Mon 07 2018

Financial Services in Focus – Issue 6

Funds & financial products

Government passes Asia Region Funds Passport bill

On 28 June, the Government passed the Corporations Amendment (Asia Region Funds Passport) Bill 2018.

According to the Revised Explanatory Memorandum, the bill introduces into Australian law a multilateral framework that allows eligible funds to be marketed across economies participating in the Asia Region Funds Passport with limited additional regulatory requirements. The Passport is intended to support the development of an Asia-wide managed funds industry through improved market access and regulatory harmonisation.

Government releases exposure draft regulations on Asia Region Funds Passport

On 29 June, the Government released its exposure draft regulations, Exposure Draft – Corporations Amendment (Asia Region Funds Passport) Regulations 2018, proposing a framework of coordinated regulatory oversight to facilitate cross border issuing of managed investment funds.

According to the Exposure Draft – Explanatory Statement, the draft regulations make amendments to the Corporations Regulations and other miscellaneous regulations. Treasury states that the draft regulations provide additional detail on the operation of the Asia Region Funds Passport bill, which was passed on 28 June, including proposing ASIC filing obligations.

The Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer, stated that the Asia Region Funds Passport is one of the Government’s initiatives to improve outcomes for consumers by providing them with greater choice of products and increased competition and will also offer Australian fund managers an opportunity to gain economies of scale through selling to Asia’s growing middle class.

Submissions are due by 13 July.

ASIC calls on retail OTC derivatives sector to improve practices

On 28 June, ASIC released Report 579 Improving practices in the retail OTC derivatives sector.

ASIC calls on participants in the retail OTC derivatives sector to improve their practices after recent ASIC activities showed their conduct fell short of expectations, particularly in relation to binary options, margin foreign exchange and contracts for difference.

ASIC releases new regulatory guidance ahead of the commencement of the Australian Financial Complaints Authority (AFCA) on 1 November 2018

On 20 June, ASIC released new Regulatory Guide 267 Oversight of the Australian Financial Complaints Authority (RG 267). RG 267 sets out how ASIC will perform its oversight role in relation to the AFCA and also includes the financial firms’ AFCA membership obligations.

ASIC states that the new guidance is in advance of the Australian Financial Complaints Authority’s (AFCA) commencement in order to provide policy certainty for stakeholders and to support an efficient transition to the new single scheme.

Financial product advice

ASIC requires compliance with restrictions on use of the term ‘independent’

On 5 July, ASIC announced that it is continuing to monitor the financial advice industry’s use of restricted terms ‘independent’ and ‘independently owned’, taking steps to intervene when it identifies concerns.

ASIC states it will continue to publicly name advisers who do not comply with their obligations under section 923A of the Corporations Act and, where appropriate, take action to enforce the obligations in section 923A and to ensure consumers are not misled about the nature of the service they are receiving.

ASIC reports on the quality of SMSF advice

On 28 July, ASIC released Report 575 SMSFs: Improving the quality of advice and member experiences and Report 576 Member experiences with self-managed superannuation funds.

ASIC states that it reviewed 250 client files randomly selected based on Australian Taxation Office data and found that in 91% of files reviewed the adviser did not comply with Corporations Act’s ‘best interests’ duty and related obligations.

Financial markets

ASIC consults on proposed changes to the capital requirements for market participants

On 4 July, ASIC released Consultation Paper 302 Proposed changes to ASIC’s capital requirements for market participants (CP 302), which prescribe the minimum amount of capital a participant must hold.

ASIC states that CP 302 sets out the proposals to improve and simplify the capital requirements, including further consolidating the two market integrity capital rulebooks into a single capital rulebook, requiring market participants of futures markets to comply with a risk-based capital regime instead of a net tangible asset requirement and hold core capital of at least $1,000,000 at all times, increasing the minimum core capital requirement for securities market participants to $500,000, and introducing new rules such as an underwriting risk requirement.

ASIC invites submissions on CP 302 by 15 August.

ASIC reports on proxy adviser engagement practices

On 27 June, ASIC published Report 578 ASIC review of proxy adviser engagement practices (REP 578), which provides an overview of ASIC’s review of proxy adviser engagement practices and sets out some key observations and related good governance messages.

ASIC states that in REP 578 ASIC encourages (1) proxy advisers to clearly explain and make available their engagement policies and voting guidelines, endeavour to provide sufficient time for companies to respond to requests for clarification or fact-checking of reports, be transparent in their reports about engagement with companies and promptly consider feedback in relation to factual errors in their reports, and (2) companies to actively seek out information about the engagement practices of proxy advisers, engage proactively with proxy advisers outside of peak periods, release notices of meeting to the market as early as possible, ensure disclosure is clear and not overly complex and continue engaging directly with investors regarding voting decisions.

Consumer credit

ASIC releases consultation paper on credit card responsible lending assessments

On 4 July, ASIC released Consultation Paper Credit cards: Responsible lending assessments (CP 303), which seeks feedback on ASIC’s proposal for the prescribed period to be used when assessing whether a credit card contract or credit limit increase is unsuitable.

ASIC states that CP 303 proposes responsible lending assessments for credit cards be based on whether the consumer can afford to repay the credit limit within three years and that the purpose of this new reform is to make sure that consumers can afford to repay their credit card debts within a reasonable period.

The new reform will apply to credit licensees providing credit or credit assistance in relation to both new and existing credit card contracts from 1 January 2019. ASIC stated it will make a decision about the period to prescribe following the consultation process.

Submissions are due by 31 July.

ASIC releases report on credit card lending in Australia

On 4 July, ASIC released Report 580 Credit card lending in Australia on credit card lending in Australia (REP 380). REP 380 discusses the findings from ASIC’s review of 21.4 million credit card accounts open between July 2012 and June 2017.

ASIC states that while credit cards offer flexibility, they can present a debt trap for more than one in six consumers and that ASIC found that 18.5% of consumers are struggling with credit card debt. ASIC states that in June 2017 there were almost 550,000 people in arrears, an additional 930,000 with persistent debt and an additional 435,000 people repeatedly repaying small amounts.

On 4 July, ASIC also released a consultation paper, CP 303, on credit card responsible lending described above.

Other financial services regulation

Government passed industry funding fees-for-services bill

On 28 June, the Government passed the Corporations (Fees) Amendment (ASIC Fees) Bill 2018, as part of a package of four bills to enable the recovery of ASIC’s costs for specific regulatory activities.

According to the Explanatory Memorandum for these bills, these bills allow ASIC to better align its fees, by enabling ASIC to charge a cost reflective fee for the services it provides for a specific entity.

The Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer, stated that regulations that provide additional detail on the operation of the industry funding fees-for-service bill will be made shortly, ahead of the commencement of the regime.

Government states that registered charities not required to pay ASIC levy

On 2 July, the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer, stated that, in recognising the unique and important role charities play in our society, the Government will absorb ASIC’s costs of regulating the charities sector, meaning that registered charities will not have to pay ASIC levies.

Government releases proposal paper on extending unfair contract terms protections to insurance contracts

On 27 June, the Government released a Proposals Paper, Extending Unfair Contract Terms Protections to Insurance Contracts, which seeks stakeholder views on a proposed model for extending unfair contract term protections to insurance contracts.

The Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer, stated that the model ensures that consumers and small businesses who purchase insurance are provided with the same protections that are already available for other financial products and services while ensuring the laws are appropriately tailored for the specific features of insurance contracts.

According to the Proposals Paper and Treasury, the closing date for submissions is 24 August.


Government releases proposal paper on stapled structures

On 28 June, the Government released a proposal paper, Stapled Structures: Integrity Measures Proposal Paper, following its announcement in March of a package of measures to reform the tax treatment of stapled structures and similar arrangements. The proposal paper outlines the conditions stapled securities must comply with to access the proposed infrastructure concession and transitional arrangements.

The Treasurer, the Hon Scott Morrison, stated that the conditions address the tax integrity risks posed by stapled structures, and provide a further safeguard against aggressive cross‑staple pricing arrangements during these transition and concession periods.

Submissions are due by 12 July.


    Fluent in Chinese

Eugene specialises in capital raising, funds management, financial services licensing and anti-money laundering law.

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Heather advises on all regulatory, compliance, investment, tax and contractual issues, as well as acting in connection with disputes, regulator actions, product development, fund mergers and restructurings, and other transactions...

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Anne is a leading superannuation and financial services lawyer with deep knowledge and understanding of the superannuation and financial services industry...

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Harry has represented a number of listed public companies, large private companies and government organisations...

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Adrian’s financial services law practice covers superannuation, managed funds, insurance, and financial advice...

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John has broad experience in financial services, funds management, blockchain, corporate and commercial law, with a particular emphasis on funds management related matters.

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Vince Battaglia is an experienced funds management and financial services practitioner.  He has worked in global and national law firms, as well as at ASIC.

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