Financial Services in Focus – Issue 42

By Harry New, Adrian Verdnik and Vince Battaglia

Funds and financial products

ASIC makes changes to RG 97 transitional arrangements

On 22 July, the ASIC Corporations (Amendment and Repeal) Instrument 2020/579 (Amending Instrument) was registered.

According to the Explanatory Statement, the Amending Instrument makes minor amendments to the ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 and other related instruments to:

  • amend transitional arrangements in relation to the new fees and costs disclosure regime in PDSs (by delaying the commencement of the regime until 30 September 2022, and permitting issuers to opt in this year from 30 September); and
  • clarify and confirm the intended operation of the new fees and costs disclosure regime.

The Amending Instrument also repeals two unrelated instruments.

Earlier this year in May, ASIC announced its intention to amend transitional arrangements for the new fees and costs disclosure regime (for more information, see Issue 40).

ASIC issues FAQs on operating a managed investment scheme during COVID-19

On 7 July, ASIC reminded responsible entities of ASIC’s list of frequently asked questions (FAQs) on operating managed investment schemes during the COVID-19 pandemic.

According to ASIC, the FAQs cover matters including what responsible entities need to do when lodging documents, including what documents can be submitted electronically, whether electronic signatures may be used and how to submit applications for relief, and the extended deadlines for lodging financial reports.

ASIC also referred responsible entities to a recent statement about ASIC’s expectations regarding responsible entities’ compliance with their duties and obligations to members in light of the disruption caused by COVID-19. For more information, we have written about ASIC’s recent regulatory priorities insofar as they relate to responsible entities here.

Federal Court affirms broad construction of the words ‘in relation to’ in section 1041G and 1041H

On 13 July, the Federal Court of Australia handed down its decision in Australian Securities and Investments Commission v Hutchison [2020] FCA 978 (Hutchison).

In Hutchison, the Court set aside a decision by the Administrative Appeals Tribunal (AAT) to lift a permanent banning order imposed by ASIC prohibiting an authorised representative from providing any financial services. In this case, the authorised representative double-charged clients by taking advice fees directly from clients when those fees were instead payable to the authorising licensee.

On appeal, ASIC argued that the AAT erred in adopting an unduly narrow construction of the term 'in relation to a financial product or financial service' in sections 1041G and 1041H of the Corporations Act by requiring a 'direct and substantial' relationship between the relevant conduct, the financial product or service, and harm to clients.

The Court agreed with ASIC’s position and held that ‘an indirect or less than substantial connection [was] sufficient’ for both sections 1041H and 1041G.

Banks-Smith J also commented about the relationship between an authorised representative and an authorising licensee. Her Honour noted that:

‘The obligations on a licensee, given statutory force, to do all things necessary to ensure that financial services are provided honestly and efficiently highlights the need for an authorised representative to act honestly and professionally with respect to the licensee […] Therefore, depending on the circumstances, the class of person who might be misled or otherwise affected by the conduct of an authorised representative may well extend to a licensee’.

Her Honour granted the appeal and ordered the matter be remitted to the AAT for rehearing.

ASIC consults on product intervention order for continuing credit contracts

On 9 July, ASIC released a consultation paper and draft product intervention order in relation to a proposed exercise of its product intervention power on the continuing credit industry.

In ASIC Consultation Paper 330 Using the product intervention power: Continuing credit contracts, ASIC states that it considers that a class of financial products known as ‘continuing credit contracts’ under section 204 of the National Credit Code is likely to result in significant detriment to the retail clients to whom they are issued.

The proposed ASIC Corporations (Product Intervention Order–—Continuing Credit Contracts) Instrument 2020/XX imposes a cost cap on the total fees that can be charged in relation to continuing credit contracts.

Consultation closes on 6 August.

For more information on ASIC’s product intervention power, see our earlier article, which considers the new ASIC Regulatory Guide 272 Product intervention power.

Financial product advice

FASEA modifies requirements for recent CPD year due to COVID-19

On 15 July, the Corporations (Relevant Providers Continuing Professional Development Standard) Determination (Amendment) 2020 (Amendment Instrument) was registered.

According to the Explanatory Statement, the effect of the Amendment Instrument is that a relevant provider whose continuing professional development (CPD) year includes 18 March 2020 has a further three months to complete the CPD requirements for that CPD year.

FASEA stated that the relief is a one-off recognition of difficulties faced this year by advisers due to COVID-19, and that advisers will be required to complete 40 hours of CPD in twelve months in future years and may not double count hours across the years.

Financial markets

ASX publishes updated class waivers and ASX forms

On 13 July, the ASX issued Compliance Update no. 07/20. In this update, the ASX announced that:

  • it has extended the ASX’s temporary emergency capital raising measures to 30 November (see below for more information);
  • it has released updates to Appendix 4C and 5B quarterly cash flow reports, and that entities subject to quarterly cash flow reporting must use the updated Appendix 4C or 5B (as applicable) for all quarters ending on or after 30 September;
  • it has corrected an error in the fourth edition of Appendix 4G (which provides principles and recommendations about corporate governance disclosures); and
  • entities are reminded about how to contact the ASX in light of the ASX’s COVID-19 working from home procedures.

ASX extends temporary emergency capital raising relief to 30 November

On 9 July, the ASX announced that it will extend its temporary emergency capital raising measures until 30 November.

The ASX initially provided temporary emergency capital raising relief to listed entities in the form of two class waivers published on 31 March, namely, the temporary extra placement capacity class waiver and non-renounceable offers class waiver. For more information, see our earlier article. The ASX also made minor drafting changes to the class waivers on 23 April.

The ASX stated that the extension to 30 November was implemented by the publication of two replacement class waivers dated 9 July (which are available on the ASX’s website here).

The ASX also made minor changes to the class waivers, and published marked-up versions of the temporary extra placement capacity class waiver and non-renounceable offers class waiver to indicate the differences.

Anti-money laundering

AUSTRAC consults on draft AML/CTF Rules amending Chapter 46 (Special circumstances for the applicable customer identification procedure)

On 14 July, AUSTRAC released proposed amendments to Chapter 46 of the AML/CTF Rules for public consultation.

AUSTRAC states that the proposed amendments:

  • create a simpler, less prescriptive chapter;
  • include two new general conditions that must be satisfied before a reporting entity can rely on section 33; and
  • include an additional special circumstance that allows a reporting entity to carry out the applicable customer identification procedure in respect of a customer after opening an account, provided no transactions – other than an initial deposit – are conducted in relation to the account.

The consultation period closes on 12 August.


APRA publishes new FAQ response about APS 120 Securitisation

On 7 July, APRA published a new frequently asked question (FAQs) addressing ADIs repurchasing loans from securitisations in response to COVID-19 repayment deferrals.

APRA cited Prudential Standard APS 120 Securitisation, and advised ADIs to consult APRA where they have or intend to repurchase loans from a securitisation due to COVID-19 repayment deferrals (or loan restructuring either after a repayment deferral or as an alternative to a repayment deferral).

Other financial services regulation

Consumer protection monetary threshold to increase from $40,000 to $100,000

On 13 July 2020, the Treasury Laws Amendment (Acquisition as Consumer—Financial Thresholds) Regulations 2020 (Amending Regulations) was registered.

Division 2 of Part 2 of the ASIC Act contains consumer protection provisions for financial products and services. A person is taken to have acquired financial products or services as a consumer where they fall into one of three categories, including where the price of products or services falls below a maximum monetary threshold.

According to the Explanatory Statement, the Amending Regulations amend the Australian Securities and Investments Commission Regulations 2001 to increase the threshold from $40,000 to $100,000. The Amending Regulations similarly amend the Competition and Consumer Regulations 2010 for the purposes of the Australian Consumer Law.

The amendments give effect to proposal 15 of the Australian Consumer Law Review Final Report, published in 2017, and will take effect on 1 July 2021.

FIRB updates Guidance Note 53 on temporary COVID-19 measures

On 10 July, the Foreign Investment Review Board (FIRB) updated Guidance Note 53 Temporary measures in response to the coronavirus (Guidance Note 53) to provide further information regarding streamlined exemption certificates.

Earlier on 29 March, the Treasurer, Josh Frydenberg, announced that all monetary screening thresholds for the purposes of Australia’s foreign investment review framework would be temporarily reduced to $0, in light of the impact of COVID-19.

In Guidance Note 53, FIRB explains that during the period in which the temporary changes are in place, investors may apply for three new types of streamed exemption certificates.

Assistant Minister defers sunsetting dates for various legislative instruments

On 9 July, the Coronavirus Economic Response Package (Deferral of Sunsetting—Treasury Portfolio Instruments) Determination 2020 was registered.

According to the Explanatory Statement, the Determination defers the sunsetting date of the following legislative instruments until 1 April 2021 (or the day the instrument is repealed):

  • ASIC Class Order [CO 10/407] Short Term Trading Market licensing exemption;
  • ASIC Class Order [CO 10/654] Inclusion of parent entity financial statements in financial reports; and
  • Australian Securities and Investments Commission Act 2001 – Takeovers Panel – Procedural Rules (12/04/2010) (Procedural Rules).

[CO 10/407] exempts the Australian Energy Market Operator and registered shippers and users of gas from the requirement to hold an AFSL for specified financial services. The second instrument, [CO 10/654], is intended to address certain unintended consequences arising from 2010 amendments to financial reporting requirements that relate to parent entity financial statements. The third instrument, the Procedural Rules, set out the procedure and related guidance for applications made to the Takeovers Panel.

The Explanatory Statement states that the deferrals of the sunsetting date provides sufficient time to properly review and remake the sunsetting legislation, following public consultation processes.

ASIC issues no-action position in relation to AFSL financial requirements regarding accounting treatment of lease assets

On 7 July, ASIC announced that it has issued a temporary no-action position for AFS licensees with respect to breaches of their financial resource requirements that arise from changes to the accounting treatment of lease assets under AASB 16 Leases.

Under the no-action position, ASIC will take no regulatory action in relation to a breach of net tangible asset, surplus liquid funds, or adjusted surplus liquid funds requirements by an AFS licensee if the breach was caused by the AFS licensee’s inability to use a right-of-use asset to satisfy the financial resource requirement due to AASB 16.

ASIC states that the no-action position is issued on 7 July and applies until further notice.

ASIC provides information about financial reporting focus areas

On 7 July, ASIC announced that it has updated its list of frequently asked questions (FAQ) in relation to the impact of COVID-19 on financial reporting and audit matters.

In the update, ASIC provided further information about financial reporting focus areas for directors, preparers, and auditors in relation to reporting on years ending 30 June 2020. For more information, see our earlier article.

ASIC states that it will review the full-year financial reports of larger listed entities and other public interest entities as at 30 June 2020. ASIC also noted that it has extended the deadline for both listed and unlisted entities to lodge financial reports by one month for certain balance dates up to and including 7 July 2020 balance dates.

ASIC publishes article about superannuation and COVID-19

On 3 July, ASIC published an article on the role of the superannuation industry and superannuation trustees during the COVID-19 pandemic.

In the article, ASIC summarised measures taken and guidance released by ASIC in relation to the superannuation industry in light of the impact of COVID-19, including no-action positions and relief instruments.

ASIC stated that it has reviewed the websites and other COVID-19-related public communications of superannuation trustees, and observed that most presented detailed and accurate information. ASIC also noted that:

  • trustees are encouraged to avoid presenting misleading information about the impact of early release on retirement balances;
  • trustees may need to provide a member with an exit statement (and a new PDS for any subsequent contributions) where members have a zero-balance due to early release, depending on the fund’s governing rules; and
  • trustees should communicate with members about potential loss of insurance.

Consumer Data Right launches first stage of consumer data sharing

On 1 July, the ACCC announced the commencement of the first stage of consumer data sharing in the Consumer Data Right (CDR) regime.

The ACCC stated that individual customers may request the four major banks to share their data for deposit and transaction accounts and credit and debit cards. As at the time of launch, there are two accredited data recipients that may receive consumer data. The ACCC stated that a further 39 providers have begun the process to become accredited data recipients.

In a joint media release, the Prime Minister, Scott Morrison, the Treasurer, Josh Frydenberg, and the Assistant Minister for Superannuation, Financial Services and Financial Technology, Jane Hume, stated that the launch will allow consumers to share their data with other banks to make it easier to compare and switch products.

Government announces revised start dates for technical superannuation and taxation measures

On 30 June, the Assistant Treasurer and Minister for Housing, Michael Sukkar, announced revised start dates for a number of technical superannuation and taxation measures.

Among the measures are increases to the maximum number of allowable members in SMSFs and small APRA funds, and taxation changes for managed investment trusts and attribution managed investment trusts.


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