and risks;
  • promoting funds as having little or no risk of capital loss even where the funds’ underlying assets are subject to risk and volatility; and
  • giving consumers the impression that funds may be withdrawn on short notice where this is not supported by the liquidity of fund assets.
ASIC publishes Interim Corporate Plan and a revised timetable of ongoing work

On 11 June, ASIC published the ASIC Interim Corporate Plan 2020-21 (Interim Corporate Plan), which sets out ASIC’s strategic priorities in light of COVID-19.

The Interim Corporate Plan sets out five priorities for ASIC, and describes specific cross-sector and sector-specific initiatives planned by ASIC in response to those priorities. ASIC’s key actions include, among others:

  • monitoring the industry for scams, false and misleading behaviour (such as in advertising or in continuous disclosure notices), and unlicensed advising;
  • monitoring and taking action to protect investors in light of risks to fund liquidity; and
  • publishing warnings, issuing guidance, taking regulatory action, and assessing the need to provide further relief in light of the disruption caused by COVID-19.

ASIC also published an updated timetable of its ongoing work. For more information in relation to fund managers and responsible entities in particular, see our earlier article.

Financial product advice

Parliament defers education standards reform for existing financial advisers

On 22 June, the Treasury Laws Amendment (2019 Measures No. 3) Act 2020 (Cth) received Royal Assent.

Among others, the legislation amends the Corporations Act to defer education and training standards for existing ‘relevant providers’ (ie financial advisers that provide personal advice to retail clients in relation to relevant financial products).

According to the Explanatory Memorandum:

  • the date by which existing relevant providers must hold an approved degree or equivalent qualification is extended from 1 January 2024 to 1 January 2026; and
  • the date by which existing relevant providers must pass an approved exam is extended from 1 January 2021 to 1 January 2022.

Financial markets

ASIC extends relief in relation to confirming derivatives market contract transactions

On 19 June, the ASIC Market Integrity Rules (Securities Markets) Class Waiver Amendment Instrument 2020/586 (Instrument 2020/586) was registered.

According to the Explanatory Statement, the purpose of Instrument 2020/586 is to extend the relief in ASIC Market Integrity Rules (Securities Markets) Class Waiver 2018/303 (Class Waiver 2018/303) until 31 January 2022.

The effect of the Class Waiver 2018/3030 is to provide relief to market participants from the obligation to provide a confirmation to a wholesale client for a market transaction in a derivatives market contract under rule 3.4.1 of the ASIC Market Integrity Rules (Securities Market) 2017.

The Explanatory Statement states that the extension is intended to provide sufficient time for ASIC and market participants to devote their resources to matters raised by the COVID-19 pandemic in the short term, as well as for ASIC to conduct further reviews and market participants to make necessary alterations should the relief not be further extended.

ASX publishes details of a new class waiver and reminders for listed entities

On 17 June, the ASX issued Compliance Update no. 06/20. In this update, the ASX announced:

  • a new ‘Extended Reporting and Lodgment Deadlines’ class waiver to give effect under the ASX Listing Rules to the relief granted by ASIC in ASIC Corporations (Extended Reporting and Lodgment Deadlines—Listed Entities) Instrument 2020/451 (for more information, see Issue 39);
  • updates to the ASX forms Appendix 3B Proposed issue of securities, Appendix 3A.1 Notification of dividend/distribution, and Appendix 3A.2 Notification of interest payment & interest rate change;
  • its support for the Australian Custodial Services Association’s call for listed entities to allow investors to use electronic payments rather than cheques; and
  • reminders to:
    • lodge quarterly activities reports at the same time as quarterly cash flow reports;
    • provide all relevant information in items 7 and 8 of quarterly cash flow reports;
    • listed entities consult with the ASX and its listing compliance advisers if they wish to amend issue dates for corporate actions or new classes of securities; and
    • listed entities declaring a dividend or distribution for the period ending 30 June 2020 to use ASX Online form announcements.
ASIC imposes six-month cessation date on COVID-19 relief

On 12 June, ASIC announced that it registered the ASIC Corporations (Amendment) Instrument 2020/565 (Instrument 2020/565).

Instrument 2020/565 amends the following legislative instruments to impose a six-month end date on the operation of COVID-19 relief measures implemented by the instruments:

The Trading Suspensions Relief Instrument and Purchase Plans Relief Instrument provides relief to allow ‘low doc’ placements, rights issues and share purchase plans where a listed company has been suspended for up to ten days in total during the previous 12 month period (rather than the ordinary five days). The relief commenced on 2 April, and will cease operating on 2 October.

The Advice-related Relief Instrument provides relief to financial advisers and registered tax agents from various obligations under Chapter 7 of the Corporations Act to facilitate the provision of advice during COVID-19. The relief commenced on 15 April, and will cease operating on 15 October. In line with this change, ASIC has updated the information available on its list of COVID-19 frequently asked questions for financial advisers and advice licensees.

According to the Explanatory Statement, ASIC will continue to monitor the appropriateness of the temporary relief measures and, if appropriate, will repeal the relief earlier or extend the relief further. ASIC will give ‘sufficient notice’ before such early repeal or extension.

For more information on the relief instruments, see Issues 37 and 38.

Anti-money laundering

AUSTRAC reminds reporting entities of FATF high risk jurisdictions

On 16 June, AUSTRAC published an update directing reporting entities to two reports released by the Financial Action Task Force (FATF):

The FATF’s ‘High-Risk Jurisdictions subject to a Call for Action’ report identifies countries or jurisdictions with serious AML/CTF deficiencies. The FATF’s ‘Jurisdictions under Increased Monitoring’ report identifies countries that are actively working with the FATF to address strategic deficiencies in their regime.

AUSTRAC states that reporting entities should use FATF statements to help guide their AML/CTF risk assessment and compliance programs and decisions about submitting suspicious matter reports to AUSTRAC.

Consumer credit

Federal Court dismisses ASICs responsible lending appeal against Westpac

On 26 June, the Federal Court of Australia handed down its decision in relation to ASIC’s appeal against the decision of Perram J regarding ASIC’s allegations against Westpac Banking Corporation (Westpac) for contraventions of responsible lending provisions of the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act).

ASIC commenced proceedings against Westpac on 1 March 2017, alleging that Westpac failed to properly assess whether borrowers could meet their repayment obligations before entering into home loan contracts.

The primary issue on appeal in Australian Securities and Investments Commission v Westpac Banking Corporation [2020] FCAFC 111 was the nature of the obligation for a credit licensee to assess unsuitability under section 128 of the NCCP Act. Gleeson and Lee JJ dismissed the appeal (Middleton J dissenting).

Among others, Gleeson J (Lee J agreeing) held that the NCCP Act ‘cannot be construed to require [the credit licensee] to consider the total figure for declared living expenses in each case for the purpose of assessing the consumer’s likely ability to meet their financial obligations’ and that the NCCP Act ‘leaves it open to the licensee to decide:

  • what inquiries it will make under s 130(1)(a) and (b), provided that those inquiries are reasonable;
  • what steps it will take to verify the consumer’s financial situation under s 130(1)(c), provided that those inquiries are reasonable; and
  • how it will use the results of its inquiries and verification to make the unsuitability assessment, provided that it in fact assesses whether the contract will be relevantly unsuitable for the particular consumer and noting that the licensee is otherwise motivated by the Act to refrain from entering into an unsuitable contract.’
ASIC publishes new regulatory guidance on mortgage brokers’ best interests duty

On 24 June, ASIC published a new regulatory guide in relation to the application of the new best interests duty for mortgage brokers, which comes into effect on 1 January 2021.

As reported earlier in Issue 40, ASIC deferred the mortgage broker best interests obligations until that date in ASIC Credit (Deferral of Mortgage Broker Obligations) Instrument 2020/487.

According to ASIC, ASIC Regulatory Guide 273 Mortgage brokers: Best interests duty sets out ASIC’s views on how mortgage brokers may comply with their best interests obligations at key stages of the credit assistance process.

ASIC also published ASIC Report 662 Response to submissions on Consultation Paper 327 Implementing the Royal Commission recommendations: Mortgage brokers and best interests duty.


ASIC approves temporary changes to Banking Code

On 25 June, ASIC announced its approval of variations to the Banking Code of Practice (Banking Code).

Subsequently on 30 June, the ASIC Corporations (Approval of Variation of March 2020 Banking Code of Practice) Instrument 2020/602 was registered. The purpose of this instrument is to give ASIC’s approval of the variation.

The variations were proposed by the Australian Banking Association (ABA) in response to the impact of COVID-19, and are effected by the insertion of a ‘Special Note’ into the Banking Code to allow for the special application of certain provisions.

According to the Explanatory Statement, the Special Note specifies that:

  • subject to certain conditions, banks will not be required to comply with the usual timing requirements specified in the Banking Code for certain customer communications; and
  • a bank’s obligations under the Banking Code when considering providing new or increased loans to a small business borrower will be informed by the effects of COVID-19.

The changes will apply from 1 July 2020 to 1 March 2021.

APRA updates FAQ for ADIs in relation to APS 112

On 17 June, APRA updated its frequently asked questions (FAQ) for ADIs, providing clarification on APRA’s expectations in relation to revaluing residential properties for the purpose of measuring regulatory capital under Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk.

Other financial services regulation

APRA writes to RSE licensees regarding COVID-19 data collection

On 24 June, APRA published a letter to registrable superannuation entity (RSE) licensees announcing a new COVID-19 Pandemic Data Collection (PDC) reporting stream. APRA will use information collected under the PDC to assess the impact of COVID-19 on the superannuation industry and member outcomes.

APRA also released a PDC reporting collection template. APRA states that the template is for reference purposes only, as the PDC will be collected via Direct to APRA.

APRA also invited feedback on the PDC.

ACCC updates commencement table of CDR mandatory data sharing obligations

On 22 June, the ACCC published an updated phasing table summarising commencement dates of mandatory data sharing obligations under the Consumer Data Right (CDR) regime.

The updated table takes into account the ACCC’s recent deferrals of certain commencement dates. For more information on these deferrals, see Issues 39 and 40.

ACCC consults on draft ‘intermediary’ amendments to CDR Rules

On 22 June, the ACCC published draft exposure amendments to the Competition and Consumer (Consumer Data Right) Rules 2020 (Cth) (CDR Rules) for consultation, as well as accompanying CDR Rules Consultation Draft rules that allow for accredited collecting third parties (‘intermediaries’) (Consultation Paper) and Consumer Data Right Regime Update 1 to Privacy Impact Assessment consultation documents.

The proposed amendments provide for ‘CAP arrangements’ (or combined accredit person arrangements).

According to the Consultation Paper, the purpose of CAP arrangements is to allow a consumer-facing accredited person to rely on another accredited person in the Consumer Data Right (CDR) ecosystem to collect CDR data and provide other services that facilitate the provision of goods and services by the consumer-facing accredited person to consumers.

Consultation closes on 20 July.

Minor amendments to CDR Rules take effect

On 18 June, the Competition and Consumer (Consumer Data Right) Amendment Rules (No. 1) 2020 (Amending Instrument) was registered.

These amendments follow consultation by the ACCC on proposed amendments to the Competition and Consumer (Consumer Data Right) Rules 2020 (Cth) (CDR Rules) earlier this year from 24 April to 8 May. For more information, see Issue 39.

According to the Explanatory Statement, the primary purpose of the Amending Instrument is to make minor amendments to the CDR Rules to clarify the intended operation of particular rules and ensure the appropriate alignment of rules with technical data standards prior to the commencement of consumer data sharing on 1 July.

The amendments commenced on 19 June.

Government announces review of business communication red tape

On 15 June, the Assistant Minister to the Prime Minister and Cabinet, Ben Morton, announced two priorities that seek to assist COVID-19 economic recovery by cutting red tape.

According to the Assistant Minister, one priority relates to a review of the Electronic Transactions Act 1999 (Cth) (ETA Act), including exemptions from the ETA Act, and a review of other legislation to reduce business costs and modernise regulatory requirements to reflect how businesses and consumers engage and communicate.

The ETA Act facilitates the use of electronic transactions and communications. Currently, the Corporations Act and various sections of the Superannuation Industry (Supervision) Act 1993 (Cth) are excluded from the ETA Act.


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