Financial Services in Focus – Issue 60

By Harry New, Adrian Verdnik and Philip Hopley 

In this edition, we consider ASIC’s new guidance on crypto-asset licensing and market regulation, new and updated APRA FAQs on a range of matters, draft legislation on technology-neutrality laws, and interesting developments relevant to financial advisors, and much more.

Click on each heading below to read more about each of these areas: financial products, funds, superannuation, insurance, financial product advice, financial markets, anti-money laundering, banking, other financial services regulation and tax.

Financial products

CCIV bill introduced into Parliament

On 25 November, the Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021 was introduced into the Commonwealth Parliament.

In announcing the introduction into Parliament, the Assistant Treasurer, Michael Sukkar, said the legislation will supercharge international investment into Australia’s fund management industry.

ASIC consults on consumer remediation draft guidance

On 17 November, ASIC released a draft updated and expanded regulatory guide to consult on the way licensees should conduct remediations to return money owed to consumers.

Consultation Paper 350 Consumer remediation: Further consultation and the draft regulatory guide are available for review. Consultation closes on 11 February 2022.

ASIC proposes extension to CFD product intervention order

On 18 October, ASIC published a consultation paper seeking feedback on a proposal to extend its product intervention order imposing conditions on the issue and distribution of contracts for difference (CFDs) to retail clients. For more information on the order, see our earlier Issue 52.

According to ASIC Consultation Paper 348 Extension of the CFD product intervention order, the original product intervention order will expire on 23 May 2022, and ASIC proposes to extend the order to 1 April 2031. During the original order’s first three months of operation, ASIC stated that it observed significant improvements in key metrics and indicators of retail client detriment from CFD trading.

Consultation closed on 29 November.

Funds

ASIC publishes guidance on new ‘crypto-asset’ AFSL authorisation

On 29 October, ASIC published guidance for product issuers on how they can meet their regulatory obligations in relation to crypto-asset exchange traded products (ETPs) and other investment products. The guidance is set out in ASIC Information Sheet 225 Crypto-assets (INFO 225).

ASIC states that responsible entities that intend to hold underlying assets that comprise crypto-assets will need to hold an authorisation in relation to crypto-assets, and that it has introduced a new ‘crypto-asset’ category in the licensing application for responsible entities.

ASIC also flagged that it will update relevant forms and regulatory guides in due course.

The guidance arises out of consultation undertaken early this year by ASIC in June and July (for more information, see our earlier Issue 55).

Superannuation

APRA releases discussion paper on financial resilience in superannuation

On 19 November, APRA released a discussion paper seeking feedback from superannuation trustees and other industry stakeholders on the current and emerging approaches for RSE licensees to maintain the financial resilience needed to protect members’ best financial interests.

The Discussion Paper Strengthening Financial Resilience in Superannuation states that APRA is seeking to gain further insight into current and emerging approaches to:

1. the adequacy, purpose and management of financial resources;
2. the financial resources available to RSE licensees;
3. financial projections in business planning practices; and
4. RSE licensees’ provisioning for contingencies.

Submissions are due on 11 March 2022.

ASIC consults on updates to relief for superannuation calculators and retirement estimates

On 18 November, ASIC released Consultation Paper 351 Superannuation forecasts: Update to relief and guidance (CP 351) to seek stakeholder feedback on proposed updates to relief and guidance for superannuation forecasting tools.

In releasing CP 351, ASIC states that CP 351 outlines ASIC’s proposals to:

1. continue providing its longstanding relief from personal financial advice requirements for persons who provide superannuation calculators and for superannuation trustees who provide retirement estimates to their members;
2. adopt a single framework for how calculators and retirement estimates may be provided under ASIC’s relief, which will require trustees to have greater consistency between the assumptions used across their retirement estimates and superannuation calculators;
3. set standard assumptions for retirement ages and inflation rates that must be used as the defaults, to foster consistency across the industry;
4. give greater flexibility to trustees to tailor forecasts based on their members’ investment strategies.

Submissions are due on 28 January 2022.

Superannuation portfolio holdings disclosure regulations registered

On 11 November, the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, and the Treasurer, Josh Frydenberg, jointly announced that superannuation funds will be required to first report their superannuation portfolio holdings disclosure by 31 March 2022, with portfolio holdings disclosure to occur every six months thereafter.

On that day, the Corporations Amendment (Portfolio Holdings Disclosure) Regulations 2021 were registered. According to the Explanatory Statement, the regulations prescribe the manner in which information provided under the portfolio holdings disclosure regime must be organised.

For more information on the Government’s consultation on exposure draft regulations, see our earlier Issue 57.

APRA urges super members to take action where their super fund is underperforming

On 10 November, APRA urged superannuation members – especially those whose MySuper products failed the recent performance test – to more actively engage with their super to maximise their retirement futures, given that APRA data shows only a small proportion of members of the products that failed the test have moved their savings elsewhere despite receiving letters notifying them that their product was officially underperforming.

APRA updates Superannuation Data Transformation FAQs

On 4 November and 22 October respectively, APRA published two additional frequency asked questions (FAQ) in relation to Reporting Standards for Phase 1 of the Superannuation Data Transformation.

APRA publishes new FAQs in relation to Your Future, Your Super test and trustee directed products

On 3 November and 27 October respectively, APRA published new frequently asked questions (FAQ) in relation to the Your Future, Your Super performance test. The updated FAQs relate to APRA’s intentions to publish the 2021-21 performance test values for all MySuper products, the benchmark representation administration fees and expenses to be used for the 2020-21 test, as well as the introduction of trustee directed products to the test. You can read the Your Future, Your Super FAQs on APRA’s website.

Superannuation fund stapling commences

On 1 November, the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, and the Treasurer, Josh Frydenberg, jointly announced the commencement of ‘stapling’ of superannuation funds for employees with existing superannuation accounts as part of the Your Future, Your Super reforms. The Minister referred to guidance published by the ATO for employers in relation to stapled super funds.

APRA publishes information paper on Choice superannuation products

On 28 October, APRA published an information paper setting out its analysis of the performance of Choice superannuation products. In the information paper, APRA states that the paper will be followed by the publication of a Choice Product Heatmap in late 2021.

APRA states that the Choice Product Heatmap, similar to the MySuper Product Heatmap, is intended to provide clear and comparable insights on product performance.

ASIC identifies concerns in super fund trustees’ conflicts management arrangements

On 27 October, ASIC announced that in the course of undertaking surveillance of investment switching by super fund executives, it has identified concerns with trustees’ management of conflicts of interest. ASIC states that conduct fell below ASIC’s expectations, and that its key concerns include:

1. failure to identify investment switching as a risk;
2. disparity in board-level engagement;
3. lack of restrictive measures;
4. inadequate oversight of investment switching; and
5. lack of oversight of related parties.

ASIC states that it will continue to follow up with trustees about areas for improvement in their conflict management frameworks.

APRA publishes findings from superannuation thematic reviews

On 26 October, APRA published its findings from three thematic reviews it undertook over the past 12 months covering strategic and business planning, fund expenditure and unlisted asset valuation practices in relation to superannuation funds, in an information paper.

APRA explained that superannuation trustees should examine how their governance and strategic planning can be improved following the release of the findings.

APRA updates FAQ in outcomes assessments

On 25 October, APRA published new and updated frequently asked questions (FAQ) in relation to the outcomes assessment under section 52(9) of the Superannuation Industry (Supervision) Act 1993 (Cth).

Government introduces superannuation and related reforms into Parliament

On 20 October, the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, and the Treasurer, Josh Frydenberg, jointly announced the introduction of the Treasury Laws Amendment (Enhancing superannuation outcomes for Australians and helping Australian businesses invest) Bill 2021 into Parliament. Read the draft bill and Explanatory Memorandum. According to the Ministers, the purpose of the bill is to make a number of amendments to federal legislation in relation to increasing flexibility to contribute to superannuation, increase the contributions that may be released under the First Home Super Saver Scheme, simplify reporting for SMSFs and small APRA-regulated funds and other matters.

Insurance

ASIC consults on remaking class order on PDS requirements where a quote for a general insurance product is given

On 15 November, ASIC released Consultation Paper 349 Remaking ASIC class order on PDS requirements where a general insurance quote is given: [CO 11/842] and a draft regulatory guide.

ASIC states it proposes to make a new instrument that would continue the relief currently given by [CO 11/842] PDS requirements where a quote for a general insurance product is given.

APRA releases finalised prudential framework for insurance in superannuation

On 12 November, APRA released its final revised Prudential Standard SPS 250 Insurance in Superannuation and Prudential Practice Guide SPG 250 Insurance in Superannuation. This is accompanied by a response to submissions paper, which notes the key revisions following industry consultations in November 2019 and January 2021.

APRA publishes revised FAQs in relation to successor fund insurance

On 21 October, APRA published an update to frequency asked questions (FAQ) in relation to the Treasury Laws Amendment (Putting Members’ Interests First) Act 2019 (Cth) in relation to insurance elections in the context of successor funds. The revised FAQs are available on APRA’s website:  ‘Putting Members’ Interests First – FAQs‘ and ‘Protecting your super package – FAQs‘.

Financial product advice

ASIC publishes record of advice samples and guidance

On 5 November, ASIC published an information sheet on records of advice (ROA), as well as sample ROAs, to provide clarity to financial advisers and advice licensees on their obligations in relation to ROAs. Review the information sheet and sample ROAs.

The guidance and samples arise out of ASIC’s consultation in November 2019 to January 2021 seeking input on access to personal advice under ASIC Consultation Paper 332 Promoting access to affordable advice for consumers. For more information, see our earlier Issue 48.

FASEA consults on amending the Financial Planner and Advisers Code of Ethics

On 3 November, FASEA announced that it consulting on amendments to the Financial Planners and Advisers Code of Ethics 2019, particularly on a proposal to amend the wording of Standard 3 to align the wording of the Standard to its intent as explained in the Financial Planner and Advisers Code of Ethics 2019 – Guide.

You can read the Consultation Paper on FASEA’s website archive via Trove.

Consultation closes on 1 December.

Financial markets

ASX publishes updates in relation to guidance note updates, CHESS replacement and more

On 16 November and 18 October respectively, the ASX published its Compliance Updates no. 10/21 and no. 09.21. In its updates, the ASX:

1. announced that it has published a new frequency asked questions document in relation to ASX Online forms (which it will periodically update);
2. directed entities’ attention to the ASX’s notice and guidance in relation to disclosing information about JobKeeper payments (for more information, see our earlier Issue 59);
3. announced that it has published updated guidance notes, being Guidance Note 7 US Entities – Regulation S Offerings on ASX, Guidance Note 11 Restricted Securities and Voluntary Escrow, Guidance Note 17 Waivers and In-Principle Advice and Guidance Note 23 Quarterly Reporting;
4. provided further reminders to entities in relation to the CHESS replacement, including consultation on the third tranche of operating rule amendments (for more information, see our earlier Issue 58) and electronic CHESS statements and notifications;
5. announced that it has published its response to the consultation on proposed changes to oil and gas entity reporting (see further below);
6. reminded entities of the 2022 reporting calendar, an upcoming access audit of all ASX online users, and holiday closures.

ASIC extends transitional relief pending consultation on securities market integrity rules

On 10 November, the ASIC Market Integrity Rules (Securities Markets) Class Waiver (Amendment) Instrument 2021/926 (Instrument 2021/926) was registered. According to the Explanatory Statement, the purpose of Instrument 2021/926 is to provide further transitional relief in relation to specified advisers from certain obligations in Part 2.4 of the ASIC Market Integrity Rules (Securities Markets) 2017 until 30 November 2023.

According to the Explanatory Statement, the transition period is intended to allow ASIC further time to progress amendments to those obligations, as proposed in ASIC Consultation Paper 342 Proposed amendments to the ASIC market integrity rules and other ASIC-made rules (for more information on the consultation, see our earlier Issue 55) and to allow to allow sufficient time for the Minister to consider whether to consent to the rule amendments.

Oslo Stock Exchange added to list of ‘approved foreign markets’

On 4 November, the ASIC Corporations (Amendment) Instrument 2021/895 (Instrument 2021/895) was registered. According to the Explanatory Statement, the purpose of Instrument 2021/895 is to add the Oslo Stock Exchange to the notional definition of an ‘approved foreign market’ in section 9 of the Corporations Act. This definition is relevant for numerous ASIC legislative instruments.

ASIC publishes guidance for market operators in relation to crypto-assets

On 29 October, ASIC published guidance for market operators on how they can meet their regulatory obligations in relation to crypto-asset exchange traded products (ETPs) and other investment products. The guidance is set out in the following information papers:

1. ASIC Information Sheet 225 Crypto-assets (INFO 225); and
2. ASIC Information Sheet 230 Exchange traded products: Admission guidelines.

The guidance arises out of consultation undertaken early this year by ASIC in June and July (for more information, see our earlier Issue 55).

For our commentary on the final report of the Select Committee on Australia as a Technology and Financial Centre at it relates to cryptocurrency and blockchain-related taxation issues, see our article, ‘First step forward for tax and crypto‘.

ASX publishes response to consultation on oil and gas entity reporting requirements

On 22 October, the ASX published its response to submissions it received in respect of its consultation on reporting requirements for oil and gas entities. The consultation was undertaken during April and May this year. In the response paper, ASX also published the final changes that it intends to make to the ASX Listing Rules, and states that the final rule changes will come into effect on 1 July 2022.

Anti-money laundering

AUSTRAC publishes financial crime guide on misuse of payment text fields

On 19 November, AUSTRAC published a new financial crime guide designed to assist businesses understand, identify and report technology-facilitated abuse through financial transaction payment text fields. The guide provides information to reporting entities to help them identify where payment text fields are being misused, how such misuse can be prevented and reminds entities of their obligation to report suspicious matters to AUSTRAC.

AUSTRAC releases statement on ‘de-banking’

On 29 October, AUSTRAC published a statement in relation to the effect of bank account closures on legitimate and lawful financial services businesses. In the statement, AUSTRAC states that such de-banking can increase the risks of money laundering and terrorism financing (ML/TF).

AUSTRAC states it considers that, with appropriate systems and processes in place, banks should be able to manage high-risk customers, including those operating remittance services, digital currency exchanges, not-for-profit organisations and financial technology businesses, and that it expects banks and all regulated businesses to adopt a case-by-case approach to managing ML/TF risks.

Banking

APRA publishes new FAQs on operational risk capital for ADIs

On 18 November, APRA published a new set of frequently asked questions (FAQs) on operational risk capital for authorised deposit-taking institutions (ADIs).

The FAQs provide information to assist regulated entities to interpret Prudential Standard APS 115 Capital Adequacy: Standardised Measurement Approach to Operational Risk and Reporting Standard ARS 115.0 Capital Adequacy: Standardised Measurement Approach to Operational Risk.

APRA releases final guidance on contingent liquidity for locally-incorporated LCR ADIs

On 18 November, APRA released its final guidance on contingent liquidity for locally-incorporated authorised deposit-taking institutions (ADIs) subject to APS 210 Liquidity Coverage Ratio (LCR) requirements.

The letter to industry outlines the level of self-securitised assets expected to be maintained by locally-incorporated LCR ADIs on an ongoing basis.

APRA responds to consultation on zero and negative interest rates

On 28 October, APRA published a letter to the banking industry on its expectations regarding ADI preparedness for the possibility of zero and negative interest rates. The letter responds to submissions received during APRA’s consultation on its draft expectations from July to August.

APRA updates banks on revisions to market risk prudential standards

On 27 October, APRA published a letter to ADIs setting out an updated timeline on revisions to eh market risk prudential standards (being APS 117, APS 116 and APS 180). APRA states that early in 2022, it will confirm the timelines for its review.

Other financial services regulation

Government releases review of AFCA

On 24 November, the Government tabled the Review of the Australian Financial Complaints Authority (AFCA) in the Commonwealth Parliament. The Government response to the review was also released.

The Review was conducted by Treasury between February and August 2021 and the Review’s report is available on Treasury’s website.

In releasing the Review and the Government’s response, the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, stated that the Government welcomes the Review’s findings that AFCA is operating effectively and meeting its statutory requirements and the Government supports the recommendation to remove the legislative requirement for authorised credit representatives to be members of AFCA.

APRA finds boards should have a more active role in cyber resilience

On 23 November, APRA published its conclusions from its technology resilience data collection and independent assessment of a pilot set of entities’ compliance with Prudential Standard CPS 234 Information Security (CPS 234), conducted across a sample of banking, superannuation and insurance entities.

Based on its findings, APRA concluded that boards need to play a more active role in:

1. reviewing and challenging information reported by management on cyber resilience;
2. ensuring their entities can recover from high-impact cyber-attacks (eg ransomware); and
3. ensuring information security controls are effective across the supply chain.

APRA states that over the next couple of years, it will continue to roll out the CPS 234 independent assessment process for the remaining entities across the banking, superannuation and insurance industries.

Treasury releases exposure draft legislation on improving the technology neutrality of corporations and financial services laws

On 19 November, Treasury released exposure draft legislation to modernise business communications by improving the technology neutrality of Treasury portfolio laws.

Treasury states that the draft Treasury Laws Amendment (Modernising Business Communications) Bill 2021 and the draft Treasury Laws Amendment (Modernising Business Communications) Regulations 2021 will propose amendments that:

1. expands the scope of the global regimes that allow documents to be signed and sent electronically in the Corporations Amendment (Meetings and Documents) Bill 2021;
2. legislates relief for companies, registered schemes and disclosing entities sending documents to ‘lost members’ under the Corporations Act;
3. allows notices published in newspapers to be published in any accessible and reasonably prominent manner across Treasury portfolio laws;
4. updates payment provisions in Treasury legislation to ensure electronic payments can be made; and
5. updates the National Consumer Credit Protection Act 2009 and associated legislation to give consumers and their credit providers greater flexibility when updating their details and when sending documents.

In announcing the draft laws, the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, and Ben Morton, Minister Assisting the Prime Minister and Cabinet, jointly announced that, in the next phase of this project, the Government will consider further reforms to improve technology neutrality including:

1. communicating with regulators;
2. exemptions to the Electronic Transactions Act 1999; and
3. product disclosure and recordkeeping requirements.

Submissions close on 10 December.

The media release on the Corporations Amendment (Meetings and Documents) Bill 2021 which was introduced in Parliament on 20 October by the Treasurer, Josh Frydenberg, is available on the Treasurer’s webpage.

ASIC releases cost recovery implementation statement

On 11 November, ASIC published its 2020-21 Cost Recovery Implementation Statement as required under the industry funding model.

APRA and RBA release joint statement on climate change financial risk

On 4 November, APRA and the RBA published a joint statement on the actions they are taking to ensure financial institutions and the Australian financial system are prepared to respond to the financial risks of climate change.

Financial Accountability Regime and Compensation Scheme of Last Resort bills introduced

On 28 October, the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, and the Treasurer, Josh Frydenberg, jointly announced the introduction of legislation into Parliament to establish the Financial Accountability Regime and the Compensation Scheme of Last Resort (which implement a further six recommendations made by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry).

For more information on the Government’s consultation in relation to the Financial Accountability Regime and Compensation Scheme of Last Resort draft legislation, see our earlier Issue 56.

APRA finalises guidance on remuneration prudential standard

On 18 October, APRA published finalised guidance on the new Prudential Standard CPS 511 Remuneration (CPS 511). According to APRA, CPS 511 comes into effect on 1 January 2023 and is designed to strengthen remuneration practices across all APRA-regulated entities. For more information on the prudential standard, see our earlier Issue 58.

APRA also published non-confidential submissions received in the course of consultation on the draft prudential practice guide, as well as its response letter. Both the letter and submissions are available on APRA’s website.

Tax

Government consults on treatment of trusts under insolvency law

On 15 October, the Assistant Treasurer, Michael Sukkar, announced that the commencement of a consultation on clarifying the treatment of trusts under Australian corporate insolvency law.

According to the consultation paper, available on Treasury’s website, Australia’s current corporate insolvency regime does not expressly cover how companies which structure themselves through a trust, or businesses which have a corporate trustee are to be dealt with during insolvency.

Consultation closed on 10 December.