Financial Services in Focus – Issue 63

By Harry New, Adrian Verdnik and Philip Hopley

In this edition, we consider legislative reforms making electronic signing and virtual meetings permanent, corporate collective investment vehicle reforms and the new retirement income covenant for superannuation trustees.

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

Financial products

ASIC consults on Financial Services and Credit Panel regulatory guidance

On 28 February, ASIC released Consultation Paper 359 Update to RG 263 Financial Services and Credit Panel (CP 359) seeking feedback on ASIC’s proposed updates to Regulatory Guide 263 Financial Services and Credit Panel.

ASIC states that the updates reflect changes to the Financial Services and Credit Panel under the Financial Sector Reform (Hayne Royal Commission Response-Better Advice) Act 2021.

Under CP 359, ASIC seeks feedback on ASIC’s proposed approach to:

1. determining when to convene a sitting panel of the Financial Services and Credit Panel,
2. generally hold hearings of sitting panels using technology, and
3. publicising decisions of sitting panels.

Consultation closes on 28 March.

ASIC consults on remaking relief in relation to financial services disclosure requirements

On 18 February, ASIC announced that it is commencing consultation on proposals to remake relief contained in seven legislative instruments relating to specific financial services disclosure and financial product disclosure requirements.

According to ASIC, Consultation Paper 358 Remaking ASIC relief on PDSs, superannuation dashboards and FSGs sets out ASIC’s proposals to:

1. remake, in a single new instrument, relief in class orders relating to PDS in-use notices for employer-sponsored superannuation and product dashboard disclosure;
2. remake, in a single new instrument, relief in instruments that relate to shorter PDSs and PDS obligations of superannuation trustees, IDPS operators and responsible entities of IDPS-like schemes; and
3. remake, as a new instrument, a class order relating to FSGs in time critical situations.

The consultation paper, as well as attachments, are available here.

Consultation closes on 12 April.

Foreign financial services provider bill introduced to Parliament

On 17 February, the Treasury Laws Amendment (Streamlining and Improving Economic Outcomes for Australians) Bill 2022 was introduced to the House of Representatives.

According to the Explanatory Memorandum to the bill, it:

1. implements the outcome of the Government’s announcement to restore licensing relief for foreign financial services providers in the 2021-22 Budget by providing three licensing exemptions. These are the professional investor exemption, the comparable regulator exemption and the fit and proper person test exemption;
2. extend and adapt financial reporting and auditing requirements in Chapter 2M of the Corporations Act to apply to registrable superannuation entities; and
3. conferring increased powers for the Administrative Appeals Tribunal in relation to small business taxation decisions.

Conditional relief from cash settlement fact sheet instrument registered

On 10 February, the ASIC Corporations (Cash Settlement Fact Sheet) Instrument 2022/59 was registered.

According to the Explanatory Statement, AFS licensees (or their authorised representatives) that provide claims handling and settling services are required to give a cash settlement fact sheet (CSFS) in certain circumstances. The instrument exempts providing entities from the requirement to give the CSFS to the insured when the cash settlement offer is made, subject to conditions.

The Explanatory Statement explains that the purpose of the instrument is to prevent consumer detriment in the claims handling process in circumstances where an insured is in immediate need of a small-moderate value cash payment.

Funds

Parliament passes electronic signing and virtual meetings legislation

On 25 February, the Corporations Amendment (Meetings and Documents) Act 2022 (Cth) was registered. According to the Explanatory Memorandum to the bill, the purpose of the Act is to:

1. permit flexible and technologically neutral signing of certain documents (including deeds) by or on behalf of a company, as well as signing of documents relating to certain meetings or resolutions;
2. permitting companies and registered schemes to hold physical and hybrid meetings. Wholly virtual meetings may also be used if they are expressly required or permitted by the constitution; and
3. allowing a member or group of members with at least 5% of all the votes to require a listed company or registered scheme to appoint an independent person to observe or report on a poll.

The amendments in relation to signing and executing documents commenced on 23 February. Amendments in relation to meetings and sending documents commence on 1 April 2022.

We have written more about the amendments here.

Corporate collective investment vehicle legislation passes Parliament

On 25 February, the Corporate Collective Investment Vehicle Framework and Other Measures Act 2022 (Cth) was registered.

According to the Explanatory Memorandum to the bill, the Act implements measures set out in the 2021-22 Budget in relation to establishing a corporate collective investment vehicle (CCIV) regime (which was first announced in the 2016-17 Budget).

The bill also implements other measures including introduction of the retirement income covenant, tax-related amendments, miscellaneous and technical amendments and amendments in relation to employee share schemes.

Court orders winding up of schemes due to contraventions including absence of appropriate authorised representative authorisations

On 9 February, Justice Cheeseman of the Federal Court of Australia handed down orders to winding up a number of schemes in Australian Securities and Investment Commission v PE Capital Funds Management Limited (administrators appointed) [2022] FCA 76. In these proceedings, the defendant acted as trustee of four unregistered managed investment schemes, and also acted as fund manager of a number of registered and unregistered schemes.

Justice Cheeseman held that the unregistered schemes required registration under section 601ED(1)(b) of the Corporations Act. Her Honour also held that the PDS disclosure exemptions did not apply. There were a number of exemptions that did not equal or exceed $500,000, and Justice Cheeseman noted that:

1. no wholesale client certificates by an accountant were produced by the defendant to ASIC in response to ASIC’s notice;
2. the evidence before the Court fell short of establishing that the offers were ‘personal offers’ within the personal offer exemption from PDS disclosure, noting that the information memoranda (IMs) were stated in general terms and did not explain that the offer may only be accepted by the person to whom it was made, the application forms were blank and not restricted to being completed by the recipient, and only limited evidence was given as to the existence of pre-existing relationships between the defendant and the investors; and
3. the evidence before the Court did not establish that the sophisticated investor exemption in section 761GA of the Corporations Act was engaged.

Justice Cheeseman also held that the defendant’s authorisations under its corporate authorised representative appointments did not cover the establishment or operation of the unregistered schemes at the relevant time, meaning it had breached the requirement to hold an AFSL.

Justice Cheeseman also held, among other matters, that:

1. Her Honour was not satisfied that general statements relating to diversification, lowering of risk and asset classes were misleading when they were considered in the whole of the relevant context in the PDS (which also included various risk statements and provided further detail on how diversification was to be achieved); however,
2. Her Honour was satisfied that the defendant made misleading or deceptive representations in relation to asset allocations (as the fund invested in a manner contrary to those statements) and that unit holders receive preferential security over trust assets was misleading or deceptive (as no such securities existed).

Commenting in relation to the decision, ASIC states that where licensing and registration requirements in relation to schemes are not met, ASIC can take action to protect investors and safeguard assets.

Superannuation

Retirement income covenant bill passes Parliament

On 25 February, the Corporate Collective Investment Vehicle Framework and Other Measures Act 2022 (Cth) was registered. The Act implements, among other matters, a retirement income covenant. For more information on its consultation, see our earlier Issue 59.

In announcing the passing of the bill, the Minister for Superannuation, Financial Services and Digital Economy, Jane Hume, explained that the retirement income covenant will require trustees to have their retirement income strategy formulated in writing and a summary publicly available from 1 July. According to the Minister, a trustee’s retirement income strategy must consider how they will assist their members to balance maximising their retirement income, managing risks to income and having some flexible access to savings.

APRA publishes new FAQs on outcomes assessments

On 24 February, APRA announced that it has published new frequently asked questions (FAQs) and updated FAQs on the outcomes assessment under section 52(9) of the Superannuation Industry (Supervision) Act 1993 (Cth). Read the FAQs.

APRA publishes new FAQs on Superannuation Data Transformation

On 21 February, APRA announced that it has published additional frequently asked questions (FAQs) in relation to Superannuation Data Transformation. Read the FAQs.

APRA consults on confidentiality proposals for superannuation data

On 18 February, APRA announced that it has launched a consultation on plans to sharply expand the breadth and granularity of the superannuation data it publishes. According to APRA, the consultation follows the finalisation of the 10 new reporting standards from Phase 1 of APRA’s Superannuation Data Transformation.

In the discussion paper, APRA states that it is proposing to publish new aggregate industry-level, superannuation fund level publications and superannuation product-level statistics. APRA also published its proposals for confidentiality.

APRA has published the discussion paper, as well as confidentiality proposals, draft metrics and draft publications, here.

More information in relation to the Superannuation Data Transformation, including the new consultation, is available here.

Superannuation measures pass Parliament

On 10 February, the Treasurer, Josh Frydenberg, and the Minister for Superannuation, Financial Services and Digital Economy, Jane Hume, jointly announced that the Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians and Helping Australian Businesses Invest) Act 2022 (Cth) has passed Parliament.

According to the Minister, the legislation:

1. allows individuals aged between 67 and 75 to make non-concessional superannuation contributions under the bring-forward rule;
2. supports the repeal of the work test for non-concessional and salary sacrificed contributions made by individuals aged between 67 and 75; and
3. removes the $450 per month income threshold under which employees do not have to be paid the superannuation guarantee by their employer.

On that day, the Treasurer, Josh Frydenberg, and the Assistant Treasurer, Michael Sukkar, also jointly announced that the bill will make amendments in relation to business investment and supporting first home buyers.

Insurance

Appeal judgment for the second COVID-19 test case: another win for insurers

On 22 February, the Full Court of the Federal Court of Australia handed down its judgment in the second COVID-19 business interruption test case: LCA Marrickville Pty Limited v Swiss Re International SE [2022] FCAFC 17.

This was an appeal from the judgment of Jagot J in respect of five of the original 11 test cases that formed the second COVID-19 test case, which considered whether infectious diseases extensions in business interruption insurance policies were triggered by government orders directed to restricting the spread of COVID-19. The Full Court substantially agreed with the conclusions of Jagot J in each of the five proceedings in favour of insurers’ position that the policy covers were not engaged, with only a couple of subsidiary issues being overturned in favour of the insureds. This judgment will now almost certainly be the subject of an application for special leave to the High Court.

A detailed summary of this appeal and the proceedings can be found in our publication.

ASIC remakes relief in relation to giving a PDS for general insurance quotes

On 21 February, ASIC announced that it has remade the relief in ASIC Class Order [CO 11/842] PDS requirements where a quote for a general insurance product is given for a further five years. The relief is remade under ASIC Corporations (PDS Requirements for General Insurance Quotes) Instrument 2022/66, which was registered on 17 February.

According to the Explanatory Statement to the instrument, the purpose of the relief is to address practical difficulties in giving a PDS to retail clients at or around the time that a quote for general insurance products is given during telephone calls.

According to ASIC, the relief remains substantively the same, with minor changes to give greater clarity and reflect current drafting practice.

Government finalises design for reinsurance pool for cyclones and related flood damage

On 7 February, the Government announced it has finalised the design of the reinsurance pool for cyclone and related flood damage, following consultation on the draft legislation. For more information on the consultation, see our earlier Issue 61 here.

The Government states that it intends to introduce legislation for the reinsurance pool in the first week of Parliament in February 2022, with the pool on track for the scheduled 1 July start date.

Financial product advice

Financial counselling agency relief amended

On 10 February, the ASIC Corporations (Amendment) Instrument 2022/20 was registered.

According to the Explanatory Statement, the purpose of the instrument is to amend ASIC Corporations (Financial Counselling Agencies) Instrument 2017/792 (Relief Instrument) to ensure that the relief which financial counselling agencies rely upon is not disrupted by the claims handling law reforms. The Relief Instrument provides conditional relief to certain financial counselling agencies from the requirement to hold an AFSL when providing financial product advice as part of a financial counselling service.

Financial markets

ASX consults on proposed changes on the allocation of US settlement bank investment losses between ASX CCPs and their clearing participants

On 11 February, the ASX announced that it has released a consultation paper outlining proposed changes to the ASX Recovery Rules and Handbook that relate to the allocation of US settlement bank investment losses between the ASX central counterparties (CCPs) and their clearing participants.

According to the paper:

1. the proposed amendments will ensure that only clearing participants of ASX Clear (Futures) (ASXCLF) will be exposed to the insolvency of the US settlement banks and the extent of that exposure will depend on the three components outlined in the consultation paper; and
2. while all ASXCLF clearing participants will be exposed to a US settlement bank loss, those clearing participants that are in scope for overnight margining, and those clearing participants who have also paid US$ funds to ASXCLF in the prior default fund commitment period will each bear a greater proportion of any loss.

The ASX states that, subject to consultation feedback and regulatory clearance, it is expected that the amendments to the ASX Recovery Rules and Handbook will be implemented by the end of the second quarter of 2022.

Consultation closes on 25 March.

ASX reminds listed entities of announcement rules and rules consultation

On 8 February, the ASX issued Compliance Update no. 01/22. In this update, the ASX:

1. announced that it has released a consultation paper seeking feedback on proposed rule changes to facilitate the listing and quoting of corporate collective investment vehicles and other vehicles. For more information, see further below; and
2. reminded listed entities of the order of announcements and early release of announcements during reporting periods.

ASX consults on proposed rule amendments for CCIVs and other vehicles

On 1 February, the ASX published ASX Public Consultation Proposed ASX rule amendments to facilitate the listing of CCIVs and certain other collective investment vehicles on the ASX market and the quotation of their products on the ASX AQUA market (Consultation Paper).

According to the Consultation Paper, the ASX is seeking feedback on:

1. proposed changes to the ASX Listing Rules to facilitate the listing of corporate collective investment vehicle (CCIV) sub-funds, notified foreign passport funds (NFPF) and New Zealand registered managed investment schemes making a ‘recognised offer of securities’ (recognised NZ schemes) on the ASX market, and
2. proposed changes to the ASX Operating Rules to facilitate the admission of CCIV sub-fund products NFPF products and securities issued by recognised NZ schemes pursuant to a ‘recognised offer of securities’ to trading status on the AQUA market or for settlement through mFund.

Consultation closes on 18 March.

We have written about the ASX’s proposed amendments here.

Consumer credit

ASIC extends relief for simple arrangements with consumers in hardship

On 25 February, ASIC announced that it has extended the relief in ASIC Class Order [CO 14/41] for a further two-year period to 1 April 2024. According to ASIC, the class order relieves credit providers and lessors from the obligation to provide written notice to consumers about hardship contract variations of 90 days or less (known as ‘simple arrangements’). The extension was effected by ASIC Credit (Amendment) Instrument 2022/81, which was registered earlier on 23 February.

ASIC conducted public consultation on whether to extend the relief from December 2021 to February 2022. For more information on the consultation, see our earlier Issue 61 here.

According to ASIC:

1. the class order remains appropriate to support credit providers to be able to quickly offer temporary assistance to consumers, particularly as consumers continue to be impacted by the financial consequences of COVID; and
2. the extension of relief will give the Government time to consider whether this relief should be made permanent through modifications to the requirements of the National Credit Code.

Other financial services regulation

ASIC and RBA update memorandum of understanding with ESMA

On 18 February, ASIC announced that ASIC and the RBA have updated the Memorandum of Understanding (MoU) with the European Securities and Markets Authority (ESMA) to reflect key amendments to the European Market Infrastructure Regulation (EMIR) 2.2 relating to central counterparties (CCPs).

According to ASIC, the MoU establishes regulatory and supervisory cooperation arrangements between ASIC, ESMA and the RBA with respect to Australian CCPs that are recognised or seeking recognition in the European Union (covered CCPs).

APRA publishes article on managing compliance risks

On 17 February, APRA published an article on how APRA-regulated entities may manage compliance risks. In the article, APRA explains its approach to compliance risk and summarises its observations from recent supervisory work examining larger and more complex entities.

APRA states that best practice for compliance risk management will continue to be a focus area for APRA, and that regulated entities should give the same attention and prioritisation to compliance risk management that they give to cyber risk, operational risk management and other risk classes.

Foreign investment reforms review and Government’s response published

On 15 February, the Foreign Investment Review Board (FIRB) announced that the Government published the Treasury’s evaluation of the foreign investment reforms that commenced on 1 January 2021, as well as the Government’s response to the evaluation.

According to FIRB:

1. the Treasury’s evaluation concluded that in their first year of operation, the reforms were striking the appropriate balance between supporting foreign investment into Australia and protecting the national interest; however, the framework should continue to be monitored to ensure it keeps pace with developments in the foreign investment landscape; and
2. the Government’s response to the evaluation includes a package of regulation amendments for introduction in early 2022 to support streamlining the framework, and a public consultation on broader reform options to be considered later in the year.

On 14 February, as part of the Government’s response, Treasury published:

1. a discussion paper (including the Government’s response to the evaluation) seeking views from the public on options to enhance Australia’s foreign investment framework, for consultation until 11 March; and
2. the exposure draft regulations and exposure draft explanatory statement prepared as part of the Government’s response for public consultation until 25 February.

Statutory review into CDR announced

On 14 February, the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, announced that the Government will commence a statutory review on the operation of the Consumer Data Right (CDR).

According to the Minister, the statutory review will explore the extent to which implementation of the CDR statutory framework supports the core policy objectives of driving value for consumers, increasing competition within designated sectors, and driving innovation across the data services sector.