Financial Services in Focus – Issue 50

By Harry New and Adrian Verdnik 

In this edition, we consider the much-anticipated High Court decision in Westpac v ASIC on personal versus general financial product advice and the introduction of the ‘Your Future, Your Super’ bill and proposed amendments to continuous disclosure rules into Parliament.

Click on each heading below to read more about each of these areas: funds and financial products, financial product advice, financial markets, consumer credit and other financial services regulation. 

Funds and financial products

ASIC reduces term of litigation funding relief instrument

On 19 February, the ASIC Corporations (Amendment) Instrument 2021/116 (Instrument 2021/116) was registered.

According to the Explanatory Statement, the purpose of Instrument 2021/116 is to amend the ASIC Corporations (Litigation Funding Schemes) Instrument 2020/787 (Litigation Funding Instrument) such that the Litigation Funding Instrument will sunset on 22 August 2025 (instead of 1 October 2030).

The Litigation Funding Instrument provides exemptions to responsible entities of litigation funding schemes from certain provisions in Chapters 5C and 7 of the Corporations Act.

For more information on the Litigation Funding Instrument, see our earlier Issue 44.

Royal Commission insurance and ‘claims handling’ regulations registered

On 18 February, the Financial Sector Reform (Hayne Royal Commission Response) (2021 Measures No. 1) Regulations 2021 (Cth) were registered.

According to the Explanatory Statement, the purpose of the regulations is to:

1. amend the Insurance Contracts Regulations 2017 (Cth) to remove the concept of eligible contracts of insurance; and
2. amend the Corporations Regulations to make handling an insurance claim a ‘financial service’ under the Corporations Act.

The regulations support reforms made under the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth), which received Royal Assent on 17 December 2020.

The regulations commenced on 19 February.

Financial product advice

Review into AFCA effectiveness announced

On 19 February, the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, announced that the Government has released the terms of reference for a review of AFCA. The review is required under the enabling legislation that authorises AFCA.

According to the Terms of Reference (that have been released by the Treasury), the review is intended to consider whether AFCA has been effective in resolving complaints in a way that is fair, efficient, timely and independent, and will take account of feedback provided by consumers, small businesses and financial firms.

Public consultation closes on 26 March.

High Court hands down decision on ‘personal’ vs. ‘general’ advice

On 3 February, the High Court of Australia handed down its decision in Westpac Securities Administration Ltd & Anor v Australian Securities and Investments Commission [2021] HCA 3, dismissing Westpac’s appeal against the Full Federal Court’s finding that two Westpac subsidiaries provided ‘personal advice’ during its ‘Super Activation Team’ campaign.

The judgment provides guidance on the distinction between personal advice and general advice, confirming that a broad definition of ‘personal advice’ which reflects the consumer protection objectives underpinning the provision should be applied. However, the process of determining whether particular financial product advice is personal advice remains highly fact and context dependent.

Commenting on the decision, ASIC states that ‘[b]y clarifying the distinction between tailored, quality, personal advice in the customer’s interest, and general advice given via a sales campaign, [the] judgment will provide clear guidance to those financial institutions that develop campaigns to sell financial products through direct approaches to retail client.’

For more information and our commentary, see our recent article.

Conditional relief to derivatives reporting for foreign subsidiaries of Australian ADIs

On 11 February, the ASIC Derivative Transaction Rules (ADI Foreign Subsidiaries) Class Exemption 2021/51 (Instrument) was registered.

According to the Explanatory Statement, the Instrument provides conditional exemptive relief from the ASIC Derivative Transaction Rules (Reporting) 2013 with respect to the reporting of reportable transactions and reportable positions to a licensed repository or a prescribed repository by a foreign subsidiary of an Australian entity where that Australian entity is an Australian ADI.

To rely on the relief, entities are required to provide ASIC with a written opt-in notice in accordance with requirements in the Instrument.

The Instrument commenced on 12 February.

Financial markets

Government introduces bill to amend continuous disclosure laws

On 17 February, the Treasurer, Josh Frydenberg, announced that the Government is making permanent the temporary changes made to Australia’s continuous disclosure laws in May 2020 and which are due to expire in March 2021.

On that day, the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 was introduced into Parliament.

According to the Treasurer, the bill amends corporations law such that:

1. companies and their officers will only be liable for civil penalty proceedings in respect of continuous disclosure obligations where they have acted with ‘knowledge, recklessness or negligence’; and
2. makes clear that companies and their officers are not liable for misleading and deceptive conduct in circumstances where the continuous disclosure obligations have been contravened unless the requisite ‘fault’ element is also proven.

For more information about the temporary changes, see our earlier Issue 40.

Consumer credit

Mandatory credit reporting bill passes through Parliament

On 3 February, the Treasurer, Josh Frydenberg, and the Assistant Treasurer, Michael Sukkar, jointly announced that the National Consumer Credit Protection Amendment (Mandatory Credit Reporting and Other Measures) Bill 2021 passed through Parliament.

According to the Explanatory Memorandum, the bill amends the National Consumer Credit Protection Act 2009 (Cth) to mandate a comprehensive credit reporting regime under which large ADIs must provide credit information on consumer credit accounts to credit reporting bodies. It also amends the Privacy Act 1988 (Cth) to permit reporting of financial hardship information within the credit reporting framework.

It is intended that regulations will set out the circumstances when a credit reporting body can share the credit information supplied through the mandatory regime.

The bill received Royal Assent on 16 February.

Other financial services regulation

Extension of virtual meetings and electronic signing relief

On 17 February, the Treasurer, Josh Frydenberg, announced that the Government will extend the application of temporary relief measures introduced at the height of the coronavirus crisis relating to virtual annual general meetings and signing and sending electronic documents. Specifically, the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 will extend the expiry date of the relief from 21 March to 15 September.

The relief permits companies to use technology to meet regulatory requirements to hold meetings (including annual general meetings and meetings of members of a registered scheme), distribute meeting-related materials and validly execute documents.

Furthermore, the Treasurer states that the Government:

1. intends to finalise permanent changes to allow electronically signing and sending documents prior to the expiry of the relief on 15 September; and
2. intends to conduct a 12 month opt-in pilot for companies to hold hybrid annual general meetings to enable a proper assessment of the shareholder benefits of virtual meetings.

For more information on the temporary relief measures, see our earlier Issue 45.

Government introduces ‘Your Future, Your Super’ reforms into Parliament

On 17 February, the Treasurer, Josh Frydenberg, and the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, jointly announced the introduction of the ‘Your Future, Your Super’ reforms into Parliament.

According to the Explanatory Statement to the Treasury Laws Amendment (Your Future, Your Super) Bill 2021, the bill:

1. amends the Superannuation Guarantee (Administration) Act 1992 (Cth) to limited the creation of multiple superannuation accounts for employees who do not choose a superannuation fund when they start a new job (the ‘stapled’ superannuation fund);
2. amends the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) to require APRA to conduct an annual performance test for MySuper products and other prescribed products;
3. amends the SIS Act to provide for a ‘best financial interests’ duty on trustees and directors of registrable superannuation entities and trustees of an SMSF; and
4. amends the Corporations Act to remove an exemption from disclosing information about certain investments under the ‘portfolio holdings’ disclosure rules.

According to the joint media release, the ‘Your Future, Your Super’ package is intended to commence on 1 July.

For more information on the background to this bill, see our earlier article which provides an overview of the reforms as they were proposed in the 2020-21 Federal Budget.

ASIC highlights priorities for 2021

On 16 February, ASIC published a speech delivered to the Australian Finance Industry Association Risk Summit, canvassing ASIC’s recent work in the Buy Now Pay Later sector, discussing upcoming reforms including the design and distribution obligations, and highlighting items on ASIC’s agenda for 2021, being:

1. responsible lending reforms;
2. the implementation of Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry reforms including unfair contract terms, breach reporting and insurance claims handling;
3. remediation monitoring; and
4. cyber security.

APRA publishes 2020 Year in Review

On 5 February, APRA released its 2020 Year in Review. According to APRA, the 2020 Year in Review provides APRA’s view on the financial environment and details its key activities for the year across the banking, insurance and superannuation industries, conducted in alignment with the strategic objectives outlined in its Corporate Plan.

ASIC highlights superannuation regulatory framework reforms

On 4 February, ASIC published an article in relation to reforms of the core regulatory framework for superannuation, including changes to financial services licensing for superannuation trustees.

According to ASIC, reforms made under the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth) (and accompanying regulations):

1. widen the scope of superannuation trustee conduct subject to obligations under the Corporations Act and ASIC Act by creating a new financial service known as ‘provide a superannuation trustee service’;
2. ensure that trustees of non-public offer funds are subject to the same legal obligations as trustees of public offer funds. This is done by removing (effective 1 July 2021) AFSL exemptions in the Corporations Regulations for non-public offer trustees;
3. allocate ASIC an express consumer protection and market integrity mandate under the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act); and
4. align breach reporting timeframes in the SIS Act with those in the Corporations Act.

For more information on the ‘superannuation trustee service’, see our earlier article.

Treasury commences review of foreign investment review framework reforms

On 8 January, the Treasury released the Terms of Reference for an evaluation of the operation of reforms implemented by the Foreign Investment Reform (Protecting Australia’s National Security) Act 2020 (Cth) and the Foreign Acquisitions and Takeovers Fees Imposition Amendment Act 2020 (Cth).

The review is required under the Foreign Investment Reform (Protecting Australia’s National Security) Act 2020 (Cth).

According to the Terms of Reference, a written report is due by 10 December.