Financial Services in Focus – Issue 65

By Harry New, Adrian Verdnik and Philip Hopley 

In this edition, we consider the new CCIV regulations, the Senate’s disallowance of proxy advice regulations, consultation on changes to the takeovers laws, 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 and other financial services regulation.

Financial products

ASIC extends CFD product intervention power for 5 years

On 6 April, ASIC announced it extended its product intervention order imposing conditions on the issue and distribution of contracts for difference (CFDs) for a further five years to 23 May 2027.

ASIC also released ASIC Report 724 Response to submissions on CP 348 Extension of the CFD product intervention order, which summarises ASIC’s analysis of the impact of its product intervention order using data from over 60 CFD issuers.

ASIC extends relief for business introduction services and notes further amendments

On 30 March, ASIC announced that it has extended the existing relief for business introduction services until 1 October, with a new requirement that persons who rely on the relief from 1 April must provide notice to ASIC.

ASIC states that from 1 October, the relief will be further amended to:

1. extend the relief for interests in managed investment schemes until 1 April 2025; and
2. clarify that the design and distribution obligations (DDO) apply to persons who, but for the relief, would otherwise need to comply with the DDO.

However, ASIC states that the existing relief in relation to Chapters 6D and 2L of the Corporations Act will expire on 1 October on the basis that the crowd-sourced funding regime facilitates flexible and low-cost access to capital for small to medium sized unlisted companies.

The extension of existing relief is made under ASIC Corporations (Amendment) Instrument 2022/0077, which was registered on 31 March. ASIC also published ASIC Report 723 Response to submissions on CP 357 Remaking relief for business introduction services, which sets out ASIC’s responses to key issues raised during consultation on amendments to business introduction services.

ASIC publishes final IDR data reporting framework

On 30 March, ASIC announced that it has released the final mandatory requirements for the internal dispute resolution (IDR) data reporting framework. ASIC explained that:

1. the requirements will be implemented in 2023 starting with a group of 11 large financial firms that will have to report IDR data to ASIC for the first time by 28 February 2023; and
2. the remainder of the approximately 10,500 financial firms will join the framework and be required to report IDR data to ASIC by 31 August 2023.

The IDR data reporting handbook (which outlines the requirements for firms to report IDR data under the framework) is available on ASIC’s website. The IDR data reporting framework is given effect under ASIC Corporations (Internal Dispute Resolution Data Reporting) Instrument 2022/205, which was registered on 30 March.

ASIC states that it will begin publishing IDR data once all financial firms have commenced reporting after 31 August 2023, and that it will consult on its approach to publishing IDR data.

Exemption from central clearing requirements for AUD forward rate agreements extended

On 30 March, the ASIC Corporations (Amendment) Instrument 2022/206 was registered. According to the Explanatory Statement, the purpose of the instrument is to delay the commencement of the central clearing requirements in Rule 2.1.1 of the ASIC Derivative Transaction Rules (Clearing) 2015 (Rules) in relation to Australian dollar-denominated forward rate agreements (AUD FRAs) until 2 April 2024.

The Explanatory Statement further explains that ASIC intends to undertake a further consultation to remove AUD FRAs from the scope of the Rules, and that ASIC considers would be appropriate to extend the current exemption for a further 24 months to provide certainty to stakeholders and to allow ASIC to undertake such further consultation.

ASIC remakes relief on describing debentures

On 28 March, ASIC announced that it has remade the relief under ASIC Class Order [CO 12/1482] When debentures can be called secured notes, which was due to sunset on 1 April 2022. ASIC explained that the decision follows public consultation conducted last year (for more information, see our earlier Issue 55).

The relief was remade under the new instrument, ASIC Corporations (Describing Debentures-Secured Notes) Instrument 2022/61, which was registered on 28 March. According to the Explanatory Statement, without relief, the Corporations Act would require debentures that are secured by intangible property, such as loans receivable, to be referred to as ‘unsecured notes’.

Funds

CCIV rules and regulations registered

On 31 March, the Corporations and Other Legislation Amendment (Corporate Collective Investment Vehicle Framework) Regulations 2022 (Cth) were registered.

According to the Explanatory Statement, the purpose of the regulations is to make amendments to support the operation of the Corporate Collective Investment Vehicle Framework and Other Measures Act 2022 (Cth). We have previously written about ASIC’s consultation on CCIV licensing guidance earlier in Issue 64.

Among other matters, the regulations provide for:

1. a prohibition on circular cross-investment between sub-funds of a CCIV;
2. minimum standards and other requirements for the custody of a CCIV’s assets;
3. facilitation of a short form Product Disclosure Statement for simple sub-fund products; and
4. ensuring the security interests are appropriately registered on the Personal Property Securities Register for the CCIV regime.

On that day, the Corporations and other Legislation Amendment (Corporate Collective Investment Vehicle Framework) Rules 2022 were also registered. According to the Explanatory Statement, the purpose of these rules is to amend the Corporations (Passport) Rules 2018 to ensure they apply appropriately to a passport fund that is a sub‑fund of a retail CCIV.

ASIC announces surveillance project into managed fund marketing

On 23 March, ASIC announced that it has commenced a surveillance into the marketing of managed funds, to identify the use of misleading performance and risk representations in promotional material.

ASIC states that it is scrutinising traditional and digital media marketing of funds, including search engine advertising, targeting retail investors and potentially unsophisticated wholesale investors, such as some retirees.

Superannuation

Technical amendment made to superannuation commutation rules

On 4 April, the Treasury Laws Amendment (Allowing Commutation of Certain Income Streams) Regulations 2022 (Cth) was registered. According to the Explanatory Statement, the purpose of the regulations is to make minor and technical amendments in the Treasury portfolio to laws relating to superannuation.

The Explanatory Statement states that the regulations add exceptions to the commutation rules in the Superannuation Industry (Supervision) Regulations 1994 (Cth) and the Retirement Savings Account Regulations 1997 (Cth), addressing unintended outcomes arising from the inability of recipients of certain non-capped defined benefit income streams (that were commenced on or after 1 July 2017) to address excess transfer balance amounts.

Temporary reduction in minimum payment amounts for pensions extended

On 1 April, the Superannuation Legislation Amendment (Superannuation Drawdown) Regulations 2022 (Cth) were registered. According to the Explanatory Statement, the purpose of the regulations is to amend the Superannuation Industry (Supervision) Regulations 1994 (Cth) and the Retirement Savings Account Regulations 1997 (Cth) to give effect to the Government’s Budget 2022-23 measure to extend the temporary reduction in minimum payment amounts for account based pensions, allocated pensions and market linked pensions (and for the equivalent annuity products) by half for the 2022-23 financial year.

Government announces family law proceedings may access superannuation information

On 1 April, the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, and the Attorney-General, Michaelia Cash, jointly announced that parties to family law property proceedings can now apply to family law court registries to request their former partner’s superannuation information, held by the ATO.

ASIC extends relief for providers of retirement estimates

On 31 March, ASIC announced that it has extended the conditional relief for superannuation trustees who give their members retirement estimates on a periodic statement for a period of nine months, allowing superannuation trustees to continue to use the relief when sending annual statements to members for the 2021-22 financial year.

The relief is extended under ASIC Corporations (Repeal and Transitional – Relief for Providers of Retirement Estimates) Instrument 2022/204, which was registered on 28 March.

ASIC states that it intends to make a new legislative instrument for both superannuation calculators and retirement estimates before the end of June 2022, including a transitional period.

APRA publishes technical paper on sustainability of member outcome metrics

On 29 March, APRA published a technical paper illustrating APRA’s detailed insights on the sustainability of member outcome metrics in the 2021 MySuper and Choice Heatmaps. The technical paper is available on APRA’s website.

According to APRA, the findings indicate that smaller superannuation funds are more likely to struggle to deliver quality, value-for-money member outcomes into the future.

Government announces updates to non-arms’ length expense provisions

On 22 March, the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, announced that the Government and Treasury will consult with relevant industry stakeholders on the appropriate operation of the non-arm’s length income and expense provisions, particularly for APRA‑regulated superannuation funds.

The Minister explained that the Government understands some industry stakeholders have concerns regarding the interpretation of these provisions by the Australian Tax Office in a recent Law Companion Ruling and the implications of this ruling for both APRA-regulated funds and SMSFs.

The Minister further stated that the Government will ensure the legislative changes apply from 1 July.

Insurance

APRA consults on updates to additional insurance reporting standards impacted by AASB 17

On 6 April, APRA released for consultation additional draft life and general insurance reporting standards impacted by the introduction of the Australian Accounting Standards Board 17 Insurance Contracts (AASB 17), and further revisions to the private health insurer reporting standards.

View APRA’s consultation letter and draft standards.

Written submissions are requested by 3 June.

Cyclone reinsurance pool legislation passed

On 30 March, the Assistant Treasurer, Michael Sukkar, announced that it has passed the Treasury Laws Amendment (Cyclone and Flood Damage Reinsurance Pool) Bill 2022, which establishes a cyclone and related flood damage reinsurance pool to improve insurance affordability in cyclone-prone areas. The Act received Royal Asset on 31 March.

According to the Explanatory Memorandum, the Bill extend the operation of the terrorism reinsurance scheme to also include the cyclone reinsurance scheme. Insurers are expected to enter into reinsurance agreements with the Australian Reinsurance Pool Corporation (ARPC) that take effect from 1 July. Large insurers have until 31 December 2023 to join the scheme, at which point they must have obtained reinsurance for all their eligible cyclone risks with the ARPC. Small insurers must reinsure all their eligible cyclone risks with the ARPC by 31 December 2024.

On 4 April, the Terrorism Insurance Amendment (Cyclone and Related Flood Damage Reinsurance Pool) Regulations 2022 (Cth) were registered. According to the Explanatory Statement, the purpose of the regulations is to make amendments to the Terrorism Insurance Regulations 2003 (Cth) (renamed the Terrorism and Cyclone Insurance Regulations 2003 (Cth)) to accommodate the new cyclone reinsurance scheme established by the Act.

APRA announces two-year suspension of policy contract term measure for IDII

On 24 March, APRA announced that it has sent a letter to life insurers and friendly societies announcing its decision to suspend the implementation of the policy contract term measure for individual disability income insurance (IDII). APRA states that it will suspend the IDII policy contract term measure for at least two years, at which time it will reassess its position.

In the letter, APRA states that, while the IDII policy contract term measure is suspended, APRA expects life companies to demonstrably strengthen customer engagement, which has been shown by the recent industry submissions to be an area of weakness. APRA also set out a list of expectations for life companies during the period of suspension.

APRA publishes IOPS guidance on future retirement benefits

On 23 March, APRA announced that it has published an announcement by the International Organisation of Pension Supervisors (IOPS) outlining good industry practices when forecasting and communicating future retirement benefits. IOPS’ announcement is available on APRA’s website.

Financial product advice

ASIC instrument registered to address unintended prohibition for certain existing providers

On 1 April, the ASIC Corporations (Existing Providers) Instrument 2022/241 was registered.

According to the Explanatory Statement, the purpose of the instrument is to put in place interim measures to address an unintended prohibition on AFS licensees authorising certain ‘existing providers’ to provide personal advice to retail clients in relation to relevant financial products.

The unintended prohibition applied to existing providers who:

1. have not passed the financial adviser exam by 1 January 2022 (or 1 October 2022 in certain cases) (Exam Cut-Off Day);
2. were not authorised to provide Personal Advice on the relevant Exam Cut-Off Day (ie either 1 January 2022 or 1 October 2022); and
3. have not obtained an approved degree, qualification or approved course.

ASIC licensing relief for Commonwealth financial capability service providers extended

On 30 March, the ASIC Corporations (Commonwealth Financial Counselling-Financial Capability Services) Instrument 2022/221 was registered.

According to the Explanatory Statement, the purpose of the instrument is to provide relief for financial capability service providers from the requirement to hold an AFSL when providing financial product advice, limited to advice about basic deposit products, in certain circumstances. Financial capability services are financial literacy and capacity building services provided predominantly to improve the financial knowledge and skills of consumers, and are funded in whole or in part by the Commonwealth through the Department of Social Services.

The instrument remakes relief under ASIC Class Order [CO 11/927], which sunsets on 1 April.

Government release Quality of Advice Review issues paper

On 25 March, the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, announced that the release of the Quality of Advice Review issues paper seeking feedback on how the regulatory framework can better enable the provision of high quality, accessible and affordable financial advice for retail investors.

The issues paper is available on the Treasury’s website. For information in relation to the review’s terms of reference, see our earlier Issue 64.

Consultation closes on 3 June.

Senate disallows proxy advice regulations

On 10 February, the Treasury Laws Amendment (Greater Transparency of Proxy Advice) Regulations 2021 (Cth) was disallowed. According to the Explanatory Statement to the disallowed regulations, the purpose of the regulations was to strengthen the transparency and oversight of proxy advice by:

1. specifying circumstances in which voting advice is proxy advice (a kind of financial service); and
2. specifying obligations for AFS licensees who provide proxy advice to provide any proxy advice to the entity that is the subject of the proxy advice on the same day it is provided to the client be independent of their clients; and
3. expanding the range of information that registrable superannuation entity (RSE) licensees must make publicly available on their website to include a summary of how voting rights attaching to shares in listed companies that the trustee of the RSE holds, or in which the trustee holds beneficial interests, have been exercised.

We have written about the disallowance of the instrument.

For more information about Treasury’s consultation on the proxy advice regulatory regime in early 2021, see our earlier Issue 54, and for more information about the Government’s announcement of the reforms in December 2021, see our earlier Issue 61.

Financial markets

ASX updates industry on CHESS replacement project

On 4 April, the ASX announced that it has published a CHESS replacement project update, noting that there is a strong likelihood of delay to the go-live date. The update is available from the ASX.

Anti-money laundering

New designations of persons under autonomous sanctions registered

On 29 March, the Autonomous Sanctions (Designated Persons and Entities and Declared Persons-Thematic Sanctions) Instrument 2022 was registered.

According to the Explanatory Statement, the purpose of the instrument is to designate 39 persons for targeted financial sanctions and declares the persons for travel bans, as persons who have been engaged in, been responsible for, or been complicit in, serious corruption in relation to the corruption uncovered by Sergei Magnitsky, or related to the mistreatment and death of Sergei Magnitsky in Russia in 2009.

According to AUSTRAC, reporting entities should be aware of sanctions so the entity can decide whether to make a suspicious matter report or a suspicious transaction report.

AUSTRAC announces new updates by FATF

On 28 March, AUSTRAC announced that the Financial Action Task Force (FATF) has published two recent updates relating to international money laundering/terrorism financing risk. The updates are:

1. High-Risk Jurisdictions subject to a Call for Action – March 2022 – which notes that the 21 February 2020 call for action in relation to the Democratic People’s Republic of Korea and Iran remains in effect; and
2. Jurisdictions under Increased Monitoring – March 2022 – which lists jurisdictions that have strategic deficiencies in their AML/CTF regimes and are actively working with the FATF to address them.

Banking

APRA publishes new FAQs for banks on associations with related entities

On 1 April, APRA announced that it has released a new set of frequently asked questions (FAQs) for ADIs on APRA Prudential Standard 222 Associations with Related Entities. Read the FAQs.

Government announces deferral of CDR joint account timeline for non-major banks

On 1 April, the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, announced that non‑major banks will be given an additional three months to implement joint account data sharing under the Consumer Data Right (CDR). The new commencement date is now 1 October (originally 1 July).

On that day, the Competition and Consumer Amendment (Consumer Data Right Measures No. 1) Regulations 2022 (Cth) (Amendment Regulations) was registered to give effect to the deferral.

According to the Explanatory Statement to the Amendment Regulations, the new commencement date gives non-major ADIs sufficient time to build the information technology infrastructure required to comply with obligations, and amends the timetable for the roll-out of CDR obligations only in relation to joint accounts.

‘Project Dunbar’ findings on use of multi CBDCs published

On 22 March, the RBA published a media release stating that the Bank for International Settlements Innovation Hub, the RBA, Bank Negara Malaysia, the Monetary Authority of Singapore, and the South African Reserve Bank have announced the completion of prototypes for a common platform enabling international settlements using multiple central bank digital currencies (mCBDCs) known as ‘Project Dunbar’.

According to the media release, Project Dunbar proved that financial institutions could use CBDCs issued by participating central banks to transact directly with each other on a shared platform, which has the potential to reduce reliance on intermediaries and, correspondingly, the costs and time taken to process cross-border transactions. The findings of Project Dunbar are published in a report.

The RBA stated that the findings from Project Dunbar provide a good platform for future work in this

Other financial services regulation

APRA consults on aligned definition of ‘significant financial institution’

On 4 April, APRA announced the commencement of a consultation on minor amendments to align and centralise the definition of a significant financial institution (SFI) within the prudential framework for all APRA-regulated entities.

As explained in APRA’s letter, SFIs are entities with assets above a certain size or entities determined as such by APRA, taking into account matters such as complexity and group membership. APRA published the proposed aligned definition of SFIs in its letter, as well as draft prudential standards to reflect the proposed approach (which are available on APRA’s website).

Consultation closes on 2 May.

Treasury consults on the takeovers laws and the role of the Takeovers Panel

On 1 April, Treasury issued a consultation paper, Corporate control transactions in Australia: Consultation on options to improve schemes of arrangement, takeover bids, and the role of the Takeovers Panel, in which it consults on:

1. the operation of takeovers and schemes generally, and whether they are meeting the broader policy objectives in respect of control transactions in Australian law;
2. the role of the Takeovers Panel and ASIC in regulating takeovers generally; and
3. the role of the Court, the Takeovers Panel, and ASIC in regulating schemes generally.

The consultation is in response to a Government announcement on 30 April, with a further media release from the Treasurer.

Consultation closes on 3 June.

FIRB announces legislative updates to foreign investment review framework

On 1 April, the Foreign Investment Review Board (FIRB) announced that:

1. the Foreign Acquisitions and Takeovers Amendment Regulations 2022 (Cth) commenced on 1 April 2022. These regulations make amendments to support the improved administration of Australia’s foreign investment review framework by clarifying certain aspects and streamlining the processing of less sensitive types of investment; and
2. the Security Legislation Amendment (Critical Infrastructure Protection) Bill 2022 has been passed by Parliament, and is anticipated to be registered shortly. The bill amends some of the critical infrastructure asset definitions under the Security of Critical Infrastructure Act 2018 (Cth), with flow-on implications for notification requirements under the Foreign Acquisitions and Takeovers Act 1975 (Cth).

FIRB also stated that the relevant Guidance Notes will shortly be updated to reflect the changes.

APRA announces five-year data collection roadmap for APRA-regulated entities

On 31 March, APRA announced that it has published a discussion paper setting out a five-year roadmap for transforming its approach to collecting financial industry data from APRA-regulated entities. According to the paper, the first two years of each roadmap is well-defined, while the data collections foreshadowed for 2024 onwards still require further development.

Consultation closes on 24 June.

IOSCO publishes report on decentralised finance

On 24 March, the International Organisation of Securities Commissions (IOSCO) published a report on ‘Decentralised Finance’ (DeFi), the purpose of the report is to provide a general understanding of DeFi, including some areas of potential regulatory concern.

We have written about the DeFi report.

ACCC consults on draft determination to re-authorise NPP regulations

On 24 March, the ACCC published a letter stating that it has issued a draft determination in respect of the application for re-authorisation lodged by NPP Australia Limited (NPPA) on 14 January. As explained by the ACCC, re-authorisation is sought to give the NPPA legal protection from competition laws to continue to give effect to the New Payments Platform (NPP) regulations in respect of the suspension and termination provisions.

The ACCC states that it is proposing to grant re-authorisation for five years. The draft determination and consultation letters are set out on the ACCC’s website.

Consultation on the draft determination closes on 8 April.

IOSCO publishes consultation report on retail market conduct

On 21 March, IOSCO published a consultation report on retail market conduct. The Retail Market Conduct Task Force report states that it considered trends and developments in retail trading behaviours, such as:

1. the prevalence of social media platforms to promote scams;
2. various apps and online trading platforms using ‘gamification’ techniques to attract retail investors and influence their trading behaviour and decisions; and
3. the rise of digital trading platforms and social media influence bringing along high-risk and gambling-type investment opportunities.

In commenting on the release of the report, ASIC stated regulators around the world have observed common types of harmful behaviour include mis-selling, mis-labelling and misleading disclosure in connection with digitally-enabled investment opportunities.

Consultation closes on 23 May.