Financial Services in Focus – Issue 43

By Harry New and Adrian Verdnik 

Funds and financial products

ASIC reminds responsible entities to undertake regular valuations of managed fund assets

On 11 August, ASIC published an article reminding responsible entities of their obligation to ensure that valuations of their managed fund assets are regular and reasonably current having regard to the nature of the assets.

ASIC notes, among other matters, that:

• during COVID-19, responsible entities may need to carry out valuations more often to ensure reliable asset values and member unit prices;
• responsible entities should ensure that valuation policies are reviewed regularly, and that valuations are carried out regularly using appropriate methods and assumptions by unbiased valuers (who are periodically rotated by the responsible entity), that estimates are sound and reasonable, and that assets should be promptly written down where the asset’s cash flows are negatively impacted by COVID-19 restrictions; and
• responsible entities should ensure that they provide their members and investors with timely, full and fair disclosure of asset values, and inform members about the processes they are implementing to support the valuations in these circumstances.

ASIC also states that it is actively monitoring the valuation practices of responsible entities during this period of market disruption, and referred responsible entities to their FAQ for financial reporting and audit matters and further regulatory guidance.

ASIC further consults on car yard intermediary product intervention order

On 5 August, ASIC published a draft product intervention order in relation to the sale of add-on motor vehicle insurance and warranty products for consultation.

According to ASIC, this draft ASIC Corporations (Product Intervention – Add-on Motor Vehicle Financial Risk Products) Instrument 2020 takes into account feedback from ASIC’s earlier consultation in ASIC Consultation Paper 324 Product intervention: The sale of add-on financial products through caryard intermediaries (CP 324).

ASIC also published a summary of changes to the draft product intervention order based on CP 324 and specific feedback questions, and a marked-up copy of the draft product intervention order to indicate the changes made since CP 324.

Consultation closes on 19 August.

ASIC amends fees and costs disclosure regime

On 24 July, ASIC announced that it has made amendments to the fees and costs disclosure regime for issuers of superannuation and managed investment products, and published an updated ASIC Regulatory Guide 97 Disclosing fees and costs in PDSs and periodic statements.

According to ASIC, the key changes relate to:

• transitional arrangements for the new PDS fees and costs disclosure regime, to extend the commencement date of the regime to 30 September 2022 and to permit issuers to opt into the new regime from 30 September 2020;
• disclosure of performance fees, the identification and treatment of derivative costs, and significant event notice requirements under the new fees and costs disclosure regime; and
• disclosure of buy/sell spreads in periodic statements for collective investment products under the transitional fees and costs disclosure regime.

Earlier on 22 July, the ASIC Corporations (Amendment and Repeal) Instrument 2020/579 was registered. For more information, see our earlier Issue 42.

New litigation funding regulations registered

On 23 July, the Corporations Amendment (Litigation Funding) Regulations 2020 (Litigation Funding Regulations) were registered.

According to the Explanatory Statement, the purpose of the Litigation Funding Regulations is to give effect to the Government’s announcement earlier on 22 May that litigation funders would be required to hold an AFSL and comply with the managed investment scheme regime. For more information on the announcement, see our earlier Issue 40.

The Explanatory Statement states that the changes implemented by the Litigation Funding Regulations apply to schemes or arrangements entered into on or after 22 August.

On 6 August, ASIC published an article referring to ASIC’s new online resource page for litigation funders in relation to their incoming regulatory obligations. ASIC also published a presentation from its roundtable on litigation funding for the industry, which includes a summary of potential relief being considered by ASIC to deal with immediate practical issues of the new regime.

Federal Court finds multiple entities to be ‘operating’ a managed investment scheme

On 22 July, the Federal Court of Australia handed down its decision in Australian Securities and Investments Commission v MyWealth Manager Financial Services Pty Ltd (No 3) [2020] FCA 1035 (MyWealth).

In MyWealth, the Court found that the defendants had unlawfully operated an unregistered managed investment scheme, and made orders to wind up the scheme. According to ASIC, the scheme raised approximately $7 million from investors.

In relation to section 601ED(5), Derrington J held that:

‘However, the section does not only apply to people who, by themselves, perform all of the activities which constitute the carrying out of the scheme. A person will operate a managed investment scheme it [sic] they perform an act or some of the acts which constitute its carrying on, so long as the act or acts are directed to that end. In this case, the scheme was carried on by the defendants acting together, even though each had different, albeit sometimes overlapping, roles to perform.‘

Ultimately, His Honour found that two companies and three individuals were each persons who could be considered to have operated the scheme in contravention of section 601ED(5) of the Corporations Act.

Financial markets

ASX issues updates in relation to COVID-19 relief and ASX procedural matters

On 7 August, the ASX issued Compliance Update No. 08/20. In this update, the ASX:

• provided further guidance in relation to the ‘Extended Reporting and Lodgment Deadlines‘ class waiver;
• provided guidance in relation to listed entities’ decisions to not pay or to cancel a dividend or distribution;
• reminded listed entities to allow sufficient time when submitting their draft notices of meetings for ASX to review, including those relying on ASIC’s ‘no-action’ position in relation to AGM requirements (for more information on the ‘no-action’ position, see our earlier Issue 39);
• provided clarifications to the updated ASX form Appendix 3A.1 Notification of dividend/distribution, and reminded listed entities declaring a dividend or distribution for the period ending 30 September 2020 to use ASX Online forms and the due date for the announcement; and
• noted various other matters including ASIC’s recent change to the way applications for relief and various fundraising and corporate finance documents are to be submitted to ASIC, payment due dates for FY2021 ASX annual listing fees, and materials recently published by the ASX in relation to the CHESS replacement.

ASX announces end of consultation period on the CHESS replacement implementation schedule

On 5 August, the ASX announced that the four week consultation period on a proposed new implementation schedule for the replacement of the CHESS system concluded on 28 July. It states that it will publish its response and a summary of the feedback once all submissions have been reviewed.

The ASX also referred listed entities to further information about the ASX’s CHESS replacement project on its website.

Consumer credit

ASIC consults on remaking credit-related class orders

On 29 July, ASIC released the ASIC Consultation Paper 331 Remaking ASIC class orders on unlicensed carried over instrument lenders: [CO 10/381] and clarifying credit disclosure obligations: [CO 10/1230] (CP 331).

CP 331 proposes to remake the following two class orders:

• Class Order [CO 10/381] Notice lodgement requirements for certain persons who are credit providers or lessors in relation to a carried over instrument, which sunsets on 1 October 2020; and
• Class Order [CO 10/1230] Clarification of credit disclosure obligations – including commencement, which sunsets on 1 April 2021.

According to ASIC, both class orders are intended to fix minor technical defects under the National Consumer Credit Protection Act 2009 (Cth) and the National Consumer Credit Protection Regulations 2009 (Cth).

Consultation closes on 20 August.

Banking

APRA publishes new banking FAQ on commercial property valuations

On 24 July, APRA published a new frequently asked question (FAQ) in relation to commercial property valuations for ADIs. The FAQ sets out APRA’s expectations for the revaluation of commercial property securities, and is included in APRA’s COVID-19 FAQ for ADIs.

Other financial services regulation

APRA recommences the issue of new licences and pursuit of selected policy reforms

On 10 August, APRA announced that it will recommence public consultations on select policy reforms and begin a phased resumption of the issuing of new licenses.

Earlier on 8 April, APRA announced that it will temporarily suspend the issue of new licences (for more information, see our earlier Issue 38). In March, APRA announced that it will suspend the majority of its planned policy and supervision initiatives in response to COVID-19 (see our earlier Issue 37).

ASIC states that it will recommence a small number of high-priority prudential policy reforms and restart consultation on a limited number of its data collections.

APRA also states that it will recommence assessing and issuing new banking, insurance and superannuation licences in two phases, with phase one starting in September 2020 and phase two starting in March 2021.

Exposure draft legislation for foreign investment framework reforms released

On 31 July, the Treasurer, Josh Frydenberg, announced that the Government has released for public consultation exposure draft legislation to implement reforms to Australia’s foreign investment framework under the Foreign Acquisitions and Takeovers Act 1975 (Cth).

In addition to the exposure draft legislation, the Treasury also released an implementation roadmap for the reforms in Information Note Major reforms to the Foreign Investment Review Framework.

According to the implementation roadmap, the exposure draft amendments released on 31 July are the Foreign Investment Reform (Protecting Australia’s National Security) Bill 2020 and the first part of draft amendments to the Foreign Acquisitions and Takeovers Regulation 2015. The second part will be released separately in September.

Consultation on the first tranche of exposure draft legislation closes on 31 August.

For more information on the proposed reforms as set out in the Treasury’s proposal paper, see our earlier article here.

ASIC publishes regulatory guidance on complaints handling

On 30 July, the ASIC Corporations, Credit and Superannuation (Internal Dispute Resolution) Instrument 2020/98 (Instrument 2020/98) was registered. On that day, ASIC also released a new ASIC Regulatory Guide 271 Internal dispute resolution (RG 271).

ASIC states that these update requirements for how financial firms deal with consumer and small business complains under their internal dispute resolution (IDR) procedures. The new IDR procedures under Instrument 2020/98 and RG 271 come into effect on 5 October 2021.

Earlier, on 26 June 2020, the ASIC Corporations, Superannuation and Credit (Amendment) Instrument 2020/99 was registered, which extends the transitional period for ASIC’s existing policy in relation to internal dispute resolution until the new IDR requirements come into effect.

ASIC also released ASIC Report 665 Response to submissions on CP 311 Internal dispute resolution: Update to RG 165.

New electronic transactions regulations registered

On 29 July, the Electronic Transactions Regulations 2020 (Regulations) were registered. The Regulations are made under the Electronic Transactions Act 1999 (Cth), which facilitates the use of electronic transactions and communications. The Regulations provide for exemptions from that Act.

According to the Explanatory Statement, the purpose of the Regulations is to remake the Electronic Transactions Regulations 2000, which will sunset on 1 October 2020. The Explanatory Statement also states the Regulations contain existing exemptions that have been maintained with no change, reduced in scope, or amended to reflect changes to agency legislation, and new exemptions requested by government agencies to account for legislative requirements.

Among other changes, compared to the Electronic Transactions Regulations 2000, the Regulations:

• do not include the provisions contained in Part 3 of the Electronic Transactions Regulations 2020 in relation to the National Consumer Credit Protection Act 2009 (Cth);
• exempt sections 13B(1), 14A(2), 16AK(1), 16B(1), 61A, and 62E of the Banking Act 1959 (Cth);
• do not exempt section 8, 57(1)(a) and (b), 59(2)(a), and 61(1)(a) of Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth); and
• exempt sections 35B, 68AAA(2), 68AAB(2) and 68AAC(2) of the Superannuation Industry (Supervision) Act 1993 (Cth).

APRA reminds RSE licensees to complete their Business Performance Review and outcomes assessment

On 23 July, APRA published a letter it wrote to RSE licensees in relation to two legislative obligations.

In the letter, APRA reminded RSE licensees that they are required to:

• complete a Business Performance Review in accordance with Prudential Standard SPS 515 Strategic Planning and Member Outcomes by 31 December 2020;
• complete an annual outcomes assessment in accordance with section 52(9) of the Superannuation Industry (Supervision) Act 1993 (Cth) by the end of February 2021, with the results published within 28 days.