Financial Services in Focus – Issue 53
In this edition, we report on draft ASIC guidance on the new breach reporting regime, new claims handling and settling regulations, draft legislation on replacing FASEA, and much more.
Funds and financial products
On 27 April, the ASIC Corporations (Amendment) Instrument 2021/292 was registered.
According to the Explanatory Statement, the purpose of the instrument is to remove the requirement to disclose the relevant information as dollar amounts in the PDS for a registered litigation funding scheme.
For more information in relation to the reforms to regulate litigation funders under the managed investment schemes provisions, see our earlier Issue 43.
On 22 April, ASIC published for consultation its draft regulatory guidance on the new breach reporting regime for AFS licensees, credit licensees and their representatives.
The materials published for consultation by ASIC are:
- ASIC Consultation Paper 340 Breach reporting and related obligations (CP 340);
- draft regulatory guide (as attachment 1 to CP 340); and
- draft Information Sheet 000 Complying with the notify, investigate and remediate obligations (as attachment 2 to CP 340).
ASIC states that it will publish final guidance before the obligations commence on 1 October.
Consultation closes on 3 June.
On 16 April, the Financial Sector Reform (Hayne Royal Commission Response) (Claimant Intermediaries) Regulations 2021 (Regulations) was registered.
According to the Explanatory Memorandum, the Regulations are made in support of the Financial Sector Reform (Hayne Royal Commission Response) Act 2020, which amended the Corporations Act to require people who handle insurance claims to comply with the same obligations as those which currently apply to people providing financial services.
The purpose of the Regulations is to exclude certain people from regulation for claims handling as a claimant intermediary. The persons excluded by the Regulations are mortgage brokers and mortgage intermediaries, insurance brokers, qualified accountants, veterinarians, travel agents, financial advisers, financial counsellors, property managers, estate managers and public trustees.
The Regulations commenced on 17 April.
On 8 April, ASIC called on insurance claims handling firms to lodge AFSL applications and AFSL variation applications as soon as possible, and by no later than 7 May. ASIC also published the finalised ASIC Information Sheet 253 Claims handling and settling: How to comply with your AFS licence obligations (INFO 253).
ASIC states that the provision of claims handling and settling is a financial service that requires authorisation under an AFSL by 1 January 2022. Under the Financial Sector Reform (Hayne Royal Commission Response) Act 2020, firms required to hold an AFSL must lodge an application or variation request by 30 June 2021 in order to continue to provide claims handling and settling services while ASIC assesses their application.
We have written about applying for an AFSL or licence variation for claims handling here.
Financial product advice
On 21 April, the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, published her address to the 12th Annual Financial Services Council’s Life Insurance Summit 2021. In the address, the Minister announced that the Government will conduct a Quality of Advice Review in 2022.
According to the Minister, the Quality of Advice Review will consider the quality and affordability of all forms of financial advice, and includes considering the Life Insurance Framework as part of its wider mandate.
The Quality of Advice Review is a post-implementation review recommended by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
On 19 April, the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, announced that the Government has released for public consultation draft legislation and explanatory material to implement recommendation 2.10 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and establish a new disciplinary system for financial advisers.
The following materials were published by the Treasury:
- exposure draft Financial Sector Reform (Hayne Royal Commission Response-A New Disciplinary System for Financial Advisers) Bill 2021;
- exposure draft Explanatory Memorandum to the bill; and
- a set of questions and answers, a ready reckoner and a flowchart of the proposed financial adviser disciplinary process.
According to the Explanatory Memorandum, the purpose of the bill is to:
- expand the role of the Financial Services and Credit Panel within ASIC to take on the functions of a single disciplinary body for financial advisers;
- require licensees to register (and annually renew registration of) financial advisers;
- wind up FASEA and transferring its standards functions to the Minister and ASIC; and
- regulate tax (financial) advisers.
Consultation closes on 14 May.
On 14 April, the ASIC Corporations (COVID-19-Advice-related Relief) Instrument 2021/268 (Instrument 2021/268) was registered.
According to the Explanatory Statement, the instrument extends the operation of aspects of the temporary relief initially made under ASIC Corporations (COVID-19-Advice-related Relief) Instrument 2020/355 (Instrument 2020/355) – specifically, the relief measures that allow (due to the impact of the COVID-19 pandemic) financial advisers to provide a record of advice rather than a statement of advice to existing clients requiring financial advice.
Instrument 2021/268 will be repealed on 15 October.
On 15 April, ASIC announced that it will not extend the other two measures set out in Instrument 2020/355 relating to relief facilitating advice about early access to superannuation and extending the timeframe for providing Statements of Advice after time-critical advice is provided.
For more information about Instrument 2020/355, see our earlier Issue 38.
Financial markets
On 21 April, the ASX released a response paper to consultation feedback on amendments to the ASX Clear (Futures) Operating Rules and Procedures.
The consultation was conducted from September to November 2020 and sought feedback on proposed amendments to the ASX Clear (Futures) Operating Rules and Procedures in relation to the default management of exchange traded derivatives.
The ASX states that it intends to make minor changes to its proposal in order to address the hedging of the defaulter’s portfolio and the possible inclusion of such hedges in the auction portfolio.
Banking
On 7 April, the Banking Executive Accountability Regime (Size of an Authorised Deposit-taking Institution) Determination 2021 (Determination) was registered.
According to the Explanatory Statement, the Determination is made under the Banking Executive Accountability Regime (BEAR) and sets out the methodology to determine the size of an ADI as small, medium or large. The size of an ADI affects the maximum civil penalties that may be applied by a court to an ADI that fails to meet its BEAR obligations and affects and the proportion of an accountable person’s remuneration that must be deferred for a minimum period.
The Determination replaces Banking Executive Accountability Regime (Size of an Authorised Deposit-taking Institution) Determination 2018.
The Determination commenced on 8 April.
Other financial services regulation
On 23 April, APRA published a set of frequently asked questions for RSE licensees in relation to reporting standards for phase 1 of the Superannuation Data Transformation.
APRA states that it intends to release FAQs on a regular schedule in the lead up to the first submission of data under the Reporting Standards on 30 September.
On 23 April, ASIC announced that it will extend the deadline for listed and unlisted entities to lodge financial reports (under Chapters 2M and 7 of the Corporations Act) by one month for balance dates from 23 June to 7 July 2021 (inclusive).
On 27 April, the ASIC Corporations (Amendment) Instrument 2021/315 was registered for this purpose.
ASIC states the extensions do not apply for reporting for balance dates from 8 January 2021 to 22 June 2021.
ASIC also announced that it has adopted a ‘no action’ position where public companies do not hold their annual general meetings (AGM) within five months after the end of financial years that end up to 7 July 2021, but do so up to seven months after year end.
On 22 April, APRA released for consultation its draft guidance to banks, insurers and superannuation trustees on managing the financial risks of climate change. APRA also published a letter in relation to the consultation.
According to APRA, the draft Prudential Practice Guide CPG 229 Climate Change Financial Risks covers APRA’s view of sound practice in areas such as governance, risk management, scenario analysis and disclosure, but does not create new requirements or obligations, and is designed to be flexible in allowing each institution to adopt an approach that is appropriate for its size, customer base and business strategy.
Consultation closes on 31 July.
On 21 April, the Treasurer, Josh Frydenberg, and the Assistant Minister to the Prime Minister and Cabinet, Ben Morton, jointly announced that the Government intends to modernise laws within the Treasury portfolio so they are technology neutral.
According to the Ministers, phase one of legislative reform will include:
- expanding the range of documents that can be validly signed electronically;
- increasing the range of documents that can be sent electronically to shareholders and amending requirements to contact lost shareholders; and
- improving flexibility for customers when changing address and consenting to electronic communication with credit providers.
Subsequent phases will consider reforms including product disclosure and record-keeping requirements.
The Ministers state that legislation dealing with phase one is intended to be finalised by the end of 2021.
On 8 April, APRA published for proposed updates to Prudential Standard LPS 117 Capital Adequacy: Asset Concentration Risk Charge (LPS 117) for consultation.
APRA states that the proposed updates are informed by an initial round of consultation conducted in 2019 and also published APRA Response Paper Revisions to Prudential Standard LPS 117 Capital Adequacy: Asset Concentration Risk Charge in response to those submissions.
According to APRA, the proposed updates will impose an aggregate limit on the exposure of life insurers to offshore reinsurers, which are not regulated by APRA (among other changes).
Consultation closes on 25 June.