Financial Services in Focus – Issue 44

By Harry New, Vince Battaglia and Adrian Verdnik

Funds and financial products

Australian Senate Committee on Fintech and Regtech publishes interim report

On 2 September, the Select Committee on Financial Technology and Regulatory Technology (Committee) released an interim report in relation to its inquiry into the size and scope of the opportunity of Australian Regtech and Fintech businesses and the barriers to the uptake of new technologies in the financial sector (Interim Report).

The Committee’s final report is due in April 2021.

For a summary of the recommendations in the Interim Report, see our article here. We have also written about its implications for blockchain technology here.

ASIC clarifies how financial firms may deal with paid representatives

On 27 August, ASIC provided further clarification on how it expects financial firms to engage with paid representatives of consumers (including debt-management firms).

ASIC also referred to ASIC Regulatory Guide 271 Internal dispute resolution (RG 271). RG 271 contains ASIC’s regulatory guidance about new internal dispute resolution requirements that will come into effect on 5 October 2021 (for more information, see our earlier Issue 43).

ASIC publishes guidance for ‘frozen fund’ relief

On 26 August, ASIC published information about relief measures for operators of ‘frozen funds’ to facilitate withdrawals by members facing financial hardship. For more information about the relief measures, see our earlier article.

ASIC published:

In INFO 249, ASIC set out three types of relief for responsible entities to facilitate withdrawals from registered schemes that have been frozen funds:

  • hardship relief implemented under ASIC Corporations (Hardship Withdrawals Relief) Instrument 2020/778 (Instrument 2020/778), which was registered on 26 August;
  • individual hardship relief granted by ASIC on a case-by-case basis if a responsible entity cannot rely on Instrument 2020/778; and
  • individual rolling withdrawal relief granted by ASIC on a case-by-case basis to allow the responsible entity of an illiquid scheme to provide all members with periodic withdrawal opportunities with administrative ease.

ASIC publishes guidance on enhanced Fintech regulatory sandbox

On 25 August, ASIC published guidance and other material in relation to the enhanced regulatory sandbox (ERS) for innovative financial services businesses. For more information see our article here.

The ERS is implemented under the Corporations (FinTech Sandbox Australian Financial Services Licence Exemption) Regulations 2020 and the National Consumer Credit Protection (FinTech Sandbox Australian Credit Licence Exemption) Regulations 2020.

ASIC published the following guidance in relation to the ERS:

The ERS commenced on 1 September.

For more information on the regulatory framework, see our earlier article here.

ASIC makes litigation funding relief instrument and no-action position

On 21 August, the ASIC Corporations (Litigation Funding Schemes) Instrument 2020/787 (Litigation Funding Instrument) was registered.

Earlier this year, the Treasurer, Josh Frydenberg, announced reforms to require litigation funders to hold an AFSL and comply with the managed investment scheme regime under the Corporations Act. On 23 July, the Corporations Amendment (Litigation Funding) Regulations 2020 (Litigation Funding Regulations) were registered. For more information on the regulations, see our earlier Issue 43.

ASIC states that it has made the Litigation Funding Instrument to manage the transition to the new regulatory regime for litigation funding.

According to the Explanatory Statement, the Litigation Funding Instrument provides relief to the responsible entity of a registered litigation funding scheme from specified obligations arising under the Corporations Act in relation to:

  • PDSs and application forms;
  • withdrawal procedures;
  • valuation of scheme property; and
  • the register of members.

ASIC also announced that it has issued a no-action position with respect to obligations in relation to member registers of registered litigation funding schemes.

ASIC publishes update about changes to derivatives transaction reporting

On 19 August, ASIC announced in Market Integrity Update Issue 118 that it has updated its derivative transaction reporting webpage to include information about upcoming rules and exemptions changes in relation to derivatives transaction reporting rules in ASIC Derivative Transaction Rules (Reporting) 2013.

Financial product advice

AFS licensing relief extended to financial counselling agencies that service small businesses

On 14 August, the ASIC Corporations (Amendment) Instrument 2020/635 (Instrument 2020/635) was registered.

According to the Explanatory Statement, the purpose of Instrument 2020/635 is to amend ASIC Corporations (Financial Counselling Agencies) Instrument 2017/792 (Instrument 2017/792) to extend relief to financial counselling agencies, that provide financial counselling to small businesses, from the requirement to hold an AFS licence when providing advice on particular financial products.

Prior to the amendment, Instrument 2017/792 provided limited relief to financial counselling agencies that provide financial counselling predominantly for the purpose of assisting individuals who are in financial difficulty, from the requirement to hold an AFSL.

Instrument 2020/635 commenced on 15 August.

Financial markets

Relief for voluntary escrow arrangements and IPO communications registered

On 26 August, the ASIC Corporations (Amendment) Instrument 2020/721 (Instrument 2020/721) and ASIC Corporations (IPO Communications) Instrument 2020/722 (Instrument 2020/722) were registered.

According to ASIC:

  • Instrument 2020/721 facilitates voluntary escrow arrangements under an initial public offer (IPO) so that the relevant interests of an issuer, professional underwriter or lead manager arising from the escrow agreement is disregarded for the purposes of the takeover provisions, but not the substantial holding provisions, in the Corporations Act; and
  • Instrument 2020/722 facilitates non-promotional communications to security holders and employees of a company proposing to undertake an IPO prior to lodging a disclosure document with ASIC.

ASIC also published updated ASIC Regulatory Guide 5 Relevant interests and substantial holding notices and ASIC Regulatory Guide 254 Offering securities under a disclosure document.

The instruments arise out of public consultation conducted by ASIC through ASIC Consultation Paper 328 Initial public offers: Relief for voluntary escrow arrangements and pre-prospectus communications. ASIC also published ASIC Report 667 Response to submissions on CP 328 Initial public offers: Relief for voluntary escrow arrangements and pre-prospectus communications to security holders and employees.

The instruments commenced on 27 August.

Anti-money laundering

AUSTRAC publishes ML/TF resources for reporting entities

On 24 August, AUSTRAC published new resources designed to assist reporting entities to assess and manage their money laundering/terrorism financing risks. The resources are a new guidance document, AUSTRAC Insights Assessing ML/TF Risk, and written and video guidance on AUSTRAC’s website.


RBA’s Payment System Board foreshadows restarting the Review of Retail Payments Regulation

On 21 August, the RBA published the Payment System Board Update: August 2020 Meeting.

The Payment System Board noted, among other matters, that while the Review of Retail Payments Regulation (Review) remains on hold, the RBA intends to step up consultation with stakeholders with a view to formally restarting the Review in the next few months.

On 29 November 2019, the RBA released an Issues Paper setting out the scope of the review, which was intended to take place over 2020. This year on 26 March, the RBA put the Review on hold in light of the impact of COVID-19.

ASIC sets out expectations for retail lenders on COVID-19 loan deferrals

On 13 August, ASIC published guidance setting out its expectations in relation to retail lenders and the end of COVID-19-related six-month loan repayment deferrals.

According to ASIC, a significant portion of mortgage repayment deferrals offered by lenders to consumers will be expiring over the coming months. The guidance sets out ASIC’s expectations about processes that lenders should have in place to accommodate the expiry of loan deferrals. ASIC also stated that it is monitoring how lenders are assisting consumers who are experiencing financial difficulties due to COVID-19. ASIC referred lenders to earlier guidance published by ASIC in relation to retail lenders’ obligations in light of COVID-19 generally.

Later on 20 August, ASIC published an additional article in relation to its expectations.

Other financial services regulation

FIRB monetary threshold for renewals of certain leases restored

On 3 September, the Foreign Acquisitions and Takeovers Amendment (Commercial Land Lease Threshold Test) Regulations 2020 was registered. See our update here.

According to the Explanatory Statement, the purpose of the amending regulations is to amend the Foreign Acquisitions and Takeovers Regulation 2015 (Regulations) to reinstate certain monetary thresholds for leasehold interests in non-sensitive commercial land that is not vacant. The Foreign Investment Review Board (FIRB) has also updated FIRB Guidance Note 53 Temporary measures in response to the coronavirus.

Earlier this year, the monetary thresholds under the Regulations for relevant foreign investments made on or after 10.30 pm (AEDT) 29 March had been reduced to nil. For more information, see our earlier article.

ASIC releases Corporate Plan 2020-24

On 31 August, ASIC released its ASIC Corporate Plan 2020-24 (Corporate Plan).

In the Corporate Plan, ASIC states that its work to address the COVID-19 pandemic is guided by five strategic priorities, echoing the strategies set out in the ASIC Interim Corporate Plan 2020-21 (for more information, see our earlier Issue 41).

ASIC also states that its longer term focus areas include:

  • promoting confident participation in the financial system to support long term economic recovery;
  • deterring poor behaviour and misconduct through ASIC’s ‘Why not litigate?’ discipline and driving cultural change using all of ASIC’s regulatory tools;
  • improving entities’ management of key risks to prevent and mitigate harms to consumers and promote a healthy financial system and economic growth;
  • addressing consumer harm as a result of elevated debt levels and hardship, with a particular focus on predatory lending;
  • reducing poor product design and restricting mis-selling;
  • reducing misconduct by company directors and professional service providers; and
  • delivering as a conduct regulator for superannuation.

APRA releases Corporate Plan 2020/24

On 31 August, APRA released its APRA Corporate Plan 2020/24 (Corporate Plan).

APRA states in the Corporate Plan that, in light of the emergence of COVID-19 and subsequent ongoing uncertainty, the plan has been formulated to maintain a commitment to the longer term objectives set out in the APRA Corporate Plan 2019/23 while at the same time account for APRA’s response to the pandemic.

Treasury releases Corporate Plan 2020-21

On 31 August, the Treasury released its Treasury Corporate Plan 2020-21 (Corporate Plan), which covers 2020-21 to 2023-24. The Corporate Plan provides an overview of the Treasury’s operating environment, key priorities and activities, capabilities, and how the Treasury will measure performance.

APRA consults on changes to EFS reporting standards and guidance

On 25 August, APRA published a letter to ADIs and registered financial corporations regarding proposed changes to modernised Economic and Financial Statistics (EFS) reporting standards and guidance.

Consultation closes on 25 September.

Superannuation choice Bill passes both Houses

On 25 August, the Treasurer, Josh Frydenberg, and the Assistant Minister for Superannuation, Financial Services and Financial Technology, Jane Hume, announced in a joint media release that the Treasury Laws Amendment (Your Superannuation, Your Choice) Bill 2019 has been passed by the Senate.

According to the Explanatory Memorandum to the Bill, the amendments ensure that employees under new workplace determinations or enterprise agreements have an opportunity to choose the superannuation fund for their compulsory employer contributions.

On 3 September, the Treasury Laws Amendment (Your Superannuation, Your Choice) Act 2020 (Cth) received Royal Assent.

APRA publishes new FAQs on 2020 MySuper Product Heatmap

On 21 August, APRA published new frequently asked questions (FAQ) in relation to APRA’s 2020 MySuper Product Heatmap. The 2020 MySuper Product Heatmap will be released in December 2020.

ASIC warns consumers about loan scams

On 20 August, ASIC published a warning to consumers about scammers who pretend to be legitimate lenders and offer fake loans to consumers, and informed consumers about avenues to report misconduct.

ASIC publishes warning about scams to Indigenous consumers

On 18 August, in ASIC’s capacity as one of the agencies responsible for the National Indigenous Consumer Strategy, ASIC published a warning to Indigenous consumers about scams. ASIC noted that there was a 14% increase in scam reports from Indigenous consumers from 2018 to 2019.

WA Supreme Court dismisses appeal in relation to recovery against AFS licensee for actions of an authorised representative

On 5 August, the Court of Appeal of the Supreme Court of Western Australia handed down its unanimous decision in Smith v Leveraged Equities Ltd [2020] WASCA 122 (Smith).

The appeal in Smith arose out of proceedings that the appellant brought against a stockbroker, the stockbroker’s authorising AFS licensee, and a margin lender. According to the facts, the stockbroker prepared false documents to use a portion of the appellant’s shares as security on a margin lending account. After becoming aware of the forgery, the margin lender sold some of these shares.

On appeal, the appellant asserted (among other matters) that the primary judge erred in holding that the appellant could not recover from the AFS licensee pursuant to section 917E of the Corporations Act in respect of the stockbroker’s conduct.

The Court dismissed the appellant’s appeal in relation to recovery under Division 6 of Part 7.6 of the Corporations Act (which relates to the liability of financial services licensees for their representatives). In relation to section 917A(1) in particular, the Court noted that:

There are three relevant enquiries in determining whether s 917A(1)(a) is satisfied:

  1. First, there must be identification of the relevant 'conduct' of the representative.
  2. Second, there must be identification of the 'provision of a financial service' that is relied on.
  3. Third, it must be found that the conduct so identified 'relates to' the provision of the financial service.

The Court noted the appellant’s submission that the primary judge erred in holding that the ‘financial service’ in section 917A(1)(a) must be provided to the ‘third party’ or ‘client’ in section 917A(1)(b) (in other words, that the stockbroker’s conduct had to relate to the provision of financial services to the appellant in particular).

The Court found that the primary judge had not considered that the ‘third party’ or ‘client’ must necessarily be the appellant. While the Court noted that the appellant’s construction was ‘open to question’, the Court refrained from resolving this question on appeal.


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